Oppenheimer New Jersey Municipal Fund
Prospectus dated November 27, 2000
Oppenheimer New Jersey Municipal Fund is a
mutual fund. It seeks current income exempt
from federal and New Jersey personal income
taxes by investing mainly in municipal
securities, while attempting to preserve
capital.
This Prospectus contains important
information about the Fund's objective, its
investment policies, strategies and risks.
It also contains important information about
how to buy and sell shares of the Fund and
other account
As with all mutual funds, the features. Please read this
Securities and Exchange Prospectus carefully before you
Commission has not approved or invest and keep it for future
disapproved the Fund's reference about your account.
securities nor has it
determined that this
Prospectus is accurate or
complete. It is a criminal
offense to represent otherwise.
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[OppenheimerFunds logo]
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Contents
About The Fund
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The Fund's Investment Objective and Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
About Your Account
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How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Internet Web Site
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
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<PAGE>
About the Fund
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The Fund's Investment Objective and Strategies
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What Is the Fund's Investment 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.
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What Does the Fund Invest In? The Fund invests mainly in New Jersey
municipal securities that pay interest from federal and New Jersey individual
income taxes. These securities primarily include municipal bonds (which are debt
obligations having a maturity of more than one (1) year when issued), municipal
notes (short-term obligations), and interests in municipal leases. Most of the
securities the Fund buys must be "investment grade" (securities rated in the
four (4) highest rating categories of national rating organizations, such as
Moody's Investors Services ("Moody's")).
Under normal market conditions, the Fund:
|_| attempts to invest 100% of its assets in municipal securities, |_| as
a fundamental policy, invests at least 80% of its assets in municipal
securities, and |_| invests at least 80% of its total assets in New Jersey
municipal
securities.
The Fund does not limit its investments to securities of a particular
maturity range, and may hold both short- and long-term securities. However, it
currently focuses on longer-term securities to seek higher yields. These
investments are more fully explained in "About the Fund's Investments," below.
|X| How Do the Portfolio Managers Decide What Securities to Buy or
Sell? In selecting securities for the Fund, the portfolio managers look
primarily throughout New Jersey for municipal securities using a variety of
factors that may change over time and may vary in particular cases. The
portfolio managers currently look for:
|_| Securities that provide high current income |_| A wide range of
securities of different issuers within the state,
including different agencies and municipalities, to spread risk |_|
Securities having favorable credit characteristics |_| Special situations that
provide opportunities for value
Who Is the Fund Designed For? The Fund is designed for individual investors
who are seeking income exempt from federal personal income taxes and New Jersey
personal income taxes. The Fund does not seek capital gains or growth. Because
it invests in tax-exempt securities, the Fund is not appropriate for retirement
plan accounts or for investors seeking capital growth. The Fund is not a
complete investment program.
Main Risks of Investing in the Fund
All investments have risks to some degree. The Fund's investments are
subject to changes in their value from a number of factors, described below.
There is also the risk that poor security selection by the Fund's investment
Manager, OppenheimerFunds, Inc., will cause the Fund to underperform other funds
having a similar objective.
These risks collectively form the risk profile of the Fund and can affect
the value of the Fund's investments, its investment performance, and the prices
of its shares. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them. There is no assurance that the Fund will achieve its objective.
|X| Credit Risk. Municipal securities are subject to credit risk. Credit
risk is the risk that the issuer of a municipal security might not make interest
and principal payments on the security as they become due. If the issuer fails
to pay interest, the Fund's income may be reduced and if the issuer fails to
repay principal, the value of that security and of the Fund's shares may be
reduced. Because the Fund can invest as much as 25% of its assets in municipal
securities below investment grade to seek higher income, the Fund's credit risks
are greater than those of funds that buy only investment-grade bonds. A
downgrade in an issuer's credit rating or other adverse news about an issuer can
reduce the market value of that issuer's securities.
|X| Interest Rate Risks. Municipal securities are debt securities that are
subject to changes in value when prevailing interest rates change. When interest
rates fall, the values of already-issued municipal securities generally rise.
When prevailing interest rates rise, the values of already-issued municipal
securities generally fall, and the securities may sell at a discount from their
face amount. The magnitude of these price changes is generally greater for bonds
with longer maturities. The Fund currently focuses on longer-term securities to
seek higher income. Callable bonds the Fund buys are more likely to be called
when interest rates fall, and the Fund might then have to reinvest the proceeds
of the called instrument in other securities that have lower yields.
|X| Risks of Non-Diversification. The Fund is "non-diversified." That
means that compared to funds that are diversified, it can invest a greater
portion of its assets in the securities of one issuer, such as bonds issued by
the State of New Jersey. Having a higher percentage of its assets invested in
the securities of fewer issuers, particularly government issuers of one state,
could result in greater fluctuations of the Fund's share prices due to economic,
regulatory or political problems in New Jersey.
|X| Risks of Derivative Investments. The Fund can use derivatives to seek
increased returns or to try to hedge investment risks. In general terms, a
derivative investment is an investment contract whose value depends on (or is
derived from) the value of an underlying asset, interest rate or index. Options,
futures, "inverse floaters" and variable rate obligations are examples of
derivatives the Fund can use.
If the issuer of the derivative investment does not pay the amount due,
the Fund can lose money on its investment. Also, the underlying security or
investment on which the derivative is based, and the derivative itself, may not
perform the way the Manager expected it to perform. If that happens, the Fund
will get less income than expected, its hedge might be unsuccessful, and its
share price could decline. To try to preserve capital, the Fund has limits on
the amount of particular types of derivatives it can hold. However, using
derivatives can increase the volatility of the Fund's share prices. Some
derivatives may be illiquid, making it difficult for the Fund to sell them
quickly at an acceptable price.
How Risky Is the Fund Overall? The value of the Fund's investments will change
over time due to a number of factors. They include changes in general bond
market movements, the change in value of particular bonds because of an event
affecting the issuer, or changes in interest rates that can affect bond prices
overall. The Fund focuses its investments in New Jersey municipal securities and
is non-diversified. It will therefore be vulnerable to the effects of economic
changes that affect New Jersey governmental issuers. These changes can affect
the value of the Fund's investments and its prices per share. In the
OppenheimerFunds spectrum, the Fund is more conservative than some types of
taxable bond funds, such as high yield bond funds, but has greater risks than
money market funds.
An investment in the Fund is not a deposit of any bank, and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in the
Fund, by showing changes in the Fund's performance (for its Class A shares) from
year to year for the full calendar years since the Fund's inception (3/1/94) and
by showing how the average annual total returns of the Fund's shares compare to
those of a broad-based market index. The Fund's past investment performance is
not necessarily an indication of how the Fund will perform in the future.
[See bar chart in Appendix]
For the period from 1/1/00 through 9/30/00, the cumulative return (not
annualized) for Class A shares was 5.10%. Sales charges are not included in the
calculations of return in this bar chart, and if those charges were included,
the returns would be less than those shown. During the period shown in the bar
chart, the highest return (not annualized) for a calendar quarter was 6.81%
(1Q'95) and the lowest return (not annualized) for a calendar quarter was -3.15%
(3Q'99).
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Average Annual
Total Returns for 5 Years
the periods 1 Year (or Life of Life of Class
ending December Class if less)
31, 1999
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Class A Shares
(Inception -12.38% 4.26% 2.80%
3/1/94)
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------------------- ----------------------------------
Lehman Brothers
Municipal Bond -2.06% 6.91% 5.20%
Index
(from 2/28/94)
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(Class B Shares
(Inception -12.91% 4.19% 2.75%
3/1/94)
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Class C Shares
(Inception -9.41% 3.10% N/A
8/29/95)
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The Fund's average annual total returns include the applicable sales charge: for
Class A, the current maximum initial sales charge of 4.75%; for Class B, the
applicable contingent deferred sales charges of 5% (1-year) and 2% (5-year); for
Class C, the 1% contingent deferred sales charge for the one (1)-year period.
The returns measure the performance of a hypothetical account and assume that
all dividends and capital gains distributions have been reinvested in additional
shares. The Fund's performance is compared to the Lehman Brothers Municipal Bond
Index, an unmanaged index of a broad range of investment grade municipal bonds.
The index ncludes municipal securities from many states while the Fund focuses
on New Jersey municipal securities, and the index performance does not consider
the effects of capital gains or transaction costs.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset values
per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are provided to help you understand
the fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during its fiscal year ended July
31, 2000.
Shareholder Fees (charges paid directly from your investment):
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Class A Class B Class C
Shares Shares Shares
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Maximum Sales Charge (Load)
on purchases (as a % of 4.75% None None
offering price)
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Maximum Deferred Sales
Charge (Load) (as % of the None1 5%2 1%3
lower of the original
offering price or
redemption proceeds)
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1. A 1% contingent deferred sales charge may apply to redemptions of investments
of $1 million or more of Class A shares. See "How to Buy Shares" for details. 2.
Applies to redemptions in first year after purchase. The contingent
deferred sales charge declines to 1% in the sixth (6th) year and is
eliminated after that.
3. Applies to shares redeemed within twelve (12) months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
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Class A Class B Class C
Shares Shares Shares
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Management Fees* 0.60% 0.60% 0.60%
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Distribution and/or Service
(12b-1) Fees 0.14% 0.90% 0.90%
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Other Expenses 0.35% 0.35% 0.35%
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Total Annual Operating Expenses 1.09% 1.85% 1.85%
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* The management fee expenses in the table are based on the fees the Fund would
have paid if the Manager had not waived a portion of its fee under a voluntary
undertaking to the Fund. After the Manager's waiver, the actual management fee
as a percentage of average daily net assets was 0.30% for each class of shares.
The Manager can withdraw that voluntary waiver at any time. The service fee
payable under the 12b-1 plans for each class of shares is a maximum of 0.25%
(currently set by the Board at 0.15% of average annual net assets of the class).
Expenses may vary in future years. "Other Expenses" include transfer agent fees,
custodial fees, and accounting and legal expenses the Fund pays.
Examples. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for the
time periods indicated, and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes you keep your shares. Both examples
also assume that your investment has a 5% return each year and that the class's
operating expenses remain the same. Your actual costs may be higher or lower
because expenses will vary over time. Based on these assumptions your expenses
would be as follows:
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If shares are 1 year 3 years 5 years 10 years1
redeemed:
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Class A Shares $581 $805 $1,047 $1,741
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Class B Shares $688 $882 $1,201 $1,788
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Class C Shares $288 $582 $1,001 $2,169
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If shares are not 1 year 3 years 5 years 10 years1
redeemed:
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Class A Shares $581 $805 $1,047 $1,741
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Class B Shares $188 $582 $1,001 $1,788
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Class C Shares $188 $582 $1,001 $2,169
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In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include contingent deferred sales charges.
1. Class B expense for years 7 through 10 are based on Class A expenses, since
Class B shares automatically convert to Class A after six (6) years.
About the Fund's Investments
The Fund's Principal Investment Policies. The allocation of the Fund's portfolio
among different types of investments will vary over time based on the Manager's
evaluation of economic and market trends. The Fund's portfolio might not always
include all of the different types of investments described below.
The Manager tries to reduce risks by selecting a wide variety of municipal
investments and by carefully researching securities before they are purchased.
However, changes in the overall market prices of municipal securities and the
income they pay can occur at any time. The yield and share prices of the Fund
will change daily based on changes in market prices of securities, interest
rates and market conditions and in response to other economic events. The
Statement of Additional Information contains more detailed information about the
Fund's investment policies and risks.
What is A Municipal Security? A municipal security is essentially a loan by the
buyer to the issuer of the security. The issuer promises to pay back the
principal amount of the loan and normally pay interest excludable from gross
income for federal personal income taxes.
|X| Municipal Securities. The Fund buys municipal bonds and notes,
certificates of participation in municipal leases and other debt obligations.
New Jersey municipal securities are municipal securities that are not subject to
New Jersey personal income tax in the opinion of bond counsel to the issuer at
the time the security is issued. They include obligations issued by the State of
New Jersey and its political subdivisions (such as cities, towns, school
districts, counties, agencies and authorities). They also may include debt
obligations of the governments of certain possessions, territories and
commonwealths of the United States if the interest is not subject to New Jersey
personal income tax.
The Fund can also buy other municipal securities issued by the governments
of the District of Columbia and of other states, as well as their political
subdivisions, authorities and agencies, and securities issued by any
commonwealths, territories or possessions of the United States, or their
respective agencies, instrumentalities or authorities, if the interest paid on
the security is not subject to federal personal income tax (in the opinion of
bond counsel to the issuer at the time the security is issued).
Municipal securities are issued to raise money for a variety of public or
private purposes, including financing state or local governments, financing
specific projects or public facilities. The Fund can buy both long-term and
short-term municipal securities. Long-term securities have a maturity of more
than one (1) year. The Fund generally focuses on longer-term securities, to seek
higher income.
The Fund can buy municipal securities that are "general obligations,"
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. The Fund can also buy "revenue
obligations," whose interest is payable only from the revenues derived from a
particular facility or class of facilities, or a specific excise tax or other
revenue source. Some of these revenue obligations are private activity bonds
that pay interest that may be a tax preference for investors subject to
alternative minimum tax.
The Fund can also buy "municipal lease obligations" secured by the
obligation of the lessee to make rental payments.
|X| Municipal Lease Obligations. Municipal leases are used by state and
local governments to obtain funds to acquire land, equipment or facilities. The
Fund can invest in certificates of participation that represent a proportionate
interest in payments made under municipal lease obligations. Most municipal
leases, while secured by the leased property, are not general obligations of the
issuing municipality. They often contain "non-appropriation" clauses under which
the municipal government has no obligation to make lease or installment payments
in future years unless money is appropriated on a yearly basis. If the
government stops making payments or transfers its payment obligations to a
private entity, the obligation could lose value or become taxable. Some lease
obligations might not have an active trading market, making it difficult for the
Fund to sell them quickly at an acceptable price.
|X| Ratings of Municipal Securities the Fund Buys. Most of the municipal
securities the Fund buys are "investment grade" at the time of purchase. The
Fund does not invest more than 25% of its total assets in municipal securities
that at the time of purchase are not "investment-grade." "Investment grade"
securities are those rated within the four highest rating categories of Moody's,
Standard & Poor's Rating Services or Fitch, Inc. or other nationally recognized
rating organization, or (if unrated) judged by the Manager to be comparable to
securities rated as investment grade. Rating definitions of rating organizations
are described in the Statement of Additional Information. If a security the Fund
buys is not rated, the Manager will use its judgment to assign a rating that it
believes is comparable to that of a rating organization.
The Manager relies to some extent on credit ratings by nationally
recognized rating organizations in evaluating the credit risk of securities
selected for the Fund's portfolio. It also uses its own research and analysis to
evaluate risks. Many factors affect an issuer's ability to make timely payments,
and the credit risks of a particular security may change over time. If the
rating of a security is reduced after the Fund buys it, the Fund is not required
automatically to dispose of that security. However, the Manager will evaluate
those securities to determine whether to keep them in the Fund's portfolio.
Special Credit Risks of Lower-Grade Securities. Municipal securities below
investment-grade (sometimes called "junk bonds") usually offer higher yields
than investment grade securities but are subject to greater price fluctuations
and risks of loss of income and principal than investment-grade municipal
securities. Securities that are (or that have fallen) below investment grade
have a greater risk that the issuers may not meet their debt obligations. They
may also be less liquid than investment-grade securities making it harder for
the Fund to sell them at an acceptable price.
Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental policies without shareholder approval,
although significant changes will be described in amendments to this Prospectus.
Fundamental policies cannot be changed without the approval of a majority of the
Fund's outstanding voting shares. The Fund's investment objective is a
fundamental policy. Other investment restrictions that are fundamental policies
are listed in the Statement of Additional Information. An investment policy or
technique is not fundamental unless this Prospectus or the Statement of
Additional Information says that it is.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve risks, although some are designed to help reduce
overall investment or market risk.
|X| Floating Rate/Variable Rate Obligations. Some municipal securities
have variable or floating interest rates. Variable rates are adjustable at
stated periodic intervals. Floating rates are automatically adjusted according
to a specified market rate for such investments, such as the percentage of the
prime rate of a bank, or the ninety one (91) day U.S.
Treasury Bill rate.
|X| Inverse Floaters Have Special Risks. Variable rate bonds known as
"inverse floaters" pay interest at rates that move in the opposite direction of
yields on short-term bonds in response to market changes. As interest rates
rise, inverse floaters produce less current income, and their market value can
become volatile. Inverse floaters are a type of "derivative security." Some have
a "cap," so that if interest rates rise above the "cap," the security pays
additional interest income. If rates do not rise above the "cap," the Fund will
have paid an additional amount for a feature that proves worthless. The Fund
will not invest more than 20% of its total assets in inverse floaters.
|X| Other Derivatives. The Fund can invest in other derivative securities
that pay interest that depends on the change in value of an underlying asset,
interest rate or index. Examples are interest rate swaps, municipal bond indices
or swap indices.
|X| "When-Issued" and "Delayed Delivery" Transactions. The Fund can
purchase municipal securities on a "when-issued" basis and can purchase or sell
such securities on a "delayed delivery" basis. Between the purchase and
settlement, no payment is made for the security and no interest accrues to the
buyer from the investment. There is a risk of loss to the Fund if the value of
the when-issued security declines prior to the settlement date.
|X| Puts and Stand-By Commitments. The Fund can acquire "stand-by
commitments" or "puts" with respect to municipal securities. These investments
give the Fund the right to sell the securities at a set price on demand to the
issuing broker-dealer or bank. However, a security having this feature may have
a lower interest rate. The Fund will acquire stand-by commitments or puts solely
to enhance portfolio liquidity.
|X| Illiquid and Restricted Securities. 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. Restricted securities
may have terms that limit their resale to other investors or may require
registration under federal securities laws before they can be sold publicly. The
Fund will not invest more than 15% of its net assets in illiquid securities and
cannot invest more than 10% of its net assets in restricted securities. Certain
restricted securities that are eligible for resale to qualified institutional
purchasers may not be subject to that limit. The Manager monitors holdings of
illiquid securities on an ongoing basis to determine whether to sell any
holdings to maintain adequate liquidity.
|X| Borrowing for Investment Leverage. The Fund can borrow money to
purchase additional securities, a technique referred to as "leverage." As a
fundamental policy, the Fund's borrowings for investment purposes must be from
banks and are limited to not more than 5% of the Fund's total assets. The
interest on borrowed money is an expense that might reduce the Fund's yield.
|X| Hedging. The Fund can purchase and sell futures contracts, put and
call options, and enter into interest rate swap agreements. These are all
referred to as "hedging instruments." The Fund does not use hedging instruments
for speculative purposes, and has limits on its use of them. The Fund does not
use hedging instruments to a substantial degree and is not required to use them
in seeking its goal.
Hedging involves risks. If the Manager used a hedging instrument at the
wrong time or judged market conditions incorrectly, the hedge might be
unsuccessful and the strategy could reduce the Fund's return. The Fund could
also experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option.
Interest rate swaps are subject to credit risks and interest rate risks.
The Fund could be obligated to pay more under its swap agreements than it
receives under them, as a result of interest rate changes. The Fund cannot enter
into swaps with respect to more than 25% of its total assets.
Temporary Defensive Investments. The Fund can invest up to 100% of its total
assets in temporary defensive investments during periods of volatile or adverse
market conditions. Generally, the Fund's defensive investments will be
short-term municipal securities, but could be U.S. government securities or
highly-rated corporate debt securities. The income from some temporary defensive
investments might not be tax-exempt, and therefore when making those investments
the Fund might not achieve its objective.
Under normal market conditions, the Fund can also hold these types of
investments for cash management purposes pending the investment of proceeds from
the sale of Fund shares or portfolio securities or to meet anticipated
redemptions of Fund shares.
How the Fund is Managed
The Manager. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the policies
established by the Board of Trustees, under an investment advisory agreement
that states the Manager's responsibilities. The agreement sets the fees the Fund
pays to the Manager and describes the expenses that the Fund is responsible to
pay to conduct its business.
The Manager has operated as an investment advisor since January 1960. The
Manager (including subsidiaries) managed more than $125 billion in assets as of
October 31, 2000, including other Oppenheimer funds with more than 5 million
shareholder accounts. The Manager is located at Two World Trade Center, 34th
Floor, New York, New York 10048-0203.
|X| Portfolio Managers. The portfolio managers of the Fund are Jerry
Webman and Merrell Hora. Mr. Webman is a Senior Vice President of the
Manager and Mr. Hora is an Assistant Vice President of the Manager. Mr.
Webman and Mr. Hora are the persons principally responsible for the
day-to-day management of the Fund's portfolio, effective August 28, 2000.
Mr. Webman is also a Senior Vice President of HarbourView Asset Management
Corporation since May 1999 and an officer and portfolio manager of other
Oppenheimer funds. Prior to joining the Manager in February 1996, Mr. Webman was
an officer and portfolio manager with Prudential Mutual Funds Investment
Management Inc. (March 1986 - February 1996).
Mr. Hora is a portfolio manager of other Oppenheimer funds and was
formerly a Senior Quantitative Analyst for the Fixed Income Department's
Quantitative Analysis Team from July 1998 through August 2000. Prior to joining
the Manager, Mr. Hora was a quantitative analyst with a subsidiary of the
Cargill Financial Services Group and also held numerous positions at the
University of Minnesota from which he obtained his Ph.D in Economics.
|X| Advisory Fees. Under the investment advisory agreement, the Fund pays
the Manager an advisory fee at an annual rate that declines as the Fund's assets
grow: 0.60% of the first $200 million of average annual net assets, 0.55% of the
next $100 million, 0.50% of the next $200 million, 0.45% of the next $250
million, 0.40% of the next $250 million, and 0.35% of average annual net assets
in excess of $1 billion. As a result of the Manager's voluntary assumption of
certain Fund expenses, the Fund's management fee for its last fiscal year ended
July 31, 2000 was 0.30% of average annual net assets for each class of shares.
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About Your Account
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How to Buy Shares
How Do You Buy Shares? You can buy shares several ways, as described below. The
Fund's Distributor, OppenheimerFunds Distributor, Inc., may appoint servicing
agents to accept purchase (and redemption) orders. The Distributor, in its sole
discretion, may reject any purchase order for the
Fund's shares.
|X| Buying Shares Through Your Dealer. You can buy shares through any
dealer, broker or financial institution that has a sales agreement with the
Distributor. Your dealer will place your order with the Distributor on your
behalf.
|X| Buying Shares Through the Distributor. Complete an OppenheimerFunds New
Account Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you
don't list a dealer on the application, the Distributor will act as your agent
in buying the shares. However, we recommend that you discuss your investment
with a financial advisor before you make a purchase to be sure that the Fund is
appropriate for you.
|X| Paying by Federal Funds Wire. Shares purchased through the Distributor
may be paid for by Federal Funds wire. The minimum investment is $2,500. Before
sending a wire, call the Distributor's Wire Department at 1.800.525.7048 to
notify the Distributor of the wire and to receive further instructions.
|X| Buying Shares Through OppenheimerFunds AccountLink. With AccountLink,
shares are purchased for your account by a transfer of money from your account
through the Automated Clearing House (ACH) system. You can provide those
instructions automatically, under an Asset Builder Plan, described below, or by
telephone instructions using OppenheimerFunds PhoneLink, also described below.
Please refer to "AccountLink," below for more details.
|X| Buying Shares Through Asset Builder Plans. You may purchase shares of
the Fund (and up to four other Oppenheimer funds) automatically each month from
your account at a bank or other financial institution under an Asset Builder
Plan with AccountLink. Details are in the Asset Builder Application and the
Statement of Additional Information.
How Much Must You Invest? You can buy Fund shares with a minimum initial
investment of $1,000. You can make additional investments at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
|X| With Asset Builder Plans, Automatic Exchange Plans and military
allotment plans, you can make initial and subsequent investments for as little
as $25. You can make additional purchases of at least $25 by telephone through
AccountLink.
|X| The minimum investment requirement does not apply to reinvesting
dividends from the Fund or other Oppenheimer funds (a list of them appears in
the Statement of Additional Information, or you can ask your dealer or call the
Transfer Agent), or reinvesting distributions from unit investment trusts that
have made arrangements with the Distributor.
At What Price Are Shares Sold? Shares are sold at their offering price which is
the net asset value per share plus any initial sales charge that applies. The
offering price that applies to a purchase order is based on the next calculation
of the net asset value per share that is made after the Distributor receives the
purchase order at its offices in Denver, Colorado, or after any agent appointed
by the Distributor receives the order and sends it to the Distributor.
Net Asset Value. The Fund calculates the net asset value of each class of shares
as of the close of The New York Stock Exchange, on each day the Exchange is open
for trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some days. All references to time in this Prospectus mean "New York time".
The net asset value per share is determined by dividing the value of the
Fund's net assets attributable to a class by the number of shares of that class
that are outstanding. To determine net asset value, the Fund's Board of Trustees
has established procedures to value the Fund's securities, in general based on
market value. The Board has adopted special procedures for valuing illiquid and
restricted securities and obligations for which market values cannot be readily
obtained.
The Offering Price. To receive the offering price for a particular day, in most
cases the Distributor or its designated agent must receive your order by the
time of day The New York Stock Exchange closes that day. If your order is
received on a day when the Exchange is closed or after it has closed, the order
will receive the next offering price that is determined after your order is
received. Shares purchased for your account through AccountLink normally will be
purchased two (2) business days after the regular business day on which you
instruct the Distributor to initiate the ACH transfer to buy the shares.
Buying Through a Dealer. If you buy shares through a dealer, your dealer must
receive the order by the close of The New York Stock Exchange and transmit it to
the Distributor so that it is received before the Distributor's close of
business on a regular business day (normally 5:00 P.M.) to receive that day's
offering price. Otherwise, the order will receive the next offering price that
is determined.
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What Classes of Shares Does the Fund Offer? The Fund offers investors three
(3) different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject
to different expenses and will likely have different share prices. When you
buy shares, be sure to specify the class of shares. If you do not choose a
class, your investment will be made in Class A shares.
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|X| Class A Shares. If you buy Class A shares, you pay an initial sales
charge (on investments up to $1 million). The amount of that sales charge will
vary depending on the amount you invest. The sales charge rates are listed in
"How Can You Buy Class A Shares?" below.
|X| Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales
charge. If you sell your shares within six (6) years of buying them, you
will normally pay a contingent deferred sales charge. That contingent
deferred sales charge varies depending on how long you own your shares, as
described in "How Can You Buy Class B Shares?" below.
|X| Class C Shares. If you buy Class C shares, you pay no sales charge at
the time of purchase, but you will pay an annual asset-based sales charge. If
you sell your shares within twelve (12) months of buying them, you will normally
pay a contingent deferred sales charge of 1%, as described in "How Can You Buy
Class C Shares?" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you should
re-evaluate those factors to see if you should consider another class of shares.
The Fund's operating costs that apply to a class of shares and the effect of the
different types of sales charges on your investment will vary your investment
results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
The discussion below assumes that you will purchase only one class of shares and
not a combination of shares of different classes. Of course, these examples are
based on approximations of the effect of current sales charges and expenses
projected over time, and do not detail all of the considerations in selecting a
class of shares. You should analyze your options carefully with your financial
advisor before making that choice.
|X| How Long Do You Expect to Hold Your Investment? While future financial
needs cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of shares.
Because of the effect of class-based expenses, your choice will also depend on
how much you plan to invest. For example, the reduced sales charges available
for larger purchases of Class A shares may, over time, offset the effect of
paying an initial sales charge on your investment, compared to the effect over
time of higher class-based expenses on shares of Class B or Class C .
|X| Investing for the Shorter Term. While the Fund is meant to be a
long-term investment, if you have a relatively short-term investment horizon
(that is, you plan to hold your shares for not more than six (6) years), you
should probably consider purchasing Class A or Class C shares rather than Class
B shares. That is because of the effect of the Class B contingent deferred sales
charge if you redeem within six (6) 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 (1) year.
However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six (6) years, Class C shares
might not be as advantageous as Class A shares. That is because the annual
asset-based sales charge on Class C shares will have a greater impact on your
account over the longer term than the reduced front-end sales charge available
for larger purchases of Class A shares.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more of
Class C shares from a single investor.
|X| Investing for the Longer Term. If you are investing less than $100,000
for the longer-term, for example for retirement, and do not expect to need
access to your money for seven (7) years or more, Class B shares may be
appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail all of
the considerations in selecting a class of shares. You should analyze your
options carefully with your financial advisor before making that choice.
|X| Are There Differences in Account Features That Matter to You? Some
account features may not be available to Class B or Class C shareholders. Other
features may not be advisable (because of the effect of the contingent deferred
sales charge) for Class B or Class C shareholders. Therefore, you should
carefully review how you plan to use your investment account before deciding
which class of shares to buy. Additionally, the dividends payable to Class B and
Class C shareholders will be reduced by the additional expenses borne by those
classes that are not borne by Class A shares, such as the Class B and Class C
asset-based sales charge described below and in the Statement of Additional
Information. Share certificates 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. Also, checkwriting privileges are not
available for accounts subject to a contingent deferred sales charge.
|X| How Does It Affect Payments to My Broker? A financial advisor may
receive different compensation for selling one class of shares than for selling
another class. It is important to remember that Class B and Class C contingent
deferred sales charges and asset-based sales charges have the same purpose as
the front-end sales charge on sales of Class A shares: to compensate the
Distributor for concessions and expenses it pays to dealers and financial
institutions for selling shares. The Distributor may pay additional compensation
from its own resources to securities dealers or financial institutions based
upon the value of shares of the Fund owned by the dealer or financial
institution for its own account or for its customers.
Special Sales Charge Arrangements and Waivers. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions. To receive a waiver
or special sales charge rate, you must advise the Distributor when purchasing
shares or the Transfer Agent when redeeming shares that the special conditions
apply.
How Can You Buy Class A Shares? Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However, in some
cases, described below, purchases are not subject to an initial sales charge,
and the offering price will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. Out of the amount you invest, the Fund receives the net
asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor or allocated to
your dealer as concessions. The Distributor reserves the right to reallow the
entire concessions to dealers. The current sales charge rates and concessions
paid to dealers and brokers are as follows:
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Front-End Sales Front-End
Sales Concessions As a
Charge As a Charge As
a Percentage of
Percentage of Percentage of Net Offering
Amount of Purchase Offering Price Amount Invested Price
----------------------------------------------------------------------
Less than $50,000 4.75% 4.98% 4.00%
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$50,000 or more but 4.50% 4.71% 4.00%
less than $100,000
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----------------------------------------------------------------------
$100,000 or more but 3.50% 3.63% 3.00%
less than $250,000
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$250,000 or more but 2.50% 2.56% 2.25%
less than $500,000
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$500,000 or more but 2.00% 2.04% 1.80%
less than $1 million
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|X| 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
concessions in an amount equal to 0.50% of purchases of $1 million or more other
than by retirement accounts. That concession will be paid only on purchases that
were not previously subject to a front-end sales charge and dealer concession.
If you redeem any of those shares within an eighteen (18) month "holding
period" measured from the end of the calendar month of their purchase, a
contingent deferred sales charge (called the "Class A contingent deferred sales
charge") may be deducted from the redemption proceeds. That sales charge will be
equal to 1.0% of the lesser of (1) the aggregate net asset value of the redeemed
shares at the time of redemption (excluding shares purchased by reinvestment of
dividends or capital gain distributions) or (2) the original net asset value of
the redeemed shares. However, the Class A contingent deferred sales charge will
not exceed the aggregate amount of the concessions the Distributor paid to your
dealer on all purchases of Class A shares of all Oppenheimer funds you made that
were subject to the Class A contingent deferred sales charge.
How Can You Reduce Class A Sales Charges? You may be eligible to buy Class A
shares at reduced sales charge rates under the Fund's "Right of Accumulation" or
a Letter of Intent, as described in "Reduced Sales Charges" in the Statement of
Additional Information.
How Can You Buy Class B Shares? Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are redeemed
within six (6) years of their purchase, a contingent deferred sales charge will
be deducted from the redemption proceeds. The Class B contingent deferred sales
charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class B
shares.
The 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 for the Class B contingent deferred sales
charge holding period:
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Years Since Beginning of Contingent Deferred Sales Charge
Month in which Purchase On Redemptions in That Year
Order Was Accepted (As % of Amount Subject to Charge)
----------------------------------------------------------------------
----------------------------------------------------------------------
0-1 5.0%
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1-2 4.0%
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2-3 3.0%
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3-4 3.0%
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4-5 2.0%
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5-6 1.0%
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6 and following None
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In the table, a "year" is a twelve (12) month period. In applying the sales
charge, all purchases are considered to have been made on the first regular
business day of the month in which the purchase was made.
|X| Automatic Conversion of Class B Shares. Class B shares automatically
convert to Class A shares seventy-two (72) months after you purchase them. This
conversion feature relieves Class B shareholders of the asset-based sales charge
that applies to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value of the
two classes, and no sales load or other charge is imposed. When Class B shares
you hold 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 the Statement of Additional
Information.
How Can You Buy Class C Shares? Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are redeemed
within twelve (12) months from the end of their purchase, a contingent deferred
sales charge of 1.0% will be deducted from the redemption proceeds. The Class C
contingent deferred sales charge is paid to compensate the Distributor for its
expenses of providing distribution-related services to the Fund in connection
with the sale of Class C shares.
Distribution and Service (12b-1) Plans
|X| Service Plan for Class A Shares. The Fund has adopted a Service Plan
for Class A shares. It reimburses the Distributor for a portion of its costs
incurred for services provided to accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate of up to 0.15% of the average
annual net assets of Class A shares of the Fund. The Distributor currently uses
all of those fees to compensate dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares.
|X| Distribution and Service Plans for Class B and Class C Shares. The
Fund has adopted Distribution and Service Plans for Class B and Class C shares
to compensate the Distributor for its services and costs in distributing Class B
and Class C shares and servicing accounts. Under the plans, the Fund pays the
Distributor an annual asset-based sales charge of 0.75% per year on Class B
shares and on Class C shares. The Distributor also receives a service fee of
0.15% per year under each plan.
The asset-based sales charge and service fees increase Class B and Class C
expenses by up to 0.90% of the net assets per year of the respective class.
Because these fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. The
Distributor pays the 0.15% service fees to dealers in advance for the first year
after the shares were sold by the dealer. After the shares have been held for a
year, the Distributor pays the service fees to dealers on a quarterly basis.
The Distributor currently pays a sales concession of 3.85% of the purchase
price of Class B shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class B shares is therefore
4.00% of the purchase price. The Distributor retains the Class B asset-based
sales charge.
The Distributor currently pays sales concessions 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 concession to the dealer on Class C shares that have been
outstanding for a year or more.
Special Investor Services
AccountLink. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
|X| transmit funds electronically to purchase shares by telephone (through
a service representative or by PhoneLink) or automatically under Asset
Builder Plans, or |X| have the Transfer Agent send redemption proceeds or
to transmit dividends and distributions directly to your bank account.
Please call
the Transfer Agent for more information.
You may purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1.800.852.8457. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a dealer. After
your account is established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent. AccountLink privileges
will apply to each shareholder listed in the registration on your account as
well as to your dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the Transfer
Agent signed by all shareholders who own the account.
PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions automatically
using a touch-tone phone. PhoneLink may be used on already-established Fund
accounts after you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number, 1.800.533.3310.
|X| 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.
|X| 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.
|X| Selling Shares. You can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly to
your AccountLink bank account. Please refer to "How to Sell Shares," below for
details.
Can You Submit Transaction Requests by Fax? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1.800.525.7048 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OppenheimerFunds Internet Web Site. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1.800.533.3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1.800.525.7048.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer fund
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to six (6) months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you send your payment.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular business
day. Your shares will be sold at the next net asset value calculated after your
order is received in proper form (which means that it must comply with the
procedures described below) and is accepted by the Transfer Agent. The Fund lets
you sell your shares by writing a letter, by using the Fund's checkwriting
privilege or by telephone. You can also set up Automatic Withdrawal Plans to
redeem shares on a regular basis. If you have questions about any of these
procedures, and especially if you are redeeming shares in a special situation,
such as due to the death of the owner, please call the Transfer Agent first, at
1.800.525.7048, for assistance.
Certain Requests Require a Signature Guarantee. To protect you and the
Fund from fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that
require a signature guarantee):
|X| You wish to redeem $100,000 or more and receive a check |X| The
redemption check is not payable to all shareholders listed on
the account statement
|X| The redemption check is not sent to the address of record on your
account statement
|X| Shares are being transferred to a Fund account with a different
owner or name
|X| Shares are being redeemed by someone (such as an Executor) other
than the owners
Where Can You Have Your Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial institutions,
including:
|X| a U.S. bank, trust company, credit union or savings association,
|X| by a foreign bank that has a U.S. correspondent bank,
|X| by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or
|X| by a U.S. national securities exchange, a registered securities
association or a clearing agency.
If you are signing on behalf of a corporation, partnership or other
business or as a fiduciary, you must also include your title in the signature.
How Do You Sell Shares by Mail? Write a letter of instructions that
includes:
|X| Your name
|X| The Fund's name
|X| Your Fund account number (from your account statement) |X| The dollar
amount or number of shares to be redeemed |X| Any special payment
instructions |X| Any share certificates for the shares you are selling |X|
The signatures of all registered owners exactly as the account is
registered, and
|X| Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
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Use the following address for requests by mail: Send courier or express
mail requests to:
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OppenheimerFunds Services OppenheimerFunds Services
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P.O. Box 5270, Denver, Colorado 80217-5270 10200 E. Girard Avenue,
Building D
Denver, Colorado 80231
How Do You Sell Shares by Telephone? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption price
calculated on a particular regular business day, your call must be received by
the Transfer Agent by the close of The New York Stock Exchange that day, which
is normally 4:00 P.M., but may be earlier on some days. You may not redeem
shares held under a share certificate by telephone.
|X| To redeem shares through a service representative, call
1.800.852.8457
|X| To redeem shares automatically on PhoneLink, call 1.800.533.3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent to that bank account.
Are There Limits on Amounts Redeemed by Telephone?
Telephone Redemptions Paid by Check. Up to $100,000 may be redeemed by telephone
in any seven (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 thirty (30) days of changing the address on an
account.
Telephone Redemptions Through AccountLink. There are no dollar limits on
telephone redemption proceeds sent to a bank account designated when you
establish AccountLink. Normally the ACH transfer to your bank is initiated on
the business day after the redemption. You do not receive dividends on the
proceeds of the shares you redeemed while they are waiting to be transferred.
Checkwriting. To write checks against your Fund account, request that privilege
on your account Application, or contact the Transfer Agent for signature cards.
They must be signed (with a signature guarantee) by all owners of the account
and returned to the Transfer Agent so that checks can be sent to you to use.
Shareholders with joint accounts can elect in writing to have checks paid over
the signature of one owner. If you previously signed a signature card to
establish checkwriting in another Oppenheimer fund, simply call 1.800.525.7048
to request checkwriting for an account in this Fund with the same registration
as the other account. See the Statement of Additional Information for terms and
conditions applicable to checkwriting.
|X| Checks can be written to the order of whomever you wish, but may not
be cashed at the bank the checks are payable through or the Fund's custodian
bank.
|X| Checkwriting privileges are not available for accounts holding shares
that are subject to a contingent deferred sales charge.
|X| Checks must be written for at least $100.
|X| 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.
|X| 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 ten
(10) days.
|X| Don't use your checks if you changed your Fund account number, until
you receive new
checks.
Can You Sell Shares Through Your Dealer? The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
How Do Contingent Deferred Sales Charges Affect Redemptions? If you purchase
shares subject to a Class A, Class B or Class C contingent deferred sales charge
and redeem any of those shares during the applicable holding period for the
class of shares you own, the contingent deferred sales charge will be deducted
from redemption proceeds (unless you are eligible for a waiver of that sales
charge based on the categories listed in Appendix C to the Statement of
Additional Information) and you advise the Transfer Agent of your eligibility
for the waiver when you place your redemption request.
A contingent deferred sales charge will be based on the lesser of the net asset
value of the redeemed shares at the time of redemption or the original net asset
value. A contingent deferred sales charge is not imposed on:
o the amount of your account value represented by an increase in net asset
value over the initial purchase price,
o shares purchased by the reinvestment of dividends or capital gains
distributions, or
o shares redeemed in the special circumstances described in Appendix C to
the Statement of Additional Information.
To determine whether a 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 the holding period that applies to the class, and
(3) shares held the longest during the holding period.
Contingent deferred sales charges are not charged when you exchange shares
of the Fund for shares of other Oppenheimer funds. However, if you exchange them
within the applicable contingent deferred sales charge holding period, the
holding period will carry over to the fund whose shares you acquire. Similarly,
if you acquire shares of this Fund by exchanging shares of another Oppenheimer
fund that are still subject to a contingent deferred sales charge holding
period, that holding period will carry over to this Fund.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer funds at
net asset value per share at the time of exchange, without sales charge. Shares
of the Fund can be purchased by exchange of shares of other Oppenheimer funds on
the same basis. To exchange shares, you must meet several conditions:
|X| Shares of the fund selected for exchange must be available for sale in
your state of residence.
|X| The prospectuses of both funds must offer the exchange privilege.
|X| You must hold the shares you buy when you establish your account for
at least seven (7) days before you can exchange them. After the account is open
seven (7) days, you can exchange shares every regular business day.
|X| You must meet the minimum purchase requirements for the fund whose
shares you purchase by exchange.
|X| Before exchanging into a fund, you must obtain and read its
prospectus.
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. In some
cases, sales charges may be imposed on exchange transactions. For tax purposes,
exchanges of shares involve a sale of the shares of the fund you own and a
purchase of the shares of the other fund, which may result in a capital gain or
loss. Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
You can find a list of Oppenheimer funds currently available for exchanges
in the Statement of Additional Information or obtain one by calling a service
representative at 1.800.525.7048. That list can change from time to time.
How Do You Submit Exchange Requests? Exchanges may be requested in writing or
by telephone:
|X| Written Exchange Requests. Submit an OppenheimerFunds Exchange Request
form, signed by all owners of the account. Send it to the Transfer Agent at the
address on the back cover. Exchanges of shares held under certificates cannot be
processed unless the Transfer Agent receives the certificates with the request.
|X| Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1.800.852.8457, or by using
PhoneLink for automated exchanges by calling 1.800.533.3310. Telephone exchanges
may be made only between accounts that are registered with the same name(s) and
address. Shares held under certificates may not be exchanged by telephone.
Are There Limitations on Exchanges? There are certain exchange policies you
should be aware of:
|X| Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day on which
the Transfer Agent receives an exchange request that conforms to the policies
described above. It must be received by the close of The New York Stock Exchange
that day, which is normally 4:00 P.M. but may be earlier on some days. However,
either fund may delay the purchase of shares of the fund you are exchanging into
up to seven (7) days if it determines it would be disadvantaged by a same-day
exchange. For example, the receipt of multiple exchange requests from a "market
timer" might require the Fund to sell securities at a disadvantageous time
and/or price.
|X| Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that it
believes will disadvantage it, or to refuse multiple exchange requests submitted
by a shareholder or dealer.
|X| 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.
|X| If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for exchange will
be exchanged.
Shareholder Account Rules and Policies
More information about the Fund's policies and procedures for buying,
selling and exchanging shares is contained in the Statement of Additional
Information.
|X| 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.
|X| Telephone transaction privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any time. If
an account has more than one owner, the Fund and the Transfer Agent may rely on
the instructions of any one owner. Telephone privileges apply to each owner of
the account and the dealer representative of record for the account unless the
Transfer Agent receives cancellation instructions from an owner of the account.
|X| The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. The Transfer Agent and the Fund will
not be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine.
|X| 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.
|X| 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.
|X| The redemption price for shares will vary from day to day because the
value of the securities in the Fund's portfolio fluctuates. The redemption
price, which is the net asset value per share, will normally differ for each
class of shares. The redemption value of your shares may be more or less than
their original cost.
|X| Payment for redeemed shares ordinarily is made in cash. It is
forwarded by check or through AccountLink (as elected by the shareholder) within
seven (7) days after the Transfer Agent receives redemption instructions in
proper form. However, under unusual circumstances determined by the Securities
and Exchange Commission, payment may be delayed or suspended. For accounts
registered in the name of a broker-dealer, payment will normally be forwarded
within three (3) business days after redemption.
|X| 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 ten (10) days from
the date the shares were purchased. That delay may be avoided if you purchase
shares by Federal Funds wire or certified check, or arrange with your bank to
provide telephone or written assurance to the Transfer Agent that your purchase
payment has cleared.
|X| Involuntary redemptions of small accounts may be made by the Fund if
the account value has fallen below $200 for reasons other than the fact that the
market value of shares has dropped. In some cases involuntary redemptions may be
made to repay the Distributor for losses from the cancellation of share purchase
orders.
|X| Shares may be "redeemed in kind" under unusual circumstances (such as
a lack of liquidity in the Fund's portfolio to meet redemptions). This means
that the redemption proceeds will be paid with liquid securities from the Fund's
portfolio.
|X| "Backup Withholding" of federal income tax may be applied against
taxable dividends, distributions and redemption proceeds (including exchanges)
if you fail to furnish the Fund your correct, certified Social Security or
Employer Identification Number when you sign your application, or if you
under-report your income to the Internal Revenue Service.
|X| To avoid sending duplicate copies of materials to households, the Fund
will mail only one copy of each prospectus, annual and semi-annual report to
shareholders having the same last name and address on the Fund's records. The
consolidation of these mailings, called householding, benefits the Fund through
reduced mailing expense.
If you want to receive multiple copies of these materials, you may call
the Transfer Agent at 1.800.525.7048. You may also notify the Transfer Agent in
writing. Individual copies of prospectuses and reports will be sent to you
within thirty (30) days after the Transfer Agent receives your request to stop
householding.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net tax-exempt income and/or net investment income each regular
business day and to pay those dividends to shareholders monthly on a date
selected by the Board of Trustees. Daily dividends will not be declared or paid
on newly purchased shares until Federal Funds are available to the Fund from the
purchase payment for such shares.
The Fund attempts to pay dividends on Class A shares at a constant level.
There is no assurance that it will be able to do so. The Board of Trustees may
change the targeted dividend level at any time, without prior notice to
shareholders. Dividends and distributions paid on Class A shares will generally
be higher than for Class B and Class C shares, which normally have higher
expenses than Class A. The Fund cannot guarantee that it will pay any dividends
or distributions.
Capital Gains. Although the Fund does not seek capital gains, it may realize
capital gains on the sale of portfolio securities. If it does, it may make
distributions out of any net short-term or long-term capital gains in December
of each year. The Fund may make supplemental distributions of dividends and
capital gains following the end of its fiscal year. Long-term capital gains will
be separately identified in the tax information the Fund sends you after the end
of the calendar year.
What Are Your Choices for Receiving Distributions? When you open your account,
specify on your application how you want to receive your dividends and
distributions. You have four (4) options:
|X| Reinvest All Distributions in the Fund. You can elect to reinvest
all dividends and capital gains distributions in additional shares of the
Fund.
|X| Reinvest Dividends and Capital Gains. You can elect to reinvest some
distributions (dividends, short-term capital gains or long-term capital gains
distributions) in the Fund while receiving other types of distributions by check
or having them sent to your bank account through AccountLink.
|X| Receive All Distributions in Cash. You can elect to receive a check
for all dividends and capital gains distributions or have them sent to your
bank through AccountLink.
|X| Reinvest Your Distributions in Another OppenheimerFunds Account. You
can reinvest all distributions in the same class of shares of another
Oppenheimer fund account you have established.
Taxes. Dividends paid from net investment income earned by the Fund on municipal
securities will be excludable from gross income for federal personal income tax
purposes. A portion of a dividend that is derived from interest paid on certain
"private activity bonds" may be an item of tax preference if you are subject to
the alternative minimum tax. If the Fund earns interest on taxable investments,
any dividends derived from those earnings will be taxable as ordinary income to
shareholders.
Dividends paid by the Fund from interest on New Jersey municipal
securities will be exempt from New Jersey personal income taxes. Dividends paid
from income from municipal securities of issuers outside New Jersey will
normally be subject to New Jersey personal income taxes.
Dividends and capital gains distributions may be subject to state or local
taxes. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. It does not matter how long you have held your
shares. Dividends paid from short-term capital gains and non-tax exempt net
investment income are taxable as ordinary income. Whether you reinvest your
distributions in additional shares or take them in cash, the tax treatment is
the same. Every year the Fund will send you and the IRS a statement showing the
amount of any taxable distribution you received in the previous year as well as
the amount of your tax-exempt income.
|X| Remember There May be Taxes on Transactions. Even though the Fund
seeks to distribute tax-exempt income to shareholders, you may have a capital
gain or loss when you sell or exchange your shares. A capital gain or loss is
the difference between the price you paid for the shares and the price you
received when you sold them. Any capital gain is subject to capital gains tax.
|X| Returns of Capital Can Occur. In certain cases, distributions made
by the Fund may be considered a non-taxable return of capital to
shareholders. If that occurs, it will be identified in notices to
shareholders.
This information is only a summary of certain federal personal income tax
and New Jersey tax information about your investment. You should consult with
your tax adviser about the effect of an investment in the Fund on your
particular tax situation.
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance since the Fund's inception. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG LLP, the Fund's independent auditors, whose
report, along with the Fund's financial statements, is included in the Statement
of Additional Information, which is available on request.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------------
Year Year
Ended Ended
July 31, Dec. 31,
Class A 2000 1999 1998 1997 19961 1995
Net asset value, beginning of period $11.21 $11.58 $11.54 $11.10 $11.26 $10.41
==========================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $11.21 $11.58 $11.54 $11.10 $11.26 $10.41
------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .53 .55 .58 .62 .36 .61
Net realized and unrealized gain (loss) (.82) (.36) .09 .45 (.16) .86
--------------------------------------------------
Total income (loss) from
investment operations (.29) .19 .67 1.07 .20 1.47
------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.55) (.55) (.59) (.61) (.36) (.61)
Distributions from net realized gain (.01) (.01) (.04) (.02) -- (.01)
--------------------------------------------------
Total dividends and/or distributions
to shareholders (.56) (.56) (.63) (.63) (.36) (.62)
------------------------------------------------------------------------------------------
Net asset value, end of period $10.36 $11.21 $11.58 $11.54 $11.10 $11.26
===================================================
==========================================================================================
Total Return, at Net Asset Value2 (2.47)% 1.57% 5.96% 9.99% 1.80% 14.42%
==========================================================================================
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $31,937 $42,289 $33,060 $19,109 $11,354 $8,806
------------------------------------------------------------------------------------------
Average net assets (in thousands) $35,286 $38,999 $24,909 $14,072 $10,036 $6,504
------------------------------------------------------------------------------------------
Ratios to average net assets:3
Net investment income 5.26% 4.71% 4.94% 5.45% 5.49% 5.51%
Expenses 1.09% 1.10% 1.14%4 1.08%4 1.64%4 1.75%4
Expenses, net of indirect expenses
and waiver of expenses 0.79% 0.63% 0.38% 0.88% 0.97% 0.80%
------------------------------------------------------------------------------------------
Portfolio turnover rate 101% 70% 46% 12% 33% 7%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. Assumes a $1,000 hypothetical initial
investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
July 31, Dec. 31,
Class B 2000 1999 1998 1997 1996 1 1995
<S> <C> <C> <C> <C> <C> <C>
============================================================================================
Per Share Operating Data
Net asset value, beginning of period $11.21 $11.58 $11.53 $11.09 $11.25 $10.40
--------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .47 .47 .50 .53 .31 .53
Net realized and unrealized gain
(loss) (.83) (.37) .09 .46 (.16) .86
-----------------------------------------------------
Total income (loss) from
investment operations (.36) .10 .59 .99 .15 1.39
--------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.47) (.46) (.50) (.53) (.31) (.53)
Distributions from net realized gain (.01) (.01) (.04) (.02) -- (.01)
-----------------------------------------------------
Total dividends and/or distributions
to shareholders (.48) (.47) (.54) (.55) (.31) (.54)
--------------------------------------------------------------------------------------------
Net asset value, end of period $10.37 $11.21 $11.58 $11.53 $11.09 $11.25
=====================================================
============================================================================================
Total Return, at Net Asset Value2 (3.11)% 0.81% 5.25% 9.18% 1.34% 13.59%
============================================================================================
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $35,338 $44,322 $33,062 $18,647 $9,740 $5,222
--------------------------------------------------------------------------------------------
Average net assets (in thousands) $38,064 $39,842 $25,556 $13,278 $7,774 $4,080
--------------------------------------------------------------------------------------------
Ratios to average net assets:3
Net investment income 4.50% 3.96% 4.17% 4.70% 4.70% 4.79%
Expenses 1.85% 1.85% 1.89%4 1.83%4 2.40%4 2.49%4
Expenses, net of indirect expenses
and waiver of expenses 1.55% 1.38% 1.14% 1.62% 1.74% 1.53%
--------------------------------------------------------------------------------------------
Portfolio turnover rate 101% 70% 46% 12% 33% 7%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. Assumes a $1,000 hypothetical initial
investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
Year Period
Ended Ended
July 31, Dec. 31,
Class C 2000 1999 1998 1997 1996 1 1995 2
<S> <C> <C> <C> <C> <C> <C>
============================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 11.21 $11.58 $11.53 $11.09 $11.25 $11.01
--------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .46 .46 .50 .53 .30 .19
Net realized and unrealized gain
(loss) (.83) (.36) .09 .45 (.16) .25
-----------------------------------------------------
Total income (loss) from
investment operations (.37) .10 .59 .98 .14 .44
--------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.47) (.46) (.50) (.52) (.30) (.19)
Distributions from net realized gain (.01) (.01) (.04) (.02) -- (.01)
-----------------------------------------------------
Total dividends and/or distributions
to shareholders (.48) (.47) (.54) (.54) (.30) (.20)
--------------------------------------------------------------------------------------------
Net asset value, end of period $10.36 $11.21 $11.58 $11.53 $11.09 $11.25
======================================================
============================================================================================
Total Return, at Net Asset Value 3 (3.20)% 0.81% 5.24% 9.11% 1.29% 4.07%
============================================================================================
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $7,142 $9,732 $6,463 $2,080 $ 132 $ 50
--------------------------------------------------------------------------------------------
Average net assets (in thousands) $8,198 $8,483 $3,631 $ 747 $ 74 $ 3
--------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 4.51% 3.96% 4.20% 4.56% 4.66% -- 6
Expenses 1.85% 1.85% 1.92% 5 1.79%5 2.48%5 -- 6
Expenses, net of indirect expenses
and waiver of expenses 1.55% 1.38% 1.12% 1.60% 1.81% -- 6
--------------------------------------------------------------------------------------------
Portfolio turnover rate 101% 70% 46% 12% 33% 7%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. For the period from August 29, 1995
(inception of offering) to December 31, 1995. 3. Assumes a $1,000 hypothetical
initial investment on the business day before the first day of the fiscal period
(or inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year. 4. Annualized for periods of less than one
full year. 5. Expense ratio has not been grossed up to reflect the effect of
expenses paid indirectly. 6. Ratios during this period would not be indicative
of future results.
OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
APPENDIX TO PROSPECTUS OF
Oppenheimer New Jersey Municipal Fund
Graphic Material included in the Prospectus of Oppenheimer New Jersey
Municipal Fund: "Annual Total Returns (Class A) (% as of 12/31 each year)":
A bar chart will be included in the Prospectus of Oppenheimer New Jersey
Municipal Fund (the "Fund") depicting the annual total returns of a hypothetical
investment in Class A shares of the Fund for each of the three (3) most recent
calendar years, without deducting sales charges. Set forth below are the
relevant data points that will appear on the bar chart.
Calendar Oppenheimer New Jersey
Year Municipal Fund
Ended Class A Shares
12/31/95 14.42%
12/31/96 5.44%
12/31/97 9.52%
12/31/98 6.38%
12/31/99 -8.01%
<PAGE>
Information and Services
-------------------------------------------------------------------------------
----------------------------------------------------------------------------
For More Information About Oppenheimer New Jersey Municipal Fund:
----------------------------------------------------------------------------
The following additional information about the Fund is available without charge
upon request:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Statement of Additional Information
----------------------------------------------------------------------------
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Annual and Semi-Annual Reports
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
How to Get More Information:
----------------------------------------------------------------------------
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
On the Internet:
You can send us a request by e-mail or read
or down-load documents on the OppenheimerFunds web site:
http://www.oppenheimerfunds.com
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1.201.942.8090) or the EDGAR database on the SEC's
Internet web site at http://www.sec.gov. Copies may be obtained after payment of
a duplicating fee by electronic request at the SEC's e-mail address:
[email protected] or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's SEC File No. is 811-5867
PR0395.001.1100 Printed on recycled paper.
<PAGE>
-------------------------------------------------------------------------------
Oppenheimer New Jersey Municipal Fund
-------------------------------------------------------------------------------
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated November 27, 2000
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated November 27, 2000. It should be read
together with the Prospectus. You can obtain the Prospectus by writing to the
Fund's Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver,
Colorado 80217 or by calling the Transfer Agent at the toll-free number shown
above or by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks
The Fund's Investment Policies.................................
Municipal Securities...........................................
Other Investment Techniques and Strategies.....................
Investment Restrictions........................................
How the Fund is Managed............................................
Organization and History.......................................
Trustees and Officers of the Fund..............................
The Manager ...................................................
Brokerage Policies of the Fund.....................................
Distribution and Service Plans.....................................
Performance of the Fund............................................
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: Municipal Bond Ratings..............................A-1
Appendix B: Industry Classifications............................B-1
Appendix C: Special Sales Charge Arrangements and Waivers.......C-1
-------------------------------------------------------------------------------
<PAGE>
ABOUT THE FUND
-------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment objective and the principal investment policies of the Fund
are described in the Prospectus. This Statement of Additional Information
contains supplemental information about those policies and the types of
securities that the Fund's investment Manager, OppenheimerFunds, Inc., can
select for the Fund. Additional explanations are also provided about the
strategies the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Manager uses in selecting portfolio
securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below at all times in seeking its
goals. It may use some of the special investment techniques and strategies at
some times or not at all.
The Fund does not make investments with the objective of seeking capital
growth. However, the values of the securities held by the Fund may be affected
by changes in general interest rates and other factors prior to their maturity.
Because the current value of debt securities vary inversely with changes in
prevailing interest rates, if interest rates increased after a security is
purchased, that security will normally decline in value. Conversely, should
interest rates decrease after a security is purchased, normally its value will
rise.
However, those fluctuations in value will not generally result in realized
gains or losses to the Fund unless the Fund sells the security prior to the
security's maturity. A debt security held to maturity is redeemable by its
issuer at full principal value plus accrued interest. The Fund does not usually
intend to dispose of securities prior to their maturity, but may do so for
liquidity purposes, or because of other factors affecting the issuer that cause
the Manager to sell the particular security. In that case, the Fund could
realize a capital gain or loss on the sale.
There are variations in the credit quality of municipal securities, both
within a particular rating classification and between classifications. These
variations depend on numerous factors. The yields of municipal securities depend
on a number of factors, including general conditions in the municipal securities
market, the size of a particular offering, the maturity of the obligation and
rating (if any) of the issue. These factors are discussed in greater detail
below.
Municipal Securities. The types of municipal securities in which the Fund may
invest are described in the Prospectus under "About the Fund's Investments."
Municipal securities are generally classified as general obligation bonds,
revenue bonds and notes. A discussion of the general characteristics of these
principal types of municipal securities follows below.
|X| Municipal Bonds. We have classified municipal securities having a
maturity (when the security is issued) of more than one (1) year as "municipal
bonds." The principal classifications of long-term municipal bonds are "general
obligation" and "revenue" (including "private activity") bonds. They may have
fixed, variable or floating rates of interest, as described below.
Some bonds may be "callable," allowing the issuer to redeem them before
their maturity date. To protect bondholders, callable bonds may be issued with
provisions that prevent them from being called for a period of time. Typically,
that is five (5) to ten (10) years from the issuance date. When interest rates
decline, if the call protection on a bond has expired, it is more likely that
the issuer may call the bond. If that occurs, the Fund might have to reinvest
the proceeds of the called bond in bonds that pay a lower rate of return.
|_| General Obligation Bonds. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and taxing
power, if any, for the repayment of principal and the payment of interest.
Issuers of general obligation bonds include states, counties, cities, towns, and
school districts. The proceeds of these obligations are used to fund a wide
range of public projects, including construction or improvement of schools,
highways and roads, and water and sewer systems. The rate of taxes that can be
levied for the payment of debt service on these bonds may be limited or
unlimited. Additionally, there may be limits as to the rate or amount of special
assessments that can be levied to meet these obligations.
|_| Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise tax or other
specific revenue source. Revenue bonds are issued to finance a wide variety of
capital projects. Examples include electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals.
Although the principal security for these types of bonds may vary
from bond to bond, many provide additional security in the form of a debt
service reserve fund that may be used to make principal and interest payments on
the issuer's obligations. Housing finance authorities have a wide range of
security, including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.
|_| Private Activity Bonds. Investments on certain Qualified
Private Activity Bonds is excludable from gross income for federal income tax
purposes if certain tests are met. They are issued by or on behalf of public
authorities to raise money to finance various privately operated facilities for
business and manufacturing, housing, sports, and pollution control. These bonds
may also be used to finance public facilities such as airports, mass transit
systems, ports, and parking. The payment of the principal and interest on such
bonds is dependent solely on the ability of the facility's user to meet its
financial obligations and the pledge, if any, of real and personal property
financed by the bond as security for those payments.
The Tax Reform Act of 1986 (the "Tax Reform Act") reorganized, as well as
amended, the rules governing tax exemption for interest on certain types of
municipal securities. The Tax Reform Act generally did not change the tax
treatment of bonds issued in order to finance governmental operations. Thus,
interest on general obligation bonds issued by or on behalf of state or local
governments, the proceeds of which are used to finance the operations of such
governments, continues to be tax-exempt (and excludable from gross income).
However, the Tax Reform Act limited the use of tax-exempt bonds for
non-governmental (private) purposes. More stringent restrictions were placed on
the use of proceeds of such bonds. Interest on certain private activity bonds is
taxable under the revised rules. There is an exception for "qualified"
tax-exempt private activity bonds, for example, exempt facility bonds including
certain qualified mortgage bonds, qualified Section 501(c)(3) bonds, and
qualified student loan bonds.
In addition, limitations as to the amount of private activity bonds which
each state may issue were revised downward by the Tax Reform Act, which will
reduce the supply of such bonds. The value of the Fund's portfolio could be
affected if there is a reduction in the availability of such bonds.
Interest on certain private activity bonds issued after August 7, 1986,
which continues to be tax-exempt, will be treated as a tax preference item
subject to the alternative minimum tax (discussed below) to which certain
taxpayers are subject. The Fund may hold municipal securities the interest on
which (and thus a proportionate share of the exempt-interest dividends paid by
the Fund) will be subject to the Federal alternative minimum tax on individuals
and corporations. There are no limits on the amount of assets the Fund may
invest in private activity bonds.
The Federal alternative minimum tax is designed to ensure that all persons
who receive income pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference items
that are used to calculate alternative minimum taxable income. The Tax Reform
Act made tax-exempt interest from certain private activity bonds a tax
preference item for purposes of the alternative minimum tax on individuals and
corporations. Any exempt-interest dividend paid by a regulated investment
company will be treated as interest on a specific private activity bond to the
extent of the proportionate relationship the interest the investment company
receives on such bonds bears to all its exempt interest dividends.
In addition, corporate taxpayers subject to the alternative minimum tax
may, under some circumstances, have to include exempt-interest dividends in
calculating their alternative minimum taxable income. That could occur in
situations where the "adjusted current earnings" of the corporation exceeds its
alternative minimum taxable income.
To determine whether a private activity bond is treated as a taxable
private activity bond, it is subject to a test for: (a) a trade or business use
and security interest, or (b) a private loan restriction. Under the trade or
business use and security interest test, an obligation is a private activity
bond if: (i) more than 10% of the bond proceeds are used for private business
purposes and (ii) 10% or more of the payment of principal or interest on the
issue is directly or indirectly derived from such private use or is secured by
the privately used property or the payments related to the use of the property.
For certain types of uses, a 5% threshold is substituted for this 10% threshold.
The term "private business use" means any direct or indirect use in a
trade or business carried on by an individual or entity other than a state or
municipal governmental unit. Under the private loan restriction, the amount of
bond proceeds that may be used to make private loans is limited to the lesser of
5% or $5.0 million of the proceeds. Thus, certain issues of municipal securities
could lose their tax-exempt status retroactively if the issuer fails to meet
certain requirements as to the expenditure of the proceeds of that issue or the
use of the bond-financed facility. The Fund makes no independent investigation
of the users of such bonds or their use of proceeds of the bonds. If the Fund
should hold a bond that loses its tax-exempt status retroactively, there might
be an adjustment to the tax-exempt income previously distributed to
shareholders.
Additionally, a private activity bond that would otherwise be a qualified
tax-exempt private activity bond will not, under Internal Revenue Code Section
147(a), be a qualified bond for any period during which it is held by a person
who is a "substantial user" of the facilities or by a "related person" of such a
substantial user. This "substantial user" provision applies primarily to exempt
facility bonds, including industrial development bonds. The Fund may invest in
industrial development bonds and other private activity bonds. Therefore, the
Fund may not be an appropriate investment for entities which are "substantial
users" (or persons related to "substantial users") of such exempt facilities.
Those entities and persons should consult their tax advisers before purchasing
shares of the Fund.
A "substantial user" of such facilities is defined generally as a
"non-exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be a
"related person" under the Internal Revenue Code unless such individual or the
individual's immediate family (spouse, brothers, sisters and immediate
descendants) own directly or indirectly in the aggregate more than 50% in value
of the equity of a corporation or partnership which is a "substantial user" of a
facility financed from the proceeds of exempt facility bonds.
|X| Municipal Notes. Municipal securities having a maturity (when the
security is issued) of less than one (1) year are generally known as municipal
notes. Municipal notes generally are issued in anticipation of Municipal Bonds
to fund capital projects on a short term basis. Some of the types of municipal
notes the Fund can invest in are described below.
|_| Tax Anticipation Notes. These are issued to finance working
capital needs of municipalities. Generally, they are issued in anticipation of
various seasonal tax revenue, such as income, sales, use or other business
taxes, and are payable from these specific future taxes.
|_| Revenue Anticipation Notes. These are notes issued in
expectation of receipt of other types of revenue, such as Federal revenues
available under Federal revenue-sharing programs.
|_| Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. The
long-term bonds that are issued typically also provide the money for the
repayment of the notes.
|_| Construction Loan Notes. These are sold to provide project
construction financing until permanent financing can be secured. After
successful completion and acceptance of the project, it may receive permanent
financing through public agencies, such as the Federal Housing Administration.
|X| Municipal Lease Obligations. The Fund's investments in municipal lease
obligations may be through certificates of participation that are offered to
investors by public entities. Municipal leases may take the form of a lease or
an installment purchase contract issued by a state or local government authority
to obtain funds to acquire a wide variety of equipment and facilities.
Some municipal lease securities may be deemed to be "illiquid" securities.
Their purchase by the Fund would be limited as described below in "Illiquid
Securities." From time to time the Fund may invest more than 5% of its net
assets in municipal lease obligations that the Manager has determined to be
liquid under guidelines set by the Board of Trustees. Those guidelines require
the Manager to evaluate:
|_| the frequency of trades and price quotations for such securities; |_|
the number of dealers or other potential buyers willing to purchase or
sell such securities; |_| the availability of market-makers; and |_| the
nature of the trades for such securities.
Municipal leases have special risk considerations. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for that purpose on a yearly basis. While the obligation
might be secured by the lease, it might be difficult to dispose of that property
in case of a default.
Projects financed with certificates of participation generally are not
subject to state constitutional debt limitations or other statutory requirements
that may apply to other municipal securities. Payments by the public entity on
the obligation underlying the certificates are derived from available revenue
sources. That revenue might be diverted to the funding of other municipal
service projects. Payments of interest and/or principal with respect to the
certificates are not guaranteed and do not constitute an obligation of a state
or any of its political subdivisions.
In addition to the risk of "non-appropriation," municipal lease securities
do not have as highly liquid a market as conventional municipal bonds. Municipal
leases, like other municipal debt obligations, are subject to the risk of
non-payment of interest or repayment of principal by the issuer. The ability of
issuers of municipal leases to make timely lease payments may be adversely
affected in general economic downturns and as relative governmental cost burdens
are reallocated among federal, state and local governmental units. A default in
payment of income would result in a reduction of income to the Fund. It could
also result in a reduction in the value of the municipal lease and that, as well
as a default in repayment of principal, could result in a decrease in the net
asset value of the Fund. While the Fund holds such securities, the Manager will
also evaluate the likelihood of a continuing market for these securities and
their credit quality.
|X| Ratings of Municipal Securities. Ratings by ratings organizations such
as Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Rating
Corporation ("S&P") and Fitch, Inc. ("Fitch") represent the respective rating
agency's opinions of the credit quality of the municipal securities they
undertake to rate. However, their ratings are general opinions and are not
guarantees of quality. Municipal securities that have the same maturity, coupon
and rating may have different yields, while other municipal securities that have
the same maturity and coupon but different ratings may have the same yield.
Lower grade securities may have a higher yield than securities rated in
the higher rating categories. In addition to having a greater risk of default
than higher-grade, securities, there may be less of a market for these
securities. As a result they may be harder to sell at an acceptable price. The
additional risks mean that the Fund may not receive the anticipated level of
income from these securities, and the Fund's net asset value may be affected by
declines in the value of lower-grade securities. However, because the added risk
of lower quality securities might not be consistent with the Fund's policy of
preservation of capital, the Fund limits its investments in lower quality
securities.
Subsequent to its purchase by the Fund, a municipal security may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event requires the Fund to sell the security, but the Manager
will consider such events in determining whether the Fund should continue to
hold the security. To the extent that ratings given by Moody's, S&P or Fitch
change as a result of changes in those rating organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
investments in accordance with the Fund's investment policies.
The Fund may buy municipal securities that are "pre-refunded." The
issuer's obligation to repay the principal value of the security is generally
collateralized with U.S. government securities placed in an escrow account. This
causes the pre-refunded security to have essentially the same risks of default
as a AAA-rated security.
The rating definitions of Moody's, S&P and Fitch for municipal securities
are contained in Appendix A to this Statement of Additional Information. The
Fund can purchase securities that are unrated by nationally recognized rating
organizations. The Manager will make its own assessment of the credit quality of
unrated issues the Fund buys. The Manager will use criteria similar to those
used by the rating agencies, and assign a rating category to a security that is
comparable to what the Manager believes a rating agency would assign to that
security. However, the Manager's rating does not constitute a guarantee of the
quality of a particular issue.
Special Risks of Investing Primarily in New Jersey Municipal Securities. Because
the Fund focuses its investments primarily on New Jersey municipal securities,
the value of its portfolio investments will be highly sensitive to events
affecting the fiscal stability of the State of New Jersey and its
municipalities, authorities and other instrumentalities that issue securities in
which the Fund invests, including political developments, economic problems and
legislation.
It is not possible to predict the future impact of political developments,
economic problems and legislation on the long-term ability of the State of New
Jersey or New Jersey municipal issuers to pay interest or repay principal on
their obligations. The information below is only a brief summary of general
information regarding the state and the types of obligations issued by it and
its political subdivisions, based upon information the Fund has drawn from
sources that it believes are reliable, including official statements relating to
securities offerings of New Jersey issuers. The information below is general in
nature and does not provide information about the financial condition of the
state or specific issuers in whose securities the Fund may invest, or the risks
of those specific investments.
|X| General Information Regarding the State. New Jersey is the ninth
largest state in population and fifth smallest in land area. With an average of
1,094 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 that 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 facilities that have influenced the development of the state's
economy. The state's central position in the northeast corridor, its
transportation and port facilities and proximity to New York City make New
Jersey an attractive location for corporate headquarters and international
business offices. A number of major companies have their headquarters or major
facilities in New Jersey. Many foreign-owned firms have located facilities in
the state.
The State's economic base is diversified, consisting of a variety of
manufacturing, construction and service industries, supplemented by rural areas
with selective commercial agriculture. New Jersey has the Atlantic seashore on
the east and the lakes and mountains on the north and northwest, which provide
recreation for residents as well as for out-of-state visitors. Since 1976,
casino gambling in Atlantic City has been an important State tourist attraction.
The state finances capital projects primarily through the sale of general
obligation bonds of the state. Those 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 those debts fully. No
general obligations can be issued by the state without prior voter approval. The
exception is that no prior voter approval is required for any law authorizing
the creation of a debt for the purpose of refinancing all or a portion of
outstanding state debt, as long as the law requires that the refinancing measure
provide a debt service savings. All appropriations for capital projects and all
proposals for state bond authorization 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 those,
lease payments made by the state must be sufficient to cover debt service on the
obligations issued to finance the project. Those rental payments are subject to
annual appropriation by the state legislature. Also, various state entities have
issued obligations for 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
is not bound to make such appropriations, however.
The state has extensive control over school districts, city and county
governments, and local financing authorities. The local finance system is
regulated by various statutes to assure that those entities remain on a sound
financial footing. State laws impose specific limitations on appropriations,
with exemptions subject to state approval. The state shares the proceeds of a
number of taxes. Those funds are earmarked primarily for local education
programs, homestead rebates, and Medicaid and welfare programs. Certain bonds
are issued by localities but supported by direct state payments. In addition,
the state participates in local waste water treatment programs.
Counties, municipalities and school districts finance capital projects
through the sale of general obligation bonds backed by their respective taxing
power. Other entities, such as 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. In seeking its objective, the Fund
may from time to time employ the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times,
and at times may not use them.
Portfolio Turnover. The Fund may engage in some short-term trading to seek its
objective. Portfolio turnover can increase the Fund's transaction costs (and
reduce its performance). However, in most cases the Fund does not pay brokerage
commissions on debt securities it trades, so active trading is not expected to
increase Fund expenses greatly. While securities trading can cause the Fund to
realize gains that are distributed to shareholders as taxable distributions.
|X| Floating Rate and Variable Rate Obligations. Variable rate demand
obligations have a demand feature that allows the Fund to tender the obligation
to the issuer or a third party prior to its maturity. The tender may be at par
value plus accrued interest, according to the terms of the obligation.
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 ninety-one (91) day
U.S. Treasury Bill rate, or some other standard, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable rate demand
note is also based on a stated prevailing market rate but is adjusted
automatically at specified intervals of no less than one (1) year. Generally,
the changes in the interest rate on such securities reduce the fluctuation in
their market value. As interest rates decrease or increase, the potential for
capital appreciation or depreciation is less than that for fixed-rate
obligations of the same maturity.
The Manager may determine that an unrated floating rate or variable rate
demand obligation meets the Fund's quality standards by reason of being backed
by a letter of credit or guarantee issued by a bank that meets those quality
standards.
Floating rate and variable rate demand notes that have a stated maturity
in excess of one (1) year may have features that permit the holder to recover
the principal amount of the underlying security at specified intervals not
exceeding one (1) year and upon not more than thirty (30) days' notice. The
issuer of that type of note normally has a corresponding right in its
discretion, after a given period, to prepay the outstanding principal amount of
the note plus accrued interest. Generally the issuer must provide a specified
number of days' notice to the holder. Floating rate or variable rate obligations
that do not provide for the recovery of principal and interest within seven (7)
days are subject to the Fund's limitations on investments in illiquid
securities.
|X| Inverse Floaters and Other Derivative Investments. Inverse floaters
may offer relatively high current income, reflecting the spread between
short-term and long-term tax exempt interest rates. As long as the municipal
yield curve remains relatively steep and short term rates remain relatively low,
owners of inverse floaters will have the opportunity to earn interest at
above-market rates because they receive interest at the higher long-term rates
but have paid for bonds with lower short-term rates. If the yield curve flattens
and shifts upward, an inverse floater will lose value more quickly than a
conventional long-term bond. The Fund will invest in inverse floaters to seek
higher tax-exempt yields than are available from fixed-rate bonds that have
comparable maturities and credit ratings. In some cases, the holder of an
inverse floater may have an option to convert the floater to a fixed-rate bond,
pursuant to a "rate-lock option."
Some inverse floaters have a feature known as an interest rate "cap" as
part of the terms of the investment. Investing in inverse floaters that have
interest rate caps might be part of a portfolio strategy to try to maintain a
high current yield for the Fund when the Fund has invested in inverse floaters
that expose the Fund to the risk of short-term interest rate fluctuations.
"Embedded" caps can be used to hedge a portion of the Fund's exposure to rising
interest rates. When interest rates exceed a pre-determined rate, the cap
generates additional cash flows that offset the decline in interest rates on the
inverse floater, and the hedge is successful. However, the Fund bears the risk
that if interest rates do not rise above the pre-determined rate, the cap (which
is purchased for additional cost) will not provide additional cash flows and
will expire worthless.
Inverse floaters are a form of derivative investment. Certain derivatives,
such as options, futures, indexed securities and entering into swap agreements,
can be used to increase or decrease the Fund's exposure to changing security
prices, interest rates or other factors that affect the value of securities.
However, these techniques could result in losses to the Fund, if the Manager
judges market conditions incorrectly or employs a strategy that does not
correlate well with the Fund's other investments. These techniques can cause
losses if the counterparty does not perform its promises. An additional risk of
investing in municipal securities that are derivative investments is that their
market value could be expected to vary to a much greater extent than the market
value of municipal securities that are not derivative investments but have
similar credit quality, redemption provisions and maturities.
|X| "When-Issued" and "Delayed Delivery" Transactions. The Fund can
purchase securities on a "when-issued" basis, and may purchase or sell such
securities on a "delayed delivery" (or "forward commitment") basis.
"When-issued" or "delayed delivery" refers to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery.
When such transactions are negotiated the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date. Normally the
settlement date is within six (6) months of the purchase of municipal bonds and
notes. However, the Fund may, from time to time, purchase municipal securities
having a settlement date more than six (6) months and possibly as long as two
(2) years or more after the trade date. The securities are subject to change in
value from market fluctuation during the settlement period. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Manager before settlement
will affect the value of such securities and may cause loss to the Fund. No
income begins to accrue to the Fund on a when-issued security until the Fund
receives the security at settlement of the trade.
The Fund will engage in when-issued transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the obligation. When the Fund engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to complete
the transaction. Their failure to do so may cause the Fund to lose the
opportunity to obtain the security at a price and yield it considers
advantageous.
When the Fund engages in when-issued and delayed delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies for its portfolio or for delivery pursuant to
options contracts it has entered into, and not for the purposes of investment
leverage. Although the Fund will enter into when-issued or delayed-delivery
purchase transactions to acquire securities, the Fund may dispose of a
commitment prior to settlement. If the Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it may incur a gain or
loss.
At the time the Fund makes a commitment to purchase or sell a security on
a when-issued or forward commitment basis, it records the transaction on its
books and reflects the value of the security purchased. In a sale transaction,
it records the proceeds to be received, in determining its net asset value. The
Fund will identify on its books at least equal to the value of purchase
commitments until the Fund pays for the investment.
When-issued transactions and forward commitments can be used by the Fund
as a defensive technique to hedge against anticipated changes in interest rates
and prices. For instance, in periods of rising interest rates and falling
prices, the Fund might sell securities in its portfolio on a forward commitment
basis to attempt to limit its exposure to anticipated falling prices. In periods
of falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
forward commitment basis, to obtain the benefit of currently higher cash yields.
|X| Zero-Coupon Securities. The Fund may buy zero-coupon and delayed
interest municipal securities. Zero-coupon securities do not make periodic
interest payments and are sold at a deep discount from their face value. The
buyer recognizes a rate of return determined by the gradual appreciation of the
security, which is redeemed at face value on a specified maturity date. This
discount depends on the time remaining until maturity, as well as prevailing
interest rates, the liquidity of the security and the credit quality of the
issuer. In the absence of threats to the issuer's credit quality, the discount
typically decreases as the maturity date approaches. Some zero-coupon securities
are convertible, in that they are zero-coupon securities until a predetermined
date, at which time they convert to a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities. Their value may fall more
dramatically than the value of interest-bearing securities when interest rates
rise. When prevailing interest rates fall, zero-coupon securities tend to rise
more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
|X| Puts and Standby Commitments. When the Fund buys a municipal
security subject to a standby commitment to repurchase the security, the Fund
is entitled to same-day settlement from the purchaser. The Fund receives an
exercise price equal to the amortized cost of the underlying
security plus any accrued interest at the time of exercise. A put purchased in
conjunction with a municipal security enables the Fund to sell the underlying
security within a specified period of time at a fixed exercise price.
The Fund might purchase a standby commitment or put separately in cash or
it might acquire the security subject to the standby commitment or put (at a
price that reflects that additional feature). The Fund will enter into these
transactions only with banks and securities dealers that, in the Manager's
opinion, present minimal credit risks. The Fund's ability to exercise a put or
standby commitment will depend on the ability of the bank or dealer to pay for
the securities if the put or standby commitment is exercised. If the bank or
dealer should default on its obligation, the Fund might not be able to recover
all or a portion of any loss sustained from having to sell the security
elsewhere.
Puts and standby commitments are not transferable by the Fund. They
terminate if the Fund sells the underlying security to a third party. The Fund
intends to enter into these arrangements to facilitate portfolio liquidity,
although such arrangements might enable the Fund to sell a security at a
pre-arranged price that may be higher than the prevailing market price at the
time the put or standby commitment is exercised. However, the Fund might refrain
from exercising a put or standby commitment if the exercise price is
significantly higher than the prevailing market price, to avoid imposing a loss
on the seller that could jeopardize the Fund's business relationships with the
seller.
A put or standby commitment increases the cost of the security and reduces
the yield otherwise available from the security. Any consideration paid by the
Fund for the put or standby commitment will be reflected on the Fund's books as
unrealized depreciation while the put or standby commitment is held, and a
realized gain or loss when the put or commitment is exercised or expires.
Interest income received by the Fund from municipal securities subject to puts
or stand-by commitments may not qualify as tax exempt in its hands if the terms
of the put or stand-by commitment cause the Fund not to be treated as the tax
owner of the underlying municipal securities.
|X| Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements. It may do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to an approved vendor for delivery on an agreed upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks or broker-dealers that have been
designated a primary dealer in government securities, which meet the credit
requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day. Delivery pursuant
to resale typically will occur within one (1) to five (5) days of the purchase.
Repurchase agreements having a maturity beyond seven (7) days are subject to the
Fund's limits on holding illiquid investments. There is no limit on the amount
of the Fund's net assets that may be subject to repurchase agreements of seven
(7) days or less.
Repurchase agreements considered "loans" under the Investment Company Act,
are collateralized by the underlying security. The Fund's repurchase agreements
require that at all times while the repurchase agreement is in effect, the
collateral's value must equal or exceed the repurchase price to fully
collateralize the repayment obligation.
The Manager will monitor the vendor's creditworthiness to confirm that the
vendor is financially sound and will continuously monitor the collateral's
value. However, if the vendor fails to pay the resale price on the delivery
date, the Fund may incur costs in disposing of the collateral and may experience
losses if there is any delay in its ability to do so.
|X| Illiquid and Restricted Securities. The Fund has percentage
limitations that apply to purchases of illiquid and restricted securities, as
stated in the Prospectus. The Manager monitors holdings of illiquid and
restricted securities on an ongoing basis to determine whether to sell any
holdings to maintain adequate liquidity.
|X| Borrowing for Leverage. The Fund has the ability to borrow from banks
on an unsecured basis in amounts limited (as a fundamental policy) to a maximum
of 10% of its total assets, to invest the borrowed funds in portfolio
securities. This technique is known as "leverage." The Fund may borrow only from
banks for investment purposes and extraordinary or emergency purposes and, may
borrow from affiliated investment companies subject to obtaining all required
authorizations and regulatory approvals. As a fundamental policy, borrowings can
be made only to the extent that the value of the Fund's assets, less its
liabilities other than borrowings, is equal to at least 300% of all borrowings
(including the proposed borrowing). If the value of the Fund's assets fails to
meet this 300% asset coverage requirement, the Fund is required to reduce its
bank debt within three (3) days to meet the requirement. To do so, the Fund
might have to sell a portion of its investments at a disadvantageous time.
The Fund will pay interest on these loans, and that interest expense will
raise the overall expenses of the Fund and reduce its returns. If it does
borrow, its expenses will be greater than comparable funds that do not borrow
for leverage. The interest on a loan might be more (or less) than the yield on
the securities purchased with the loan proceeds. Additionally, the Fund's net
asset value per share might fluctuate more than that of funds that do not
borrow.
|X| Loans of Portfolio Securities. To attempt to raise income or raise
cash for liquidity purposes, the Fund may lend its portfolio securities to
brokers, dealers and other financial institutions. These loans are limited to
not more than 25% of the value of the Fund's total assets. There are risks in
connection with securities lending. The Fund might experience a delay in
receiving additional collateral to secure a loan, or a delay in recovery of the
loaned securities. The Fund presently does not intend to engage in loans of
securities that will exceed 5% of the value of the Fund's total assets in the
coming year. Income from securities loans does not constitute exempt-interest
income for the purpose of paying tax-exempt dividends.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on the loaned securities, It also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and (c)
interest on short-term debt securities purchased with the loan collateral.
Either type of interest may be shared with the borrower. The Fund may pay
reasonable finder's, administrative or other fees in connection with these
loans. The terms of the Fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the Fund to reacquire loaned securities on
five (5) days' notice or in time to vote on any important matter.
|X| Hedging. The Fund may use hedging to attempt to protect against
declines in the market value of its portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities that have appreciated, or
to facilitate selling securities for investment reasons. To do so the Fund
could:
|_| sell interest rate futures or municipal bond index futures, |_| buy
puts on such futures or securities, or |_| write covered calls on
securities, interest rate futures or municipal bond index futures.
The Fund can also write covered calls on debt securities to attempt to
increase the Fund's income, but that income would not be tax-exempt. Therefore
it is unlikely that the Fund would write covered calls for that purpose.
The Fund may also use hedging to establish a position in the debt
securities market as a temporary substitute for purchasing individual debt
securities. In that case the Fund would normally seek to purchase the
securities, and then terminate that hedging position. For this type of hedging,
the Fund could:
|_| buy interest rate futures or municipal bond index futures, or |_| buy
calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's investment activities in the underlying cash market.
The particular hedging instruments the Fund can use are described below. The
Fund may employ new hedging instruments and strategies when they are developed,
if those investment methods are consistent with the Fund's investment objective,
are approved by its Board, and are permissible under applicable regulations
governing the Fund.
|X| Futures. The Fund may buy and sell futures contracts relating to debt
securities (these are called "interest rate futures") and municipal bond indices
(these are referred to as "municipal bond index futures").
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specific type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the futures position.
A "municipal bond index" assigns relative values to the municipal bonds in
the index, and is used as the basis for trading long-term municipal bond futures
contracts. Municipal bond index futures are similar to interest rate futures
except that settlement is made only in cash. The obligation under the contract
may also be satisfied by entering into an offsetting contract. The strategies
which the Fund employs in using municipal bond index futures are similar to
those with regard to interest rate futures.
No money is paid by or received by the fund on the purchase or sale of a
futures contract. Upon entering into a futures transaction, the Fund will be
required to deposit an initial margin payment in cash or U.S. government
securities with the futures commission merchant (the "futures broker"). Initial
margin payments will be deposited with the Fund's Custodian in an account
registered in the futures broker's name. However, the futures broker can gain
access to that account only under certain specified conditions. As the future is
marked to market (that is, its value on the Fund's books is changed) to reflect
changes in its market value, subsequent margin payments, called variation
margin, will be paid to or by the futures broker daily.
At any time prior to the expiration of the future, the Fund may elect to
close out its position by taking an opposite position at which time a final
determination of variation margin is made and additional cash is required to be
paid by or released to the Fund. Any gain or loss is then realized by the Fund
on the Future for tax purposes. Although interest rate futures by their terms
call for settlement by the delivery of debt securities, in most cases the
obligation is fulfilled without such delivery by entering into an offsetting
transaction. All futures transactions are effected through a clearing house
associated with the exchange on which the contracts are traded.
The Fund may concurrently buy and sell futures contracts in a strategy
anticipating that the future the Fund purchased will perform better than the
future the Fund sold. For example, the Fund might buy municipal bond futures and
concurrently sell U.S. Treasury Bond futures (a type of interest rate future).
The Fund would benefit if municipal bonds outperform U.S. Treasury Bonds on a
duration-adjusted basis.
Duration is a volatility measure that refers to the expected percentage
change in the value of a bond resulting from a change in general interest rates
(measured by each 1% change in the rates on U.S. Treasury securities). For
example, if a bond has an effective duration of three years, a 1% increase in
general interest rates would be expected to cause the value of the bond to
decline about 3%. There are risks that this type of futures strategy will not be
successful. U.S. Treasury bonds might perform better on a duration-adjusted
basis than municipal bonds, and the assumptions about duration that were used
might be incorrect (for examaple, the duration of municipal bonds relative to
U.S. Treasury Bonds might have been greater than anticipated).
|X| Put and Call Options. The Fund can buy and sell certain kinds of
put options (puts) and call options (calls). These strategies are described
below.
|X| Writing Covered Call Options. The Fund can write (that is, sell)
call options. The Fund's call writing is subject to a number of
restrictions:
(1) After the Fund writes a call, not more than 25% of the Fund's total
assets may be subject to calls.
(2) Calls the Fund sells must be listed on a securities or commodities
exchange or quoted on NASDAQ, the automated quotation system of The
Nasdaq Stock Market, Inc. or traded in the over-the-counter market.
(3) Each call the Fund writes must be "covered" while it is outstanding.
That means the Fund must own the investment on which the call was
written.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying investment to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine (9) months. The exercise price may
differ from the market price of the underlying security. The Fund has retained
the risk of loss that the price of the underlying security may decline during
the call period. That risk may be offset to some extent by the premium the Fund
receives. If the value of the investment does not rise above the call price, it
is likely that the call will lapse without being exercised. In that case the
Fund would keep the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by the specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.
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.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the calls or upon the Fund's entering into a
closing purchase transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. Government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in-the-money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on illiquid securities) the
mark-to-market value of any OTC option held by it, unless the option is subject
to a buy-back agreement by the executing broker. The Securities and Exchange
Commission is evaluating whether OTC options should be considered liquid
securities. The procedure described above could be affected by the outcome of
that evaluation.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
was more or less than the price of the call the Fund purchased to close out the
transaction. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium received. Any
such profits are considered short-term capital gains for Federal tax purposes,
as are premiums on lapsed calls. When distributed by the Fund they are taxable
as ordinary income.
The Fund may also write calls on futures contracts without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating in escrow
an equivalent dollar value of liquid assets identified on the Fund's books. The
Fund will segregate additional liquid assets if the value of the escrowed assets
drops below 100% of the current value of the future. Because of this escrow
requirement, in no circumstances would the Fund's receipt of an exercise notice
as to that future put the Fund in a "short" futures position.
|X| Purchasing Calls and Puts. The Fund may buy calls only on
securities, broadly-based municipal bond indices, municipal bond index futures
and interest rate futures. It can also buy calls to close out a call it has
written, as discussed above. Calls the Fund buys must be listed on a securities
or commodities exchange, or quoted on NASDAQ, or traded in the over-the-counter
market. A call or put option may not be purchased if the purchase would cause
the value of all the Fund's put and call options to exceed 5% of its total
assets. The aggregate premiums paid on all options that the Fund holds at any
time are limited to 20% of the Fund's total assets. The aggregate margin
deposits on all futures or options on futures at any time will be limited to 5%
of the Fund's total assets.
When the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium. For calls on securities that the Fund buys, it
has the right to buy the underlying investment from a seller of a corresponding
call on the same investment during the call period at a fixed exercise price.
The Fund benefits only if (1) the call is sold at a profit or (2) the call is
exercised when the market price of the underlying investment is above the sum of
the exercise price plus the transaction costs and premium paid for the call. If
the call is not either exercised or sold (whether or not at a profit), it will
become worthless at its expiration date. In that case the Fund will lose its
premium payment and the right to purchase the underlying investment.
Calls on municipal bond indices, interest rate futures and municipal bond
index futures are settled in cash rather than delivering the underlying
investment. Gain or loss depends on changes in the securities included in the
index in question (and thus on price movements in the debt securities market
generally) rather than on changes in price of the individual futures contract.
The Fund may buy only those puts that relate to securities that the Fund
owns, broadly-based municipal bond indices, municipal bond index futures or
interest rate futures (whether or not the Fund owns the futures). The Fund may
not sell puts other than puts it has previously purchased.
When the Fund purchases a put, it pays a premium. The Fund then has the
right to sell the underlying investment to a seller of a corresponding put on
the same investment during the put period at a fixed exercise price. Puts on
municipal bond indices are settled in cash. Buying a put on a debt security,
interest rate future or municipal bond index future the Fund owns enables it to
protect itself during the put period against a decline in the value of the
underlying investment below the exercise price. If the market price of the
underlying investment is equal to or above the exercise price and as a result
the put is not exercised or resold, the put will become worthless at its
expiration date. In that case the Fund will lose its premium payment and the
right to sell the underlying investment. A put may be sold prior to expiration
(whether or not at a profit).
|_| Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's returns.
The Fund's option activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund may cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call, or buys or sells an underlying investment in connection with the
exercise of a call or put. Such commissions may be higher on a relative basis
than the commissions for direct purchases or sales of the underlying
investments. Premiums paid for options are small in relation to the market value
of the underlying investments. Consequently, put and call options offer large
amounts of leverage. The leverage offered by trading in options could result in
the Fund's net asset value being more sensitive to changes in the value of the
underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
There is a risk in using short hedging by selling interest rate futures
and municipal bond index futures or purchasing puts on municipal bond indices or
futures to attempt to protect against declines in the value of the Fund's
securities. The risk is that the prices of such futures or the applicable index
will correlate imperfectly with the behavior of the cash (that is, market)
prices of the Fund's securities. It is possible for example, that while the Fund
has used hedging instruments in a short hedge, the market may advance and the
value of debt securities held in the Fund's portfolio might decline. If that
occurred, the Fund would lose money on the hedging instruments and also
experience a decline in value of its debt securities. However, while this could
occur over a brief period or to a very small degree, over time the value of a
diversified portfolio of debt securities will tend to move in the same direction
as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the Fund's
portfolio diverges from the securities included in the applicable index. To
compensate for the imperfect correlation of movements in the price of debt
securities being hedged and movements in the price of the hedging instruments,
the Fund may use hedging instruments in a greater dollar amount than the dollar
amount of debt securities being hedged. It might do so if the historical
volatility of the prices of the debt securities being hedged is greater than the
historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions due to differences in the natures of those markets. All
participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. From the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the
securities markets. Therefore, increased participation by speculators in the
futures markets may cause temporary price distortions.
The Fund may use hedging instruments to establish a position in the
municipal securities markets as a temporary substitute for the purchase of
individual securities (long hedging). It is possible that the market may
decline. If the Fund then concludes not to invest in such securities because of
concerns that there may be further market decline or for other reasons, the Fund
will realize a loss on the hedging instruments that is not offset by a reduction
in the purchase price of the securities.
An option position may be closed out only on a market that provides
secondary trading for options of the same series. There is no assurance that a
liquid secondary market will exist for a particular option. If the Fund could
not effect a closing purchase transaction due to a lack of a market, it would
have to hold the callable investment until the call lapsed or was exercised, and
could incur losses.
|_| Interest Rate Swap Transactions. In an interest rate swap, the Fund and
another party exchange their right to receive or their obligation to pay
interest on a security. For example, they may swap a right to receive floating
rate payments for fixed rate payments. The Fund can enter into swaps only on
securities it owns. The Fund can enter into swaps with respect to more than 25%
of its total assets. Also, the Fund will segregate liquid assets (such as cash
or U.S. Government securities) to cover any amounts it could owe under swaps
that exceed the amounts it is entitled to receive, and it will adjust that
amount daily, as needed. Income from interest rate swaps may be taxable.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will have been greater than those received by
it. Credit risk arises from the possibility that the counterparty will default.
If the counterparty to an interest rate swap defaults, the Fund's loss will
consist of the net amount of contractual interest payments that the Fund has not
yet received. The Manager will monitor the creditworthiness of counterparties to
the Fund's interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with appropriate counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty under the master agreement
shall be regarded as parts of an integral agreement. If on any date amounts are
payable under one or more swap transactions, the net amount payable on that date
shall be paid. In addition, the master netting agreement may provide that if one
party defaults generally or on one swap, the counterparty can terminate the
swaps with that party. Under master netting agreements, if there is a default
resulting in a loss to one party, that party's damages are calculated by
reference to the average cost of a replacement swap with respect to each swap.
The gains and losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all swaps and the
netting of gains and losses on termination is generally referred to as
"aggregation."
|_| Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions established by the Commodity Futures Trading Commission (the
"CFTC"). In particular, the Fund is exempted from registration with the CFTC as
a "commodity pool operator" if the Fund complies with the requirements of Rule
4.5 adopted by the CFTC. That Rule does not limit the percentage of the Fund's
assets that may be used for Futures margin and related options premiums for a
bona fide hedging position. However, under the Rule the Fund must limit its
aggregate initial futures margin and related options premiums to no more than 5%
of the Fund's net assets for hedging strategies that are not considered bona
fide hedging strategies under the Rule. Under the Rule, the Fund also must use
short futures and options on futures positions solely for bona fide hedging
purposes within the meaning and intent of the applicable provisions of the
Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges, or are held in one or more
accounts or through one or more different exchanges or through one or more
brokers. Thus, the number of options that the Fund may write or hold may be
affected by options written or held by other entities, including other
investment companies having the same adviser as the Fund (or an adviser that is
an affiliate of the Fund's adviser). The exchanges also impose position limits
on futures transactions. An exchange may order the liquidation of positions
found to be in violation of those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases an interest rate
future or municipal bond index future, it must maintain cash or readily
marketable short-term debt instruments in an amount equal to the market value of
the investments underlying the future, less the margin deposit applicable to it.
The account must be a segregated account or accounts held by its custodian bank.
|X| Temporary Defensive Investments. The securities the Fund can invest
in for temporary defensive purposes include the following:
|_| short-term municipal securities;
|_| obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
|_| corporate debt securities rated within the three highest grades
by a nationally recognized rating agency;
|_| commercial paper rated "A-1" by S&P, or a comparable rating by
another nationally recognized rating agency; and
|_| certificates of deposit of domestic banks with assets of $1
billion or more.
|X| Taxable Investments. While the Fund can invest up to 20% of its total
assets in investments that generate income subject to income taxes, it does not
anticipate investing substantial amounts of its assets in taxable investments
under normal market conditions or as part of its normal trading strategies and
policies. To the extent it invests in taxable securities, the Fund would not be
able to meet its objective of providing tax exempt income to its shareholders.
Taxable investments include, for example, hedging instruments, repurchase
agreements, and some of the types of securities it would buy for temporary
defensive purposes.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, such a "majority" vote is defined as the vote
of the holders of the lesser of:
|_| 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or |_| more than 50% of the
outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund:
|_| The Fund cannot concentrate its investments to the extent of 25% of
its total assets in any industry. However, there is no limitation as to the
Fund's investments in municipal securities in general or in New Jersey municipal
securities, or in obligations issued by the U.S. Government and its agencies or
instrumentalities.
|_| The Fund cannot invest in real estate. This restriction shall not
prevent the Fund from investing in municipal securities or other permitted
securities that are secured by real estate or interests in real estate.
|_| The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 when reselling any securities held in its own portfolio.
|_| The Fund cannot make loans except (a) by lending portfolio securities,
(b) through the purchase of debt instruments or similar evidences of
indebtedness, (c) through repurchase agreements, and (d) through an interfund
lending program with other affiliated funds. No such loan may be made through
interfund lending if, as a result, the aggregate of those loans would exceed 33
1/3% of the value of the Fund's total assets (taken at market value at the time
the loan is made).
|_| The Fund cannot borrow money or securities for any purposes except
that (a) borrowing up to 10% of the Fund's total assets from banks and/or
affiliated investment companies as a temporary measure for extraordinary or
emergency purposes and (b) borrowing up to 5% of the Fund's total assets from
banks for investment purposes, is permitted.
|_| The Fund cannot issue "senior securities," but this does not prohibit
certain investment activities for which assets of the Fund are designated as
segregated, or margin, collateral or escrow agreements are established, to cover
the related obligations. Examples of those activities include borrowing money,
reverse repurchase agreements, delayed-delivery and when-issued arrangements for
portfolio securities transactions, and contracts to buy or sell derivatives,
hedging instruments, options or futures.
Unless the Prospectus or Statement of Additional Information states that a
percentage restriction applies on an ongoing basis, it applies only at the time
the Fund makes an investment. In that case the Fund need not sell securities to
meet the percentage limits if the value of the investment increases in
proportion to the size of the Fund.
|X| Does the Fund Have Other Restrictions that are Not Fundamental
Policies?
The Fund has several additional restrictions on its investment policies
that are not fundamental, which means that they can be changed by the Board of
Trustees, without obtaining shareholder approval.
|_| The Fund cannot invest in securities or other investments other than
municipal securities, the temporary investments described in its Prospectus,
repurchase agreements, covered calls, private activity municipal securities and
hedging instruments described in "About the Fund" in the Prospectus or this
Statement of Additional Information.
|_| The Fund cannot purchase securities other than hedging instruments on
margin. However, the Fund may obtain short-term credits that may be necessary
for the clearance of purchases and sales of securities.
|_| The Fund cannot sell securities short.
|_| The Fund cannot pledge, mortgage or otherwise encumber, transfer or
assign its assets to secure a debt. However, the use of escrow or other
collateral arrangements in connection with hedging instruments is permitted.
|_| The Fund cannot buy or sell futures contracts other than interest rate
futures and municipal bond index futures.
|_| The Fund will not invest more than 10% of its net assets in securities
which are restricted as to disposition under the federal securities laws, except
that the Fund may purchase without regard to this limitation restricted
securities which are eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
The Fund currently has an operating policy (which is not a fundamental
policy but will not be changed without the approval of a shareholder vote) that
prohibits the Fund from issuing senior securities. However, that policy does not
prohibit certain activities that are permitted by the Fund's other policies,
including borrowing money for emergency purposes as permitted by its other
investment policies and applicable regulations, entering into delayed-delivery
and when-issued arrangements for portfolio securities transactions, and entering
into contracts to buy or sell derivatives, hedging instruments, options, futures
and the related margin, collateral or escrow arrangements permitted under its
other investment policies.
Non-Diversification of the Fund's Investments. The Fund is a series of a trust
that is "non-diversified," as defined in the Investment Company Act. Funds that
are diversified have restrictions against investing too much of their assets in
the securities of any one "issuer." That means that the Fund can invest more of
its assets in the securities of a single issuer than a fund that is diversified.
Being non-diversified poses additional investment risks, because if the
Fund invests more of its assets in fewer issuers, the value of its shares is
subject to greater fluctuations from adverse conditions affecting any one of
those issuers. However, the Fund does limit its investments in the securities of
any one issuer to qualify for tax purposes as a "regulated investment company"
under the Internal Revenue Code. By qualifying, it does not have to pay federal
income taxes if more than 90% of its earnings are distributed to shareholders.
To qualify, the Fund must meet a number of conditions. First, not more than 25%
of the market value of the Fund's total assets may be invested in the securities
of a single issuer. Second, with respect to 50% of the market value of its total
assets, (1) no more than 5% of the market value of its total assets may be
invested in the securities of a single issuer, and (2) the Fund must not own
more than 10% of the outstanding voting securities of a single issuer.
The identification of the issuer of a municipal security depends on the
terms and conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating it and the security is backed only by the
assets and revenues of the subdivision, agency, authority or instrumentality,
the latter would be deemed to be the sole issuer. Similarly, if an industrial
development bond is backed only by the assets and revenues of the
non-governmental user, then that user would be deemed to be the sole issuer.
However, if in either case the creating government or some other entity
guarantees a security, the guarantee would be considered a separate security and
would be treated as an issue of such government or other entity.
Applying the Restriction Against Concentration. To implement its policy not to
concentrate its investments, the Fund has adopted the industry classifications
set forth in Appendix B to this Statement of Additional Information. Those
industry classifications are not a fundamental policy.
In implementing the Fund's policy not to concentrate its investments, the
Manager will consider a non-governmental user of facilities financed by
industrial development bonds as being in a particular industry. That is done
even though the bonds are municipal securities, as to which the Fund has no
concentration limitation. Although this application of the concentration
restriction is not a fundamental policy of the Fund, it will not be changed
without shareholder approval. The Manager has no present intention of investing
more than 25% of the Fund's total assets in securities paying interest from
revenues of similar type projects or in industrial development bonds. This is
not a fundamental policy and therefore could be changed without shareholder
approval. However, if that change were made, the Prospectus or this Statement of
Additional Information would be supplemented to reflect the change.
How the Fund Is Managed
Organization and History. The Fund is a series of a Massachusetts business trust
that was originally organized in 1989, as a trust having one series. In 1993 it
was reorganized to be a multi-series business trust (now called Oppenheimer
Multi-State Municipal Trust). The Fund was added as a separate series of that
Trust in 1994. The Trust is an open-end, non-diversified management investment
company with an unlimited number of authorized shares of beneficial interest.
Each of the three (3) series of the Trust is a separate fund that issues its own
shares, has its own investment portfolio, and has 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. Although the Fund will
not normally hold annual meetings of its shareholders, it may hold shareholder
meetings from time to time on important matters, and shareholders have the right
to call a meeting to remove a Trustee or to take other action described in the
Fund's Declaration of Trust.
|X| Classes of Shares. The Board of Trustees has the power, without
shareholder approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has three classes of
shares, Class A, Class B and Class C. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different
classes,
o may have a different net asset value,
o may have separate voting rights on matters in which the interests of one
class are different from the interests of another class, and
o votes as a class on matters that affect that class alone.
All classes invest in the same investment portfolio. Shares are freely
transferable. Each share has one vote at shareholder meetings, with fractional
shares voting proportionally on matters submitted to the vote of shareholders.
Each share of the Fund represents an interest in the Fund proportionately equal
to the interest of each other share of the same class.
The Trustees are authorized to create new series and classes of shares.
The Trustees may reclassify unissued shares of the Fund into additional series
or classes of shares. The Trustees also may divide or combine the shares of a
class into a greater or lesser number of shares without changing the
proportionate beneficial interest of a shareholder in the Fund. Shares do not
have cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy at shareholder meetings.
|X| Meetings of Shareholders. 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. It will also do so
when a shareholder meeting is called by the Trustees or upon proper request of
the shareholders.
Shareholders have the right, upon the declaration in writing or vote of
two-thirds of the outstanding shares of the Fund, to remove a Trustee. The
Trustees will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the record holders of 10% of its outstanding shares.
If the Trustees receive a request from at least ten (10) shareholders stating
that they wish to communicate with other shareholders to request a meeting to
remove a Trustee, the Trustees will then either make the shareholder lists
available to the applicants or mail their communication to all other
shareholders at the applicants' expense. The shareholders making the request
must have been shareholders for at least six (6) months and must hold shares of
the Fund valued at $25,000 or more or constituting at least 1% of the Fund's
outstanding shares, whichever is less. The Trustees may also take other action
as permitted by the Investment Company Act.
|X| Shareholder and Trustee Liability. The Fund's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally liable
for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any
act or obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the trust
of which the Fund is a series) to be held personally liable as a "partner" under
certain circumstances. However, the risk that a Fund shareholder will incur
financial loss from being held liable as a "partner" of the Fund is limited to
the relatively remote circumstances in which the Fund would be unable to meet
its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under its Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. The contracts further
state that the Trustees shall have no personal liability to any such person, to
the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations and occupations during the past
five (5) years are listed below. Trustees denoted with an asterisk (*) below are
deemed to be "interested persons" of the Fund under the Investment Company Act.
All of the Trustees are Trustees or Directors of the following New York-based
Oppenheimer funds1:
Oppenheimer California Municipal Fund Oppenheimer Large Cap Growth Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Capital Preservation Fund
Oppenheimer Money Market Fund, Inc. Oppenheimer Developing Markets Oppenheimer
Multiple Strategies Fund Fund Oppenheimer Discovery Fund Oppenheimer
Multi-Sector Income Oppenheimer Emerging Growth Fund Trust Oppenheimer Emerging
Oppenheimer Multi-State Municipal Technologies Fund Trust Oppenheimer Enterprise
Fund Oppenheimer Municipal Bond Fund Oppenheimer Europe Fund Oppenheimer New
York Municipal Fund Oppenheimer Global Fund Oppenheimer Series Fund, Inc.
Oppenheimer Global Growth & Income Fund Oppenheimer U.S. Government Trust
Oppenheimer Gold & Special Minerals Fund Oppenheimer Trinity Core Fund
Oppenheimer Growth Fund Oppenheimer Trinity Growth Fund Oppenheimer
International Growth Fund Oppenheimer Trinity Value Fund Oppenheimer
International Small Company Fund Oppenheimer World Bond Fund
Ms. Macaskill and Messrs. Spiro, Donohue, Wixted, Zack, Bishop and Farrar
respectively hold the same offices with the other New York-based Oppenheimer
funds as with the Fund. As of November 15, 2000, the Trustees and Officers of
the Fund as a group owned of record or beneficially less than 1% of the
outstanding Class A shares of the Fund and owned no shares of Class B or C. The
foregoing statement does not reflect ownership of shares of the Fund held of
record by an employee benefit plan for employees of the Manager, other than the
shares beneficially owned under the plan by the officers of the Fund listed
above. Ms. Macaskill and Mr. Donohue are trustees of that plan.
Leon Levy, Chairman of the Board of Trustees, Age: 75.
280 Park Avenue, New York, NY 10017
General Partner of Odyssey Partners, L.P. (investment partnership) (since
1982) and Chairman of Avatar Holdings, Inc. (real estate development).
Donald W. Spiro, Vice Chairman of the Board of Trustees, Age: 74. 399 Ski Trail,
Smoke Rise, New Jersey 07405 Formerly he held the following positions: Chairman
Emeritus (August 1991 August 1999), Chairman (November 1987 - January 1991) and
a director (January 1969 - August 1999) of the Manager; President and Director
of OppenheimerFunds Distributor, Inc., a subsidiary of the Manager and the
Fund's Distributor (July 1978 - January 1992).
Bridget A. Macaskill*, President and Trustee; Age: 52.
Two World Trade Center, New York, New York 10048-0203
Chairman (since August 2000), Chief Executive Officer (since September 1995) and
a director (since December 1994) of the Manager; President (since September
1995) and a director (since October 1990) of Oppenheimer Acquisition Corp., the
Manager's parent holding company; President, Chief Executive Officer and a
director (since March 2000) of OFI Private Investments, Inc., an investment
adviser subsidiary of the Manager; Chairman and a director of Shareholder
Services, Inc. (since August 1994) and Shareholder Financial Services, Inc.
(since September 1995), transfer agent subsidiaries of the Manager; President
(since September 1995) and a director (since November 1989) of Oppenheimer
Partnership Holdings, Inc., a holding company subsidiary of the Manager;
President and a director (since October 1997) of OppenheimerFunds International
Ltd., an offshore fund management subsidiary of the Manager and of Oppenheimer
Millennium Funds plc; a director of HarbourView Asset Management Corporation
(since July 1991) and of Oppenheimer Real Asset Management, Inc. (since July
1996), investment adviser subsidiaries of the Manager; a director (since April
2000) of OppenheimerFunds Legacy Program, a charitable trust program established
by the Manager; a director of Prudential Corporation plc (a U.K. financial
service company); President and a trustee of other Oppenheimer funds; formerly
President of the Manager (June 1991 - August 2000).
Robert G. Galli, Trustee, Age: 67.
19750 Beach Road, Jupiter, FL 33469
A Trustee or Director of other Oppenheimer funds. Formerly he held the following
positions: Vice Chairman (October 1995 - December 1997) and Executive Vice
President (December 1977 - October 1995) of the Manager; Executive Vice
President and a director (April 1986 - October 1995) of
HarbourView Asset Management Corporation.
Phillip A. Griffiths, Trustee, Age: 62.
97 Olden Lane, Princeton, N. J. 08540
The Director of the Institute for Advanced Study, Princeton, N.J. (since 1991)
and a member of the National Academy of Sciences (since 1979); formerly (in
descending chronological order) a director of Bankers Trust Corporation, Provost
and Professor of Mathematics at Duke University, a director of Research Triangle
Institute, Raleigh, N.C., and a Professor of Mathematics at Harvard University.
Benjamin Lipstein, Trustee, Age: 77.
591 Breezy Hill Road, Hillsdale, N.Y. 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
Elizabeth B. Moynihan, Trustee, Age: 71.
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the Freer Gallery of Art
(Smithsonian Institute), Executive Committee of Board of Trustees of the
National Building Museum; a member of the Trustees Council, Preservation League
of New York State.
Kenneth A. Randall, Trustee, Age: 73.
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil & gas producer), and Prime Retail,
Inc. (real estate investment trust); formerly President and Chief Executive
Officer of The Conference Board, Inc. (international economic and business
research) and a director of Lumbermens Mutual Casualty Company, American
Motorists Insurance Company and American Manufacturers Mutual Insurance Company.
Edward V. Regan, Trustee, Age: 70.
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New York; Senior
Fellow of Jerome Levy Economics Institute, Bard College; a director of RBAsset
(real estate manager); a director of OffitBank; Trustee, Financial Accounting
Foundation (FASB and GASB); President, Baruch College of the City University of
New York; formerly New York State Comptroller and trustee, New York State and
Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee, Age: 68.
8 Sound Shore Drive, Greenwich, Connecticut 06830
Chairman of The Directorship Search Group, Inc. (corporate governance
consulting and executive recruiting); a director of Professional Staff
Limited (a U.K. temporary staffing company); a life trustee of International
House (non-profit educational organization), and a trustee of the Greenwich
Historical Society.
Clayton K. Yeutter, Trustee, Age: 69.
10475 E. Laurel Lane, Scottsdale, Arizona 85259
Of Counsel, Hogan & Hartson (a Washington, D.C. law firm). Other
directorships: Allied Zurich Pl.c; ConAgra, Inc.; FMC Corporation; Farmers
Group Inc.; Oppenheimer Funds; Texas Instruments Incorporated; Weyerhaeuser
Co. and Zurich Allied AG.
Andrew J. Donohue, Secretary, Age: 50.
Two World Trade Center, New York, New York 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of OppenheimerFunds Distributor, Inc.; Executive Vice President,
General Counsel and a director (since September 1995) of HarbourView Asset
Management Corporation, Shareholder Services, Inc., Shareholder Financial
Services, Inc. and Oppenheimer Partnership Holdings, Inc.; President and a
director of Centennial Asset Management Corporation (since September 1995); and
of Oppenheimer Real Asset Management, Inc. (since July 1996); Vice President and
a director (since October 1997) of OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc; General Counsel (since May 1996) and Secretary
(since April 1997) of Oppenheimer Acquisition Corp.; an officer of other
Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer, Age: 41.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund
Controller for the Manager.
Scott T. Farrar, Assistant Treasurer, Age: 36.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of Oppenheimer Millennium Funds plc (since October 1997); an officer
of other Oppenheimer Funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Brian W. Wixted, Treasurer, Age: 41.
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since March 1999) of the Manager; Treasurer
(since April 1999) of HarbourView Asset Management Corporation, Shareholder
Services, Inc., Oppenheimer Real Asset Management Corporation, Shareholder
Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc.; of OFI
Private Investments, Inc. (since March 2000) and of OppenheimerFunds
International Ltd. and Oppenheimer Millenium Funds plc (since May 2000),
Treasurer and Chief Financial Officer (since May 2000) of PIMCO Trust Company;
Assistant Treasurer (since March 1999) of Oppenheimer Acquisition Corp. and
Centennial Asset Management Corporation; an officer of other Oppenheimer funds;
formerly Principal and Chief Operating Officer, Bankers Trust Company - Mutual
Fund Services Division (March 1995 - March 1999); Vice President and Chief
Financial Officer of CS First Boston Investment Management Corp. (September 1991
- March 1995).
Robert G. Zack, Assistant Secretary, Age: 52.
Two World Trade Center, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since
May 1981) of the Manager, Assistant Secretary of Shareholder Services, Inc.
(since May 1985), Shareholder Financial Services, Inc. (since November 1989);
Assistant Secretary of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
Merrell Hora, Portfolio Manager, Age: 32.
Two World Trade Center, New York, New York 10048-0203
Assistant Vice President of the Manager (since July 1999); a portfolio manager
of other Oppenheimer funds; formerly a Senior Quantitative Analyst for the Fixed
Income Department's Quantitative Analysis Team (July 1998 August 2000); prior to
joining the Manager in July 1998 he was a quantitative analyst with a subsidiary
of the Cargill Financial Services Group (January 1997 - September 1997) and also
held numerous positions at the University of Minnesota from which he obtained
his Ph.D. in Economics.
Jerry A. Webman, Portfolio Manager, Age: 51.
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Senior Investment Officer and Director of the Fixed
Income Department of the Manager (since February 1996); Senior Vice President of
HarbourView Asset Management Corporation (since May 1999); a portfolio manager
of other Oppenheimer funds; before joining the Manager in February 1996, he was
a Vice President and portfolio manager with Prudential Investment Corporation
(March 1986 - February 1996).
|X| Remuneration of Trustees. The officers of the Fund and certain
Trustees of the Fund (Ms. Macaskill and Mr. Spiro) are affiliated with the
Manager and 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, 2000. The compensation from all
of the New York-based Oppenheimer funds (including the Fund) was received as a
director, trustee or member of a committee of the boards of those funds during
the calendar year 1999.
<PAGE>
----------------------------------------------------------------------
Total
Retirement Compensation
Benefits from all
Aggregate Accrued New York-Based
Compensation as Fund Oppenheimer
Name and Position from Fund1 Expenses Funds (29
Funds)2
----------------------------------------------------------------------
----------------------------------------------------------------------
Leon Levy $3,825 $2,026 $166,700
Chairman
----------------------------------------------------------------------
----------------------------------------------------------------------
Robert G. Galli $902 $0 $177,715
Study Committee
Member3
----------------------------------------------------------------------
----------------------------------------------------------------------
Phillip A. Griffiths4 $382 $0 $ 5,125
----------------------------------------------------------------------
----------------------------------------------------------------------
Benjamin Lipstein $3,533 $1,977 $144,100
Study Committee
Chairman,
Audit Committee
Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Elizabeth B. Moynihan $1,725 $629 $101,500
Study Committee
Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Kenneth A. Randall $2,180 $1,186 $ 93,100
Audit Committee
Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Edward V. Regan $994 $0 $ 92,100
Proxy Committee
Chairman, Audit
Committee Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Russell S. Reynolds, $1,136 $392 $ 68,900
Jr.
Proxy Committee
Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Donald W. Spiro $408 $0 $ 10,250
----------------------------------------------------------------------
----------------------------------------------------------------------
Clayton K. Yeutter $658 $0 $ 51,675
Proxy Committee
Member5
----------------------------------------------------------------------
-------------------
1 Aggregate compensation includes fees, deferred compensation, if any, and
retirement plan benefits accrued for a Trustee.
2 For the 1999 calendar year.
3 Calendar year 1999 figures include compensation from the Oppenheimer New York,
Quest and Rochester Funds. 4 Includes $5 deferred under Deferred Compensation
Plan described below. 5 Includes $2 deferred under Deferred Compensation Plan
described below.
|X| Retirement Plan for Trustees. The Fund has adopted a retirement plan
that provides for payments to retired Trustees. Payments are up to 80% of the
average compensation paid during a Trustee's five (5) years of service in which
the highest compensation was received. A Trustee must serve as trustee for any
of the New York-based Oppenheimer funds for at least fifteen (15) years to be
eligible for the maximum payment. Each Trustee's retirement benefits will depend
on the amount of the Trustee's future compensation and length of service.
Therefore the amount of those benefits cannot be determined at this time, nor
can we estimate the number of years of credited service that will be used to
determine those benefits.
|X| Deferred Compensation Plan for Trustees. The Board of Trustees has
adopted a Deferred Compensation Plan for disinterested trustees that enables
them to elect to defer receipt of all or a portion of the annual fees they are
entitled to receive from the Fund. Under the plan, the compensation deferred by
a Trustee is periodically adjusted as though an equivalent amount had been
invested in shares of one or more Oppenheimer funds selected by the Trustee. The
amount paid to the Trustee under the plan will be determined based upon the
performance of the selected funds.
Deferral of Trustees' fees under the plan will not materially affect the
Fund's assets, liabilities or net income per share. The plan will not obligate
the Fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
|X| Major Shareholders. As of October 10, 2000, the only persons who owned
of record or who were known by the Fund to own beneficially 5% or more of the
Fund's outstanding Class A, Class B or Class C shares were:
Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E., 3rd Floor,
Jacksonville, Florida 32246, which owned 355,728.369 Class A shares
(representing approximately 10.89% of the Fund's then-outstanding Class A
shares), for the benefit of its customers, also owned 309,482.374 Class B
shares (representing approximately 9.13% of the Fund's then-outstanding
Class B shares), for the benefit of its customers, and owned 117,355.129
Class C shares (representing approximately 18.10% of the Fund's
then-outstanding Class C shares), for the benefit of its customers.
PaineWebber, 10 Highfield Court, Laurenceville, New Jersey 08648, which
owned 170,674.628 Class A shares (representing approximately 5.22% of the
Fund's then-outstanding Class A shares).
Donaldson Lufkin Jenrette Securities Corporation, P.O. Box 2052, Jersey
City, New Jersey 07303, which owned 36,269.880 Class C shares
(representing approximately 5.59% of the Fund's then-outstanding Class C
shares).
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company.
|X| Code of Ethics. The Fund, the Manager and the Distributor have a Code
of Ethics. It is designed to detect and prevent improper personal trading by
certain employees, including portfolio managers, that would compete with or take
advantage of the Fund's portfolio transactions. Covered persons include persons
with knowledge of the investments and investment intentions of the Fund and
other funds advised by the Manager. The Code of Ethics does permit personnel
subject to the Code to invest in securities, including securities that may be
purchased or held by the Fund, subject to a number of restrictions and controls.
Compliance with the Code of Ethics is carefully monitored and enforced by the
Manager.
The Code of Ethics is an exhibit to the Fund's registration statement
filed with the Securities and Exchange Commission and can be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. You can obtain
information about the hours of operation of the Public Reference Room by calling
the SEC at 1-202-942-8090. The Code of Ethics can also be viewed as part of the
Fund's registration statement on the SEC's EDGAR database at the SEC's Internet
website at http://www.sec.gov. Copies may be obtained after paying a duplicating
fee, by electronic request at the following E-mail address: [email protected],
or by writing to the SEC's Public Reference Section, Washington, D.C.
20549-0102.
|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to day business. The portfolio manager
of the Fund is employed by the Manager and is the person who is principally
responsible for the day-to-day management of the Fund's investment portfolio.
Other members of the Manager's Fixed-Income Portfolio Team provide the portfolio
manager with research and counsel in managing the Fund's investments.
That agreement requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective corporate administration for
the Fund. Those responsibilities include the compilation and maintenance of
records with respect to the Fund's operations, the preparation and filing of
specified reports, and the composition of proxy materials and registration
statements for continuous public sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories relate to interest, taxes, fees to disinterested
Trustees, legal and audit expenses, custodian and transfer agent expenses, share
issuance costs, certain printing and registration costs, brokerage commissions,
and non-recurring expenses, including litigation cost. The management fees paid
by the Fund to the Manager are calculated at the rates described in the
Prospectus, which are applied to the assets of the Fund as a whole. The fees are
allocated to each class of shares based upon the relative proportion of the
Fund's net assets represented by that class. The management fees paid by the
Fund to the Manager during its last three (3) fiscal years are listed below.
----------------------------------------------------------------------
Management Fee Paid to
Fiscal Year Management Fee OppenheimerFunds, Inc.
Ending 7/31 (Without Voluntary (after waiver)
Waiver)
----------------------------------------------------------------------
----------------------------------------------------------------------
1998 $324,038 $0
$109,426
----------------------------------------------------------------------
----------------------------------------------------------------------
1999 $523,550 $130,366
$230,723
----------------------------------------------------------------------
----------------------------------------------------------------------
2000 $490,267 $263,552
----------------------------------------------------------------------
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties, or
reckless disregard for its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss sustained by reason of any
investment of the Fund assets made with due care and in good faith. The
agreement permits the Manager to act as investment adviser for any other person,
firm or corporation. The Manager can use the name "Oppenheimer" in connection
with other investment companies for which it or an affiliate is the investment
adviser or general distributor. If the Manager shall no longer act as investment
adviser to the Fund, the Manager can withdraw its permission to the Fund to use
the name "Oppenheimer" as part of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to buy and sell portfolio
securities for the Fund. The investment advisory agreement allows the Manager to
use broker-dealers to effect the Fund's portfolio transactions. Under the
agreement, the Manager may employ those broker-dealers (including "affiliated"
brokers, as that term is defined in the Investment Company Act) that, in the
Manager's best judgment based on all relevant factors, will implement the Fund's
policy to obtain, at reasonable expense, the "best execution" of portfolio
transactions. "Best execution" refers to prompt and reliable execution at the
most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, the Manager is expected to minimize the commissions
paid to the extent consistent with the interest and policies of the Fund as
established by its Board of Trustees.
Under the investment advisory agreement, the Manager may select brokers
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager or its affiliates have investment discretion.
The commissions paid to such brokers may be higher than another qualified broker
would charge, if the Manager makes a good faith determination that the
commission is fair and reasonable in relation to the services provided. Subject
to those other considerations, as a factor in selecting brokers for the Fund's
portfolio transactions, the Manager may also consider sales of shares of the
Fund and other investment companies managed by the Manager or its affiliates.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally the Manager's portfolio traders
allocate brokerage upon recommendations from the Manager's portfolio managers.
In certain instances, portfolio managers may directly place trades and allocate
brokerage. In either case, the Manager's executive officers supervise the
allocation of brokerage.
Most securities purchases made by the Fund are in principal transactions
at net prices. The Fund usually deals directly with the selling or purchasing
principal or market maker without incurring charges for the services of a broker
on its behalf unless the Manager determines that a better price or execution may
be obtained by using the services of a broker. Therefore, the Fund does not
incur substantial brokerage costs. Portfolio securities purchased from
underwriters include a commission or concession paid by the issuer to the
underwriter in the price of the security. Portfolio securities purchased from
dealers include a spread between the bid and asked price.
The Fund seeks to obtain prompt execution of orders at the most favorable
net prices. In an option transaction, the Fund ordinarily uses the same broker
for the purchase or sale of the option and any transaction in the investment to
which the option relates. Other funds advised by the Manager have investment
objectives and policies similar to those of the Fund. Those other funds may
purchase or sell the same securities as the Fund at the same time as the Fund,
which could affect the supply and price of the securities. When possible, the
Manager tries to combine concurrent orders to purchase or sell the same security
by more than one of the accounts managed by the Manager or its affiliates. The
transactions under those combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each account.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The research services provided by a particular
broker may be useful only to one or more of the advisory accounts of the Manager
and its affiliates. Investment research received by the Manager for the
commissions paid by those other accounts may be useful both to the Fund and one
or more of the Manager's other accounts. Investment research services may be
supplied to the Manager by a third party at the instance of a broker through
which trades are placed. Investment research services include information and
analyses on particular companies and industries as well as market or economic
trends and portfolio strategy, market quotations for portfolio evaluations,
information systems, computer hardware and similar products and services. If a
research service also assists the Manager in a non-research capacity (such as
bookkeeping or other administrative functions), then only the percentage or
component that provides assistance to the Manager in the investment
decision-making process may be paid in commission dollars.
The Board of Trustees permits the Manager to use commissions on
fixed-price offerings to obtain research, in the same manner as is permitted for
agency transactions. The Board permits the Manager to use stated commissions on
secondary fixed-income agency trades to obtain research if the broker represents
to the Manager that: (i) the trade is not from or for the broker's own
inventory, (ii) the trade was executed by the broker on an agency basis at the
stated commission, and (iii) the trade is not a riskless principal transaction.
The research services provided by brokers broaden the scope and supplement
the research activities of the Manager. That research provides additional views
and comparisons for consideration and helps the Manager to obtain market
information for the valuation of securities that are either held in the Fund's
portfolio or are being considered for purchase. The Manager provides information
to the Board of the Fund about the commissions paid to brokers furnishing
research services, together with the Manager's representation that the amount of
such commissions was reasonably related to the value or benefit of such
services.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the different classes of shares of the Fund. The Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is discussed in the table below:
-------------------------------------------------------------------
Aggregate Class A Concessions ConcessionsConcessions
Front-End Front-End on Class A on Class on Class C
Fiscal Sales Sales Shares B Shares Shares
Year Charges on Charges Advanced by Advanced Advanced
Ended Class A Retained Distributor1 by by
7/31: Shares by DistributorDistributor1
Distributor*
-------------------------------------------------------------------
-------------------------------------------------------------------
1998 $243,921 $40,569 $15,592 $628,171 $41,491
-------------------------------------------------------------------
-------------------------------------------------------------------
$274,066 $42,452 $45,803 $686,850 $45,815
1999
-------------------------------------------------------------------
-------------------------------------------------------------------
2000 $ 89,670 $11,968 $ 4,034 $193,383 $20,626
-------------------------------------------------------------------
1. The Distributor advances concession payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
* Includes amounts retained by a broker-dealer that is an affiliate or a
parent of the distributor.
-------------------------------------------------------------------
Class A Class B Class C Contingent
Fiscal Contingent Contingent Deferred Sales
Year Deferred Sales Deferred Sales Charges Retained
Ended Charges Retained Charges Retained by Distributor
7/31: by Distributor by Distributor
-------------------------------------------------------------------
-------------------------------------------------------------------
2000 $871 $216,313 $17,427
-------------------------------------------------------------------
For additional information about distribution of the Fund's shares,
including fees and expenses, please refer to "Distribution and Service Plans."
Distribution and Service Plans. The Fund has adopted a Service Plan for its
Class A shares and Distribution and Service Plans for its Class B and Class C
shares under Rule 12b-1 of the Investment Company Act. Under those plans, the
Fund makes payments to the Distributor in connection with the distribution
and/or servicing of the shares of the particular class. Each plan has been
approved by a vote of the Board of Trustees of the Fund, including a mjaority of
the Independent Trustees,2 cast in person at a meeting called for the purpose of
voting on that plan.
Under the plans the Manager and the Distributor, in their sole discretion,
from time to time may use their own resources (at no direct cost to the Fund) to
make payments to brokers, dealers or other financial institutions for
distribution and administrative services they perform The Manager may use
profits from the advisory fee it receives from the Fund. The Distributor and the
Manager may, in their sole discretion, increase or decrease the amount of
payments they make to plan recipients from their own resources.
Unless a plan is terminated as described below, the plan continues in
effect from year to year, but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board and the Independent Trustees must approve all material
amendments to a plan. An amendment to increase materially the amount of payments
to be made under the plan must be approved by shareholders of the class affected
by the amendment. Because Class B shares automatically convert into Class A
shares after six (6) years, the Fund must obtain the approval of both Class A
and Class B shareholders for an amendment to the Class A plan that would
materially increase the amount to be paid under the plan. That approval must be
by a "majority" (as defined in the Investment Company Act) of the shares of each
class, voting separately by class.
While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Fund's Board of Trustees at least
quarterly for its review. The reports shall detail the amount of all payments
made under a plan and the purpose for which the payments were made. Those
reports are subject to the review and approval of the Independent Trustees in
the exercise of their fiduciary duty.
Each plan states that while it is in effect, the selection or replacement
and nomination of those Trustees of the Fund who are not "interested persons" of
the Fund is committed to the discretion of the Independent Trustees. This
provision does not prevent the involvement of others in the selection and
nomination process as long as the final decision as to selection or nomination
is approved by a majority of the Independent Trustees.
Under the plan for a class, no payment will be made to any recipient in
any quarter in which the aggregate net asset value of all Fund shares held by
the recipient for itself and its customers does not exceed a minimum amount, if
any, that may be set from time to time by a majority of the Fund's Independent
Trustees. The Board of Trustees has set the fees at the maximum rate allowed
under the plans and has set no minimum asset amount needed to qualify for
payments.
|_| Class A Service Plan Fees. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions (they are referred to as "recipients")
for personal services and account maintenance services they provide for their
customers who hold Class A shares. The services include, among others, answering
customer inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and providing
other services at the request of the Fund or the Distributor. The Distributor
makes payments to plan recipients quarterly at an annual rate not to exceed
0.15% of the average annual net assets of Class A shares held in accounts of the
service providers or their customers.
For the fiscal year ended July 31, 2000, payments under the Plan for Class
A shares totaled $86,159, all of which was paid by the Distributor to
recipients. That included $1,655 paid to an affiliate of the Distributor. Any
unreimbursed expenses the Distributor incurs with respect to Class A shares for
any fiscal year may not be recovered in subsequent years. The Distributor may
not use payments received under the Class A plan to pay any of its interest
expenses, carrying charges, other financial costs, or allocation of overhead.
|_| Class B and Class C Service and Distribution Plans.
Under each plan, service fees and distribution fees are computed on the
average of the net asset value of shares in the respective class, determined as
of the close of each regular business day during the period. The Class B and
Class C plans provide for the Distributor to be compensated at a flat rate,
whether the Distributor's distribution expenses are more or less than the
amounts paid by the Fund under the plans during that period. The types of
services that recipients provide for the service fee are similar to the services
provided under Class A plans, described above.
The Class B and Class C plans permit the Distributor to retain both the
asset-based sales charges and the service fee on shares or to pay recipients the
service fee on a quarterly basis, without payment in advance. The types of
services that recipients provide for the service fee are similar to the services
provided under Class A plans, described above. However, the Distributor
presently intends to pay recipients the service fee on Class B and Class C
shares in advance for the first year the shares are outstanding. After the first
year shares are outstanding, the Distributor makes service fee payments
quarterly on those shares. The advance payment is based on the net asset value
of shares sold. Shares purchased by exchange do not qualify for an advance
service fee payment. If Class B or Class C shares are redeemed during the first
year after their purchase, the recipient of the service fees on those shares
will be obligated to repay the Distributor a pro rata portion of the advance
payment made on those shares.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
as an ongoing concession to the dealer on Class C shares outstanding for a year
or more. If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B and/or Class C service fees and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales concession and
service fee in advance at the time of purchase.
The asset-based sales charge on Class B and Class C shares allows
investors to buy shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell those shares. The Distributor's
actual expenses in selling Class B and Class C shares may be more than the
payments it receives from contingent deferred sales charges collected on
redeemed shares and from the Fund under the plans. The Fund pays the asset-based
sales charge to the Distributor for its services rendered in distributing Class
B and Class C shares. The payments are made to the Distributor in recognition
that the Distributor: |_| pays sales concessions to authorized brokers and
dealers at the time of
sale and pays service fees as described above,
|_| may finance payment of sales concessions and/or the advance of the service
fee payment to recipients under the plans, or may provide such financing
from its own resources or from the resources of an affiliate,
|_| employs personnel to support distribution of shares, and |_| bears the costs
of sales literature, advertising and prospectuses (other
than those furnished to current shareholders) and state "blue sky"
registration fees and certain other distribution expenses.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the plans. If either the
Class B or Class C plan is terminated by the Fund, the Board of Trustees may
allow the Fund to continue payments of the asset-based sales charge to the
Distributor for distributing shares before the plan was terminated. The Class B
and Class C plans allow for the carry-forward of distribution expenses, to be
recovered from asset-based sales charges in subsequent fiscal periods.
--------------------------------------------------------------------
Distribution Fees Paid to the Distributor in the Fiscal Year Ended
7/31/00
--------------------------------------------------------------------
--------------------------------------------------------------------
Distributor's Distributor's
Aggregate Unreimbursed
Total Amount Unreimbursed Expenses as %
Payments Retained by Expenses of Net Assets
Class: Under Plan Distributor Under Plan of Class
--------------------------------------------------------------------
--------------------------------------------------------------------
Class B $381,089 $305,129 $1,441,288 4.08%
Plan
--------------------------------------------------------------------
--------------------------------------------------------------------
Class C $ 82,156 $ 27,321 $ 98,620 1.38%
Plan
--------------------------------------------------------------------
All payments under the Class B and Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees to NASD members.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its performance. These terms include "standardized yield,"
"tax-equivalent yield," "dividend yield," "average annual total return,"
"cumulative total return," "average annual total return at net asset value" and
"total return at net asset value." An explanation of how yields and total
returns are calculated is set forth below. The charts below show the Fund's
performance during its most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1, 5 and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication). Certain types of yields may also be shown, provided that they are
accompanied by standardized average annual total returns.
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other investments:
|_| Yields and total returns measure the performance of a hypothetical
account in the Fund over various periods and do not show the performance of each
shareholder's account. Your account's performance will vary from the model
performance data if your dividends are received in cash, or you buy or sell
shares during the period, or you bought your shares at a different time and
price than the shares used in the model.
|_| The Fund's performance returns do not reflect the effect of taxes
on distributions.
|_| An investment in the Fund is not insured by the FDIC or any other
government agency.
|_| The principal value of the Fund's shares, and its yields and total
returns are not guaranteed and normally will fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or less
than their original cost.
|_| Yields and total returns for any given past period represent
historical performance information and are not, and should not be considered, a
prediction of future yields or returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The yields and total
returns of each class of shares of the Fund are affected by market conditions,
the quality of the Fund's investments, the maturity of those investments, the
types of investments the Fund holds, and its operating expenses that are
allocated to the particular class.
|X| Yields. The Fund uses a variety of different yields to illustrate its
current returns. Each class of shares calculates its yield separately because of
the different expenses that affect each class.
|_| Standardized Yield. The "standardized yield" (sometimes referred to
just as "yield") is shown for a class of shares for a stated thirty (30) day
period. It is not based on actual distributions paid by the Fund to shareholders
in the thirty (30) day period, but is a hypothetical yield based upon the net
investment income from the Fund's portfolio investments for that period. It may
therefore differ from the "dividend yield" for the same class of shares,
described below.
Standardized yield is calculated using the following formula set forth in
rules adopted by the Securities and Exchange Commission, designed to assure
uniformity in the way that all funds calculate their yields:
Standardized Yield = 2[(a-b 6
--- + 1) - 1]
cd
The symbols above represent the following factors:
a =dividends and interest earned during the thirty (30) day period.
b =expenses accrued for the period (net of any expense assumptions).
c =the average daily number of shares of that class outstanding during
the thirty (30) day period that were entitled to receive dividends.
d =the maximum offering price per share of that class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield for a particular thirty (30) day period may differ
from the yield for other periods. The SEC formula assumes that the standardized
yield for a thirty (30) day period occurs at a constant rate for a six (6) month
period and is annualized at the end of the six (6) 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
thirty (30) day period.
|_| Dividend Yield. The Fund may quote a "dividend yield" for each class
of its shares. Dividend yield is based on the dividends paid on a class of
shares during the actual dividend period. To calculate dividend yield, the
dividends of a class declared during a stated period are added together, and the
sum is multiplied by twelve (12) (to annualize the yield) and divided by the
maximum offering price on the last day of the dividend period. The formula is
shown below:
Dividend Yield = dividends paid x 12/maximum offering price
(payment date)
The maximum offering price for Class A shares includes the current maximum
initial sales charge. The maximum offering price for Class B and Class C shares
is the net asset value per share, without considering the effect of contingent
deferred sales charges. The Class A dividend yield may also be quoted without
deducting the maximum initial sales charge.
|_| Tax-Equivalent Yield. The "tax-equivalent yield" of a class of shares
is the equivalent yield that would have to be earned on a taxable investment to
achieve the after-tax results represented by the Fund's tax-equivalent yield. It
adjusts the Fund's standardized yield, as calculated above, by a stated Federal
tax rate. Using different tax rates to show different tax equivalent yields
shows investors in different tax brackets the tax equivalent yield of the Fund
based on their own tax bracket.
The tax-equivalent yield is based on a thirty (30) day period, and is
computed by dividing the tax-exempt portion of the Fund's current yield (as
calculated above) by one minus a stated income tax rate. The result is added to
the portion (if any) of the Fund's current yield that is not tax-exempt.
The tax-equivalent yield may be used to compare the tax effects of income
derived from the Fund with income from taxable investments at the tax rates
stated. Your tax bracket is determined by your Federal and state taxable income
(the net amount subject to Federal and state income tax after deductions and
exemptions). The tax-equivalent yield table assumes that the investor is taxed
at the highest bracket, regardless of whether a switch to non-taxable
investments would cause a lower bracket to apply.
----------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 7/31/00
----------------------------------------------------------------------
----------------------------------------------------------------------
Tax-Equivalent
Standardized Yield Dividend Yield Yield (43.45%
Combined
Class of Federal/New Jersey
Shares Tax Bracket)
----------------------------------------------------------------------
----------------------------------------------------------------------
Without Without Without
Sales After Sales After Sales After
Charge Sales Charge Sales Charge Sales
Charge Charge Charge
----------------------------------------------------------------------
----------------------------------------------------------------------
Class A 5.19% 4.94% 5.35% 5.09% 9.18% 8.74%
----------------------------------------------------------------------
----------------------------------------------------------------------
Class B 4.44% N/A 4.63% N/A 7.85% N/A
----------------------------------------------------------------------
----------------------------------------------------------------------
Class C 4.44% N/A 4.63% N/A 7.85% N/A
----------------------------------------------------------------------
|X| Total Return Information. There are different types of "total returns"
to measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. The cumulative total return measures the change
in value over the entire period (for example, ten (10) years). An average annual
total return shows the average rate of return for each year in a period that
would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown without sales charge, as
described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the one (1) year period.
|_| Average Annual Total Return. The "average annual total return" of each
class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV" in the
formula) of that investment, according to the following formula:
1/n
ERV
--- - 1 = Average Annual Total Return
P
|_| Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV-P
----- = Total Return
P
|_| Total Returns at Net Asset Value. From time to time the Fund may also
quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for Class A, Class B or Class C shares. Each
is based on the difference in net asset value per share at the beginning and the
end of the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.
----------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 7/31/00
----------------------------------------------------------------------
----------------------------------------------------------------------
Cumulative Average Annual Total Returns
Total Returns
(10 years or
life of class)
Class
of
Shares
----------------------------------------------------------------------
----------------------------------------------------------------------
5-Year 10-Year
1-Year (or life of (or life of
class) class)
----------------------------------------------------------------------
----------------------------------------------------------------------
After WithoutAfter WithoutAfter Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
----------------------------------------------------------------------
----------------------------------------------------------------------
Class A 22.17%1 28.26%1 -7.10% -2.74% 3.19% 4.20% 3.17%1 3.95%1
----------------------------------------------------------------------
----------------------------------------------------------------------
Class B 22.62%2 22.62%2 -7.74% -3.11% 3.13% 3.46% 3.23%2 3.23%2
----------------------------------------------------------------------
----------------------------------------------------------------------
Class C 18.12%3 18.12%3 -4.13% -3.20% 3.44%3 3.44%3 N/A N/A
----------------------------------------------------------------------
1 Inception of Class A: 3/1/94
2 Inception of Class B: 3/1/94
3 Inception of Class C: 8/29/95
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|_| Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its shares by Lipper Analytical Services, Inc. ("Lipper").
Lipper is a widely-recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. The performance of the Fund is ranked by Lipper against
all other bond funds, other than money market funds, and other municipal bond
funds. The Lipper performance rankings are based on total returns that include
the reinvestment of capital gain distributions and income dividends but do not
take sales charges or taxes into consideration. Lipper also publishes
"peer-group" indices of the performance of all mutual funds in a category that
it monitors and averages of the performance of the funds in particular
categories.
|_| Morningstar Ratings and Rankings. From time to time the Fund may
publish the ranking and/or star rating of the performance of its classes of
shares by Morningstar, Inc., ("Morningstar") an independent mutual fund
monitoring service. Morningstar rates and ranks mutual funds in broad investment
categories: domestic stock funds, international stock funds, taxable bond funds
and municipal bond funds. The Fund is included in the municipal bond funds
category.
Morningstar proprietary star ratings reflect historical risk-adjusted
total investment return. Investment return measures a fund's (or class's) one,
three, five and ten-year average annual total returns (depending on the
inception of the fund or class) in excess of ninety (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 ninety (90) day U.S. Treasury bill
returns. Risk and investment return are combined to produce star ratings
reflecting performance relative to the other funds in a fund's category. Five
stars is the "highest" rating (top 10% of funds in a category), four stars is
"above average" (next 22.5%), three stars is "average" (next 35%), two stars is
"below average" (next 22.5%) and one star is "lowest" (bottom 10%). The current
star rating is the fund's (or class's) 3-year rating or its combined 3- and
5-year rating (weighted 60%/40% respectively), or its combined 3-, 5-, and
10-year rating (weighted 40%, 30% and 30%, respectively), depending on the
inception date of the fund (or class). Ratings are subject to change monthly.
The Fund may also compare its total return ranking to that of other funds
in its Morningstar category, in addition to its star ratings. Those total return
rankings are percentages from one percent to one hundred percent and are not
risk adjusted. For example, if a fund is in the 94th percentile, that means that
94% of the funds in the same category performed better than it did.
|_| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, the Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's Class A, Class B or Class C shares may be compared in publications to the
performance of various market indices or other investments, and averages,
performance rankings or other benchmarks prepared by recognized mutual fund
statistical services.
Investors may also wish to compare the Fund's Class A, Class B or Class C
returns to the return on fixed-income investments available from banks and
thrift institutions. Those include certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or
variable time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed or insured by the
FDIC or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates of return.
Repayment of principal and payment of interest on Treasury securities is backed
by the full faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
-------------------------------------------------------------------------------
ABOUT YOUR ACCOUNT
-------------------------------------------------------------------------------
How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix C contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund three (3) days after the transfers are initiated. The
Distributor and the Fund are not responsible for any delays in purchasing shares
resulting from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can add
together:
|_| Class A and Class B shares you purchase for your individual
accounts, or for your joint accounts, or for trust or custodial
accounts on behalf of your children who are minors,
|_|Current purchases of Class A and Class B shares of the Fund and
other Oppenheimer funds to reduce the sales charge rate that applies
to current purchases of Class A shares, and
|_|Class A and Class B shares of Oppenheimer funds you previously
purchased subject to an initial or contingent deferred sales charge
to reduce the sales charge rate for current purchases of Class A
shares, provided that you still hold your investment in one of the
Oppenheimer funds.
A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the same
employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the
sub-distributor and currently include the following:
Oppenheimer Main Street California
Oppenheimer Bond Fund Municipal Fund
Oppenheimer Capital Appreciation Oppenheimer Main Street Growth & Fund Income
Fund Oppenheimer Capital Preservation Oppenheimer Main Street Small Cap Fund
Fund Oppenheimer Capital Income Fund Oppenheimer MidCap Fund Oppenheimer
California Municipal Oppenheimer Multiple Strategies Fund Fund Oppenheimer
Champion Income Fund Oppenheimer Municipal Bond Fund Oppenheimer Convertible
Securities Fund Oppenheimer New York Municipal Fund
Oppenheimer New Jersey Municipal
Oppenheimer Developing Markets Fund Fund
Oppenheimer Disciplined Allocation Oppenheimer Pennsylvania Municipal
Fund Fund
Oppenheimer Quest Balanced Value
Oppenheimer Disciplined Value Fund Fund
Oppenheimer Quest Capital Value
Oppenheimer Discovery Fund Fund, Inc.
Oppenheimer Quest Global Value
Oppenheimer Emerging Growth Fund Fund, Inc.
Oppenheimer Emerging Technologies Oppenheimer Quest Opportunity
Fund Value Fund
Oppenheimer Quest Small Cap Value
Oppenheimer Enterprise Fund Fund
Oppenheimer Europe Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Florida Municipal Fund
Oppenheimer Global Fund Oppenheimer Real Asset Fund
Oppenheimer Global Growth & Income Oppenheimer Senior Floating Rate
Fund Fund
Oppenheimer Gold & Special
Minerals Fund Oppenheimer Strategic Income Fund
Oppenheimer Total Return Fund,
Oppenheimer Growth Fund Inc.
Oppenheimer High Yield Fund Oppenheimer Trinity Core Fund Oppenheimer Insured
Municipal Fund Oppenheimer Trinity Growth Fund Oppenheimer Intermediate
Municipal Fund Oppenheimer Trinity Value Fund Oppenheimer International Bond
Fund Oppenheimer U.S. Government Trust Oppenheimer International Growth Fund
Oppenheimer World Bond Fund Oppenheimer International Small Limited-Term New
York Municipal Company Fund Fund Oppenheimer Large Cap Growth Fund Rochester
Fund Municipals
And the following money markets Centennial New York Tax Exempt
funds: Trust
Centennial America Fund, L. P. Centennial Tax Exempt Trust
Centennial California Tax Exempt
Trust Oppenheimer Cash Reserves
Oppenheimer Money Market Fund,
Centennial Government Trust Inc.
Centennial Money Market Trust
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or
Class A and Class B shares of the Fund and other Oppenheimer funds during a
thirteen (13) month period, you can reduce the sales charge rate that applies to
your purchases of Class A shares. The total amount of your intended purchases of
both Class A and Class B shares will determine the reduced sales charge rate for
the Class A shares purchased during that period. You can include purchases made
up to ninety (90) days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a thirteen (13) month
period (the "Letter of Intent period"). At the investor's request, this may
include purchases made up to ninety (90) days prior to the date of the Letter.
The Letter states the investor's intention to make the aggregate amount of
purchases of shares which, when added to the investor's holdings of shares of
those funds, will equal or exceed the amount specified in the Letter. Purchases
made by reinvestment of dividends or distributions of capital gains and
purchases made at net asset value without sales charge do not count toward
satisfying the amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the public offering price
(including the sales charge) that applies to a single lump-sum purchase of
shares in the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the concessions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
only if and when the dealer returns to the Distributor the excess of the amount
of concessions allowed or paid to the dealer over the amount of concessions that
apply to the actual amount of purchases. The excess concessions 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.
|X| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen (13) month Letter of Intent period, the escrowed shares will
be promptly released to the investor.
3. If, at the end of the thirteen (13) month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor an
amount equal to the difference between the dollar amount of sales charges
actually paid and the amount of sales charges which would have been paid if the
total amount purchased had been made at a single time. That sales charge
adjustment will apply to any shares redeemed prior to the completion of the
Letter. If the difference in sales charges is not paid within twenty days after
a request from the Distributor or the dealer, the Distributor will, within sixty
(60) days of the expiration of the Letter, redeem the number of escrowed shares
necessary to realize such difference in sales charges. Full and fractional
shares remaining after such redemption will be released from escrow. If a
request is received to redeem escrowed shares prior to the payment of such
additional sales charge, the sales charge will be withheld from the redemption
proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class A
shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(2) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares" and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly
from a bank account, you must enclose a check (the minimum is $25) for the
initial purchase with your application. Shares purchased by Asset Builder Plan
payments from bank accounts are subject to the redemption restrictions for
recent purchases described in the Prospectus. Asset Builder Plans are available
only if your bank is an ACH member. Asset Builder Plans may not be used to buy
shares for OppenheimerFunds employer-sponsored qualified retirement accounts.
Asset Builder Plans also enable shareholders of Oppenheimer Cash Reserves to use
their fund account to make monthly automatic purchases of shares of up to four
other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be debited automatically. Normally the debit will
be made two business days prior to the investment dates you selected on your
Application. Neither the Distributor, the Transfer Agent nor the Fund shall be
responsible for any delays in purchasing shares that result from delays in ACH
transmission.
Before you establish Asset Builder payments, you should obtain a
prospectus of the selected fund(s) from your financial advisor (or the
Distributor) and request an application from the Distributor. Complete the
application and return it. You may change the amount of your Asset Builder
payment or you can terminate these automatic investments at any time by writing
to the Transfer Agent. The Transfer Agent requires a reasonable period
(approximately ten (10) days) after receipt of your instructions to implement
them. The Fund reserves the right to amend, suspend, or discontinue offering
Asset Builder plans at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of three (3) classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares in general are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares to compensate the Distributor
and brokers, dealers and financial institutions that sell shares of the Fund. A
salesperson who is entitled to receive compensation from his or her firm for
selling Fund shares may receive different levels of compensation for selling one
class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
|X| Class B Conversion. The conversion of Class B shares to Class A shares
after six (6) years is subject to the continuing availability of a private
letter ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable event for the shareholder under Federal income tax law. If that
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended. In that event, no further conversions of Class B
shares would occur while the 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 (6) years. Shareholders should consult their tax
advisors regarding the state and local tax consequences of the conversion of
Class B shares into Class A shares, or any other conversion or exchange of
shares.
|X| Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, trustees' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. It is done by
dividing the value of the Fund's net assets attributable to that class by the
number of shares of that class that are outstanding. The Exchange normally
closes at 4:00 P.M., New York time, but may close earlier on some other days
(for example, in case of weather emergencies or on days falling before a
holiday). The Exchange's most recent annual announcement (which is subject to
change) states that it will close on New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in municipal
securities on days on which the Exchange is closed (including weekends and U.S.
holidays) or after 4:00 P.M. on a regular business day. Because the Fund's net
asset values will not be calculated on those days, the Fund's net asset values
per share may be significantly affected on such days when shareholders may not
purchase or redeem shares.
|X| Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
|_| Long-term debt securities having a remaining maturity in excess of
sixty (60) days are valued based on the mean between the "bid" and "asked"
prices determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry.
|_| The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry: (1) debt instruments that have a
maturity of more than three hundred
ninety-seven (397) days when issued,
(2) debt instruments that had a maturity of three hundred ninety-seven (397)
days or less when issued and have a remaining maturity of more than
sixty (60) days, and
(3) non-money market debt instruments that had a maturity of three hundred
ninety-seven (397) days or less when issued and which have a remaining
maturity of sixty (60) days or less.
|_| The following securities are valued at cost, adjusted for
amortization of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a
maturity of less than three hundred ninety-seven (397) days when issued
that have a remaining maturity of sixty (60) days or less, and
(2) debt instruments held by a money market fund that have a remaining
maturity of three hundred ninety-seven (397) days or less.
|_| Securities not having readily-available market quotations are valued
at fair value determined under the Board's procedures.
If the Manager is unable to locate two market makers willing to give
quotes, a security may be priced at the mean between the "bid" and "asked"
prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).
In the case of municipal securities, when last sale information is not
generally available, the Manager may use pricing services approved by the Board
of Trustees. The pricing service may use "matrix" comparisons to the prices for
comparable instruments on the basis of quality, yield, maturity. Other special
factors may be involved (such as the tax-exempt status of the interest paid by
municipal securities). The Manager will monitor the accuracy of the pricing
services. That monitoring may include comparing prices used for portfolio
valuation to actual sales prices of selected securities.
Puts, calls, Interest Rate Futures and Municipal Bond Index Futures are
valued at the last sale price on the principal exchange on which they are traded
or on NASDAQ, as applicable, as determined by a pricing service approved by the
Board of Trustees or by the Manager. If there were no sales that day, they shall
be valued at the last sale price on the preceding trading day if it is within
the spread of the closing "bid" and "asked" prices on the principal exchange or
on NASDAQ on the valuation date. If not, the value shall be the closing bid
price on the principal exchange or on NASDAQ on the valuation date. If the put,
call or future is not traded on an exchange or on NASDAQ, it shall be valued by
the mean between "bid" and "asked" prices obtained by the Manager from two
active market makers. In certain cases that may be at the "bid" price if no
"asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming
shares set forth in the Prospectus.
Checkwriting. When a check is presented to the Fund's bank for clearance, the
bank will ask the Fund to redeem a sufficient number of full and fractional
shares in the shareholder's account to cover the amount of the check. This
enables the shareholder to continue to receive dividends on those shares until
the check is presented to the Fund. Checks may not be presented for payment at
the offices of the bank listed on the check or at the Fund's custodian bank.
That limitation does not affect the use of checks for the payment of bills or to
obtain cash at other banks. The Fund reserves the right to amend, suspend or
discontinue offering Checkwriting privileges at any time without prior notice.
In choosing to take advantage of the Checkwriting privilege by signing the
Account Application or by completing a Checkwriting card, each individual who
signs: (1) for individual accounts, represents that they are the registered
owner(s) of the shares of the Fund in that account;
(2) for accounts for corporations, partnerships, trusts and other entities,
represents that they are an officer, general partner, trustee or other
fiduciary or agent, as applicable, duly authorized to act on behalf of
such registered owner(s);
(3) authorizes the Fund, its Transfer Agent and any bank through which the
Fund's drafts (checks) are payable to pay all checks drawn on the Fund
account of such person(s) and to redeem a sufficient amount of shares
from that account to cover payment of each check;
(4) specifically acknowledges that if they choose to permit checks to be
honored if there is a single signature on checks drawn against joint
accounts, or accounts for corporations, partnerships, trusts or other
entities, the signature of any one signatory on a check will be
sufficient to authorize payment of that check and redemption from the
account, even if that account is registered in the names of more than
one person or more than one authorized signature appears on the
Checkwriting card or the Application, as applicable;
(5) understands that the Checkwriting privilege may be terminated or amended
at any time by the Fund and/or the Fund's bank; and
(6) acknowledges and agrees that neither the Fund nor its bank shall incur
any liability for that amendment or termination of checkwriting
privileges or for redeeming shares to pay checks reasonably believed by
them to be genuine, or for returning or not paying checks that have not
been accepted for any reason.
Reinvestment Privilege. Within six (6) months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of:
|_| Class A shares that you purchased subject to an initial sales charge
or Class A shares on which a contingent deferred sales charge was paid, or
|_| Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
shares. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within ninety (90) days of payment of
the sales charge, the shareholder's basis in the shares of the Fund that were
redeemed may not include the amount of the sales charge paid. That would reduce
the loss or increase the gain recognized from the redemption. However, in that
case the sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Trustees of the
Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly
or partly in cash. In that case, the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of liquid securities from the
portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. he Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $200 or such lesser amount as the Board
may fix. The Board of Trustees will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of such shares has fallen
below the stated minimum solely as a result of market fluctuations. If the Board
exercises this right, it may also fix the requirements for any notice to be
given to the shareholders in question (not less than thirty (30) days). The
Board may alternatively set requirements for the shareholder to increase the
investment, or set other terms and conditions so that the shares would not be
involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to a contingent deferred sales
charge if redeemed at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class B or Class
C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, if the Distributor receives a
repurchase order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's net asset
value if the order was received by the dealer or broker from its customers prior
to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the shareholder for
receipt of the payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for
the account and the address must not have been changed within the prior thirty
(30) days. Required minimum distributions from OppenheimerFunds-sponsored
retirement plans may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the Account
Application or by signature-guaranteed instructions to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three (3)
business days before the payment transmittal date you select in the Account
Application. If a contingent deferred sales charge applies to the redemption,
the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in Appendix C, below).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent to exchange a pre-determined amount of shares of the Fund for shares (of
the same class) of other Oppenheimer funds automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is $25.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. Exchanges made under these plans are subject
to the restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. Shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time after mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the shares in certificated form. Upon
written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
|_| All of the Oppenheimer funds currently offer Class A, B and C shares
except Oppenheimer Money Market Fund, Inc., Centennial Money Market Trust,
Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New York
Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America
Fund, L.P., which only offer Class A shares.
|_| Oppenheimer Main Street California Municipal Fund currently offers
only Class A and Class B shares.
|_| Class B and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other Oppenheimer
funds or through OppenheimerFunds-sponsored 401 (k) plans.
|_| Only certain Oppenheimer funds currently offer Class Y shares. Class Y
shares of Oppenheimer Real Asset Fund are not exchangeable.
|_| Class M shares of Oppenheimer Convertible Securities Fund may be
exchanged only for Class A shares of other Oppenheimer funds. They may not be
acquired by exchange of shares of any class of any other Oppenheimer funds
except Class A shares of Oppenheimer Money Market Fund or Oppenheimer Cash
Reserves acquired by exchange of Class M shares.
|_| Class A shares of Senior Floating Rate Fund are not available by
exchange of Class A shares of other Oppenheimer funds. Class A shares of Senior
Floating Rate Fund that are exchanged for shares of the other Oppenheimer funds
may not be exchanged back for Class A shares of Senior Floating Rate Fund.
|_| Class X shares of Limited Term New York Municipal Fund can be
exchanged only for Class B shares of other Oppenheimer funds and no exchanges
may be made to Class X shares.
|_| Shares of Oppenheimer Capital Preservation Fund may not be exchanged
for shares of Oppenheimer Money Market Fund, Inc., Oppenheimer Cash Reserves or
Oppenheimer Limited-Term Government Fund. Only participants in certain
retirement plans may purchase shares of Oppenheimer Capital Preservation Fund,
and only those paticipants may exchange shares of other Oppenheimer funds for
shares of Oppenheimer Capital Preservation Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. Shares of any
money market fund purchased without a sales charge may be exchanged for shares
of Oppenheimer funds offered with a sales charge upon payment of the sales
charge. They may also be used to purchase shares of Oppenheimer funds subject to
a contingent deferred sales charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds managed by
the Manager or its subsidiaries) redeemed within the thirty (30) days 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.
To qualify for that privilege, the investor or the investor's dealer must notify
the Distributor of eligibility for this privilege at the time the shares of
Oppenheimer Money Market Fund, Inc. are purchased. If requested, they must
supply proof of entitlement to this privilege.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
|_| How Exchanges Affect Contingent Deferred Sales Charges. No contingent
deferred sales charge is imposed on exchanges of shares of any class purchased
subject to a contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds purchased
subject to a Class A contingent deferred sales charge are redeemed within
eighteen (18) months of the end of the calendar month of the initial purchase of
the exchanged Class A shares, the Class A contingent deferred sales charge is
imposed on the redeemed shares. The Class B contingent deferred sales charge is
imposed on Class B shares acquired by exchange if they are redeemed within six
(6) years of the initial purchase of the exchanged Class B shares. The Class C
contingent deferred sales charge is imposed on Class C shares acquired by
exchange if they are redeemed within twelve (12) months of the initial purchase
of the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging
shares, shareholders should take into account how the exchange may affect any
contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
Class must specify which class of shares they wish to exchange.
|_| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to fifty (50) accounts per day from representatives of authorized dealers
that qualify for this privilege.
|_| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone
and would have to submit written exchange requests.
|_| Processing Exchange Requests. Shares to be exchanged are redeemed on
the regular business day the Transfer Agent receives an exchange request in
proper form (the "Redemption Date"). Normally, shares of the fund to be acquired
are purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund
reserves the right, in its discretion, to refuse any exchange request that may
disadvantage it. For example, if the receipt of multiple exchange requests from
a dealer might require the disposition of portfolio securities at a time or at a
price that might be disadvantageous to the Fund, the Fund may refuse the
request. 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. When you exchange some or all of your shares from one fund
to another, any special account feature such as an Asset Builder Plan or
Automatic Withdrawal Plan, will be switched to the new fund account unless you
tell the Transfer Agent not to do so. However, special redemption and exchange
features such as Automatic Exchange Plans and Automatic Withdrawal Plans cannot
be switched to an account in Oppenheimer Senior Floating Rate Fund.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value, or as otherwise
described in "How to Buy Shares." Daily dividends will not be declared or paid
on newly purchased shares until such time as Federal Funds (funds credited to a
member bank's account at the Federal Reserve Bank) are available from the
purchase payment for such shares. Normally, purchase checks received from
investors are converted to Federal Funds on the next business day. Shares
purchased through dealers or brokers normally are paid for by the third business
day following the placement of the purchase order.
Shares redeemed through the regular redemption procedure will be paid
dividends through and including the day on which the redemption request is
received by the Transfer Agent in proper form. Dividends will be declared on
shares repurchased by a dealer or broker for three (3) business days following
the trade date (that is, up to and including the day prior to settlement of the
repurchase). If all shares in an account are redeemed, all dividends accrued on
shares of the same class in the account will be paid together with the
redemption proceeds.
The Fund's practice of attempting to pay dividends on Class A shares at a
constant level requires the Manager to monitor the Fund's portfolio and, if
necessary, to select higher-yielding securities when it is deemed appropriate to
seek income at the level needed to meet the target. Those securities must be
within the Fund's investment parameters, however. The Fund expects to pay
dividends at a targeted level from its net investment income and other
distributable income without any impact on the net asset values per share.
The amount of a distribution paid on a class of shares may vary from time
to time depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class. Dividends are
calculated in the same manner, at the same time and on the same day for shares
of each class. However, dividends on Class B and Class C shares are expected to
be lower than dividends on Class A shares. That is due to the effect of the
asset-based sales charge on Class B and Class C shares. Those dividends will
also differ in amount as a consequence of any difference in net asset value
among Class A, Class B and Class C shares.
Dividends, distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends and Distributions. The Fund intends to
qualify under the Internal Revenue Code during each fiscal year to pay
"exempt-interest dividends" to its shareholders. Exempt-interest dividends that
are derived from net investment income earned by the Fund on municipal
securities will be excludable from gross income of shareholders for federal
income tax purposes.
Net investment income includes the allocation of amounts of income from
the municipal securities in the Fund's portfolio that are excludable from
Federal income taxes. This allocation will be made by the use of one designated
percentage applied uniformly to all income dividends paid during the Fund's tax
year. That designation will normally be made following the end of each fiscal
year as to income dividends paid in the prior year. The percentage of income
designated as tax-exempt may substantially differ from the percentage of the
Fund's income that was tax-exempt for a given period.
A portion of the exempt-interest dividends paid by the Fund may be an item
of tax preference for shareholders subject to the alternative minimum tax. The
amount of any dividends attributable to tax preference items for purposes of the
alternative minimum tax will be identified when tax information is distributed
by the Fund.
A shareholder receiving a dividend from income earned by the Fund from one
or more of the following sources treats the dividend as a receipt of either
ordinary income or long-term capital gain in the computation of gross income,
regardless of whether the dividend is reinvested: (1) certain taxable temporary
investments (such as certificates of deposit,
repurchase agreements, commercial paper and obligations of the U.S.
government, its agencies and instrumentalities);
(2) income from securities loans; or
(3) an excess of net short-term capital gain over net long-term capital loss
from the Fund.
The Fund's dividends will not be eligible for the dividends-received
deduction for corporations. Shareholders receiving Social Security benefits
should be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to federal income tax. Losses realized by
shareholders on the redemption of Fund shares within six months of purchase
(which period may be shortened by regulation) will be disallowed for federal
income tax purposes to the extent of exempt-interest dividends received on such
shares.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for federal income taxes on amounts
paid by it as dividends and distributions. That qualification enables the Fund
to "pass through" its income and realized capital gains to shareholders without
having to pay tax on them. he Fund qualified as a regulated investment company
in its last fiscal year and intends to qualify in future years, but reserves the
right not to qualify. The Internal Revenue Code contains a number of complex
tests to determine whether the Fund qualifies. he Fund might not meet those
tests in a particular year. If it does not qualify, the Fund will be treated for
tax purposes as an ordinary corporation and will receive no tax deduction for
payments of dividends and distributions made to shareholders.
To the extent that distributions paid by the Fund are derived from
interest on New Jersey municipal securities and obligations of the U.S.
Treasury, those distributions will also be exempt from New Jersey individual
income tax. Distributions from the Fund attributable to income from sources
other than those will generally be subject to New Jersey individual income tax
as ordinary income.
Under the Internal Revenue Code, by December 31 each year the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Fund's Board of Trustees and the Manager might determine in a particular year
that it would be in the best interest of shareholders not to make distributions
at the required levels and to pay the excise tax on the undistributed amounts.
That would reduce the amount of income or capital gains available for
distribution to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made at net asset value without sales charge. To elect this option, the
shareholder must notify the Transfer Agent in writing and must have an existing
account in the fund selected for reinvestment. Otherwise the shareholder must
first obtain a prospectus for that fund and an application from the Transfer
Agent to establish an account. The investment will be made at the net asset
value per share in effect at the close of business on the payable date of the
dividend or distribution. Dividends and/or distributions from certain of the
other Oppenheimer funds may be invested in shares of this Fund on the same
basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. The Fund's Transfer Agent, OppenheimerFunds Services, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders of the Fund. It also handles
shareholder servicing and administrative functions. It is paid on an "at-cost"
basis.
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities, and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the Custodian in
excess of $100,000 are not protected by Federal Deposit Insurance. Those
uninsured balances may at times be substantial.
Independent Auditors. KPMG LLP are the independent auditors of the Fund. They
audit the Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager and its
affiliates.
<PAGE>
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
================================================================================
The Board of Trustees and Shareholders of
Oppenheimer New Jersey Municipal Fund:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer New Jersey Municipal Fund as of
July 31, 2000, and the related statement of operations for the year then ended,
the statements of changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in the
four-year period then ended, the seven-month period ended July 31, 1996, and the
year 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 auditing standards generally
accepted in the United States of America. 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, 2000, by correspondence with the custodian and
brokers; and where confirmations were not received from brokers, we performed
other auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Oppenheimer New Jersey Municipal Fund as of July 31, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the four-year period then ended, the seven-month period
ended July 31, 1996, and the year ended December 31, 1995, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
------------
KPMG LLP
Denver, Colorado
August 21, 2000
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS July 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/ Market
S&P/Fitch Principal Value
(Unaudited) Amount See Note 1
=========================================================================================
<S> <C> <C> <C>
Municipal Bonds and Notes--99.5%
-----------------------------------------------------------------------------------------
New Jersey--83.2%
Atlantic City, NJ Refunding COP, Public
Facilities Lease Agreement, FGIC Insured,
6%, 3/1/13 Aaa/AAA/AAA $2,900,000 $3,130,260
-----------------------------------------------------------------------------------------
Delaware River, NJ & PA POAU RB, FSA
Insured, 6%, 1/1/18 Aaa/AAA 3,500,000 3,678,290
-----------------------------------------------------------------------------------------
Hudson Cnty., NJ MUAU System RB,
Prerefunded, 11.875%, 7/1/06 Aaa/AAA 515,000 576,146
-----------------------------------------------------------------------------------------
Hudson Cnty., NJ Solid Waste System
Improvement Authority RRB, Series 1,
6%, 1/1/29 NR/BBB- 1,000,000 920,990
-----------------------------------------------------------------------------------------
Lopatcong Township, NJ BOE GOUN, FSA
Insured, 5.70%, 7/15/19 NR/AAA 635,000 648,081
-----------------------------------------------------------------------------------------
Middlesex, NJ Improvement Authority
Utilities Systems CAP RB, Series B,
Zero Coupon, 5.63%, 9/1/211 Aaa/AAA/AAA 6,000,000 1,814,040
-----------------------------------------------------------------------------------------
Newark, NJ GOB, School Qualified Bond
Act, MBIA Insured, 5.30%, 9/1/08 Aaa/AAA 1,000,000 1,032,410
-----------------------------------------------------------------------------------------
NJ EDAU ED RB, United Methodist Homes,
5.75%, 7/1/29 NR/BBB- 2,000,000 1,582,840
-----------------------------------------------------------------------------------------
NJ EDAU PC RB, Public Service Electric &
Gas Co. Project, Series A, MBIA Insured,
6.40%, 5/1/32 Aaa/AAA 500,000 522,325
-----------------------------------------------------------------------------------------
NJ EDAU RRB, First Mtg. Franciscan Oaks
Project, 5.70%, 10/1/17 NR/NR 2,235,000 1,894,721
-----------------------------------------------------------------------------------------
NJ EDAU RRB, First Mtg. Keswick Pines,
5.60%, 1/1/12 NR/NR 600,000 522,702
-----------------------------------------------------------------------------------------
NJ EDAU RRB, First Mtg. Keswick Pines,
5.70%, 1/1/18 NR/NR 2,350,000 1,932,382
-----------------------------------------------------------------------------------------
NJ EDAU RRB, Sr. Mtg., Arbor Glen, Series A,
5.875%, 5/15/16 NR/NR 3,000,000 2,550,390
-----------------------------------------------------------------------------------------
NJ EDAU RRB, United Methodist Homes,
5.125%, 7/1/25 NR/BBB- 1,900,000 1,394,277
-----------------------------------------------------------------------------------------
NJ EDAU SPF RB, Continental Airlines, Inc.
Project, 6.25%, 9/15/29 Ba2/BB 4,935,000 4,511,133
-----------------------------------------------------------------------------------------
NJ EDAU Water Facilities RB, American Water
Co., Inc. Project, Series A, FGIC Insured,
6.875%, 11/1/34 Aaa/AAA/AAA 500,000 542,450
-----------------------------------------------------------------------------------------
NJ Education FA RB, Princeton University,
Series E, 5%, 7/1/18 Aaa/AAA 3,460,000 3,319,455
-----------------------------------------------------------------------------------------
NJ Educational FA RRB, Monmouth University,
Series C, 5.80%, 7/1/22 Baa2/BBB 1,000,000 976,090
-----------------------------------------------------------------------------------------
NJ HCF FAU RB, Centrastate Medical Center,
Series A, AMBAC Insured, 6%, 7/1/212 Aaa/AAA/AAA 100,000 101,467
-----------------------------------------------------------------------------------------
NJ HCF FAU RB, Columbus Hospital, Series A,
7.50%, 7/1/212 B2/B 2,000,000 1,730,180
-----------------------------------------------------------------------------------------
NJ HCF FAU RB, Southern Ocean Cnty.
Hospital, Series A, 6.25%, 7/1/23 Baa1/NR 1,000,000 889,470
-----------------------------------------------------------------------------------------
NJ HCF FAU RB, St. Elizabeth Hospital
Obligation Group, 6%, 7/1/20 Baa3/BBB- 1,000,000 869,730
-----------------------------------------------------------------------------------------
NJ HCF FAU RB, St. Joseph's Hospital &
Medical Center, Series A, 6%, 7/1/26 NR/AAA 750,000 770,138
</TABLE>
12 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
Ratings:
Moody's/ Market
S&P/Fitch Principal Value
(Unaudited) Amount See Note 1
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New Jersey Continued
NJ HCF FAU RRB, Dover General Hospital &
Medical Center, MBIA Insured, 7%, 7/1/03 Aaa/AAA $1,000,000 $1,063,780
-------------------------------------------------------------------------------------------
NJ HEAA Student Loan RB, Series A, MBIA Insured,
6%, 6/1/15 NR/AAA 1,000,000 1,030,020
-------------------------------------------------------------------------------------------
NJ Mtg. & HFA MH RB, Series A, AMBAC Insured,
6.25%, 5/1/28 Aaa/AAA 1,000,000 1,020,160
-------------------------------------------------------------------------------------------
NJ Mtg. & HFA RB, Home Buyer, Series J,
MBIA Insured, 6.20%, 10/1/25 Aaa/AAA 200,000 202,452
-------------------------------------------------------------------------------------------
NJ Mtg. & HFA RB, Home Buyer, Series X,
MBIA Insured, 5.70%, 5/1/203 Aaa/AAA 500,000 500,980
-------------------------------------------------------------------------------------------
NJ Mtg. & HFA RRB, Series 1, 6.70%, 11/1/28 NR/A+ 85,000 88,553
-------------------------------------------------------------------------------------------
NJ Mtg. HAU RB, Series U, 5.75%, 4/1/18 Aaa/AAA 1,000,000 1,009,130
-------------------------------------------------------------------------------------------
NJ Sports & Exposition Authority Convention
Center Luxury Tax RB, Series A, MBIA Insured,
6.25%, 7/1/20 Aaa/AAA 80,000 84,153
-------------------------------------------------------------------------------------------
NJ Transportation COP, Series 15, AMBAC
Insured, 6.19%, 9/15/144 NR/AAA 2,500,000 2,858,575
-------------------------------------------------------------------------------------------
NJ TUAU RRB, Series C, 6.50%, 1/1/16 A3/A-/A- 950,000 1,054,548
-------------------------------------------------------------------------------------------
NJ TUAU RRB, Series C, MBIA Insured, 6.50%,
1/1/09 Aaa/AAA/AAA 1,000,000 1,113,960
-------------------------------------------------------------------------------------------
Passaic Valley, NJ Sewer System Commissioners
GOUN, Series E, AMBAC Insured, 5.625%,
12/1/17 Aaa/NR 3,095,000 3,153,031
-------------------------------------------------------------------------------------------
Paterson, NJ Public SDI COP, 5.75%, 11/1/19 Aaa/NR 2,000,000 2,057,400
-------------------------------------------------------------------------------------------
PAUNYNJ Consolidated RB, 94th Series, 6%,
12/1/14 A1/AA-/AA- 200,000 207,760
-------------------------------------------------------------------------------------------
PAUNYNJ SPO RB, JFK International Air Terminal
Project, Series 6, MBIA Insured, 7%, 12/1/12 Aaa/AAA/AAA 2,000,000 2,339,520
-------------------------------------------------------------------------------------------
PAUNYNJ SPO RRB, KIAC-4 Project, Fifth
Installment, 6.75%, 10/1/19 NR/NR 900,000 907,353
-------------------------------------------------------------------------------------------
South Brunswick, NJ GOB, FGIC Insured,
5.625%, 12/1/19 Aaa/AAA 2,330,000 2,356,772
-------------------------------------------------------------------------------------------
South Brunswick, NJ GOB, FGIC Insured,
5.625%, 12/1/20 Aaa/AAA 2,385,000 2,407,204
-------------------------------------------------------------------------------------------
West Orange, NJ BOE COP, MBIA Insured,
5.625%, 10/1/19 Aaa/NR 2,500,000 2,532,900
-------------
61,898,218
-------------------------------------------------------------------------------------------
U.S. Possessions--16.3%
Guam PAU RB, Prerefunded, Series A, 6.30%,
10/1/22 NR/AAA 185,000 196,553
-------------------------------------------------------------------------------------------
PR CMWLTH HTAU RB, Series Y, 5%, 7/1/36 Baa1/A 1,000,000 897,230
-------------------------------------------------------------------------------------------
PR EPAU RRB, Series Z, FSA Insured, 5.50%,
7/1/16 Aaa/AAA/AAA 1,105,000 1,119,199
-------------------------------------------------------------------------------------------
PR Industrial Tourist Educational Medical &
Environmental Control Facilities RB,
Polytechnic University Project, Series A,
6.50%, 8/1/24 NR/BBB- 400,000 406,836
-------------------------------------------------------------------------------------------
PR Industrial, Tourist, Educational,
Medical & Environmental Control Facilities
RB, AES Puerto Rico Project, 6.625%, 6/1/26 Baa2/NR/BBB 965,000 998,437
</TABLE>
13 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/ Market
S&P/Fitch Principal Value
(Unaudited) Amount See Note 1
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Possessions Continued
PR Municipal FAU GOB, Series PA-638A,
6.784%, 8/1/134,5 NR/NR $1,075,000 $ 1,206,139
-------------------------------------------------------------------------------------------
PR Municipal FAU GOB, Series PA-638B,
6.784%, 8/1/154,5 NR/NR 1,000,000 1,138,370
-------------------------------------------------------------------------------------------
University of Virgin Islands RB, Series A,
5.75%, 12/1/13 NR/A 1,000,000 1,006,850
-------------------------------------------------------------------------------------------
Virgin Islands Housing FAU SFM RRB, Series A,
6.50%, 3/1/25 NR/AAA 135,000 137,153
-------------------------------------------------------------------------------------------
Virgin Islands PFAU RB, Series A, 6.375%,
10/1/19 NR/BBB- 1,515,000 1,544,543
-------------------------------------------------------------------------------------------
Virgin Islands PFAU RB, Sub. Lien, Series E,
6%, 10/1/22 NR/NR 1,500,000 1,414,920
-------------------------------------------------------------------------------------------
Virgin Islands University BOE RB, Series A,
5.75%, 12/1/13 NR/A 620,000 635,258
-------------------------------------------------------------------------------------------
Virgin Islands Water & PAU Electric Systems
RRB, 5.375%, 7/1/10 NR/NR/BBB 1,470,000 1,455,476
-------------
12,156,964
-------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $75,123,369) 99.5% 74,055,182
-------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.5 361,388
-----------------------------
Net Assets 100.0% $74,416,570
=============================
</TABLE>
Footnotes to Statement of Investments
To simplify the listings of securities, abbreviations are used per the table
below:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BOE Board of Education HTAU Highway & Transportation Authority
CAP Capital Appreciation MH Multifamily Housing
CMWLTH Commonwealth MUAU Municipal Utilities Authority
COP Certificates of Participation PAUNYNJ Port Authority of New York & New Jersey
ED Economic Development PAU Power Authority
EDAU Economic Development Authority PC Pollution Control
EPAU Electric Power Authority PFAU Public Finance Authority
FA Facilities Authority POAU Port Authority
FAU Finance Authority RB Revenue Bonds
GOB General Obligation Bonds RRB Revenue Refunding Bonds
GOUN General Obligation Unlimited Nts. SDI School District
HAU Housing Authority SFM Single Family Mtg.
HCF Health Care Facilities SPF Special Facilities
HEAA Higher Education Assistance Agency SPO Special Obligations
HFA Housing Finance Agency TUAU Turnpike Authority
</TABLE>
1. For zero coupon bonds, the interest rate shown is the effective yield on the
date of purchase. 2. Securities with an aggregate market value of $965,736 are
held in collateralized accounts to cover initial margin requirements on open
futures sales contracts. See Note 5 of Notes to Financial Statements. 3.
When-issued security to be delivered and settled after July 31, 2000. 4.
Represents the current interest rate for a variable or increasing rate security.
5. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $2,344,509 or 3.15% of the Fund's net
assets as of July 31, 2000.
14 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
Footnotes to Statement of Investments Continued
As of July 31, 2000, securities subject to the alternative minimum tax amount to
$13,220,133 or 17.77% 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
--------------------------------------------------------------------------------
Municipal Leases $10,579,135 14.3%
Adult Living Facilities 9,877,312 13.3
General Obligation 8,788,976 11.9
Marine/Aviation Facilities 7,058,413 9.5
Highways 6,744,028 9.1
Higher Education 6,344,489 8.6
Hospital/Healthcare 5,424,765 7.3
Electric Utilities 4,677,019 6.3
Sewer Utilities 3,153,031 4.3
Sales Tax 3,043,615 4.1
Water Utilities 2,932,636 4.0
Multifamily Housing 1,609,693 2.2
Single Family Housing 1,348,735 1.8
Student Loans 1,030,020 1.4
Resource Recovery 920,990 1.2
Pollution Control 522,325 0.7
--------------------------
Total $74,055,182 100.0%
==========================
See accompanying Notes to Financial Statements.
15 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES July 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
==========================================================================================
Assets
<S> <C>
Investments, at value (cost $75,123,369)--see accompanying statement $74,055,182
------------------------------------------------------------------------------------------
Cash 265,389
------------------------------------------------------------------------------------------
Receivables and other assets:
Interest 1,007,363
Shares of beneficial interest sold 25,485
Other 600
------------
Total assets 75,354,019
==========================================================================================
Liabilities
Payables and other liabilities:
Investments purchased on a when-issued basis 499,950
Dividends 204,514
Trustees' compensation 69,261
Shares of beneficial interest redeemed 64,183
Shareholders reports 60,893
Transfer and shareholder servicing agent fees 11,742
Distribution and service plan fees 8,831
Daily variation on futures contracts 1,094
Other 16,981
------------
Total liabilities 937,449
==========================================================================================
Net Assets $74,416,570
============
==========================================================================================
Composition of Net Assets
Paid-in capital $83,139,270
------------------------------------------------------------------------------------------
Overdistributed net investment income (185,055)
------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (7,463,989)
------------------------------------------------------------------------------------------
Net unrealized depreciation on investments (1,073,656)
------------
Net Assets $74,416,570
============
==========================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets
of $31,937,157 and 3,083,805 shares of beneficial interest outstanding) $10.36
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $10.88
------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $35,337,563 and
3,409,061 shares of beneficial interest outstanding) $10.37
------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $7,141,850 and
689,282 shares of beneficial interest
outstanding) $10.36
</TABLE>
See accompanying Notes to Financial Statements.
16 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Year Ended July 31, 2000
--------------------------------------------------------------------------------
================================================================================
Investment Income
Interest $4,936,532
================================================================================
Expenses
Management fees 490,267
--------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 86,159
Class B 381,089
Class C 82,156
--------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 57,197
--------------------------------------------------------------------------------
Shareholder reports 77,971
--------------------------------------------------------------------------------
Custodian fees and expenses 19,909
--------------------------------------------------------------------------------
Trustees' compensation 15,743
--------------------------------------------------------------------------------
Other 28,939
-------------
Total expenses 1,239,430
Less expenses paid indirectly (15,594)
Less waiver of expenses (226,715)
-------------
Net expenses 997,121
================================================================================
Net Investment Income 3,939,411
================================================================================
Realized and Unrealized Gain (Loss)
Net realized loss on:
Investments (7,036,425)
Closing of futures contracts (420,474)
Closing and expiration of option contracts written (60)
-------------
Net realized loss (7,456,959)
--------------------------------------------------------------------------------
Net change in unrealized appreciation on investments 188,013
-------------
Net realized and unrealized loss (7,268,946)
================================================================================
Net Decrease in Net Assets Resulting from Operations $ (3,329,535)
=============
See accompanying Notes to Financial Statements.
17 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended July 31, 2000 1999
==========================================================================================
Operations
<S> <C> <C>
Net investment income $ 3,939,411 $ 3,749,997
------------------------------------------------------------------------------------------
Net realized gain (loss) (7,456,959) 138,741
------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 188,013 (3,509,408)
----------------------------
Net increase (decrease) in net assets resulting from (3,329,535) 379,330
operations
==========================================================================================
Dividends and/or Distributions to Shareholders
Dividends from net investment income:
Class A (1,895,546) (1,835,806)
Class B (1,697,365) (1,578,140)
Class C (371,483) (336,025)
------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (38,325) (32,211)
Class B (38,868) (34,382)
Class C (9,332) (7,281)
==========================================================================================
Beneficial Interest Transactions
Net increase (decrease) in net assets resulting from beneficial interest
transactions:
Class A (7,088,220) 10,755,309
Class B (5,635,459) 12,814,190
Class C (1,821,590) 3,631,472
==========================================================================================
Net Assets
Total increase (decrease) (21,925,723) 23,756,456
------------------------------------------------------------------------------------------
Beginning of period 96,342,293 72,585,837
----------------------------
End of period (including overdistributed net investment
income of185,055 and 160,072, respectively) $74,416,570 $96,342,293
============================
</TABLE>
See accompanying Notes to Financial Statements.
18 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------------
Year Year
Ended Ended
July 31, Dec. 31,
Class A 2000 1999 1998 1997 19961 1995
Net asset value, beginning of period $11.21 $11.58 $11.54 $11.10 $11.26 $10.41
==========================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $11.21 $11.58 $11.54 $11.10 $11.26 $10.41
------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .53 .55 .58 .62 .36 .61
Net realized and unrealized gain (loss) (.82) (.36) .09 .45 (.16) .86
--------------------------------------------------
Total income (loss) from
investment operations (.29) .19 .67 1.07 .20 1.47
------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.55) (.55) (.59) (.61) (.36) (.61)
Distributions from net realized gain (.01) (.01) (.04) (.02) -- (.01)
--------------------------------------------------
Total dividends and/or distributions
to shareholders (.56) (.56) (.63) (.63) (.36) (.62)
------------------------------------------------------------------------------------------
Net asset value, end of period $10.36 $11.21 $11.58 $11.54 $11.10 $11.26
===================================================
==========================================================================================
Total Return, at Net Asset Value2 (2.47)% 1.57% 5.96% 9.99% 1.80% 14.42%
==========================================================================================
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $31,937 $42,289 $33,060 $19,109 $11,354 $8,806
------------------------------------------------------------------------------------------
Average net assets (in thousands) $35,286 $38,999 $24,909 $14,072 $10,036 $6,504
------------------------------------------------------------------------------------------
Ratios to average net assets:3
Net investment income 5.26% 4.71% 4.94% 5.45% 5.49% 5.51%
Expenses 1.09% 1.10% 1.14%4 1.08%4 1.64%4 1.75%4
Expenses, net of indirect expenses
and waiver of expenses 0.79% 0.63% 0.38% 0.88% 0.97% 0.80%
------------------------------------------------------------------------------------------
Portfolio turnover rate 101% 70% 46% 12% 33% 7%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. Assumes a $1,000 hypothetical initial
investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
See accompanying Notes to Financial Statements.
19 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
July 31, Dec. 31,
Class B 2000 1999 1998 1997 1996 1 1995
<S> <C> <C> <C> <C> <C> <C>
============================================================================================
Per Share Operating Data
Net asset value, beginning of period $11.21 $11.58 $11.53 $11.09 $11.25 $10.40
--------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .47 .47 .50 .53 .31 .53
Net realized and unrealized gain
(loss) (.83) (.37) .09 .46 (.16) .86
-----------------------------------------------------
Total income (loss) from
investment operations (.36) .10 .59 .99 .15 1.39
--------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.47) (.46) (.50) (.53) (.31) (.53)
Distributions from net realized gain (.01) (.01) (.04) (.02) -- (.01)
-----------------------------------------------------
Total dividends and/or distributions
to shareholders (.48) (.47) (.54) (.55) (.31) (.54)
--------------------------------------------------------------------------------------------
Net asset value, end of period $10.37 $11.21 $11.58 $11.53 $11.09 $11.25
=====================================================
============================================================================================
Total Return, at Net Asset Value2 (3.11)% 0.81% 5.25% 9.18% 1.34% 13.59%
============================================================================================
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $35,338 $44,322 $33,062 $18,647 $9,740 $5,222
--------------------------------------------------------------------------------------------
Average net assets (in thousands) $38,064 $39,842 $25,556 $13,278 $7,774 $4,080
--------------------------------------------------------------------------------------------
Ratios to average net assets:3
Net investment income 4.50% 3.96% 4.17% 4.70% 4.70% 4.79%
Expenses 1.85% 1.85% 1.89%4 1.83%4 2.40%4 2.49%4
Expenses, net of indirect expenses
and waiver of expenses 1.55% 1.38% 1.14% 1.62% 1.74% 1.53%
--------------------------------------------------------------------------------------------
Portfolio turnover rate 101% 70% 46% 12% 33% 7%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. Assumes a $1,000 hypothetical initial
investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
See accompanying Notes to Financial Statements.
20 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
Year Period
Ended Ended
July 31, Dec. 31,
Class C 2000 1999 1998 1997 1996 1 1995 2
<S> <C> <C> <C> <C> <C> <C>
============================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 11.21 $11.58 $11.53 $11.09 $11.25 $11.01
--------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .46 .46 .50 .53 .30 .19
Net realized and unrealized gain
(loss) (.83) (.36) .09 .45 (.16) .25
-----------------------------------------------------
Total income (loss) from
investment operations (.37) .10 .59 .98 .14 .44
--------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.47) (.46) (.50) (.52) (.30) (.19)
Distributions from net realized gain (.01) (.01) (.04) (.02) -- (.01)
-----------------------------------------------------
Total dividends and/or distributions
to shareholders (.48) (.47) (.54) (.54) (.30) (.20)
--------------------------------------------------------------------------------------------
Net asset value, end of period $10.36 $11.21 $11.58 $11.53 $11.09 $11.25
======================================================
============================================================================================
Total Return, at Net Asset Value 3 (3.20)% 0.81% 5.24% 9.11% 1.29% 4.07%
============================================================================================
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $7,142 $9,732 $6,463 $2,080 $ 132 $ 50
--------------------------------------------------------------------------------------------
Average net assets (in thousands) $8,198 $8,483 $3,631 $ 747 $ 74 $ 3
--------------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 4.51% 3.96% 4.20% 4.56% 4.66% -- 6
Expenses 1.85% 1.85% 1.92% 5 1.79%5 2.48%5 -- 6
Expenses, net of indirect expenses
and waiver of expenses 1.55% 1.38% 1.12% 1.60% 1.81% -- 6
--------------------------------------------------------------------------------------------
Portfolio turnover rate 101% 70% 46% 12% 33% 7%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. For the period from August 29, 1995
(inception of offering) to December 31, 1995. 3. Assumes a $1,000 hypothetical
initial investment on the business day before the first day of the fiscal period
(or inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year. 4. Annualized for periods of less than one
full year. 5. Expense ratio has not been grossed up to reflect the effect of
expenses paid indirectly. 6. Ratios during this period would not be indicative
of future results.
See accompanying Notes to Financial Statements.
21 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, an open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek as high a level of current interest
income exempt from federal and New Jersey income taxes for individual investors
as is consistent with preservation of capital. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B and Class C shares. Class A shares are
sold at their offering price, which is normally net asset value plus a front-end
sales charge.Class B and Class C shares are sold without a front-end sales
charge but may be subject to a contingent deferred sales charge (CDSC). All
classes of shares have identical rights to earnings, assets and voting
privileges,except that each class has its own expenses directly attributable to
that class and exclusive voting rights with respect to matters affecting that
class. Classes A, B and C have separate distribution and/or service plans. Class
B shares will automatically convert to Class A shares six years after the date
of purchase. The following is a summary of significant accounting policies
consistently followed by the Fund.
--------------------------------------------------------------------------------
Securities Valuation. Securities listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the last sale price of
the security traded on that exchange prior to the time when the Fund's assets
are valued. In the absence of a sale, the security is valued at the last sale
price on the prior trading day, if it is within the spread of the closing bid
and asked prices, and if not, at the closing bid price. Securities (including
restricted securities) for which quotations are not readily available are valued
primarily using dealer-supplied valuations, a portfolio pricing service
authorized by the Board of Trustees, or at their fair value. Fair value is
determined in good faith under consistently applied procedures under the
supervision of the Board of Trustees. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
--------------------------------------------------------------------------------
Securities Purchased on a When-Issued Basis. Delivery and payment for securities
that have been purchased by the Fund on a when-issued basis can take place a
month or more after the trade date. Normally the settlement date occurs within
six months after the trade date; however, the Fund may, from time to time,
purchase securities whose settlement date extends beyond six months and possibly
as long as two years or more beyond trade date. During this period, such
securities do not earn interest, are subject to market fluctuation and may
increase or decrease in value prior to their delivery. The Fund maintains
segregated assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a when-issued or forward
commitment basis may increase the volatility of the Fund's net asset value to
the extent the Fund makes such purchases while remaining substantially fully
invested. As of July 31, 2000, the Fund had entered into outstanding net when-
issued or forward commitments of $499,950.
22 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
Non-Diversification Risk. The Fund is "non-diversified" and can invest in the
securities of a single issuer without limit. To the extent the Fund invests a
relatively high percentage of its assets in the obligations of a single issuer
or a limited number of issuers, the Fund is subject to additional risk of loss
if those obligations lose market value or the borrower or issuer of those
obligations defaults.
--------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
--------------------------------------------------------------------------------
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required. As of July 31, 2000, the
Fund had available for federal income tax purposes an unused capital loss
carryover as follows:
Expiring
------------------
2008 $1,327,407
--------------------------------------------------------------------------------
Trustees' Compensation. The Fund has adopted an unfunded retirement plan for the
Fund's independent Board of Trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
July 31, 2000, a provision of $6,210 was made for the Fund's projected benefit
obligations and payments of $2,049 were made to retired trustees, resulting in
an accumulated liability of $64,414 as of July 31, 2000.
The Board of Trustees has adopted a deferred compensation plan for
independent trustees that enables trustees to elect to defer receipt of all or a
portion of annual compensation they are entitled to receive from the Fund. Under
the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Board of Trustees in shares of one
or more Oppenheimer funds selected by the trustee. The amount paid to the Board
of Trustees under the plan will be determined based upon the performance of the
selected funds. Deferral of trustees' fees under the plan will not affect the
net assets of the Fund, and will not materially affect the Fund's assets,
liabilities or net investment income per share.
23 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies Continued
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
Classification of Dividends and Distributions to Shareholders. Net investment
income (loss) and net realized gain (loss) may differ for financial statement
and tax purposes. The character of dividends and distributions made during the
fiscal 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 dividends and 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.
The Fund adjusts 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, 2000, amounts have been reclassified to reflect a decrease
in paid-in capital of $484. Accumulated net realized loss on investments was
decreased by the same amount. Net assets of the Fund were unaffected by the
reclassifications.
--------------------------------------------------------------------------------
Expense Offset Arrangements. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
--------------------------------------------------------------------------------
Other. Investment transactions are accounted for as of trade date. Original
issue discount is accreted and premium is amortized in accordance with federal
income tax requirements. For municipal bonds acquired after April 30, 1993, on
disposition or maturity, taxable ordinary income is recognized to the extent of
the lesser of gain or market discount that would have accrued over the holding
period. Realized gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is the same basis
used for federal income tax purposes.
There are certain risks arising from geographic concentration in any
state. Certain revenue or tax-related event in a state may impair the ability of
certain issuers of municipal securities to pay principal and interest on their
obligations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
24 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
================================================================================
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Year Ended July 31, 2000 Year Ended July 31, 1999
Shares Amount Shares Amount
---------------------------------------------------------------------------------------------------
Class A
<S> <C> <C> <C> <C>
Sold 920,509 $ 9,619,436 1,892,611 $ 22,117,140
Dividends and/or
distributions reinvested 104,515 1,090,118 101,593 1,183,876
Redeemed (1,712,137) (17,797,774) (1,077,934) (12,545,707)
-------------------------------------------------------------
Net increase (decrease) (687,113) $ (7,088,220) 916,270 $ 10,755,309
=============================================================
---------------------------------------------------------------------------------------------------
Class B
Sold 560,903 $ 5,829,198 1,587,888 $ 18,490,151
Dividends and/or
distributions reinvested 93,374 971,360 84,751 986,603
Redeemed (1,199,632) (12,436,017) (574,554) (6,662,564)
-------------------------------------------------------------
Net increase (decrease) (545,355) $ (5,635,459) 1,098,085 $ 12,814,190
=============================================================
---------------------------------------------------------------------------------------------------
Class C
Sold 252,337 $ 2,644,095 461,996 $ 5,398,001
Dividends and/or
distributions reinvested 24,849 259,049 23,858 277,644
Redeemed (455,982) (4,724,734) (176,024) (2,044,173)
-------------------------------------------------------------
Net increase (decrease) (178,796) $ (1,821,590) 309,830 $ 3,631,472
=============================================================
===================================================================================================
</TABLE>
3. Purchases and Sales of Securities
The aggregate cost of purchases and proceeds from sales of securities,other than
short-term obligations, for the year ended July 31, 2000, were $81,807,639 and
$99,493,204, respectively.
As of July 31, 2000,unrealized appreciation (depreciation) based on cost of
securities for federal income tax purposes of $75,117,901 was:
Gross unrealized appreciation $ 1,602,251
Gross unrealized depreciation (2,670,438)
-----------
Net unrealized depreciation (1,068,187)
===========
25 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
================================================================================
4. Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for an annual fee of
0.60% of the first $200 million of average annual net assets, 0.55% of the next
$100 million, 0.50% of the next $200 million, 0.45% of the next $250 million,
0.40% of the next $250 million and 0.35% of average annual net assets in excess
of $1 billion. The Manager has voluntarily undertaken to assume Fund expenses to
the level needed to maintain a stable dividend. The Manager can withdraw the
voluntary waiver at any time. The Fund's management fee for the year ended July
31, 2000, was an annualized rate of 0.60%, before any waiver by the Manager, if
applicable.
--------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund on an
"at-cost" basis. OFS also acts as the transfer and shareholder servicing agent
for the other Oppenheimer funds.
--------------------------------------------------------------------------------
Distribution and Service Plan Fees. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
<TABLE>
<CAPTION>
Aggregate Class A Commissions Commissions Commissions
Front-End Front-End on Class A on Class B on Class C
Sales Charges Sales Charges Shares Shares Shares
on Class A Retained by Advanced by Advanced by Advanced by
Year Ended Shares Distributor Distributor1 Distributor1 Distributor1
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
July 31, 2000 $ 89,670 $ 11,968 $ 4,034 $ 193,383 $ 20,626
</TABLE>
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
<TABLE>
<CAPTION>
Class A Class B Class C
Contingent Deferred Contingent Deferred Contingent Deferred
Sales Charges Sales Charges Sales Charges
Year Ended Retained by Distributor Retained by Distributor Retained by Distributor
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
July 31, 2000 $-- $216,313 $17,427
</TABLE>
The Fund has adopted a Service Plan for Class A shares and Distribution and
Service Plans for Class B and Class C shares under Rule 12b-1 of the Investment
Company Act. Under those plans the Fund pays the Distributor for all or a
portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
26 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
Class A Service Plan Fees. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.15% of average annual net assets of Class A
shares purchased. The Distributor makes payments to plan recipients quarterly at
an annual rate not to exceed 0.15% of the average annual net assets consisting
of Class A shares of the Fund. For the year ended July 31, 2000, payments under
the Class A plan totaled $86,159 prior to Manager waivers if applicable, all of
which were paid by the Distributor to recipients, and included $1,655 paid to an
affiliate of the Manager. Any unreimbursed expenses the Distributor incurs with
respect to Class A shares in any fiscal year cannot be recovered in subsequent
years.
--------------------------------------------------------------------------------
Class B and Class C Distribution and Service Plan Fees. Under each plan, service
fees and distribution fees are computed on the average of the net asset value of
shares in the respective class, determined as of the close of each regular
business day during the period. The Class B and Class C plans provide for the
Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. The asset-based sales charges on
Class B and Class C shares allow investors to buy shares without a front-end
sales charge while allowing the Distributor to compensate dealers that sell
those shares.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from the contingent deferred sales
charges collected on redeemed shares and asset-based sales charges from the Fund
under the plans. If any plan is terminated by the Fund, the Board of Trustees
may allow the Fund to continue payments of the asset-based sales charge to the
Distributor for distributing shares before the plan was terminated. The plans
allow for the carry-forward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended July 31, 2000, were
as follows:
<TABLE>
<CAPTION>
Distributor's Distributor's
Aggregate Unreimbursed
Unreimbursed Expenses as %
Total Payments Amount Retained Expenses of Net Assets
Under Plan by Distributor Under Plan of Class
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $381,089 $305,129 $1,441,288 4.08%
Class C Plan 82,156 27,321 98,620 1.38
</TABLE>
27 OPPENHEIMER NEW JERSEY MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
================================================================================
5. Futures Contracts
A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a particular price on a stipulated future
date at a negotiated price. Futures contracts are traded on a commodity
exchange. The Fund may buy and sell futures contracts that relate to broadly
based securities indices "financial futures" or debt securities "interest rate
futures" in order to gain exposure to or to seek to protect against changes in
market value of stock and bonds or 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 decreases in market value of 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.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
As of July 31, 2000, the Fund had outstanding futures contracts as follows:
<TABLE>
<CAPTION>
Expiration Number Valuation as of Unrealized
Contract Description Date of Contracts July 31, 2000 Depreciation
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contracts to Sell
U.S. Treasury Nts., 10 yr. 9/20/00 35 $3,461,172 $5,469
===================================================================================================
</TABLE>
6. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of 0.08%
per annum.
The Fund had no borrowings outstanding during the year ended July 31, 2000.
<PAGE>
<PAGE>
Appendix A
MUNICIPAL BOND RATINGS DEFINITIONS
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below for municipal securities. Those ratings represent
the opinion of the agency as to the credit quality of issues that they rate. The
summaries below are based upon publicly-available information provided by the
rating organizations.
Moody's Investors Service, Inc.
-------------------------------------------------------------------------------
Long-Term Bond Ratings
Aaa: Bonds rated "Aaa" are judged to be the best quality. They carry the
smallest degree of investment risk. Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated "Aa" are judged to be of high quality by all standards. Together
with the "Aaa" group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as with Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the of "Aaa" securities.
A: Bonds rated "A" possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa: Bonds rated "Baa" are considered medium-grade obligations; that is, they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated "Ba" are judged to have speculative elements. Their future
cannot be considered well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B: Bonds rated "B" generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated "Caa" are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or
interest.
Ca: Bonds rated "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C: Bonds rated "C" are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Con. (...): Bonds for which the security depends on the completion of some act
or the fulfillment of some condition are rated conditionally. These bonds are
secured by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals that begin when facilities are
completed, or (d) payments to which some other limiting condition attaches. The
parenthetical rating denotes probable credit stature upon completion of
construction or elimination of the basis of the condition. Moody's applies
numerical modifiers 1, 2, and 3 in each generic rating classification from "Aa"
through "Caa." The modifier "1" indicates that the obligation ranks in the
higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates a ranking in the lower end of
that generic rating category. Advanced refunded issues that are secured by
certain assets are identified with a # symbol.
Short-Term Ratings - U.S. Tax-Exempt Municipals
There are three ratings for short-term obligations that are investment grade.
Short-term speculative obligations are designated "SG." For variable rate demand
obligations, a two-component rating is assigned. The first (MIG) element
represents an evaluation by Moody's of the degree of risk associated with
scheduled principal and interest payments. The second element (VMIG) represents
an evaluation of the degree of risk associated with the demand feature.
MIG 1/VMIG 1: Denotes superior credit quality. Excellent protection is afforded
by established cash flows, highly reliable liquidity support or demonstrated
broad-based access to the market for refinancing..
MIG 2/VMIG 2: Denotes strong credit quality. Margins of protection are ample
although not as large as in the preceding group.
MIG 3/VMIG 3: Denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to be less
well established.
SG: Denotes speculative-grade credit quality. Debt instruments in this
category may lack margins of protection.
-------------------------------------------------------------------------------
Standard & Poor's Rating Services
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: Bonds rated "BBB" exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC, and C
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having significant
speculative characteristics. "BB" indicates the least degree of speculation and
"C" the highest. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions.
BB: Bonds rated "BB" are less vulnerable to nonpayment than other speculative
issues. However, these face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Bonds rated "B" are more vulnerable to nonpayment than obligations rated
"BB," but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC: Bonds rated "CCC" are currently vulnerable to nonpayment, and are dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: Bonds rated "CC" are currently highly vulnerable to nonpayment.
C: The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Bonds rated "D" are in default. Payments on the obligation are not being made
on the date due even if the applicable grace period has not expired, unless
Standard and Poor's believes that such payments will be made during such grace
period. The "D" rating will also be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation 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. The
"p" symbol indicates that the rating is provisional. The "r" symbol is attached
to the ratings of instruments with significant noncredit risks.
Short-Term Issue Credit Ratings
SP-1: Strong capacity to pay principal and interest. An issue with a very strong
capacity to pay debt service is given a (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
Fitch, Inc.
-------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
<PAGE>
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. The ratings of obligations in this category are based
on their prospects for achieving partial or full recovery in a reorganization or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines. "DDD" obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest. "DD" indicates
potential recoveries in the range of 50%-90%, and "D" the lowest recovery
potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the major rating categories. Plus and minus signs are not
added to the "AAA" category or to categories below "CCC," nor to short-term
ratings other than "F1" (see below).
-------------------------------------------------------------------------------
International Short-Term Credit Ratings
-------------------------------------------------------------------------------
F1: Highest credit quality. Strongest capacity for timely payment of financial
commitments. May have an added "+" to denote any exceptionally strong credit
feature.
F2: Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of higher
ratings.
F3: Fair credit quality. Capacity for timely payment of financial commitments is
adequate. However, near-term adverse changes could result in a reduction to
non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business
and economic environment.
D: Default. Denotes actual or imminent payment default.
<PAGE>
B-1
Appendix B
Municipal Bond Industry Classifications
Adult Living Facilities
Bond Anticipation Notes
Education
Electric Utilities
Gas Utilities
General Obligation
Higher Education
Highways/Railways
Hospital/Healthcare
Manufacturing, Durable Goods
Manufacturing, Non Durable Goods Marine/Aviation Facilities Multi-Family Housing
Municipal Leases Non Profit Organization Parking Fee Revenue Pollution Control
Resource Recovery Revenue Anticipation Notes Sales Tax Revenue Sewer Utilities
Single Family Housing Special Assessment Special Tax Sports Facility Revenue
Student Loans Tax Anticipation Notes Tax & Revenue Anticipation Notes Telephone
Utilities Water Utilities
<PAGE>
C-5
Appendix C
-------------------------------------------------------------------------------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
-------------------------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of
Class A shares1 of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived. That is
because of the economies of sales efforts realized by OppenheimerFunds
Distributor, Inc., (referred to in this document as the "Distributor"), or by
dealers or other financial institutions that offer those shares to certain
classes of investors.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds that were merged into
or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans: (1)
plans qualified under Sections 401(a) or 401(k) of the Internal Revenue
Code,
(2) non-qualified deferred compensation plans, (3) employee benefit plans2 (4)
Group Retirement Plans3 (5) 403(b)(7) custodial plan accounts (6) Individual
Retirement Accounts ("IRAs"), including traditional IRAs,
Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a
special arrangement or waiver in a particular case is in the sole discretion of
the Distributor or the transfer agent (referred to in this document as the
"Transfer Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager").
Waivers that apply at the time shares are redeemed must be requested by the
shareholder and/or dealer in the redemption request.
--------------
1. Certain waivers also apply to Class M shares of Oppenheimer Convertible
Securities Fund.
2. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
3. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
-------------------------------------------------------------------------------
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
-------------------------------------------------------------------------------
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable concession described in the Prospectus under "Class A
Contingent Deferred Sales Charge."3 This waiver provision applies to: |_|
Purchases of Class A shares aggregating $1 million or more. |_| Purchases by a
Retirement Plan (other than an IRA or 403(b)(7) custodial plan) that: (1) buys
shares costing $500,000 or more, or (2) has, at the time of purchase, 100 or
more eligible employees or total plan assets of $500,000 or more, or (3)
certifies to the Distributor that it projects to have annual plan purchases of
$200,000 or more. |_| Purchases by an OppenheimerFunds-sponsored Rollover IRA,
if the purchases are made: through a broker, dealer, bank or registered
investment adviser that has made special arrangements with the Distributor for
those purchases, or by a direct rollover of a distribution from a qualified
Retirement Plan if the administrator of that Plan has made special arrangements
with the Distributor for those purchases. |_| Purchases of Class A shares by
Retirement Plans that have any of the following record-keeping arrangements: (1)
The record keeping is performed by Merrill Lynch Pierce Fenner & Smith, Inc.
("Merrill Lynch") on a daily valuation basis for the Retirement Plan. On the
date the plan sponsor signs the record-keeping service agreement with Merrill
Lynch, the Plan must have $3 million or more of its assets invested in (a)
mutual funds, other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), that are made available under a Service Agreement
between Merrill Lynch and the mutual fund's principal underwriter or
distributor, and (b) funds advised or managed by MLAM (the funds described in
(a) and (b) are referred to as "Applicable Investments"). (2) The record keeping
for the Retirement Plan is performed on a daily valuation basis by a record
keeper whose services are provided under a contract or arrangement between the
Retirement Plan and Merrill Lynch. On the date the plan sponsor signs the record
keeping service agreement with Merrill Lynch, the Plan must have $3 million or
more of its assets (excluding assets invested in money market funds) invested in
Applicable Investments. (3) The record keeping for a Retirement Plan is handled
under a service agreement with Merrill Lynch and on the date the plan sponsor
signs that agreement, the Plan has 500 or more eligible employees (as determined
by the Merrill Lynch plan conversion manager). |_| Purchases by a Retirement
Plan whose record keeper had a cost-allocation agreement with the Transfer Agent
on or before May 1, 1999.
-------------------------------------------------------------------------------
II. Waivers of Class A Sales Charges of Oppenheimer Funds
-------------------------------------------------------------------------------
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any Class
A sales charges (and no concessions are paid by the Distributor on such
purchases): |_| The Manager or its affiliates. |_| Present or former officers,
directors, trustees and employees (and their
"immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. The term
"immediate family" refers to one's spouse, children, grandchildren,
grandparents, parents, parents-in-law, brothers and sisters, sons- and
daughters-in-law, a sibling's spouse, a spouse's siblings, aunts,
uncles, nieces and nephews; relatives by virtue of a remarriage
(step-children, step-parents, etc.) are included.
|_| Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees.
|_| Employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are
identified as such to the Distributor) or with the Distributor. The
purchaser must certify to the Distributor at the time of purchase that
the purchase is for the purchaser's own account (or for the benefit of
such employee's spouse or minor children).
|_| Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products made
available to their clients. Those clients may be charged a transaction
fee by their dealer, broker, bank or advisor for the purchase or sale of
Fund shares.
|_| Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
|_| Clients of investment advisors or financial planners (that have entered
into an agreement for this purpose with the Distributor) who buy
shares for their own accounts may also purchase shares without sales
charge but only if their accounts are linked to a master account of
their investment advisor or financial planner on the books and records
of the broker, agent or financial intermediary with which the
Distributor has made such special arrangements . Each of these
investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares.
|_| Directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit sharing
or other benefit plan which beneficially owns shares for those persons.
|_| Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this arrangement)
and persons who are directors or trustees of the company or trust which
is the beneficial owner of such accounts.
|_| A unit investment trust that has entered into an appropriate agreement
with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to defined
contribution employee retirement plans for which the dealer, broker or
investment adviser provides administration services.
|_| Retirement Plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in
each case if those purchases are made through a broker, agent or other
financial intermediary that has made special arrangements with the
Distributor for those purchases.
|_| A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value
Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November 24,
1995.
|_| A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through DCXchange,
a sub-transfer agency mutual fund clearinghouse, if that arrangement was
consummated and share purchases commenced by December 31, 1996.
B. Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no concessions are paid by the Distributor on such
purchases): |_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
|_| Shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor.
|_| Shares purchased through a broker-dealer that has entered into a special
agreement with the Distributor to allow the broker's customers to
purchase and pay for shares of Oppenheimer funds using the proceeds of
shares redeemed in the prior 30 days from a mutual fund (other than a
fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid.
This waiver also applies to shares purchased by exchange of shares of
Oppenheimer Money Market Fund, Inc. that were purchased and paid for
in this manner. This waiver must be requested when the purchase order
is placed for shares of the Fund, and the Distributor may require
evidence of qualification for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by a participant
in a Retirement Plan for which the Manager or an affiliate acts as
sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases: |_| To make Automatic Withdrawal Plan payments that are limited
annually to
no more than 12% of the account value measured at the time the Plan is
established, adjusted annually.
|_| Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
|_| For distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary. The death or disability must
occur after the participant's account was established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact. (4) Hardship
withdrawals, as defined in the plan.4
(5) Under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code, or, in the case of an IRA, a divorce or
separation agreement described in Section 71(b) of the Internal
Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue
Code.
(7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries. (9) Separation from service.5
(10)Participant-directed redemptions to purchase shares of a mutual fund
(other than a fund managed by the Manager or a subsidiary of the
Manager) if the plan has made special arrangements with the Distributor.
(11) Plan termination or "in-service distributions," if the redemption
proceeds are rolled over directly to an OppenheimerFunds-sponsored IRA.
|_| For distributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
|_| For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing this
waiver.
III. Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be applied to
shares purchased in certain types of transactions or redeemed in certain
circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases: |_| Shares redeemed involuntarily,
as described in "Shareholder Account
Rules and Policies," in the applicable Prospectus.
|_| Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a
trustee of a grantor trust or revocable living trust for which the
trustee is also the sole beneficiary. The death or disability must have
occurred after the account was established, and for disability you must
provide evidence of a determination of disability by the Social Security
Administration.
|_| Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
|_| Redemptions of Class B shares held by Retirement Plans whose records are
maintained on a daily valuation basis by Merrill Lynch or an independent
record keeper under a contract with Merrill Lynch.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
|_| Redemptions requested in writing by a Retirement Plan sponsor of Class C
shares of an Oppenheimer fund in amounts of $1 million or more held by
the Retirement Plan for more than one year, if the redemption proceeds
are invested in Class A shares of one or more Oppenheimer funds.
|_| Distributions from Retirement Plans or other employee benefit plans for
any of the following purposes:
(1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established in an Oppenheimer fund.
(2) To return excess contributions made to a participant's account. (3) To
return contributions made due to a mistake of fact. (4) To make hardship
withdrawals, as defined in the plan.6 (5) To make distributions required under a
Qualified Domestic Relations
Order or, in the case of an IRA, a divorce or separation agreement
described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal
Revenue Code.
(7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.7 (9) On account of the
participant's separation from service.8 (10) Participant-directed redemptions to
purchase shares of a mutual fund
(other than a fund managed by the Manager or a subsidiary of the
Manager) offered as an investment option in a Retirement Plan if
the plan has made special arrangements with the Distributor.
(11) Distributions made on account of a plan termination or
"in-service" distributions," if the redemption proceeds are rolled
over directly to an OppenheimerFunds-sponsored IRA.
(12) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the Plan's
elimination as investment options under the Plan of all of the
Oppenheimer funds that had been offered.
(13) For distributions from a participant's account under an Automatic
Withdrawal Plan after the participant reaches age 59 1/2, as
long as the aggregate value of the distributions does not exceed
10% of the account's value annually (measured from the
establishment of the Automatic Withdrawal Plan).
|_|Redemptions of Class B shares (or Class C shares, effective August
1, 1999) under an Automatic Withdrawal Plan from an account other
than a Retirement Plan if the aggregate value of the redeemed shares
does not exceed 10% of the account's value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
|_| Shares sold to the Manager or its affiliates.
|_| Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is a party.
IV. Special Sales Charge Arrangements for Shareholders of Certain
Oppenheimer Funds Who Were Shareholders of Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
<PAGE>
Oppenheimer Quest Value Fund, Oppenheimer Quest Small Cap
Inc. Value Fund
Oppenheimer Quest Balanced Oppenheimer Quest Global
Value Fund Value Fund
Oppenheimer Quest Opportunity
Value Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Quest for Value New York
Income Fund Tax-Exempt Fund
Quest for Value Investment Quest for Value National
Quality Income Fund Tax-Exempt Fund
Quest for Value Global Income Fund Quest for Value California
Tax-Exempt Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either: |_| acquired by such shareholder pursuant to an exchange of
shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or |_|
purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of the
Former Quest for Value Funds into that other Oppenheimer fund on
November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
----------------------------------------------------------------------
Number of Initial Sales
Eligible Initial Sales Charge as a % Commission as %
Employees or Charge as a % of of Net Amount of Offering
Members Offering Price Invested Price
----------------------------------------------------------------------
----------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
----------------------------------------------------------------------
----------------------------------------------------------------------
At least 10 but 2.00% 2.04% 1.60%
not more than 49
----------------------------------------------------------------------
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders who were shareholders of the AMA Family of Funds on
February 28, 1991 and who acquired shares of any of the Former Quest for
Value Funds by merger of a portfolio of the AMA Family of Funds.
|_| Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with: |_| withdrawals under an
automatic withdrawal plan holding only either Class
B or Class C shares if the annual withdrawal does not exceed 10% of the
initial value of the account, and
|_| liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum value of
such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995: |_| redemptions following
the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration);
|_| withdrawals under an automatic withdrawal plan (but only for Class B or
Class C shares) where the annual withdrawals do not exceed 10% of the
initial value of the account; and
|_| liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section): o Oppenheimer U. S. Government Trust, o Oppenheimer Bond Fund, o
Oppenheimer Disciplined Value Fund and o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return
Account
Connecticut Mutual Government CMIA LifeSpan Capital
Securities Account Appreciation Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
? Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund
and the other Former Connecticut Mutual Funds are entitled to continue to make
additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (1)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of the
Former Connecticut Mutual Funds to purchase shares valued at $500,000 or
more over a 13-month period entitled those persons to purchase shares at
net asset value without being subject to the Class A initial sales
charge.
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18,
1996, remain subject to the prior Class A CDSC, or if any additional
shares are purchased by those shareholders at net asset value pursuant to
this arrangement they will be subject to the prior Class A CDSC.
? Class A Sales Charge Waivers. Additional Class A shares of a Fund may be
purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares: (1) any purchaser, provided the total initial amount
invested in the Fund or
any one or more of the Former Connecticut Mutual Funds totaled $500,000
or more, including investments made pursuant to the Combined Purchases,
Statement of Intention and Rights of Accumulation features available at
the time of the initial purchase and such investment is still held in
one or more of the Former Connecticut Mutual Funds or a Fund into which
such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the Former
Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund or
any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or beneficiaries
from retirement plans qualified under Sections 401(a) or 403(b)(7)of the
Code, or from IRAs, deferred compensation plans created under Section
457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or liquidate
the Fund;
(8) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of Advance
America Funds, Inc.
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S. Government
Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity Income Fund who
acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those Oppenheimer
funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on
March 30, 1990, may purchase Class A shares of those four Oppenheimer funds at a
maximum sales charge rate of 4.50%.
-------------------------------------------------------------------------------
VII. Sales Charge Waivers on Purchases of Class M Shares of Oppenheimer
Convertible Securities Fund
-------------------------------------------------------------------------------
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge:
|_| the Manager and its affiliates,
|_| present or former officers, directors, trustees and employees (and their
"immediate families" as defined in the Fund's Statement of Additional
Information) of the Fund, the Manager and its affiliates, and retirement
plans established by them or the prior investment advisor of the Fund
for their employees,
|_| registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or distributor for that purpose,
|_| dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees,
|_| employees and registered representatives (and their spouses) of dealers
or brokers described in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
|_| dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of the
Fund specifically providing for the use of Class M shares of the Fund in
specific investment products made available to their clients, and
|_| dealers, brokers or registered investment advisors that had entered into
an agreement with the Distributor or prior distributor of the Fund's
shares to sell shares to defined contribution employee retirement plans
for which the dealer, broker, or investment advisor provides
administrative services.
<PAGE>
-------------------------------------------------------------------------------
Oppenheimer New Jersey Municipal Fund
-------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian Bank
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019-5820
1234
PX395.1100
--------
1 Ms. Macaskill and Mr. Griffiths are not Directors of Oppenheimer Money Market
Fund, Inc. Mr. Griffiths is also not a Trustee of Oppenheimer Discovery Fund. 2
In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Trustees" in this Statement of Additional Information refers to
those Trustees who are not "interested persons" of the Fund or the Trust and who
do not have any direct or indirect financial interest in the operation of the
distribution plan or any agreement under the plan.
3 However, that commission will not be paid on purchases of shares in amounts of
$1 million or more (including any right of accumulation) by a Retirement Plan
that pays for the purchase with the redemption proceeds of Class C shares of one
or more Oppenheimer funds held by the Plan for more than one year. 4 This
provision does not apply to IRAs. 5 This provision does not apply to 403(b)(7)
custodial plans if the participant is less than age 55, nor to IRAs. 6 This
provision does not apply to IRAs. 7 This provision does not apply to loans from
403(b)(7) custodial plans. 8 This provision does not apply to 403(b)(7)
custodial plans if the participant is less than age 55, nor to IRAs.
<PAGE>
Oppenheimer Pennsylvania Municipal Fund
Prospectus dated November 27, 2000
Oppenheimer Pennsylvania Municipal Fund is a
mutual fund. It seeks current income exempt
from federal and Pennsylvania personal
income taxes by investing mainly in
municipal securities, while attempting to
preserve capital.
This Prospectus contains important
information about the Fund's objective, its
investment policies, strategies and risks.
It also contains important information about
how to buy and sell shares of the Fund and
other account
As with all mutual funds, the features. Please read this
Securities and Exchange Prospectus carefully before you
Commission has not approved or invest and keep it for future
disapproved the Fund's reference about your account.
securities nor has it
determined that this
Prospectus is accurate or
complete. It is a criminal
offense to represent otherwise.
[OppenheimerFunds logo]
<PAGE>
Contents
About The Fund
-------------------------------------------------------------------------------
The Fund's Investment Objective and Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
About Your Account
-------------------------------------------------------------------------------
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Internet Web Site
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
-------------------------------------------------------------------------------
<PAGE>
About the Fund
-------------------------------------------------------------------------------
The Fund's Investment Objective and Strategies
-------------------------------------------------------------------------------
What Is The Fund's Investment Objective? The Fund seeks as high a level of
current interest income exempt from federal and Pennsylvania personal income
taxes as is available from municipal securities, consistent with preservation
of capital.
-------------------------------------------------------------------------------
What Does the Fund Invest In? The Fund invests mainly in Pennsylvania municipal
securities that pay interest exempt from federal and Pennsylvania personal
income taxes, and from the investment income tax of the school district of
Philadelphia. These securities primarily include municipal bonds (which are debt
obligations having a maturity of more than one (1) year when issued), municipal
notes (short-term obligations), and interests in municipal leases. Most of the
securities the Fund buys must be "investment grade" (securities rated in the
four (4) highest rating categories of national rating organizations, such as
Moody's Investors Services ("Moody's")), although the Fund can hold lower-grade
securities as well.
Under normal market conditions, the Fund:
|_| attempts to invest 100% of its assets in municipal securities, |_| as
a fundamental policy, invests at least 80% of its assets in
municipal securities, and
|_| invests at least 80% of its total assets in Pennsylvania municipal
securities.
The Fund does not limit its investments to securities of a particular
maturity range, and may hold both short- and long-term securities. However, it
currently focuses on longer-term securities to seek higher yields. These
investments are more fully explained in "About the Fund's Investments," below.
|X| How Do the Portfolio Managers Decide What Securities to Buy or
Sell? In selecting securities for the Fund, the portfolio managers look
primarily throughout Pennsylvania for municipal securities using a variety of
factors that may change over time and may vary in particular cases. The
portfolio managers currently look for:
|_| Securities that provide high current income |_| A wide range of
securities of different issuers within the state,
including different agencies and municipalities, to spread risk |_|
Securities having favorable credit characteristics |_| Special situations that
provide opportunities for value |_| Unrated bonds that might provide high income
|_| Securities of smaller issuers that might be overlooked by other
investors and funds
Who Is the Fund Designed For? The Fund is designed for individual investors who
are seeking income exempt from federal and Pennsylvania personal income taxes.
The Fund does not seek capital gains or growth. Because it invests in tax-exempt
securities, the Fund is not appropriate for retirement plan accounts or for
investors seeking capital growth. The Fund is not a complete investment program.
Main Risks of Investing in the Fund
All investments have risks to some degree. The Fund's investments are
subject to changes in their value from a number of factors, described below.
There is also the risk that poor security selection by the Fund's investment
Manager, OppenheimerFunds, Inc., will cause the Fund to underperform other funds
having a similar objective.
These risks collectively form the risk profile of the Fund and can affect
the value of the Fund's investments, its investment performance, and the prices
of its shares. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them. There is no assurance that the Fund will achieve its objective.
|X| Credit Risk. Municipal securities are subject to credit risk. Credit
risk is the risk that the issuer of a municipal security might not make interest
and principal payments on the security as they become due. If the issuer fails
to pay interest, the Fund's income may be reduced and if the issuer fails to
repay principal, the value of that security and of the Fund's shares may be
reduced. Because the Fund can invest as much as 25% of its assets in municipal
securities below investment grade to seek higher income, the Fund's credit risks
are greater than those of funds that buy only investment-grade bonds. A
downgrade in an issuer's credit rating or other adverse news about an issuer can
reduce the market value of that issuer's securities.
|X| Interest Rate Risks. Municipal securities are debt securities that are
subject to changes in value when prevailing interest rates change. When interest
rates fall, the values of already-issued municipal securities generally rise.
When prevailing interest rates rise, the values of already-issued municipal
securities generally fall, and the securities may sell at a discount from their
face amount. The magnitude of these price changes is generally greater for bonds
with longer maturities. The Fund currently focuses on longer-term securities to
seek higher income. Callable bonds the Fund buys are more likely to be called
when interest rates fall, and the Fund might then have to reinvest the proceeds
of the callable instrument in other securities that have lower yields, reducing
its income.
|X| Risks of Non-Diversification. The Fund is "non-diversified." That
means that compared to funds that are diversified, it can invest a greater
portion of its assets in the securities of one issuer, such as bonds issued by
the Commonwealth of Pennsylvania. Having a higher percentage of its assets
invested in the securities of fewer issuers, particularly government issuers of
one state, could result in greater fluctuations of the Fund's share prices due
to economic, regulatory or political problems in Pennsylvania.
|X| Risks in Using Derivative Investments. The Fund can use derivatives to
seek increased returns or to try to hedge investment risks. In general terms, a
derivative investment is an investment contract whose value depends on (or is
derived from) the value of an underlying asset, interest rate or index. Options,
futures, "inverse floaters" and variable rate obligations are examples of
derivatives the Fund can use.
If the issuer of the derivative investment does not pay the amount due,
the Fund can lose money on its investment. Also, the underlying security or
investment on which the derivative is based, and the derivative itself, may not
perform the way the Manager expected it to perform. If that happens, the Fund
will get less income than expected or its share price could decline. To try to
preserve capital, the Fund has limits on the amount of particular types of
derivatives it can hold. However, using derivatives can increase the volatility
of the Fund's share prices. Some derivatives may be illiquid, making it
difficult for the Fund to sell them quickly at an acceptable price.
How Risky Is the Fund Overall? The value of the Fund's investments will change
over time due to a number of factors. They include changes in general bond
market movements, the change in value of particular bonds because of an event
affecting the issuer, or changes in interest rates that can affect bond prices
overall. The Fund focuses its investments in Pennsylvania municipal securities
and is non-diversified. It will therefore be vulnerable to the effects of
economic changes that affect Pennsylvania governmental issuers. These changes
can affect the value of the Fund's investments and its prices per share. The
Fund's focus on longer-term bonds and its use of inverse floaters can cause
fluctuations in the Fund's share prices. In the OppenheimerFunds spectrum, the
Fund is more conservative than some types of taxable bond funds, such as high
yield bond funds, but has greater risks than money market funds.
An investment in the Fund is not a deposit of any bank, and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in
the Fund, by showing changes in the Fund's performance (for its Class A shares)
from year to year for the last ten calendar years and by showing how the average
annual total returns of the Fund's shares compare to those of a broad-based
market index. The Fund's past investment performance is not necessarily an
indication of how the Fund will perform in the future.
[See bar chart in Appendix to the Prospectus]
For the period from 1/1/00 through 9/30/00, the cumulative return (not
annualized) for Class A shares was 6.26%. Sales charges are not included in the
calculations of return in this bar chart, and if those charges were included,
the returns would be less than those shown. During the period shown in the bar
chart, the highest return (not annualized) for a calendar quarter was 7.22%
(1Q'95) and the lowest return (not annualized) for a calendar quarter was -5.35%
(1Q'94).
----------------------------------------------------------------------
Average Annual
Total Returns for 5 Years 10 Years
the periods 1 Year (or life of (or life of
ending December class, if less) class, if less)
31, 1999
------------------- ----------------------------------
----------------------------------------------------------------------
Class A Shares
(Inception -10.63% 4.42% 5.17%
9/18/89)
----------------------------------------------------------------------
------------------- ----------------------------------
Lehman Brothers
Municipal Bond -2.06% 6.91% 6.89%
Index
(from 12/31/89)
----------------------------------------------------------------------
----------------------------------------------------------------------
Class B Shares
(Inception -11.27% 4.31% 3.19%
5/3/93)
----------------------------------------------------------------------
----------------------------------------------------------------------
Class C Shares
(Inception -7.69% 3.08% N/A
8/29/95)
----------------------------------------------------------------------
The Fund's average annual total returns include the applicable sales charge: for
Class A, the current maximum initial sales charge of 4.75%; for Class B, the
applicable contingent deferred sales charges of 5% (1-year) and 2% (5 years);
for Class C, the 1% contingent deferred sales charge for the 1-year period. The
returns measure the performance of a hypothetical account and assume that all
dividends and capital gains distributions have been reinvested in additional
shares. The Fund's performance is compared to the Lehman Brothers Municipal Bond
Index, an unmanaged index of a broad range of investment grade municipal bonds.
The index includes municipal securities from many states while the Fund focuses
on Pennsylvania municipal securities, and the index performance does not
consider the effects of capital gains or transaction costs.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset values
per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are meant to help you understand the
fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during its fiscal year ended July
31, 2000.
Shareholder Fees (charges paid directly from your investment):
----------------------------------------------------------------------
Class A Class B Class C
Shares Shares Shares
----------------------------------------------------------------------
----------------------------------------------------------------------
Maximum Sales Charge (Load) 4.75% None None
on purchases (as a % of
offering price)
----------------------------------------------------------------------
----------------------------------------------------------------------
Maximum Deferred Sales None1 5%2 1%3
Charge (Load) (as % of the
lower of the original
offering price or
redemption proceeds)
----------------------------------------------------------------------
1. A 1% contingent deferred sales charge may apply to redemptions of investments
of $1 million or more of Class A shares. See "How to Buy Shares" for details. 2.
Applies to redemptions in first year after purchase. The contingent
deferred sales charge declines to 1% in the sixth year and is eliminated
after that.
3. Applies to shares redeemed within twelve (12) months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
----------------------------------------------------------------------
Class A Class B Class C
Shares Shares Shares
----------------------------------------------------------------------
----------------------------------------------------------------------
Management Fees* 0.60% 0.60% 0.60%
----------------------------------------------------------------------
----------------------------------------------------------------------
Distribution and/or Service
(12b-1) Fees 0.14% 0.90% 0.90%
----------------------------------------------------------------------
----------------------------------------------------------------------
Other Expenses 0.36% 0.46% 0.45%
----------------------------------------------------------------------
----------------------------------------------------------------------
Total Annual Operating Expenses 1.10% 1.96% 1.95%
----------------------------------------------------------------------
* The management fee expenses in the table are based on the fees the Fund would
have paid if the Manager had not waived a portion of its fee under a voluntary
undertaking to the Fund. After the Manager's waiver the actual management fee as
a percentage of average daily net assets was 0.46% for each class of shares. The
Manager has withdrawn that voluntary waiver effective June 1, 2000. The service
fee payable under the 12b-1 plan for Class A shares is 0.15% and the service fee
payable under the 12b-1 plans for Class B and Class C shares is a maximum of
0.25% (currently set by the Board at 0.15%) of average annual net assets of the
class.
Expenses may vary in future years. "Other Expenses" include transfer agent fees,
custodial fees, and accounting and legal expenses the Fund pays.
Examples. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for the
time periods indicated, and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes you keep your shares. Both examples
also assume that your investment has a 5% return each year and that the class's
operating expenses remain the same. Your actual costs may be higher or lower
because expenses will vary over time. Based on these assumptions your expenses
would be as follows:
----------------------------------------------------------------------
If shares are 1 year 3 years 5 years 10 years1
redeemed:
----------------------------------------------------------------------
----------------------------------------------------------------------
Class A Shares $582 $808 $ 1,052 $1,752
----------------------------------------------------------------------
----------------------------------------------------------------------
Class B Shares $699 $915 $1,257 $1,857
----------------------------------------------------------------------
----------------------------------------------------------------------
Class C Shares $298 $612 $ 1,052 $2,275
----------------------------------------------------------------------
----------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years1
redeemed:
----------------------------------------------------------------------
----------------------------------------------------------------------
Class A Shares $582 $808 $1,052 $1,752
----------------------------------------------------------------------
----------------------------------------------------------------------
Class B Shares $199 $615 $1,057 $1,857
----------------------------------------------------------------------
----------------------------------------------------------------------
Class C Shares $198 $612 $1,052 $2,275
----------------------------------------------------------------------
In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include contingent deferred sales charges. 1. Class B
expense for years 7 through 10 are based on Class A expenses, since Class B
shares automatically convert to Class A after six (6) years.
About the Fund's Investments
The Fund's Principal Investment Policies. The allocation of the Fund's portfolio
among different types of investments will vary over time based on the Manager's
evaluation of economic and market trends. The Fund's portfolio might not always
include all of the different types of investments described below.
The Manager tries to reduce risks by selecting a wide variety of municipal
investments and by carefully researching securities before they are purchased.
However, changes in the overall market prices of municipal securities and the
income they pay can occur at any time. The yield and share prices of the Fund
will change daily based on changes in market prices of securities, interest
rates and market conditions and in response to other economic events. The
Statement of Additional Information contains more detailed information about the
Fund's investment policies and risks.
What is A Municipal Security? A municipal security is essentially a loan by the
buyer to the issuer of the security. The issuer promises to pay back the
principal amount of the loan and normally pay interest exempt from federal
personal income taxes.
|X| Municipal Securities. The Fund buys municipal bonds and notes,
certificates of participation in municipal leases and other debt obligations.
Pennsylvania municipal securities are municipal securities that are not subject
to Pennsylvania personal income tax (in the opinion of bond counsel to the
issuer). They include debt obligations issued by the Commonwealth of
Pennsylvania and its political subdivisions (such as cities, towns, counties,
agencies and authorities). They also may include debt obligations of the
governments of certain possessions, territories and commonwealths of the United
States if the interest is not subject to Pennsylvania personal income tax.
The Fund can also buy other municipal securities issued by the governments
of the District of Columbia and of other states, or by any commonwealths,
territories or possessions of the United States, or their respective agencies,
instrumentalities or authorities, if the interest paid on the security is not
subject to federal personal income tax (in the opinion of bond counsel to the
issuer at the time the security is issued).
Municipal securities are issued to raise money for a variety of public or
private purposes, including financing state or local governments, financing
specific projects or public facilities. The Fund can buy both long-term and
short-term municipal securities. Long-term securities have a maturity of more
than one (1) year. The Fund generally focuses on longer-term securities, to seek
higher income.
The Fund can buy municipal securities that are "general obligations,"
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. The Fund can also buy "revenue
obligations," whose interest is payable only from the revenues derived from a
particular facility or class of facilities, or a specific excise tax or other
revenue source. Some of these revenue obligations are private activity bonds
that pay interest that may be a tax preference for investors subject to the
federal alternative minimum tax.
|X| Municipal Lease Obligations. Municipal leases are used by state and
local government authorities to obtain funds to acquire land, equipment or
facilities. The Fund can invest in certificates of participation that represent
a proportionate interest in payments made under municipal lease obligations.
Most municipal leases, while secured by the leased property, are not general
obligations of the issuing municipality. They often contain "non-appropriation"
clauses under which the municipal government has no obligation to make lease or
installment payments in future years unless money is appropriated on a yearly
basis. If the government stops making payments or transfers its payment
obligations to a private entity, the obligation could lose value or become
taxable. Some lease obligations might not have an active trading market, making
it difficult for the Fund to sell them quickly at an acceptable price.
|X| Ratings of Municipal Securities the Fund Buys. Most of the municipal
securities the Fund buys are "investment grade" at the time of purchase. The
Fund does not invest more than 25% of its total assets in municipal securities
that at the time of purchase are not "investment-grade." "Investment grade"
securities are those rated within the four (4) highest rating categories of
Moody's, Standard & Poor's Rating Services, Fitch, Inc. or another nationally
recognized rating organization, or (if unrated) judged by the Manager to be
comparable to rated investment grade securities. Rating categories are described
in the Statement of Additional Information. If a security the Fund buys is not
rated, the Manager will use its judgment to assign a rating that it believes is
comparable to that of a rating organization.
The Manager relies to some extent on credit ratings by nationally
recognized rating organizations in evaluating the credit risk of securities
selected for the Fund's portfolio. It also uses its own research and analysis to
evaluate risks. Many factors affect an issuer's ability to make timely payments,
and the credit risks of a particular security may change over time. If the
rating of a security is reduced after the Fund buys it, the Fund is not required
automatically to dispose of that security. However, the Manager will evaluate
those securities to determine whether to keep them in the Fund's portfolio.
|_| Special Credit Risks of Lower-Grade Securities. Municipal
securities below investment-grade (sometimes called "junk bonds") usually offer
higher yields than investment-grade securities but are subject to greater price
fluctuations and risks of loss of income and principal than investment-grade
municipal securities. Securities that are (or that have fallen) below investment
grade have a greater risk that the issuers may not meet their debt obligations.
They may also be less liquid than investment-grade securities making it harder
for the Fund to sell them at an acceptable price.
Can the Fund's Investment Objective and Policies Change? The Fund's Board of
Trustees can change non-fundamental policies without shareholder approval,
although significant changes will be described in amendments to this Prospectus.
Fundamental policies cannot be changed without the approval of a majority of the
Fund's outstanding voting shares. The Fund's investment objective is a
fundamental policy. Other investment restrictions that are fundamental policies
are listed in the Statement of Additional Information. An investment policy or
technique is not fundamental unless this Prospectus or the Statement of
Additional Information says that it is.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve risks, although some are designed to help reduce
overall investment or market risk.
|X| Floating Rate/Variable Rate Obligations. Some municipal securities
have variable or floating interest rates. Variable rates are adjustable at
stated periodic intervals. Floating rates are automatically adjusted according
to a specified market rate for such investments, such as the percentage of the
prime rate of a bank, or the ninety-one (91) day U.S.
Treasury Bill rate.
|X| Inverse Floaters Have Special Risks. Variable rate bonds known as
"inverse floaters" pay interest at rates that move in the opposite direction of
yields on short-term bonds in response to market changes. As interest rates
rise, inverse floaters produce less current income, and their market value can
become volatile. Inverse floaters are a type of "derivative security." Some have
a "cap," so that if interest rates rise above the "cap," the security pays
additional interest income. If rates do not rise above the "cap," the Fund will
have paid an additional amount for a feature that proves worthless. The Fund
will not invest more than 20% of its total assets in inverse floaters.
|X| Other Derivatives. The Fund can invest in other municipal derivative
securities that pay interest that depends on the change in value of an
underlying asset, interest rate or index. Examples are interest rate swaps,
municipal bond indices or swap indices.
|X| "When-Issued" and "Delayed Delivery" Transactions. The Fund can
purchase municipal securities on a "when-issued" basis and can purchase or sell
such securities on a "delayed delivery" basis. Between the purchase and
settlement, no payment is made for the security and no interest accrues to the
buyer from the investment. There is a risk of loss to the Fund if the value of
the when-issued security declines prior to the settlement date.
|X| Puts and Stand-By Commitments. The Fund can acquire "stand-by
commitments" or "puts" with respect to municipal securities. The investments
give the Fund the right to sell securities at a set price on demand to the
issuing broker-dealer or bank. However, a security having this feature may have
a lower interest rate. The Fund will acquire stand-by commitments or puts solely
to enhance portfolio liquidity.
|X| Illiquid and Restricted Securities. 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. Restricted securities
may have terms that limit their resale to other investors or may require
registration under federal securities laws before they can be sold publicly. The
Fund will not invest more than 15% of its net assets in illiquid securities and
cannot invest more than 10% of its net assets in restricted securities. Certain
restricted securities that are eligible for resale to qualified institutional
purchasers may not be subject to that limit. The Manager monitors holdings of
illiquid securities on an ongoing basis to determine whether to sell any
holdings to maintain adequate liquidity.
|X| Borrowing for Investment Leverage. The Fund can borrow money to
purchase additional securities, a technique referred to as "leverage." As a
fundamental policy, the Fund's borrowings for investment purposes must be from
banks and are limited to not more than 5% of the Fund's total assets. The
interest on borrowed money is an expense that might reduce the Fund's yield.
|X| Hedging. The Fund can purchase and sell futures contracts, put and
call options, and enter into interest rate swap agreements. These are all
referred to as "hedging instruments." The Fund does not use hedging instruments
for speculative purposes, and has limits on its use of them. The Fund does not
use hedging instruments to a substantial degree and is not required to use them
in seeking its goal.
Hedging involves risks. If the Manager uses a hedging instrument at the
wrong time or judges market conditions incorrectly, the hedge might be
unsuccessful and the strategy could reduce the Fund's return. The Fund could
also experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option.
Interest rate swaps are subject to credit risks and interest rate risks.
The Fund could be obligated to pay more under its swap agreements than it
receives under them, as a result of interest rate changes. The Fund cannot enter
into swaps with respect to more than 25% of its total assets.
Temporary Defensive Investments. The Fund can invest up to 100% of its total
assets in temporary defensive investments during periods of unusual market
conditions. Generally, the Fund's defensive investments will be short-term
municipal securities, but could be U.S. government securities or highly-rated
corporate debt securities. The income from some temporary defensive investments
might not be tax-exempt, and therefore when making those investments the Fund
might not achieve its objective.
Under normal market conditions, the Fund can also hold these types of
investments for cash management purposes pending the investment of proceeds from
the sale of Fund shares or portfolio securities or to meet anticipated
redemptions of Fund shares.
How the Fund is Managed
The Manager. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the policies
established by the Board of Trustees, under an investment advisory agreement
that states the Manager's responsibilities. The agreement sets the fees the Fund
pays to the Manager and describes the expenses that the Fund is responsible to
pay to conduct its business.
The Manager has operated as an investment advisor since January 1960. The
Manager (including subsidiaries) managed more than $125 billion in assets as of
October 31, 2000, including other Oppenheimer funds with more than 5 million
shareholder accounts. The Manager is located at Two World Trade Center, 34th
Floor, New York, New York 10048-0203.
|X| Portfolio Managers. Ronald H. Fielding and Anthony A. Tanner became
Vice Presidents and the portfolio managers of the Fund on January 1, 1999.
They are the persons principally responsible for the day-to-day management of
the Fund's portfolio. Mr. Fielding is a Senior Vice President and Chairman
of the Rochester Division of the Manager. He also serves as an officer and
portfolio manager for other Oppenheimer funds. Mr. Tanner is a Vice
President of the Manager's Rochester Division and an assistant portfolio
manager of other Oppenheimer funds.
Prior to joining the Manager in January 1996, Mr. Fielding was Chairman and
a Director of Rochester Fund Services, Inc., a mutual fund distributor; and
President and Director of Rochester Capital Advisors, Inc. and Fielding
Management Company, Inc., mutual fund investment advisory firms acquired by the
Manager in 1996. He was also a portfolio manager for several mutual funds. Prior
to joining the Manager in January 1996, Mr. Tanner was Vice President of
Research for Rochester Capital Advisors, Inc. and Fielding Management Company,
Inc.
|X| Advisory Fees. Under the investment advisory agreement, the Fund pays
the Manager an advisory fee at an annual rate that declines as the Fund's assets
grow: 0.60% of the first $200 million of average annual net assets, 0.55% of the
next $100 million, 0.50% of the next $200 million, 0.45% of the next $250
million, 0.40% of the next $250 million, and 0.35% of average annual net assets
in excess of $1 billion. The Fund's management fees for its last fiscal year
ended July 31, 2000, was 0.46% of average annual net assets for each class of
shares (after the Manager's waiver of a portion of its fee).
-------------------------------------------------------------------------------
About Your Account
-------------------------------------------------------------------------------
How to Buy Shares
How Do You Buy Shares? You can buy shares several ways, as described below. The
Fund's Distributor, OppenheimerFunds Distributor, Inc., may appoint servicing
agents to accept purchase (and redemption) orders. The Distributor, in its sole
discretion, may reject any purchase order for the
Fund's shares.
|X| Buying Shares Through Your Dealer. You can buy shares through any
dealer, broker or financial institution that has a sales agreement with the
Distributor. Your dealer will place your order with the Distributor on your
behalf.
|X| Buying Shares Through the Distributor. Complete an OppenheimerFunds New
Account Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you
don't list a dealer on the application, the Distributor will act as your agent
in buying the shares. However, we recommend that you discuss your investment
with a financial advisor before you make a purchase to be sure that the Fund is
appropriate for you.
|X| Paying by Federal Funds Wire. Shares purchased through the Distributor
may be paid for by Federal Funds wire. The minimum investment is $2,500. Before
sending a wire, call the Distributor's Wire Department at 1.800.525.7048 to
notify the Distributor of the wire and to receive further instructions.
|X| Buying Shares Through OppenheimerFunds AccountLink. With AccountLink,
shares are purchased for your account by a transfer of money from your account
through the Automated Clearing House (ACH) system. You can provide those
instructions automatically, under an Asset Builder Plan, described below, or by
telephone instructions using OppenheimerFunds PhoneLink, also described below.
Please refer to "AccountLink," below for more details.
|X| Buying Shares Through Asset Builder Plans. You may purchase shares of
the Fund (and up to four (4) other Oppenheimer funds) automatically each month
from your account at a bank or other financial institution under an Asset
Builder Plan with AccountLink. Details are in the Asset Builder Application and
the Statement of Additional Information.
How Much Must You Invest? You can buy Fund shares with a minimum initial
investment of $1,000. You can make additional investments at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
|X| With Asset Builder Plans, Automatic Exchange Plans and military
allotment plans, you can make initial and subsequent investments for as little
as $25. You can make additional purchases of at least $25 by telephone through
AccountLink.
|X| The minimum investment requirement does not apply to reinvesting
dividends from the Fund or other Oppenheimer funds (a list of them appears in
the Statement of Additional Information, or you can ask your dealer or call the
Transfer Agent), or reinvesting distributions from unit investment trusts that
have made arrangements with the Distributor.
At What Price Are Shares Sold? Shares are sold at their offering price which is
the net asset value per share plus any initial sales charge that applies. The
offering price that applies to a purchase order is based on the next calculation
of the net asset value per share that is made after the Distributor receives the
purchase order at its offices in Denver, Colorado, or after any agent appointed
by the Distributor receives the order and sends it to the Distributor.
Net Asset Value. The Fund calculates the net asset value of each class of shares
as of the close of The New York Stock Exchange, on each day the Exchange is open
for trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some days. All references to time in this Prospectus mean "New York time".
The net asset value per share is determined by dividing the value of the
Fund's net assets attributable to a class by the number of shares of that class
that are outstanding. To determine net asset value, the Fund's Board of Trustees
has established procedures to value the Fund's securities, in general based on
market value. The Board has adopted special procedures for valuing illiquid
securities and obligations for which market values cannot be readily obtained.
The Offering Price. To receive the offering price for a particular day, in most
cases the Distributor or its designated agent must receive your order by the
time of day The New York Stock Exchange closes that day. If your order is
received on a day when the Exchange is closed or after it has closed, the order
will receive the next offering price that is determined after your order is
received. Shares purchased for your account through AccountLink normally will be
purchased two (2) business days after the regular business day on which you
instruct the Distributor to initiate the ACH transfer to buy the shares.
Buying Through a Dealer. Your dealer must receive the order by the close of The
New York Stock Exchange and transmit it to the Distributor so that it is
received before the Distributor's close of business on a regular business day
(normally 5:00 P.M.) to receive that day's offering price. Otherwise, the order
will receive the next offering price that is determined.
What Classes of Shares Does the Fund Offer? The Fund offers investors three
(3) different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject
to different expenses and will likely have different share prices. When you
buy shares, be sure to specify the class of shares. If you do not choose a
class, your investment will be made in Class A shares.
|X| Class A Shares. If you buy Class A shares, you pay an initial sales
charge (on investments up to $1 million). The amount of that sales charge will
vary depending on the amount you invest. The sales charge rates are listed in
"How Can You Buy Class A Shares?" below.
|X| Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales
charge. If you sell your shares within six (6) years of buying them, you
will normally pay a contingent deferred sales charge. That contingent
deferred sales charge varies depending on how long you own your shares, as
described in "How Can You Buy Class B Shares?" below.
|X| Class C Shares. If you buy Class C shares, you pay no sales charge at
the time of purchase, but you will pay an annual asset-based sales charge. If
you sell your shares within twelve (12) months of buying them, you will normally
pay a contingent deferred sales charge of 1%, as described in "How Can You Buy
Class C Shares?" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you should
re-evaluate those factors to see if you should consider another class of shares.
The Fund's operating costs that apply to a class of shares and the effect of the
different types of sales charges on your investment will vary your investment
results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
The discussion below assumes that you will purchase only one class of shares and
not a combination of shares of different classes. Of course, these examples are
based on approximations of the effect of current sales charges and expenses
projected over time, and do not detail all of the considerations in selecting a
class of shares. You should analyze your options carefully with your financial
advisor before making that choice.
|X| How Long Do You Expect to Hold Your Investment? While future financial
needs cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of shares.
Because of the effect of class-based expenses, your choice will also depend on
how much you plan to invest. For example, the reduced sales charges available
for larger purchases of Class A shares may, over time, offset the effect of
paying an initial sales charge on your investment, compared to the effect over
time of higher class-based expenses on shares of Class B or Class C .
|_| Investing for the Shorter Term. While the Fund is meant to be a
long-term investment, if you have a relatively short-term investment horizon
(that is, you plan to hold your shares for not more than six (6) years), you
should probably consider purchasing Class A or Class C shares rather than Class
B shares. That is because of the effect of the Class B contingent deferred sales
charge if you redeem within six (6) 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 (1) year.
However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six (6) years, Class C shares
might not be as advantageous as Class A shares. That is because the annual
asset-based sales charge on Class C shares will have a greater impact on your
account over the longer term than the reduced front-end sales charge available
for larger purchases of Class A shares.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more of
Class C shares from a single investor.
|_| Investing for the Longer Term. If you are investing less than $100,000
for the longer-term, for example for retirement, and do not expect to need
access to your money for seven (7) years or more, Class B shares may be
appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail all of
the considerations in selecting a class of shares. You should analyze your
options carefully with your financial advisor before making that choice.
|X| Are There Differences in Account Features That Matter to You? Some
account features may not be available to Class B or Class C shareholders. Other
features may not be advisable (because of the effect of the contingent deferred
sales charge) for Class B or Class C shareholders. Therefore, you should
carefully review how you plan to use your investment account before deciding
which class of shares to buy. Additionally, the dividends payable to Class B and
Class C shareholders will be reduced by the additional expenses borne by those
classes that are not borne by Class A shares, such as the Class B and Class C
asset-based sales charge described below and in the Statement of Additional
Information. Share certificates 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. Also, checkwriting privileges are not
available for Class B or Class C shares.
|X| How Does It Affect Payments to My Broker? A financial advisor may
receive different compensation for selling one class of shares than for selling
another class. It is important to remember that Class B and Class C contingent
deferred sales charges and asset-based sales charges have the same purpose as
the front-end sales charge on sales of Class A shares: to compensate the
Distributor for concessions and expenses it pays to dealers and financial
institutions for selling shares. The Distributor may pay additional compensation
from its own resources to securities dealers or financial institutions based
upon the value of shares of the Fund owned by the dealer or financial
institution for its own account or for its customers.
Special Sales Charge Arrangements and Waivers. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions. To receive a waiver
or special sales charge rate, you must advise the Distributor when purchasing
shares or the Transfer Agent when redeeming shares that the special conditions
apply.
How Can You Buy Class A Shares? Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However, in some
cases, described below, purchases are not subject to an initial sales charge,
and the offering price will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. Out of the amount you invest, the Fund receives the net
asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor or allocated to
your dealer as concession. The Distributor reserves the right to reallow the
entire concession to dealers. The current sales charge rates and concessions
paid to dealers and brokers are as follows:
----------------------------------------------------------------------
Front-End Sales Front-End
Sales Concession As a
Charge As a Charge As
a Percentage of
Percentage of Percentage of Net Offering
Amount of Purchase Offering Price Amount Invested Price
----------------------------------------------------------------------
Less than $50,000 4.75% 4.98% 4.00%
----------------------------------------------------------------------
$50,000 or more but 4.50% 4.71% 4.00%
less than $100,000
----------------------------------------------------------------------
----------------------------------------------------------------------
$100,000 or more but 3.50% 3.63% 3.00%
less than $250,000
----------------------------------------------------------------------
----------------------------------------------------------------------
$250,000 or more but 2.50% 2.56% 2.25%
less than $500,000
----------------------------------------------------------------------
----------------------------------------------------------------------
$500,000 or more but 2.00% 2.04% 1.80%
less than $1 million
----------------------------------------------------------------------
|X| 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
concessions in an amount equal to 0.50% of purchases of $1 million or more other
than by retirement accounts. That concession will be paid only on purchases that
were not previously subject to a front-end sales charge and dealer concession.
If you redeem any of those shares within eighteen (18) months of the end
of the calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") may be deducted from the
redemption proceeds. That sales charge will be equal to 1.0% of the lesser of
(1) the aggregate net asset value of the redeemed shares at the time of
redemption (excluding shares purchased by reinvestment of dividends or capital
gain distributions) or (2) the original net asset value of the redeemed shares.
However, the Class A contingent deferred sales charge will not exceed the
aggregate amount of the concessions the Distributor paid to your dealer on all
purchases of Class A shares of all Oppenheimer funds you made that were subject
to the Class A contingent deferred sales charge.
How Can You Reduce Sales Charges in Buying Class A Shares? You may be eligible
to buy Class A shares at reduced sales charge rates under the Fund's "Right of
Accumulation" or a Letter of Intent, as described in "Reduced Sales Charges" in
the Statement of Additional Information.
How Can You Buy Class B Shares? Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are redeemed
within six (6) years of their purchase, a contingent deferred sales charge will
be deducted from the redemption proceeds. The Class B contingent deferred sales
charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class B
shares.
The 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 for the Class B contingent deferred sales
charge holding period:
----------------------------------------------------------------------
Years Since Beginning of Contingent Deferred Sales Charge
Month in which Purchase On Redemptions in That Year
Order Was Accepted (As % of Amount Subject to Charge)
----------------------------------------------------------------------
----------------------------------------------------------------------
0-1 5.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
1-2 4.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
2-3 3.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
3-4 3.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
4-5 2.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
5-6 1.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
6 and following None
----------------------------------------------------------------------
In the table, a "year" is a twelve (12) month period. In applying the sales
charge, all purchases are considered to have been made on the first regular
business day of the month in which the purchase was made.
|X| Automatic Conversion of Class B Shares. Class B shares automatically
convert to Class A shares seventy-two (72) months after you purchase them. This
conversion feature relieves Class B shareholders of the asset-based sales charge
that applies to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value of the
two classes, and no sales load or other charge is imposed. When Class B shares
you hold 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 the Statement of Additional
Information.
How Can You Buy Class C Shares? Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are redeemed
within twelve (12) months of their purchase, a contingent deferred sales charge
of 1.0% will be deducted from the redemption proceeds. The Class C contingent
deferred sales charge is paid to compensate the Distributor for its expenses of
providing distribution-related services to the Fund in connection with the sale
of Class C shares.
Distribution and Service (12b-1) Plans.
|X| Service Plan for Class A Shares. The Fund has adopted a Service Plan
for Class A shares. It reimburses the Distributor for a portion of its costs
incurred for services provided to accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate of up to 0.15% of the average
annual net assets of Class A shares of the Fund. The Distributor currently uses
all of those fees to compensate dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares.
|X| Distribution and Service Plans for Class B and Class C Shares. The
Fund has adopted Distribution and Service Plans for Class B and Class C shares
to compensate the Distributor for its services and costs in distributing Class B
and Class C shares and servicing accounts. Under the plans, the Fund pays the
Distributor an annual asset-based sales charge of 0.75% per year on Class B
shares and on Class C shares. The Distributor also receives a service fee of
0.15% per year under each plan.
The asset-based sales charge and service fees increase Class B and Class C
expenses by up to 0.90% of the net assets per year of the respective class.
Because these fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. The
Distributor pays the 0.15% service fees to dealers in advance for the first year
after the shares were sold by the dealer. After the shares have been held for a
year, the Distributor pays the service fees to dealers on a quarterly basis.
The Distributor currently pays a sales concession of 3.85% of the purchase
price of Class B shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class B shares is therefore
4.00% of the purchase price. The Distributor retains the Class B asset-based
sales charge.
The Distributor currently pays sales concessions 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 concession to the dealer on Class C shares that have been
outstanding for a year or more.
Special Investor Services
AccountLink. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
|X| transmit funds electronically to purchase shares by telephone (through
a service representative or by PhoneLink) or automatically under Asset
Builder Plans, or |X| have the Transfer Agent send redemption proceeds or
to transmit dividends and distributions directly to your bank account.
Please call
the Transfer Agent for more information.
You may purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1.800.852.8457. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a dealer. After
your account is established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent. AccountLink privileges
will apply to each shareholder listed in the registration on your account as
well as to your dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the Transfer
Agent signed by all shareholders who own the account.
PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions automatically
using a touch-tone phone. PhoneLink may be used on already-established Fund
accounts after you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number, 1.800.533.3310.
|X| 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.
|X| 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.
|X| Selling Shares. You can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly to
your AccountLink bank account. Please refer to "How to Sell Shares," below for
details.
Can You Submit Transaction Requests by Fax? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1.800.525.7048 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OppenheimerFunds Internet Web Site. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1.800.533.3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1.800.525.7048.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer fund
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to six (6) months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you send your payment.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular business
day. Your shares will be sold at the next net asset value calculated after your
order is received in proper form (which means that it must comply with the
procedures described below) and is accepted by the Transfer Agent. The Fund lets
you sell your shares by writing a letter, by using the Fund's checkwriting
privilege or by telephone. You can also set up Automatic Withdrawal Plans to
redeem shares on a regular basis. If you have questions about any of these
procedures, and especially if you are redeeming shares in a special situation,
such as due to the death of the owner, please call the Transfer Agent first, at
1.800.525.7048, for assistance.
Certain Requests Require a Signature Guarantee. To protect you and the
Fund from fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that
require a signature guarantee):
|X| You wish to redeem $100,000 or more and receive a check |X| The
redemption check is not payable to all shareholders listed on
the account statement
|X| The redemption check is not sent to the address of record on your
account statement
|X| Shares are being transferred to a Fund account with a different
owner or name
|X| Shares are being redeemed by someone (such as an Executor) other
than the owners
Where Can You Have Your Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial institutions,
including:
|X| a U.S. bank, trust company, credit union or savings association,
|X| by a foreign bank that has a U.S. correspondent bank,
|X| by a U.S. registered dealer or broker in securities, municipal
securities or government securities, or
|X| by a U.S. national securities exchange, a registered securities
association or a clearing agency.
If you are signing on behalf of a corporation, partnership or other
business or as a fiduciary, you must also include your title in the signature.
How Do You Sell Shares by Mail? Write a letter of instructions that
includes:
|X| Your name
|X| The Fund's name
|X| Your Fund account number (from your account statement) |X| The dollar
amount or number of shares to be redeemed |X| Any special payment
instructions |X| Any share certificates for the shares you are selling |X|
The signatures of all registered owners exactly as the account is
registered, and
|X| Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
-------------------------------------------------------------------------------
Use the following address for requests by mail:
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
OppenheimerFunds Services
-------------------------------------------------------------------------------
P.O. Box 5270, Denver, Colorado 80217-5270
-------------------------------------------------------------------------------
Send courier or express mail requests to:
-------------------------------------------------------------------------------
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
How Do You Sell Shares by Telephone? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption price
calculated on a particular regular business day, your call must be received by
the Transfer Agent by the close of The New York Stock Exchange that day, which
is normally 4:00 P.M., but may be earlier on some days. You may not redeem
shares held under a share certificate by telephone.
|X| To redeem shares through a service representative, call
1.800.852.8457
|X| To redeem shares automatically on PhoneLink, call 1.800.533.3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent to that bank account.
Are There Limits on Amounts Redeemed by Telephone?
|X| Telephone Redemptions Paid by Check. Up to $100,000 may be redeemed by
telephone in any seven (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 thirty (30) days of changing the
address on an account.
|X| Telephone Redemptions Through AccountLink. There are no dollar limits
on telephone redemption proceeds sent to a bank account designated when you
establish AccountLink. Normally the ACH transfer to your bank is initiated on
the business day after the redemption. You do not receive dividends on the
proceeds of the shares you redeemed while they are waiting to be transferred.
Checkwriting. To write checks against your Fund account, request that privilege
on your account Application, or contact the Transfer Agent for signature cards.
They must be signed (with a signature guarantee) by all owners of the account
and returned to the Transfer Agent so that checks can be sent to you to use.
Shareholders with joint accounts can elect in writing to have checks paid over
the signature of one owner. If you previously signed a signature card to
establish checkwriting in another Oppenheimer fund, simply call 1.800.525.7048
to request checkwriting for an account in this Fund with the same registration
as the other account. See the Statement of Additional Information for terms and
conditions applicable to checkwriting.
|X| Checks can be written to the order of whomever you wish, but may not
be cashed at the bank the checks are payable through or the Fund's custodian
bank.
|X| Checkwriting privileges are not available for accounts holding shares
that are subject to a contingent deferred sales charge.
|X| Checks must be written for at least $100.
|X| 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.
|X| 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 ten
(10) days.
|X| Don't use your checks if you changed your Fund account number, until
you receive new checks.
Can You Sell Shares Through Your Dealer? The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
How Do Contingent Deferred Sales Charges Affect Redemptions? If you purchase
shares subject to a Class A, Class B or Class C contingent deferred sales charge
and redeem any of those shares during the applicable holding period for the
class of shares you own, the contingent deferred sales charge will be deducted
from redemption proceeds (unless you are eligible for a waiver of that sales
charge based on the categories listed in Appendix C to the Statement of
Additional Information) and you advise the Transfer Agent of your eligibility
for the waiver when you place your redemption request.
A contingent deferred sales charge will be based on the lesser of the net
asset value of the redeemed shares at the time of redemption or the original net
asset value. A contingent deferred sales charge is not imposed on:
|X| the amount of your account value represented by an increase in net
asset value over the initial purchase price, |X| shares purchased by the
reinvestment of dividends or capital gains distributions, or |X| shares
redeemed in the special circumstances described in Appendix C to the
Statement of Additional Information. To determine whether the contingent
deferred sales charge applies to a
redemption, the Fund redeems shares in the following order:
(1) shares acquired by reinvestment of dividends and capital gains
distributions,
(2) shares held the holding period that applies to the class, and (3) shares
held the longest during the holding period.
Contingent deferred sales charges are not charged when you exchange shares
of the Fund for shares of other Oppenheimer funds. However, if you exchange them
within the applicable contingent deferred sales charge holding period, the
holding period will carry over to the fund whose shares you acquire. Similarly,
if you acquire shares of this Fund by exchanging shares of another Oppenheimer
fund that are still subject to a contingent deferred sales charge holding
period, that holding period will carry over to this Fund.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer funds at
net asset value per share at the time of exchange, without sales charge. Shares
of the Fund can be purchased by exchange of shares of other Oppenheimer funds on
the same basis. To exchange shares, you must meet several conditions:
|X| Shares of the fund selected for exchange must be available for
sale in your state of residence.
|X| The prospectuses of both funds must offer the exchange
privilege.
|X| You must hold the shares you buy when you establish your account for
at least seven (7) days before you can exchange them. After the account is open
seven (7) days, you can exchange shares every regular business day.
|X| You must meet the minimum purchase requirements for the fund
whose shares you purchase by exchange.
|X| Before exchanging into a fund, you must obtain and read its
prospectus.
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. In some
cases, sales charges may be imposed on exchange transactions. For tax purposes,
exchanges of shares involve a sale of the shares of the fund you own and a
purchase of the shares of the other fund, which may result in a capital gain or
loss. Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
You can find a list of Oppenheimer funds currently available for
exchange in the Statement of Additional Information or obtain one by calling a
service representative at 1.800.525.7048. That list can change from time to
time.
How Do You Submit Exchange Requests? Exchanges may be requested in writing or
by telephone:
|X| Written Exchange Requests. Submit an OppenheimerFunds Exchange Request
form, signed by all owners of the account. Send it to the Transfer Agent at the
address on the back cover. Exchanges of shares held under certificates cannot be
processed unless the Transfer Agent receives the certificate with the request.
|X| Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1.800.852.8457, or by using
PhoneLink for automated exchanges by calling 1.800.533.3310. Telephone exchanges
may be made only between accounts that are registered with the same name(s) and
address. Shares held under certificates may not be exchanged by telephone.
Are There Limitations on Exchanges? There are certain exchange policies you
should be aware of:
|X| Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day on which
the Transfer Agent receives an exchange request that conforms to the policies
described above. It must be received by the close of The New York Stock Exchange
that day, which is normally 4:00 P.M. but may be earlier on some days. However,
either fund may delay the purchase of shares of the fund you are exchanging into
up to seven (7) days if it determines it would be disadvantaged by a same-day
exchange. For example, the receipt of multiple exchange requests from a "market
timer" might require the Fund to sell securities at a disadvantageous time
and/or price.
|X| Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that it
believes will disadvantage it, or to refuse multiple exchange requests submitted
by a shareholder or dealer.
|X| 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.
|X| If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for exchange will
be exchanged.
Shareholder Account Rules and Policies
More information about the Fund's policies and procedures for buying,
selling and exchanging shares is contained in the Statement of Additional
Information.
|X| 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.
|X| Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any time. If
an account has more than one owner, the Fund and the Transfer Agent may rely on
the instructions of any one owner. Telephone privileges apply to each owner of
the account and the dealer representative of record for the account unless the
Transfer Agent receives cancellation instructions from an owner of the account.
|X| The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. The Transfer Agent and the Fund will
not be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine.
|X| 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.
|X| 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.
|X| The redemption price for shares will vary from day to day because the
value of the securities in the Fund's portfolio fluctuates. The redemption
price, which is the net asset value per share, will normally differ for each
class of shares. The redemption value of your shares may be more or less than
their original cost.
|X| Payment for redeemed shares ordinarily is made in cash. It is
forwarded by check or through AccountLink (as elected by the shareholder) within
seven (7) days after the Transfer Agent receives redemption instructions in
proper form. However, under unusual circumstances determined by the Securities
and Exchange Commission, payment may be delayed or suspended. For accounts
registered in the name of a broker-dealer, payment will normally be forwarded
within three (3) business days after redemption.
|X| 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 ten (10) days from
the date the shares were purchased. That delay may be avoided if you purchase
shares by Federal Funds wire or certified check, or arrange with your bank to
provide telephone or written assurance to the Transfer Agent that your purchase
payment has cleared.
|X| Involuntary redemptions of small accounts may be made by the Fund if
the account value has fallen below $200 for reasons other than the fact that the
market value of shares has dropped. In some cases involuntary redemptions may be
made to repay the Distributor for losses from the cancellation of share purchase
orders.
|X| Shares may be "redeemed in kind" under unusual circumstances (such as
a lack of liquidity in the Fund's portfolio to meet redemptions). This means
that the redemption proceeds will be paid with liquid securities from the Fund's
portfolio.
|X| "Backup Withholding" of federal income tax may be applied against
taxable dividends, distributions and redemption proceeds (including exchanges)
if you fail to furnish the Fund your correct, certified Social Security or
Employer Identification Number when you sign your application, or if you
under-report your income to the Internal Revenue Service.
|X| To avoid sending duplicate copies of materials to households, the Fund
will mail only one copy of each prospectus, annual and semi-annual report to
shareholders having the same last name and address on the Fund's records. The
consolidation of these mailings, called householding, benefits the Fund through
reduced mailing expense.
If you want to receive multiple copies of these materials, you may call
the Transfer Agent at 1.800.525.7048. You may also notify the Transfer Agent in
writing. Individual copies of prospectuses and reports will be sent to you
within thirty (30) days after the Transfer Agent receives your request to stop
householding.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net tax-exempt income and/or net investment income each regular
business day and to pay those dividends to shareholders monthly on a date
selected by the Board of Trustees. Daily dividends will not be declared or paid
on newly purchased shares until Federal Funds are available to the Fund from the
purchase payment for such shares.
The Fund attempts to pay dividends on Class A shares at a constant level.
There is no assurance that it will be able to do so. The Board of Trustees may
change the targeted dividend level at any time, without prior notice to
shareholders. Dividends and distributions paid on Class A shares will generally
be higher than for Class B and Class C shares, which normally have higher
expenses than Class A. The Fund cannot guarantee that it will pay any dividends
or distributions.
Capital Gains. Although the Fund does not seek capital gains, it may realize
capital gains on the sale of portfolio securities. If it does, it may make
distributions out of any net short-term or long-term capital gains in December
of each year. The Fund may make supplemental distributions of dividends and
capital gains following the end of its fiscal year. Long-term capital gains will
be separately identified in the tax information the Fund sends you after the end
of the calendar year.
What Are Your Choices for Receiving Distributions? When you open your account,
specify on your application how you want to receive your dividends and
distributions. You have four (4) options:
|X| Reinvest All Distributions in the Fund. You can elect to reinvest
all dividends and capital gains distributions in additional shares of the
Fund.
|X| Reinvest Dividends or Capital Gains. You can elect to reinvest some
distributions (dividends, short-term capital gains or long-term capital gains
distributions) in the Fund while receiving the other types of distributions by
check or having them sent to your bank account through AccountLink.
|X| Receive All Distributions in Cash. You can elect to receive a
check for all dividends and capital gains distributions or have them sent to
your bank through AccountLink.
|X| Reinvest Your Distributions in Another OppenheimerFunds Account.
You can reinvest all distributions in the same class of shares of another
Oppenheimer fund account you have established.
Taxes. Dividends paid from net investment income earned by the Fund on municipal
securities will be excludable from gross income for federal personal income tax
purposes. A portion of a dividend that is derived from interest paid on certain
"private activity bonds" may be an item of tax preference if you are subject to
the federal alternative minimum tax. If the Fund earns interest on taxable
investments, any dividends derived from those earnings will be taxable as
ordinary income to shareholders.
Dividends paid by the Fund from interest on Pennsylvania municipal
securities will be exempt from Pennsylvania personal income taxes, and for
Philadelphia residents, from the investment income tax of the School District of
Philadelphia. Dividends paid from income from municipal securities of issuers
outside Pennsylvania will normally be subject to Pennsylvania individual income
taxes.
Shares of the Fund will be exempt from Pennsylvania county personal
property taxes to the extent that the Fund's portfolio securities consist of
Pennsylvania municipal securities on the annual assessment date.
Dividends and capital gains distributions may be subject to state or local
taxes. Long-term capital gains are taxable as long-term capital gains for
federal income tax purposes when distributed to shareholders. It does not matter
how long you have held your shares. Dividends paid from short-term capital gains
are taxable as ordinary income for federal income tax purposes. Whether you
reinvest your distributions in additional shares or take them in cash, the tax
treatment is the same. Every year the Fund will send you and the IRS a statement
showing the amount of any taxable distribution you received in the previous year
as well as the amount of your tax-exempt income.
Shareholders should consult their tax advisors regarding the state and
local tax consequences and the conversion of Class B shares to Class A shares,
or any other conversion or exchange of shares.
|X| Remember There May be Taxes on Transactions. Even though the Fund
seeks to distribute tax-exempt income to shareholders, you may have a capital
gain or loss when you sell or exchange your shares. A capital gain or loss is
the difference between the price you paid for the shares and the price you
received when you sold them. Any capital gain is subject to capital gains tax.
|X| Returns of Capital Can Occur. In certain cases, distributions made
by the Fund may be considered a non-taxable return of capital to
shareholders. If that occurs, it will be identified in notices to
shareholders.
This information is only a summary of certain federal income and
Pennsylvania tax information about your investment. You should consult with your
tax adviser about the effect of an investment in the Fund on your particular tax
situation.
Financial Highlights
The Financial Highlights Table is presented to help you understand the
Fund's financial performance for the past six (6) fiscal periods. Certain
information reflects financial results for a single Fund share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP, the Fund's
independent auditors, whose report, along with the Fund's financial statements,
is included in the Statement of Additional Information, which is available on
request.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Year
Ended Ended
July 31, Dec. 31,
Class A 2000 1999 1998 1997 1996(1) 1995
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $12.08 $12.42 $12.45 $12.01 $12.36 $11.19
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .67 .63 .61 .70 .40 .68
Net realized and unrealized gain (loss) (.81) (.37) -- .43 (.35) 1.18
---------------------------------------------------------------------
Total income (loss) from investment operations (.14) .26 .61 1.13 .05 1.86
----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.66) (.60) (.64) (.69) (.40) (.67)
Dividends in excess of net investment income -- -- -- -- -- (.02)
---------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.66) (.60) (.64) (.69) (.40) (.69)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.28 $12.08 $12.42 $12.45 $12.01 $12.36
=====================================================================
============================================================================================================================
Total Return, at Net Asset Value(2) (1.00)% 2.01% 4.99% 9.68% 0.44% 16.94%
============================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $64,336 $72,794 $68,720 $68,280 $64,391 $66,483
----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $67,252 $71,835 $69,202 $65,710 $64,997 $64,901
----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 5.93% 5.03% 4.82% 5.79% 5.71% 5.68%
Expenses 1.10% 0.95% 1.00%(4) 0.93%(4) 1.03%(4) 1.02%(4)
Expenses, net of indirect expenses and
waiver of expenses 1.06% 0.90% 0.93% 0.90% N/A N/A
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 98% 37% 35% 22% 6% 31%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. Assumes a $1,000 hypothetical initial
investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
<TABLE>
<CAPTION>
Year Year
Ended Ended
July 31, Dec. 31,
Class B 2000 1999 1998 1997 1996(1) 1995
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $12.07 $12.42 $12.45 $12.01 $12.36 $11.19
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .58 .53 .52 .61 .35 .59
Net realized and unrealized gain (loss) (.81) (.38) -- .42 (.35) 1.17
---------------------------------------------------------------------
Total income (loss) from investment operations (.23) .15 .52 1.03 -- 1.76
----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.57) (.50) (.55) (.59) (.35) (.57)
Dividends in excess of net investment income -- -- -- -- -- (.02)
---------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.57) (.50) (.55) (.59) (.35) (.59)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.27 $12.07 $12.42 $12.45 $12.01 $12.36
=====================================================================
============================================================================================================================
Total Return, at Net Asset Value(2) (1.75)% 1.16% 4.20% 8.86% (0.01)% 16.06%
============================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $21,696 $24,206 $22,124 $19,339 $16,005 $14,466
----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $21,368 $23,845 $20,969 $17,243 $15,085 $12,183
----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 5.16% 4.26% 4.10% 5.02% 4.94% 4.89%
Expenses 1.96% 1.80% 1.75%(4) 1.78%(4) 1.89%(4) 1.89%(4)
Expenses, net of indirect expenses and
waiver of expenses 1.82% 1.65% 1.68% 1.65% 1.79% 1.78%
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 98% 37% 35% 22% 6% 31%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. Assumes a $1,000 hypothetical initial
investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
<TABLE>
<CAPTION>
Year Year
Ended Ended
July 31, Dec. 31,
Class C 2000 1999 1998 1997 1996(1) 1995(2)
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $12.07 $12.41 $12.44 $12.00 $12.36 $11.91
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .57 .53 .51 .60 .34 .21
Net realized and unrealized gain (loss) (.80) (.37) -- .43 (.36) .45
---------------------------------------------------------------------
Total income (loss) from investment operations (.23) .16 .51 1.03 (.02) .66
----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.57) (.50) (.54) (.59) (.34) (.21)
Dividends in excess of net investment income -- -- -- -- -- --
---------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.57) (.50) (.54) (.59) (.34) (.21)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.27 $12.07 $12.41 $12.44 $12.00 $12.36
=====================================================================
============================================================================================================================
Total Return, at Net Asset Value(3) (1.75)% 1.25% 4.20% 8.84% (0.15)% 5.55%
============================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $6,607 $5,826 $5,198 $2,611 $482 $264
----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $5,542 $5,867 $4,063 $1,390 $296 $ 51
----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(4)
Net investment income 5.16% 4.26% 4.28% 4.99% 4.83% 4.40%
Expenses 1.95% 1.80% 1.76%(5) 1.79%(5) 1.97%(5) 2.07%(5)
Expenses, net of indirect expenses and
waiver of expenses 1.81% 1.65% 1.67% 1.66% 1.87% 1.96%
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 98% 37% 35% 22% 6% 31%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. For the period from August 29, 1995
(inception of offering) to December 31, 1995. 3. Assumes a $1,000 hypothetical
initial investment on the business day before the first day of the fiscal period
(or inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year. 4. Annualized for periods of less than one
full year. 5. Expense ratio has not been grossed up to reflect the effect of
expenses paid indirectly.
<PAGE>
Appendix to Prospectus of
Oppenheimer Pennsylvania Municipal Fund
Graphic material included in the Prospectus of Oppenheimer Pennsylvania
Municipal Fund: "Annual Total Returns (Class A) (% as of 12/31 each year)":
A bar chart will be included in the Prospectus of Oppenheimer Pennsylvania
Municipal Fund (the "Fund") depicting the annual total returns of a hypothetical
$10,000 investment in Class A shares of the Fund for each of the eight most
recent calendar years, without deducting sales charges. Set forth below are the
relevant data points that will appear on the bar chart:
Calendar Oppenheimer
Year Pennsylvania Municipal Fund
Ended Class A Shares
12/31/91 11.49%
12/31/92 8.04%
12/31/93 13.12%
12/31/94 -7.68%
12/31/95 16.95%
12/31/96 4.35%
12/31/97 8.97%
12/31/98 4.45%
12/31/99 -6.18%
<PAGE>
-------------------------------------------------------------------------------
Information and Services
-------------------------------------------------------------------------------
----------------------------------------------------------------------------
For More Information About Oppenheimer Pennsylvania Municipal Fund:
----------------------------------------------------------------------------
The following additional information about the Fund is available without charge
upon request:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Statement of Additional Information
----------------------------------------------------------------------------
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Annual and Semi-Annual Reports
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
How to Get More Information:
----------------------------------------------------------------------------
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
On the Internet:
You can send us a request by e-mail or read
or down-load documents on the OppenheimerFunds web site:
http://www.oppenheimerfunds.com
You can also obtain copies of the Statement of Additional Information and other
Fund documents and reports by visiting the SEC's Public Reference Room in
Washington, D.C. (Phone 1-800-942-8090) or the EDGAR database on the SEC's
Internet web site at http://www.sec.gov. Copies may be obtained after payment of
a duplicating fee by electronic request at the SEC's e-mail address:
[email protected] or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's shares are distributed by:
The Fund's SEC File No. is 811-5867
PR0740.001.1100 Printed on recycled paper.
<PAGE>
-------------------------------------------------------------------------------
Oppenheimer Pennsylvania Municipal Fund
-------------------------------------------------------------------------------
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated November 27, 2000
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated November 27, 2000. It should be read
together with the Prospectus. You can obtain the Prospectus by writing to the
Fund's Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver,
Colorado 80217 or by calling the Transfer Agent at the toll-free number shown
above or by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks
The Fund's Investment Policies.................................
Municipal Securities...........................................
Other Investment Techniques and Strategies.....................
Investment Restrictions........................................
How the Fund is Managed............................................
Organization and History.......................................
Trustees and Officers of the Fund..............................
The Manager ...................................................
Brokerage Policies of the Fund.....................................
Distribution and Service Plans.....................................
Performance of the Fund............................................
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: Municipal Bond Ratings..............................A-1
Appendix B: Industry Classifications............................B-1
Appendix C: Special Sales Charge Arrangements and Waivers.......C-1
-------------------------------------------------------------------------------
<PAGE>
ABOUT THE FUND
-------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment objective and the principal investment policies and the
main risks of the Fund are described in the Prospectus. This Statement of
Additional Information contains supplemental information about those policies
and the types of securities that the Fund's investment Manager,
OppenheimerFunds, Inc., can select for the Fund. Additional information is also
provided about the strategies the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Manager may use in selecting portfolio
securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below at all times in seeking its
goals. It may use some of the special investment techniques and strategies at
some times or not at all.
The Fund does not make investments with the objective of seeking capital
growth , since that would generally be inconsistent with its goal of seeking
tax-exempt income. However, the values of the securities held by the Fund may be
affected by changes in general interest rates and other factors prior to their
maturity. Because the current value of debt securities vary inversely with
changes in prevailing interest rates, if interest rates increased after a
security is purchased, that security will normally decline in value. Conversely,
should interest rates decrease after a security is purchased, normally its value
will rise.
However, those fluctuations in value will not generally result in realized
gains or losses to the Fund unless the Fund sells the security prior to the
security's maturity. A debt security held to maturity is redeemable by its
issuer at full principal value plus accrued interest. The Fund does not usually
intend to dispose of securities prior to their maturity, but may do so for
liquidity purposes, or because of other factors affecting the issuer that cause
the Manager to sell the particular security. In that case, the Fund could
realize a capital gain or loss on the sale.
There are variations in the credit quality of municipal securities, both
within a particular rating classification and between classifications. These
variations depend on numerous factors. The yields of municipal securities depend
on a number of factors, including general conditions in the municipal securities
market, the size of a particular offering, the maturity of the obligation and
rating (if any) of the issue. These factors are discussed in greater detail
below.
Municipal Securities. The types of municipal securities in which the Fund may
invest are described in the Prospectus under "About the Fund's Investments."
Municipal securities are generally classified as general obligation bonds,
revenue bonds and notes. A discussion of the general characteristics of these
principal types of municipal securities follows below.
|X| Municipal Bonds. We have classified municipal securities having a
maturity (when the security is issued) of more than one (1) year as "municipal
bonds." The principal classifications of long-term municipal bonds are "general
obligation" and "revenue" (including "industrial development") bonds. They may
have fixed, variable or floating rates of interest, as described below.
Some bonds may be "callable," allowing the issuer to redeem them before
their maturity date. To protect bondholders, callable bonds may be issued with
provisions that prevent them from being called for a period of time. Typically,
that is five (5) to ten (10) years from the issuance date. When interest rates
decline, if the call provision on a bond has expired, it is more likely that the
issuer may call the bond. If that occurs, the Fund might have to reinvest the
proceeds of the called bond in bonds that have a lower rate of return.
|X| General Obligation Bonds. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and taxing
power, if any, for the repayment of principal and the payment of interest.
Issuers of general obligation bonds include states, counties, cities, towns, and
regional districts. The proceeds of these obligations are used to fund a wide
range of public projects, including construction or improvement of schools,
highways and roads, and water and sewer systems. The rate of taxes that can be
levied for the payment of debt service on these bonds may be limited or
unlimited. Additionally, there may be limits as to the rate or amount of special
assessments that can be levied to meet these obligations.
|X| Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise tax or other
specific revenue source. Revenue bonds are issued to finance a wide variety of
capital projects. Examples include electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals.
Although the principal security for these types of bonds may vary
from bond to bond, many provide additional security in the form of a debt
service reserve fund that may be used to make principal and interest payments on
the issuer's obligations. Housing finance authorities have a wide range of
security, including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.
|X| Industrial Development Bonds. Industrial development bonds are
considered municipal bonds if the interest paid is exempt from federal income
tax. They are issued by or on behalf of public authorities to raise money to
finance various privately operated facilities for business and manufacturing,
housing, sports, and pollution control. These bonds may also be used to finance
public facilities such as airports, mass transit systems, ports, and parking.
The payment of the principal and interest on such bonds is dependent solely on
the ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property financed by the bond as security
for those payments.
|X| Private Activity Municipal Securities. The Tax Reform Act of 1986
(the "Tax Reform Act") reorganized, as well as amended, the rules governing tax
exemption for interest on certain types of municipal securities. The Tax Reform
Act generally did not change the tax treatment of bonds issued in order to
finance governmental operations. Thus, interest on general obligation bonds
issued by or on behalf of state or local governments, the proceeds of which are
used to finance the operations of such governments, continues to be tax-exempt.
However, the Tax Reform Act limited the use of tax-exempt bonds for
non-governmental (private) purposes. More stringent restrictions were placed on
the use of proceeds of such bonds. Interest on certain private activity bonds is
taxable under the revised rules. There is an exception for "qualified"
tax-exempt private activity bonds, for example, exempt facility bonds including
certain industrial development bonds, qualified mortgage bonds, qualified
Section 501(c)(3) bonds, and qualified student loan bonds.
In addition, limitations as to the amount of private activity bonds which
each state may issue were revised downward by the Tax Reform Act, which will
reduce the supply of such bonds. The value of the Fund's portfolio could be
affected if there is a reduction in the availability of such bonds.
Interest on certain private activity bonds issued after August 7, 1986,
which continues to be tax-exempt, will be treated as a tax preference item
subject to the federal alternative minimum tax (discussed below) to which
certain taxpayers are subject. The Fund may hold municipal securities the
interest on which (and thus a proportionate share of the exempt-interest
dividends paid by the Fund) will be subject to the Federal alternative minimum
tax on individuals and corporations. There are no limits on the amount of assets
the Fund may invest in private activity securities.
The Federal alternative minimum tax is designed to ensure that all persons
who receive income pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference items
that are used to calculate alternative minimum taxable income. The Tax Reform
Act made tax-exempt interest from certain private activity bonds a tax
preference item for purposes of the alternative minimum tax on individuals and
corporations. Any exempt-interest dividend paid by a regulated investment
company will be treated as interest on a specific private activity bond to the
extent of the proportionate relationship the interest the investment company
receives on such bonds bears to all its exempt interest dividends.
In addition, corporate taxpayers subject to the alternative minimum tax
may, under some circumstances, have to include exempt-interest dividends in
calculating their alternative minimum taxable income. That could occur in
situations where the "adjusted current earnings" of the corporation exceeds its
alternative minimum taxable income.
To determine whether a municipal security is treated as a taxable private
activity bond, it is subject to a test for: (a) a trade or business use and
security interest, or (b) a private loan restriction. Under the trade or
business use and security interest test, an obligation is a private activity
bond if: (i) more than 10% of the bond proceeds are used for private business
purposes and (ii) 10% or more of the payment of principal or interest on the
issue is directly or indirectly derived from such private use or is secured by
the privately used property or the payments related to the use of the property.
For certain types of uses, a 5% threshold is substituted for this 10% threshold.
The term "private business use" means any direct or indirect use in a
trade or business carried on by an individual or entity other than a state or
municipal governmental unit. Under the private loan restriction, the amount of
bond proceeds that may be used to make private loans is limited to the lesser of
5% or $5.0 million of the proceeds. Thus, certain issues of municipal securities
could lose their tax-exempt status retroactively if the issuer fails to meet
certain requirements as to the expenditure of the proceeds of that issue or the
use of the bond-financed facility. The Fund makes no independent investigation
of the users of such bonds or their use of proceeds of the bonds. If the Fund
should hold a bond that loses its tax-exempt status retroactively, there might
be an adjustment to the tax-exempt income previously distributed to
shareholders.
Additionally, a private activity bond that would otherwise be a qualified
tax-exempt private activity bond will not, under Internal Revenue Code Section
147(a), be a qualified bond for any period during which it is held by a person
who is a "substantial user" of the facilities or by a "related person" of such a
substantial user. This "substantial user" provision applies primarily to exempt
facility bonds, including industrial development bonds. The Fund may invest in
industrial development bonds and other private activity bonds. Therefore, the
Fund may not be an appropriate investment for entities which are "substantial
users" (or persons related to "substantial users") of such exempt facilities.
Those entities and persons should consult their tax advisers before purchasing
shares of the Fund.
A "substantial user" of such facilities is defined generally as a
"non-exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be a
"related person" under the Internal Revenue Code unless such individual or the
individual's immediate family (spouse, brothers, sisters and immediate
descendants) own directly or indirectly in the aggregate more than 50% in value
of the equity of a corporation or partnership which is a "substantial user" of a
facility financed from the proceeds of exempt facility bonds.
|X| Municipal Notes. Municipal securities having a maturity (when the
security is issued) of less than one (1) year are generally known as municipal
notes. Municipal notes generally are used to provide for short-term working
capital needs. Some of the types of municipal notes the Fund can invest in are
described below.
|X| Tax Anticipation Notes. These are issued to finance working capital
needs of municipalities. Generally, they are issued in anticipation of various
seasonal tax revenue, such as income, sales, use or other business taxes, and
are payable from these specific future taxes.
|X| Revenue Anticipation Notes. These are notes issued in expectation
of receipt of other types of revenue, such as Federal revenues available
under Federal revenue-sharing programs.
|X| Bond Anticipation Notes. Bond anticipation notes are issued to provide
interim financing until long-term financing can be arranged. The long-term bonds
that are issued typically also provide the money for the repayment of the notes.
|X| Construction Loan Notes. These are sold to provide project
construction financing until permanent financing can be secured. After
successful completion and acceptance of the project, it may receive permanent
financing through public agencies, such as the Federal Housing Administration.
|X| Municipal Lease Obligations. The Fund's investments in municipal lease
obligations may be through certificates of participation that are offered to
investors by public entities. Municipal leases may take the form of a lease or
an installment purchase contract issued by a state or local government authority
to obtain funds to acquire a wide variety of equipment and facilities.
Some municipal lease securities may be deemed to be "illiquid" securities.
Their purchase by the Fund would be limited as described below in "Illiquid
Securities." From time to time the Fund may invest more than 5% of its net
assets in municipal lease obligations that the Manager has determined to be
liquid under guidelines set by the Board of Trustees.
Those guidelines require the Manager to evaluate: |_| the frequency of
trades and price quotations for such securities; |_| the number of dealers
or other potential buyers willing to purchase or sell such securities; |_|
the availability of market-makers; and |_| the nature of the trades for
such securities.
Municipal leases have special risk considerations. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for that purpose on a yearly basis. While the obligation
might be secured by the lease, it might be difficult to dispose of that property
in case of a default. The Commonwealth of Pennsylvania is not required by law to
appropriate or otherwise provide moneys from which the lease payments are to be
made.
Projects financed with certificates of participation generally are not
subject to state constitutional debt limitations or other statutory requirements
that may apply to other municipal securities. Payments by the public entity on
the obligation underlying the certificates are derived from available revenue
sources. That revenue might be diverted to the funding of other municipal
service projects. Payments of interest and/or principal with respect to the
certificates are not guaranteed and do not constitute an obligation of a state
or any of its political subdivisions.
In addition to the risk of "non-appropriation," municipal lease securities
do not have as highly liquid a market as conventional municipal bonds. Municipal
leases, like other municipal debt obligations, are subject to the risk of
non-payment of interest or repayment of principal by the issuer. The ability of
issuers of municipal leases to make timely lease payments may be adversely
affected in general economic downturns and as relative governmental cost burdens
are reallocated among federal, state and local governmental units. A default in
payment of income would result in a reduction of income to the Fund. It could
also result in a reduction in the value of the municipal lease and that, as well
as a default in repayment of principal, could result in a decrease in the net
asset value of the Fund. While the Fund holds such securities, the Manager will
also evaluate the likelihood of a continuing market for these securities and
their credit quality.
|X| Ratings of Municipal Securities. Ratings by ratings organizations such
as Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Rating
Services ("S&P") and Fitch, Inc. ("Fitch") represent the respective rating
agency's opinions of the credit quality of the municipal securities they
undertake to rate. However, their ratings are general opinions and are not
guarantees of quality. Municipal securities that have the same maturity, coupon
and rating may have different yields, while other municipal securities that have
the same maturity and coupon but different ratings may have the same yield.
Lower grade securities may have a higher yield than securities rated
in the higher rating categories. In addition to having a greater risk of default
than higher-grade, securities, there may be less of a market for these
securities. As a result they may be harder to sell at an acceptable price. The
additional risks mean that the Fund may not receive the anticipated level of
income from these securities, and the Fund's net asset value may be affected by
declines in the value of lower-grade securities. However, because the added risk
of lower quality securities might not be consistent with the Fund's policy of
preservation of capital, the Fund limits its investments in lower quality
securities.
Subsequent to its purchase by the Fund, a municipal security may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event requires the Fund to sell the security, but the Manager
will consider such events in determining whether the Fund should continue to
hold the security. To the extent that ratings given by Moody's, S&P, or Fitch
change as a result of changes in those rating organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
investments in accordance with the Fund's investment policies.
The Fund may buy municipal securities that are "pre-refunded." The
issuer's obligation to repay the principal value of the security is generally
collateralized with U.S. government securities placed in an escrow account. This
causes the pre-refunded security to have essentially the same risks of default
as a AAA-rated security.
The rating definitions of Moody's, S&P and Fitch for municipal securities
are contained in Appendix A to this Statement of Additional Information. The
Fund can purchase securities that are unrated by nationally recognized rating
organizations. The Manager will make its own assessment of the credit quality of
unrated issues the Fund buys. The Manager will use criteria similar to those
used by the rating agencies, and assign a rating category to a security that is
comparable to what the Manager believes a rating agency would assign to that
security. However, the Manager's rating does not constitute a guarantee of the
quality of a particular issue.
Special Risks of Investing Primarily in Pennsylvania Municipal Securities.
Because the Fund focuses its investments primarily on Pennsylvania municipal
securities, the value of its portfolio investments will be highly sensitive to
events affecting the fiscal stability of the Commonwealth of Pennsylvania and
its municipalities, authorities and other instrumentalities that issue
securities in which the Fund invests, including political developments, economic
problems and legislation. Many different social, environmental and economic
factors may affect the financial condition of Pennsylvania and its political
subdivisions. From time to time Pennsylvania and certain of its political
subdivisions have encountered financial difficulties that have adversely
affected their respective credit standings. Other factors that may negatively
effect economic conditions in Pennsylvania include adverse changes in employment
rates, federal revenue sharing or laws with respect to tax-exempt financing.
It is not possible to predict the future impact of the political
developments, economic problems and legislation on the long-term ability of the
Commonwealth of Pennsylvania or Pennsylvania municipal issuers to pay interest
or repay principal on their obligations. The information below about these
conditions is only a brief summary, based upon information the Fund has drawn
from sources that it believes are reliable, including official statements
relating to securities offerings of Pennsylvania issuers. The information below
is general in nature and does not provide information about financial condition
of the state or specific issuers in whose securities the Fund may invest, or the
risks of those specific investments.
|X| The Effect of General Economic Conditions in the State. The
Commonwealth of Pennsylvania is one of the most populous states, ranking sixth
behind California, Texas, New York, Florida and Illinois. Pennsylvania is an
established yet growing state with a diversified economy. It is the headquarters
for many major corporations. Pennsylvania had historically been identified as a
heavy industry state. That reputation has changed over the last thirty (30)
years as the coal, steel and railroad industries declined and the Commonwealth's
business environment readjusted to reflect a more diversified industrial base.
This economic readjustment was a direct result of a long-term shift in jobs,
investment and workers away from the northeast part of the nation. Currently,
the major sources of growth in Pennsylvania are in the service sector, including
trade, medical and the health services, education and financial institutions.
Pennsylvania's 5.5 million-person work force ranks as the sixth largest labor
pool in the nation.
The Commonwealth uses the fund method of accounting. The General Fund, the
Commonwealth's largest fund, receives all tax revenues, non-tax revenues and
federal grants and entitlements that are not specified by law to be deposited
elsewhere. The majority of the Commonwealth's operating and administrative
expenses are payable from the General Fund. Debt service and all bonded
indebtedness of the Commonwealth, except that issued for highway purposes or for
the benefit of other special revenue funds, is payable from the General Fund.
The five (5) year period ending with fiscal 1999 was a time of economic
growth with modest rates of growth at the beginning of the period and larger
increases during the most recent years. Throughout the period, inflation
remained relatively low, helping to restrain expenditure growth. Favorable
economic conditions helped total revenues and other sources rise at an average
annual rate of 5.8% (6% on a "GAAP" basis) during the five (5) year period.
Taxes increased at an average annual rate of 4.3% (4.2% on a "GAAP" basis)
during the period. Expenditures and other uses during the fiscal 1995 through
fiscal 1999 period rose at a 4.8% (5% on a "GAAP" basis) average annual rate.
The 1999 fiscal year ended with an unappropriated surplus (prior to the
transfer to the Tax Stabilization Reserve Fund) of $702.9 million, an increase
of $214.2 million from June 30, 1998. Transfers to the Tax Stabilization Reserve
Fund total $255.4 million for fiscal year 1999 consisting of $105.4 million
representing the statutory 15% of the fiscal year-end unappropriated surplus and
an additional $150 million from the unappropriated surplus authorized by the
General Assembly. The $447.5 million balance of the unappropriated surplus was
carried over to fiscal year 2000. The higher unappropriated surplus was
generated by tax revenues that were $712.0 million (3.9%) above estimate (after
tax reductions enacted with the 1999 fiscal year budget that were estimated to
be $241.0 million) and $61.0 million of non-tax revenue (18.4%) above estimate.
Higher than anticipated appropriation lapses also contributed to the higher
surplus. A portion of the higher revenues and appropriation lapses were used for
supplemental fiscal 1999 appropriations totaling $357.8 million.
Appropriations enacted for fiscal 1999 when the budget was originally
adopted were 4.1% ($713.2 million) above the appropriations enacted for fiscal
1998 (including supplemental appropriations).
For GAAP purposes, assets increased $1,024 million in fiscal 1999 and
liabilities rose $119.5 million. The increase in assets over liabilities for
fiscal 1999 caused the fund balance as of June 30, 1999 to increase by $904.5
million over the fund balance as of June 30, 1998. The total fund balance as of
June 30, 1999 was $2,863.4, the largest fund balance since audited GAAP
reporting was instituted in 1984.
The fiscal 2000 year ended with an unappropriate surplus of $610.5
million, an increase of $163 million from June 30, 2000. Transfers to the Tax
Stabilization Reserve Fund totaled $131 million. Revenues for fiscal 2000
(including prior year lapses) totaled $19.4 billion. Appropriations for the year
(net of current year lapses) totaled $19.3 billion. Audited statement for fiscal
2000 are not yet available.
The fiscal 2001 enacted budget for the General Fund authorizes $19,911
million of spending from estimated revenues of $19,315 million. The budget
includes $775 million of tax reductions to help working families and to
stimulate job creation and retention. The estimate in the enacted budget for
Commonwealth revenues to be received during fiscal year 2001 is based upon a
economic forecast for real gross domestic product to grow at a 3.7 percent rate
from the second quarter of 2000 to the second quarter of 2001. This rate of
growth of real gross domestic product represents an expected slow-down in
national economic growth compared to the rate of growth in fiscal 2000. The more
modest economic growth rate is anticipated to be a response to a slower rate of
consumer spending to a level consistent with personal income gains and by
smaller increases in business investment as interest rates rise and profit gains
are weak. The expected slower economic growth is not expected to cause an
appreciable increase in the unemployment rate during the fiscal year. Inflation
is expected to remain quite moderate during the period. Trends for the
Pennsylvania economy are expected to maintain their current close association
with national economic trends. Personal income growth is anticipated to remain
slightly below that of the U.S., while the Pennsylvania unemployment rate is
anticipated to be very close to the national rate.
According to a Pennsylvania Department of Revenue News Release dated
October 31, 2000, the state collected $1.4 billion in General Fund Revenues in
October 2000, which is $44.1 million, or 3%, less than anticipated. Fiscal
year-to-date General Fund collections total $6 billion which is $51.8 million,
or 0.9% above estimate.
The current constitutional provisions relating to Commonwealth debt permit
the issuance of the following types of debt: (i) debt to suppress insurrection
or rehabilitate areas affected by disaster, (ii) electorate approved debt, (iii)
debt for capital projects subject to an aggregate debt limit of 1.75 times the
annual average tax revenue of the preceding five (5) fiscal years, and (iv) tax
anticipation notes payable in the fiscal year of issuance. All debt except tax
anticipation notes must be amortized in substantial and regular amounts.
Outstanding general obligation debt totaled $5,014.4 million at June 30, 2000.
Other state-related obligations include "moral obligations." Moral
obligation indebtedness may be issued by the Pennsylvania Housing Financing
Agency, a state-created agency which provides financing for housing for lower
and moderate income families, and the Hospitals and Higher Education Facilities
Authority of Philadelphia, a municipal authority organized by the City of
Philadelphia to, among other things, acquire and prepare various sites for use
as intermediate care facilities for the mentally retarded.
The Commonwealth, through several of its departments and agencies, leases
various real property and equipment. Some leases and their respective lease
payments are, with the Commonwealth's approval, pledged as security for debt
obligations issued by certain public authorities or other entities within the
state.
In addition, certain Commonwealth-created organizations had statutory
authorization to issue debt for which Commonwealth appropriations to pay debt
service thereon are not required. The debt of these organizations is funded by
the assets of, or revenues derived from, the various projects financed and is
not a statutory or moral obligation of the Commonwealth. Some of these agencies,
however, are indirectly dependent on Commonwealth operating appropriations. The
Commonwealth also maintains pension plans covering state employees, public
school employees and employees of certain state-related organizations.
Pennsylvania's average annual unemployment rate was equivalent to the
national average throughout the 1990's. Slower economic growth caused the
unemployment rate in the Commonwealth to rise to 7.0% in 1991 and 7.6% in 1992.
The resumption of faster economic growth resulted in an annual decrease in the
Commonwealth's unemployment rate to 4.3% in 1999. From 1994 through 1998,
Pennsylvania's annual average unemployment rate was below the Middle Atlantic
Region's average, but slightly higher than that of the United States. According
to a Department of Labor and Industry News Release dated September 15, 2000,
Pennsylvania's unemployment rate was unchanged at 4% in August 2000. Nationally
the unemployment rate rose to 4.1% in August 2000.
As of October 15, 2000, Pennsylvania general obligation bonds were rated
AA by S&P, Aa2 by Moody's and AA by Fitch. Those ratings are subject to change.
|X| Local Tax Considerations. Pennsylvania municipalities and school
districts are, with certain limitations, authorized to impose a variety of
taxes. The real estate tax is the only tax authorized by law to be levied by all
classes of local government in the state. Thus, property owners generally pay
real estate taxes to three independent authorities - the county, the
municipality and the school district.
The Local Tax Enabling Act, applicable to almost all political
subdivisions in Pennsylvania, gives local governments (other than counties) and
school districts in Pennsylvania a broad range of non-real estate tax sources.
The taxes commonly in use include the earned income or wage tax, per capita
taxes, occupation taxes, occupational privilege taxes, real estate transfer
taxes, amusement and admission taxes and business gross receipts taxes (although
the authority of political subdivisions to impose new business gross receipts
taxes is limited). Counties are also permitted to impose intangible personal
property taxes (although the constitutional validity of such taxes is presently
the subject of litigation and no counties presently impose such taxes).
In addition, the City and School District of Philadelphia have separate
taxing authority to impose a variety of business taxes, wage taxes, income and
other various taxes.
There is various litigation pending against the Commonwealth, its officers
and employees. An adverse decision in one or more of these cases could
materially affect the Commonwealth's governmental operations.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time employ the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times,
and at times may not use them.
Portfolio Turnover. The Fund may engage in some short-term trading to seek
its objective. Portfolio turnover can increase the Fund's transaction costs (and
reduce its performance). However, in most cases the Fund does not pay brokerage
commissions on debt securities it trades, so active trading is not expected to
increase Fund expenses greatly. While securities trading can cause the Fund to
realize gains that are distributed to shareholders as taxable distributions.
|X| Floating Rate and Variable Rate Obligations. Variable rate demand
obligations have a demand feature that allows the Fund to tender the obligation
to the issuer or a third party to its maturity. The tender may be at par value
plus accrued interest, according to the terms of the obligation.
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 ninety-one (91) day
U.S. Treasury Bill rate, or some other standard, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable rate demand
note is also based on a stated prevailing market rate but is adjusted
automatically at specified intervals of not less than one year. Generally, the
changes in the interest rate on such securities reduce the fluctuation in their
market value. As interest rates decrease or increase, the potential for capital
appreciation or depreciation is less than that for fixed-rate obligations of the
same maturity.
The Manager may determine that an unrated floating rate or variable rate
demand obligation meets the Fund's quality standards by reason of being backed
by a letter of credit or guarantee issued by a bank that meets those quality
standards.
Floating rate and variable rate demand notes that have a stated maturity
in excess of one year may have features that permit the holder to recover the
principal amount of the underlying security at specified intervals not exceeding
one (1) year and upon no more than thirty (30) days' notice. The issuer of that
type of note normally has a corresponding right in its discretion, after a given
period, to prepay the outstanding principal amount of the note plus accrued
interest. Generally the issuer must provide a specified number of days' notice
to the holder. Floating rate or variable rate obligations that do not provide
for the recovery of principal and interest within seven (7) days are subject to
the Fund's limitations on investments in illiquid securities.
|X| Inverse Floaters and Other Derivative Investments. Inverse floaters
may offer relatively high current income, reflecting the spread between
short-term and long-term tax exempt interest rates. As long as the municipal
yield curve remains relatively steep and short term rates remain relatively low,
owners of inverse floaters will have the opportunity to earn interest at
above-market rates because they receive interest at the higher long-term rates
but have paid for bonds with lower short-term rates. If the yield curve flattens
and shifts upward, an inverse floater will lose value more quickly than a
conventional long-term bond. The Fund will invest in inverse floaters to seek
higher tax-exempt yields than are available from fixed-rate bonds that have
comparable maturities and credit ratings. In some cases, the holder of an
inverse floater may have an option to convert the floater to a fixed-rate bond,
pursuant to a "rate-lock option."
Some inverse floaters have a feature known as an interest rate "cap" as
part of the terms of the investment. Investing in inverse floaters that have
interest rate caps might be part of a portfolio strategy to try to maintain a
high current yield for the Fund when the Fund has invested in inverse floaters
that expose the Fund to the risk of short-term interest rate fluctuations.
"Embedded" caps can be used to hedge a portion of the Fund's exposure to rising
interest rates. When interest rates exceed a pre-determined rate, the cap
generates additional cash flows that offset the decline in interest rates on the
inverse floater, and the hedge is successful. However, the Fund bears the risk
that if interest rates do not rise above the pre-determined rate, the cap (which
is purchased for additional cost) will not provide additional cash flows and
will expire worthless.
Inverse floaters are a form of derivative investment. Certain derivatives,
such as options, futures, indexed securities and entering into swap agreements,
can be used to increase or decrease the Fund's exposure to changing security
prices, interest rates or other factors that affect the value of securities.
However, these techniques could result in losses to the Fund, if the Manager
judges market conditions incorrectly or employs a strategy that does not
correlate well with the Fund's other investments. These techniques can cause
losses if the counterparty does not perform its promises. An additional risk of
investing in municipal securities that are derivative investments is that their
market value could be expected to vary to a much greater extent than the market
value of municipal securities that are not derivative investments but have
similar credit quality, redemption provisions and maturities.
|X| "When-Issued" and "Delayed Delivery" Transactions. The Fund can
purchase securities on a "when-issued" basis, and may purchase or sell such
securities on a "delayed delivery" (or "forward commitment") basis.
"When-issued" or "delayed delivery" refers to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery.
When such transactions are negotiated the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date. Normally the
settlement date is within six (6) months of the purchase of municipal bonds and
notes. However, the Fund may, from time to time, purchase municipal securities
having a settlement date more than six (6) months and possibly as long as two
(2) years or more after the trade date. The securities are subject to change in
value from market fluctuation during the settlement period. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Manager before settlement
will affect the value of such securities and may cause loss to the Fund. No
income begins to accrue to the Fund on a when-issued security until the Fund
receives the security at settlement of the trade.
The Fund will engage in when-issued transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the obligation. When the Fund engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to complete
the transaction. Their failure to do so may cause the Fund to lose the
opportunity to obtain the security at a price and yield it considers
advantageous.
When the Fund engages in when-issued and delayed delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies for its portfolio or for delivery pursuant to
options contracts it has entered into, and not for the purposes of investment
leverage. Although the Fund will enter into when-issued or delayed-delivery
purchase transactions to acquire securities, the Fund may dispose of a
commitment prior to settlement. If the Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it may incur a gain or
loss.
At the time the Fund makes a commitment to purchase or sell a security on
a when-issued or forward commitment basis, it records the transaction on its
books and reflects the value of the security purchased. In a sale transaction,
it records the proceeds to be received, in determining its net asset value. The
Fund will identify on its books at least equal to the value of purchase
commitments until the Fund pays for the investment.
When-issued transactions and forward commitments can be used by the Fund
as a defensive technique to hedge against anticipated changes in interest rates
and prices. For instance, in periods of rising interest rates and falling
prices, the Fund might sell securities in its portfolio on a forward commitment
basis to attempt to limit its exposure to anticipated falling prices. In periods
of falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
forward commitment basis, to obtain the benefit of currently higher cash yields.
|X| Zero-Coupon Securities. The Fund may buy zero-coupon and delayed
interest municipal securities. Zero-coupon securities do not make periodic
interest payments and are sold at a deep discount from their face value. The
buyer recognizes a rate of return determined by the gradual appreciation of the
security, which is redeemed at face value on a specified maturity date. This
discount depends on the time remaining until maturity, as well as prevailing
interest rates, the liquidity of the security and the credit quality of the
issuer. In the absence of threats to the issuer's credit quality, the discount
typically decreases as the maturity date approaches. Some zero-coupon securities
are convertible, in that they are zero-coupon securities until a predetermined
date, at which time they convert to a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities. Their value may fall more
dramatically than the value of interest-bearing securities when interest rates
rise. When prevailing interest rates fall, zero-coupon securities tend to rise
more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
|X| Puts and Standby Commitments. When the Fund buys a municipal security
subject to a standby commitment to repurchase the security, the Fund is entitled
to same-day settlement from the purchaser. The Fund receives an exercise price
equal to the amortized cost of the underlying security plus any accrued interest
at the time of exercise. A put purchased in conjunction with a municipal
security enables the Fund to sell the underlying security within a specified
period of time at a fixed exercise price.
The Fund might purchase a standby commitment or put separately in cash or
it might acquire the security subject to the standby commitment or put (at a
price that reflects that additional feature). The Fund will enter into these
transactions only with banks and securities dealers that, in the Manager's
opinion, present minimal credit risks. The Fund's ability to exercise a put or
standby commitment will depend on the ability of the bank or dealer to pay for
the securities if the put or standby commitment is exercised. If the bank or
dealer should default on its obligation, the Fund might not be able to recover
all or a portion of any loss sustained from having to sell the security
elsewhere.
Puts and standby commitments are not transferable by the Fund. They
terminate if the Fund sells the underlying security to a third party. The Fund
intends to enter into these arrangements to facilitate portfolio liquidity,
although such arrangements might enable the Fund to sell a security at a
pre-arranged price that may be higher than the prevailing market price at the
time the put or standby commitment is exercised. However, the Fund might refrain
from exercising a put or standby commitment if the exercise price is
significantly higher than the prevailing market price, to avoid imposing a loss
on the seller that could jeopardize the Fund's business relationships with the
seller.
A put or standby commitment increases the cost of the security and reduces
the yield otherwise available from the security. Any consideration paid by the
Fund for the put or standby commitment will be reflected on the Fund's books as
unrealized depreciation while the put or standby commitment is held, and a
realized gain or loss when the put or commitment is exercised or expires.
Interest income received by the Fund from municipal securities subject to puts
or stand-by commitments may not qualify as tax exempt in its hands if the terms
of the put or stand-by commitment cause the Fund not to be treated as the tax
owner of the underlying municipal securities.
|X| Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements. It may do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to an approved vendor for delivery on an agreed upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks or broker-dealers that have been
designated a primary dealer in government securities, which meet the credit
requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day. Delivery pursuant
to resale typically will occur within one (1) to five (5) days of the purchase.
Repurchase agreements having a maturity beyond seven (7) days are subject to the
Fund's limits on holding illiquid investments. There is no limit on the amount
of the Fund's net assets that may be subject to repurchase agreements of seven
(7) days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the collateral's value must equal or exceed the repurchase price to
fully collateralize the repayment obligation.
The Manager will monitor the vendor's creditworthiness to confirm that the
vendor is financially sound and will continuously monitor the collateral's
value. However, if the vendor fails to pay the resale price on the delivery
date, the Fund may incur costs in disposing of the collateral and may experience
losses if there is any delay in its ability to do so.
|X| Illiquid and Restricted Securities. The Fund has percentage
limitations that apply to purchases of illiquid and restricted securities, as
stated in the Prospectus. The Manager monitors holdings of illiquid and
restricted securities on an ongoing basis to determine whether to sell any
holdings to maintain adequate liquidity.
|X| Borrowing for Leverage. The Fund has the ability to borrow from banks
on an unsecured basis in amounts limited (as a fundamental policy) to a maximum
of 10% of its total assets, to invest the borrowed funds in portfolio
securities. This technique is known as "leverage." The Fund may borrow only from
banks for investment purposes and extraordinary or emergency purposes, and may
borrow from affiliated investment companies only for extraordinary or emergency
purposes subject to obtaining all required authorizations and regulatory
approvals. As a fundamental policy, borrowings can be made only to the extent
that the value of the Fund's assets, less its liabilities other than borrowings,
is equal to at least 300% of all borrowings (including the proposed borrowing).
If the value of the Fund's assets fails to meet this 300% asset coverage
requirement, the Fund is required to reduce its bank debt within three (3) days
to meet the requirement. To do so, the Fund might have to sell a portion of its
investments at a disadvantageous time.
The Fund will pay interest on these loans, and that interest expense will
raise the overall expenses of the Fund and reduce its returns. If it does
borrow, its expenses will be greater than comparable funds that do not borrow
for leverage. The interest on a loan might be more (or less) than the yield on
the securities purchased with the loan proceeds. Additionally, the Fund's net
asset value per share might fluctuate more than that of funds that do not
borrow.
|X| Loans of Portfolio Securities. To attempt to raise income or raise
cash for liquidity purposes, the Fund may lend its portfolio securities to
brokers, dealers and other financial institutions. These loans are limited to
not more than 25% of the value of the Fund's total assets. There are risks in
connection with securities lending. The Fund might experience a delay in
receiving additional collateral to secure a loan, or a delay in recovery of the
loaned securities. The Fund presently does not intend to engage in loans of
securities that will exceed 5% of the value of the Fund's total assets in the
coming year. Income from securities loans does not constitute exempt-interest
income for the purpose of paying tax-exempt dividends.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on the loaned securities. It also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and (c)
interest on short-term debt securities purchased with the loan collateral.
Either type of interest may be shared with the borrower. The Fund may pay
reasonable finder's, administrative or other fees in connection with these
loans. The terms of the Fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the Fund to reacquire loaned securities on
five (5) days' notice or in time to vote on any important matter.
|X| Hedging. The Fund may use hedging to attempt to protect against
declines in the market value of its portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities that have appreciated, or
to facilitate selling securities for investment reasons. To do so the Fund
could:
|_| sell interest rate futures or municipal bond index futures, |_| buy
puts on such futures or securities, or |_| write covered calls on
securities, interest rate futures or municipal bond index futures. The
Fund can also write covered calls on debt securities to attempt to
increase the Fund's income, but that income would not be tax-exempt.
Therefore it is unlikely that the Fund would write covered calls for that
purpose.
The Fund may also use hedging to establish a position in the debt
securities market as a temporary substitute for purchasing individual debt
securities. In that case the Fund will normally seek to purchase the securities,
and then terminate that hedging position. For this type of hedging, the Fund
could:
|_| buy interest rate futures or municipal bond index futures, or |_| buy
calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's investment activities in the underlying cash market.
The particular hedging instruments the Fund can use are described below. The
Fund may employ new hedging instruments and strategies when they are developed,
if those investment methods are consistent with the Fund's investment objective
and are permissible under applicable regulations governing the Fund.
|X| Futures. The Fund may buy and sell futures contracts relating to debt
securities (these are called "interest rate futures") and municipal bond indices
(these are referred to as "municipal bond index futures").
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specific type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the futures position.
A "municipal bond index" assigns relative values to the municipal bonds in
the index, and is used as the basis for trading long-term municipal bond futures
contracts. Municipal bond index futures are similar to interest rate futures
except that settlement is made only in cash. The obligation under the contract
may also be satisfied by entering into an offsetting contract. The strategies
which the Fund employs in using municipal bond index futures are similar to
those with regard to interest rate futures.
No money is paid by or received by the Fund on the purchase or sale of a
futures contract. Upon entering into a futures transaction, the Fund will be
required to deposit an initial margin payment in cash or U.S. government
securities with the futures commission merchant (the "futures broker"). Initial
margin payments will be deposited with the Fund's Custodian in an account
registered in the futures broker's name. However, the futures broker can gain
access to that account only under certain specified conditions. As the future is
marked to market (that is, its value on the Fund's books is changed) to reflect
changes in its market value, subsequent margin payments, called variation
margin, will be paid to or by the futures broker daily.
At any time prior to the expiration of the Future, the Fund may elect to
close out its position by taking an opposite position at which time a final
determination of variation margin is made and additional cash is required to be
paid by or released to the Fund. Any gain or loss is then realized by the Fund
on the Future for tax purposes. Although Interest Rate Futures by their terms
call for settlement by the delivery of debt securities, in most cases the
obligation is fulfilled without such delivery by entering into an offsetting
transaction. All futures transactions are effected through a clearing house
associated with the exchange on which the contracts are traded.
The Fund may concurrently buy and sell futures contracts in a strategy
anticipating that the future the Fund purchased will perform better than the
future the Fund sold. For example, the Fund might buy municipal bond futures and
concurrently sell U.S. Treasury Bond futures (a type of interest rate future).
The Fund would benefit if municipal bonds outperform U.S. Treasury Bonds on a
duration-adjusted basis.
Duration is a volatility measure that refers to the expected percentage
change in the value of a bond resulting from a change in general interest rates
(measured by each 1% change in the rates on U.S. Treasury securities). For
example, if a bond has an effective duration of three years, a 1% increase in
general interest rates would be expected to cause the value of the bond to
decline about 3%. There are risks that this type of futures strategy will not be
successful. U.S. Treasury bonds might perform better on a duration-adjusted
basis than municipal bonds, and the assumptions about duration that were used
might be incorrect (in this case, the duration of municipal bonds relative to
U.S. Treasury Bonds might have been greater than anticipated).
|X| Put and Call Options. The Fund may buy and sell certain kinds of
put options (puts) and call options (calls). These strategies are described
below.
|X| Writing Covered Call Options. The Fund may write (that is, sell)
call options. The Fund's call writing is subject to a number of
restrictions:
(1) After the Fund writes a call, not more than 25% of the Fund's total
assets may be subject to calls.
(2) Calls the Fund sells must be listed on a securities or commodities
exchange or quoted on NASDAQ, the automated quotation system of The
Nasdaq Stock Market, Inc. or traded in the over-the-counter market.
(3) Each call the Fund writes must be "covered" while it is outstanding.
That means the Fund must own the investment on which the call was
written.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying investment to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine months. The exercise price may differ
from the market price of the underlying security. The Fund has retained the risk
of loss that the price of the underlying security may decline during the call
period. That risk may be offset to some extent by the premium the Fund receives.
If the value of the investment does not rise above the call price, it is likely
that the call will lapse without being exercised. In that case the Fund would
keep the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by the specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being
exercised. In that case, the Fund would keep the cash premium.
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.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the calls or upon the Fund's entering into a
closing purchase transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. Government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in-the-money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on illiquid securities) the
mark-to-market value of any OTC option held by it, unless the option is subject
to a buy-back agreement by the executing broker. The Securities and Exchange
Commission is evaluating whether OTC options should be considered liquid
securities. The procedure described above could be affected by the outcome of
that evaluation.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
was more or less than the price of the call the Fund purchased to close out the
transaction. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium received. Any
such profits are considered short-term capital gains for Federal tax purposes,
as are premiums on lapsed calls. When distributed by the Fund they are taxable
as ordinary income.
The Fund may also write calls on futures contracts without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating in escrow
an equivalent dollar value of liquid assets identified on the Fund's books. The
Fund will segregate additional liquid assets if the value of the escrowed assets
drops below 100% of the current value of the future. Because of this escrow
requirement, in no circumstances would the Fund's receipt of an exercise notice
as to that future put the Fund in a "short" futures position.
|_| Purchasing Calls and Puts. The Fund may buy calls only on securities,
broadly-based municipal bond indices, municipal bond index futures and interest
rate futures. It may also buy calls to close out a call it has written, as
discussed above. Calls the Fund buys must be listed on a securities or
commodities exchange, or quoted on NASDAQ, or traded in the over-the-counter
market. A call or put option may not be purchased if the purchase would cause
the value of all the Fund's put and call options to exceed 5% of its total
assets.
When the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium. For calls on securities that the Fund buys, it
has the right to buy the underlying investment from a seller of a corresponding
call on the same investment during the call period at a fixed exercise price.
The Fund benefits only if (1) the call is sold at a profit or (2) the call is
exercised when the market price of the underlying investment is above the sum of
the exercise price plus the transaction costs and premium paid for the call. If
the call is not either exercised or sold (whether or not at a profit), it will
become worthless at its expiration date. In that case the Fund will lose its
premium payment and the right to purchase the underlying investment.
Calls on municipal bond indices, interest rate futures and municipal bond
index futures are settled in cash rather than by delivering the underlying
investment. Gain or loss depends on changes in the securities included in the
index in question (and thus on price movements in the debt securities market
generally) rather than on changes in price of the individual futures contract.
The Fund may buy only those puts that relate to securities that the Fund
owns, broadly-based municipal bond indices, municipal bond index futures or
interest rate futures (whether or not the Fund owns the futures). The Fund may
not sell puts other than puts it has previously purchased.
When the Fund purchases a put, it pays a premium. The Fund then has the
right to sell the underlying investment to a seller of a corresponding put on
the same investment during the put period at a fixed exercise price. Puts on
municipal bond indices are settled in cash. Buying a put on a debt security,
interest rate future or municipal bond index future the Fund owns enables it to
protect itself during the put period against a decline in the value of the
underlying investment below the exercise price. If the market price of the
underlying investment is equal to or above the exercise price and as a result
the put is not exercised or resold, the put will become worthless at its
expiration date. In that case the Fund will lose its premium payment and the
right to sell the underlying investment. A put may be sold prior to expiration
(whether or not at a profit).
|_| Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's returns.
The Fund's option activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund may cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund may pay a brokerage commission each time it buys a call or put,
sells a call, or buys or sells an underlying investment in connection with the
exercise of a call or put. Such commissions may be higher on a relative basis
than the commissions for direct purchases or sales of the underlying
investments. Premiums paid for options are small in relation to the market value
of the underlying investments. Consequently, put and call options offer large
amounts of leverage. The leverage offered by trading in options could result in
the Fund's net asset value being more sensitive to changes in the value of the
underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
There is a risk in using short hedging by selling interest rate futures
and municipal bond index futures or purchasing puts on municipal bond indices or
futures to attempt to protect against declines in the value of the Fund's
securities. The risk is that the prices of such futures or the applicable index
will correlate imperfectly with the behavior of the cash (that is, market)
prices of the Fund's securities. It is possible for example, that while the Fund
has used hedging instruments in a short hedge, the market may advance and the
value of debt securities held in the Fund's portfolio might decline. If that
occurred, the Fund would lose money on the hedging instruments and also
experience a decline in value of its debt securities. However, while this could
occur over a brief period or to a very small degree, over time the value of a
diversified portfolio of debt securities will tend to move in the same direction
as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of debt
securities being hedged and movements in the price of the hedging instruments,
the Fund may use hedging instruments in a greater dollar amount than the dollar
amount of debt securities being hedged. It might do so if the historical
volatility of the prices of the debt securities being hedged is greater than the
historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions due to differences in the natures of those markets. All
participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. From the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the
securities markets. Therefore, increased participation by speculators in the
futures markets may cause temporary price distortions.
The Fund may use hedging instruments to establish a position in the
municipal securities markets as a temporary substitute for the purchase of
individual securities (long hedging). It is possible that the market may
decline. If the Fund then concludes not to invest in such securities because of
concerns that there may be further market decline or for other reasons, the Fund
will realize a loss on the hedging instruments that is not offset by a reduction
in the purchase price of the securities.
An option position may be closed out only on a market that provides
secondary trading for options of the same series. There is no assurance that a
liquid secondary market will exist for a particular option. If the Fund could
not effect a closing purchase transaction due to a lack of a market, it would
have to hold the callable investment until the call lapsed or was exercised.
|_| Interest Rate Swap Transactions. In an interest rate swap, the Fund
and another party exchange their right to receive or their obligation to pay
interest on a security. For example, they may swap a right to receive floating
rate payments for fixed rate payments. The Fund enters into swaps only on
securities it owns. The Fund can enter into swaps with respect to more than 25%
of its total assets. Also, the Fund will segregate liquid assets (such as cash
or U.S. Government securities) to cover any amounts it could owe under swaps
that exceed the amounts it is entitled to receive, and it will adjust that
amount daily, as needed. Income from interest rate swaps may be taxable.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will have been greater than those received by
it. Credit risk arises from the possibility that the counterparty will default.
If the counterparty to an interest rate swap defaults, the Fund's loss will
consist of the net amount of contractual interest payments that the Fund has not
yet received. The Manager will monitor the creditworthiness of counterparties to
the Fund's interest rate swap transactions on an ongoing basis.
The Fund will enter into swap transactions with appropriate counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty under the master agreement
shall be regarded as parts of an integral agreement. If on any date amounts are
payable under one or more swap transactions, the net amount payable on that date
shall be paid. In addition, the master netting agreement may provide that if one
party defaults generally or on one swap, the counterparty may terminate the
swaps with that party. Under master netting agreements, if there is a default
resulting in a loss to one party, that party's damages are calculated by
reference to the average cost of a replacement swap with respect to each swap.
The gains and losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all swaps and the
netting of gains and losses on termination is generally referred to as
"aggregation."
|_| Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions established by the Commodity Futures Trading Commission (the
"CFTC"). In particular, the Fund is exempted from registration with the CFTC as
a "commodity pool operator" if the Fund complies with the requirements of Rule
4.5 adopted by the CFTC. That Rule does not limit the percentage of the Fund's
assets that may be used for Futures margin and related options premiums for a
bona fide hedging position. However, under the Rule the Fund must limit its
aggregate initial futures margin and related options premiums to no more than 5%
of the Fund's net assets for hedging strategies that are not considered bona
fide hedging strategies under the Rule. Under the Rule, the Fund also must use
short futures and options on futures positions solely for bona fide hedging
purposes within the meaning and intent of the applicable provisions of the
Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges, or are held in one or more
accounts or through one or more different exchanges or through one or more
brokers. Thus, the number of options that the Fund may write or hold may be
affected by options written or held by other entities, including other
investment companies having the same adviser as the Fund (or an adviser that is
an affiliate of the Fund's adviser). The exchanges also impose position limits
on futures transactions. An exchange may order the liquidation of positions
found to be in violation of those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases an interest rate
future or municipal bond index future, it must maintain cash or readily
marketable short-term debt instruments in an amount equal to the market value of
the investments underlying the future, less the margin deposit applicable to it.
The account must be a segregated account or accounts held by its custodian bank.
|X| Temporary Defensive Investments. The securities the Fund may invest
in for temporary defensive purposes include the following:
|_| short-term municipal securities;
|_| obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; |_| corporate debt securities rated
within the three highest grades by a nationally recognized rating
agency; |_| commercial paper rated "A-1" by S&P, or a comparable rating
by another nationally recognized rating agency; and |_| certificates of
deposit of domestic banks with assets of $1 billion or more.
|X| Taxable Investments. While the Fund can invest up to 20% of its total
assets in investments that generate income subject to income taxes, it does not
anticipate investing substantial amounts of its assets in taxable investments
under normal market conditions or as part of its normal trading strategies and
policies. To the extent it invests in taxable securities, the Fund would not be
able to meet its objective of providing tax exempt income to its shareholders.
Taxable investments include, for example, hedging instruments, repurchase
agreements, and the types of securities it would buy for temporary defensive
purposes.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, such a "majority" vote is defined as the vote
of the holders of the lesser of:
|_| 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or |_| more than 50% of the
outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund:
|_| The Fund cannot concentrate its investments to the extent of 25% of
its total assets in any industry. However, there is no limitation as to the
Fund's investments in municipal securities in general or in Pennsylvania
municipal securities, or in obligations issued by the U.S. Government and its
agencies or instrumentalities.
|_| The Fund cannot invest in real estate. This restriction shall not
prevent the Fund from investing in municipal securities or other permitted
securities that are secured by real estate or interests in real estate.
|_| The Fund cannot make loans except (a) by lending portfolio securities,
(b) through the purchase of debt instruments or similar evidences of
indebtedness, (c) through repurchase agreements, and (d) through an interfund
lending program with other affiliated funds. No such loan may be made through
interfund lending if, as a result, the aggregate of those loans would exceed 33
1/3% of the value of the Fund's total assets (taken at market value at the time
the loan is made).
|_| The Fund cannot borrow money or securities for any purposes, except
that (a) borrowing up to 10% of the Fund's total assets from banks and/or
affiliated investment companies as a temporary measure for extraordinary or
emergency purposes and (b) borrowing up to 5% of the Fund's total assets from
banks for investment purposes, is permitted.
|_| The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 when reselling any securities held in its own portfolio.
|_| The Fund cannot issue "senior securities," but this does not prohibit
certain investment activities for which assets of the Fund are designated as
segregated, or margin, collateral or escrow arrangements are established, to
cover the related obligations. Examples of those activities include borrowing
money, reverse repurchase agreements, delayed-delivery and when-issued
arrangements for portfolio securities transactions, and contracts to buy or sell
derivatives, hedging instruments, options or futures.
Unless the Prospectus or Statement of Additional Information states that a
percentage restriction applies on an ongoing basis, it applies only at the time
the Fund makes an investment. In that case the Fund need not sell securities to
meet the percentage limits if the value of the investment increases in
proportion to the size of the Fund.
|X| Does The Fund Have Other Restrictions That Are Not Fundamental
Policies?
The Fund has several additional restrictions on its investment policies
that are not fundamental, which means that they can be changed by the Board of
Trustees, without obtaining shareholder approval:
|_| The Fund cannot invest in securities or other investments other than
municipal securities, the temporary investments described in its Prospectus,
repurchase agreements, covered calls, private activity municipal securities and
hedging instruments described in "About the Fund" in the Prospectus or this
Statement of Additional Information.
|_| The Fund cannot pledge, mortgage or otherwise encumber, transfer or
assign its assets to secure a debt. However, the use of escrow or other
collateral arrangements in connection with the Fund's policy on borrowing and
hedging instruments is permitted.
|_| The Fund cannot purchase securities other than hedging instruments on
margin. However, the Fund may obtain short-term credits that may be necessary
for the clearance of purchases and sales of securities.
|_| The Fund cannot sell securities short.
|_| The Fund cannot buy or sell futures contracts other than interest rate
futures and municipal bond index futures.
|_| The Fund will not invest more than 10% of its net assets in securities
which are restricted as to disposition under the federal securities laws, except
that the Fund may purchase without regard to this limitation restricted
securities which are eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
Non-Diversification of the Fund's Investments. The Fund is a series of a trust
that is "non-diversified," as defined in the Investment Company Act. Funds that
are diversified have restrictions against investing too much of their assets in
the securities of any one "issuer." That means that the Fund can invest more of
its assets in the securities of a single issuer than a fund that is diversified.
Being non-diversified poses additional investment risks, because if the
Fund invests more of its assets in fewer issuers, the value of its shares is
subject to greater fluctuations from adverse conditions affecting any one of
those issuers. However, the Fund does limit its investments in the securities of
any one issuer to qualify for tax purposes as a "regulated investment company"
under the Internal Revenue Code. By qualifying, it does not have to pay federal
income taxes if more than 90% of its earnings are distributed to shareholders.
To qualify, the Fund must meet a number of conditions. First, not more than 25%
of the market value of the Fund's total assets may be invested in the securities
of a single issuer. Second, with respect to 50% of the market value of its total
assets, (1) no more than 5% of the market value of its total assets may be
invested in the securities of a single issuer, and (2) the Fund must not own
more than 10% of the outstanding voting securities of a single issuer.
The identification of the issuer of a municipal security depends on the
terms and conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating it and the security is backed only by the
assets and revenues of the subdivision, agency, authority or instrumentality,
the latter would be deemed to be the sole issuer. Similarly, if an industrial
development bond is backed only by the assets and revenues of the
non-governmental user, then that user would be deemed to be the sole issuer.
However, if in either case the creating government or some other entity
guarantees a security, the guarantee would be considered a separate security and
would be treated as an issue of such government or other entity.
Applying the Restriction Against Concentration. To implement its policy not to
concentrate its investments, the Fund has adopted the industry classifications
set forth in Appendix B to this Statement of Additional Information. Those
industry classifications are not a fundamental policy.
In implementing the Fund's policy not to concentrate its investments, the
Manager will consider a non-governmental user of facilities financed by
industrial development bonds as being in a particular industry. That is done
even though the bonds are municipal securities, as to which the Fund has no
concentration limitation. Although this application of the concentration
restriction is not a fundamental policy of the Fund, it will not be changed
without shareholder approval. The Manager has no present intention of investing
more than 25% of the Fund's total assets in securities paying interest from
revenues of similar type projects or in industrial development bonds. This is
not a fundamental policy and therefore could be changed without shareholder
approval. However, if that change were made, the Prospectus or this Statement of
Additional Information would be supplemented to reflect the change.
How the Fund Is Managed
Organization and History. The Fund was originally organized in 1989 as a
Massachusetts business trust having one series, the Fund. In 1993 it was
reorganized to be a multi-series business trust (now called Oppenheimer
Multi-State Municipal Trust). The Fund became a separate series of that Trust.
The Trust is an open-end, non-diversified management investment company with an
unlimited number of authorized shares of beneficial interest. Each of the three
(3) series of the Trust is a separate fund that issues its own shares, has its
own investment portfolio, and has 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. Although the Fund will
not normally hold annual meetings of its shareholders, it may hold shareholder
meetings from time to time on important matters, and shareholders have the right
to call a meeting to remove a Trustee or to take other action described in the
Fund's Declaration of Trust.
|X| Classes of Shares. The Board of Trustees has the power, without
shareholder approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has three classes of
shares, Class A, Class B and Class C. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different
classes,
o may have a different net asset value,
o may have separate voting rights on matters in which the interests of one
class are different from the interests of another class, and
o votes as a class on matters that affect that class alone.
All classes invest in the same investment portfolio. Shares are freely
transferable. Each share has one vote at shareholder meetings, with fractional
shares voting proportionally on matters submitted to the vote of shareholders.
Each share of the Fund represents an interest in the Fund proportionately equal
to the interest of each other share of the same class.
The Trustees are authorized to create new series and classes of shares.
The Trustees may reclassify unissued shares of the Fund into additional series
or classes of shares. The Trustees also may divide or combine the shares of a
class into a greater or lesser number of shares without changing the
proportionate beneficial interest of a shareholder in the Fund. Shares do not
have cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy at shareholder meetings.
|X| Meetings of Shareholders. 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. It will also do so
when a shareholder meeting is called by the Trustees or upon proper request of
the shareholders.
Shareholders have the right, upon the declaration in writing or vote of
two-thirds of the outstanding shares of the Fund, to remove a Trustee. The
Trustees will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the record holders of 10% of its outstanding shares.
If the Trustees receive a request from at least ten (10) shareholders stating
that they wish to communicate with other shareholders to request a meeting to
remove a Trustee, the Trustees will then either make the Fund's shareholder list
available to the applicants or mail their communication to all other
shareholders at the applicants' expense. The shareholders making the request
must have been shareholders for at least six (6) months and must hold shares of
the Fund valued at $25,000 or more or constituting at least 1% of the Fund's
outstanding shares, whichever is less. The Trustees may also take other action
as permitted by the Investment Company Act.
|X| Shareholder and Trustee Liability. The Fund's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally liable
for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any
act or obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the trust
of which the Fund is a series) to be held personally liable as a "partner" under
certain circumstances. However, the risk that a Fund shareholder will incur
financial loss from being held liable as a "partner" of the Fund is limited to
the relatively remote circumstances in which the Fund would be unable to meet
its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under its Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. The contract further
states that the Trustees shall have no personal liability to any such person, to
the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations and occupations during the past
five (5) years are listed below. Trustees denoted with an asterisk (*) below are
deemed to be "interested persons" of the Fund under the Investment Company Act.
All of the Trustees are Trustees or Directors of the following New York-based
Oppenheimer funds1:
Oppenheimer California Municipal Fund Oppenheimer Large Cap Growth Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Capital Preservation Fund
Oppenheimer Money Market Fund, Inc. Oppenheimer Developing Markets Oppenheimer
Multiple Strategies Fund Fund Oppenheimer Discovery Fund Oppenheimer
Multi-Sector Income Oppenheimer Emerging Growth Fund Trust Oppenheimer Emerging
Oppenheimer Multi-State Municipal Technologies Fund Trust Oppenheimer Enterprise
Fund Oppenheimer Municipal Bond Fund Oppenheimer Europe Fund Oppenheimer New
York Municipal Fund Oppenheimer Global Fund Oppenheimer Series Fund, Inc.
Oppenheimer Global Growth & Income Fund Oppenheimer U.S. Government Trust
Oppenheimer Gold & Special Minerals Fund Oppenheimer Trinity Core Fund
Oppenheimer Growth Fund Oppenheimer Trinity Growth Fund Oppenheimer
International Growth Fund Oppenheimer Trinity Value Fund Oppenheimer
International Small Company Fund Oppenheimer World Bond Fund
Ms. Macaskill and Messrs. Spiro, Donohue, Zack, Wixted, Bishop and Farrar
respectively hold the same offices with the other New York-based Oppenheimer
funds as with the Fund. As of November 15, 2000, the Trustees and Officers of
the Fund as a group owned of record or beneficially less than 1% of each class
of shares of the Fund. The foregoing statement does not reflect ownership of
shares of the Fund held of record by an employee benefit plan for employees of
the Manager, other than the shares beneficially owned under the plan by the
officers of the Fund listed above. Ms. Macaskill and Mr. Donohue are trustees of
that plan.
Leon Levy, Chairman of the Board of Trustees, Age: 75.
280 Park Avenue, New York, NY 10017
General Partner of Odyssey Partners, L.P. (investment partnership) (since
1982) and Chairman of Avatar Holdings, Inc. (real estate development).
Donald W. Spiro, Vice Chairman of the Board of Trustees, Age: 74. 399 Ski Trail,
Smoke Rise, New Jersey 07405 Formerly he held the following positions: Chairman
Emeritus (August 1991 August 1999), Chairman (November 1987 - January 1991) and
a director (January 1969 - August 1999) of the Manager; President and Director
of OppenheimerFunds Distributor, Inc., a subsidiary of the Manager and the
Fund's Distributor (July 1978 - January 1992).
Bridget A. Macaskill*, President and Trustee; Age: 52.
Two World Trade Center, New York, New York 10048-0203
Chairman (since August 2000), Chief Executive Officer (since September 1995) and
a director (since December 1994) of the Manager; President (since September
1995) and a director (since October 1990) of Oppenheimer Acquisition Corp., the
Manager's parent holding company; President, Chief Executive Officer and a
director (since March 2000) of OFI Private Investments, Inc., an investment
adviser subsidiary of the Manager; Chairman and a director of Shareholder
Services, Inc. (since August 1994) and Shareholder Financial Services, Inc.
(since September
1995), transfer agent subsidiaries of the Manager; President (since September
1995) and a director (since November 1989) of Oppenheimer Partnership Holdings,
Inc., a holding company subsidiary of the Manager; President and a director
(since October 1997) of OppenheimerFunds International Ltd., an offshore fund
management subsidiary of the Manager and of Oppenheimer Millennium Funds plc; a
director of HarbourView Asset Management Corporation (since July 1991) and of
Oppenheimer Real Asset Management, Inc. (since July 1996), investment adviser
subsidiaries of the Manager; a director (since April 2000) of OppenheimerFunds
Legacy Program, a charitable trust program established by the Manager; a
director of Prudential Corporation plc (a U.K. financial service company);
President and a trustee of other Oppenheimer funds; formerly President of the
Manager (June 1991 - August 2000).
Robert G. Galli, Trustee, Age: 67.
19750 Beach Road, Jupiter, FL 33469
A Trustee or Director of other Oppenheimer funds. Formerly he held the following
positions: Vice Chairman (October 1995 - December 1997) and Executive Vice
President (December 1977 - October 1995) of the Manager; Executive Vice
President and a director (April 1986 - October 1995) of
HarbourView Asset Management Corporation.
Phillip A. Griffiths, Trustee, Age: 62.
97 Olden Lane, Princeton, N. J. 08540
The Director of the Institute for Advanced Study, Princeton, N.J. (since 1991)
and a member of the National Academy of Sciences (since 1979); formerly (in
descending chronological order) a director of Bankers Trust Corporation, Provost
and Professor of Mathematics at Duke University, a director of Research Triangle
Institute, Raleigh, N.C., and a Professor of Mathematics at Harvard University.
Benjamin Lipstein, Trustee, Age: 77.
591 Breezy Hill Road, Hillsdale, N.Y. 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
Elizabeth B. Moynihan, Trustee, Age: 71.
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the Freer Gallery of Art
(Smithsonian Institute), Executive Committee of Board of Trustees of the
National Building Museum; a member of the Trustees Council, Preservation League
of New York State.
Kenneth A. Randall, Trustee, Age: 73.
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil & gas producer), and Prime Retail,
Inc. (real estate investment trust); formerly President and Chief Executive
Officer of The Conference Board, Inc. (international economic and business
research) and a director of Lumbermens Mutual Casualty Company, American
Motorists Insurance Company and American Manufacturers Mutual Insurance Company.
Edward V. Regan, Trustee, Age: 70.
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New York; Senior
Fellow of Jerome Levy Economics Institute, Bard College; a director of RBAsset
(real estate manager); a director of OffitBank; Trustee, Financial Accounting
Foundation (FASB and GASB); President, Baruch College of the City University of
New York; formerly New York State Comptroller and trustee, New York State and
Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee, Age: 68.
8 Sound Shore Drive, Greenwich, Connecticut 06830
Chairman of The Directorship Search Group, Inc. (corporate governance
consulting and executive recruiting); a director of Professional Staff
Limited (a U.K. temporary staffing company); a life trustee of International
House (non-profit educational organization), and a trustee of the Greenwich
Historical Society.
Clayton K. Yeutter, Trustee, Age: 69.
10475 E. Laurel Lane, Scottsdale, Arizona 85259
Of Counsel, Hogan & Hartson (a Washington, D.C. law firm). Other
directorships: Allied Zurich Pl.c; ConAgra, Inc.; FMC Corporation; Farmers
Group Inc.; Oppenheimer Funds; Texas Instruments Incorporated; Weyerhaeuser
Co. and Zurich Allied AG.
Andrew J. Donohue, Secretary Age: 50.
Two World Trade Center, New York, New York 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a director (since September 1995) of the Manager; Executive Vice
President (since September 1993) and a director (since January 1992) of
OppenheimerFunds Distributor, Inc.; Executive Vice President, General Counsel
and a director (since September 1995) of HarbourView Asset Management
Corporation, Shareholder Services, Inc., Shareholder Financial Services, Inc.
and Oppenheimer Partnership Holdings, Inc., of OFI Private Investments, Inc.
(since March 2000), and of PIMCO Trust Company (since May 2000); President and a
director of Centennial Asset Management Corporation (since September 1995) and
of Oppenheimer Real Asset Management, Inc. (since July 1996); Vice President and
a director (since September 1997) of OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc; a director (since April 2000) of
OppenheimerFunds Legacy Program; General Counsel (since May 1996) and Secretary
(since April 1997) of Oppenheimer Acquisition Corp.; an officer of other
Oppenheimer funds.
Brian W. Wixted, Treasurer and Chief Financial and Accounting Officer, Age:
41.
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since March 1999) of the Manager; Treasurer
(since March 1999) of HarbourView Asset Management Corporation, Shareholder
Services, Inc., Oppenheimer Real Asset Management Corporation, Shareholder
Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc., of OFI
Private Investments, Inc. (since March 2000) and of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since May 2000);
Treasurer and Chief Financial Officer (since May 2000) of PIMCO Trust Company;
Assistant Treasurer (since March 1999) of Oppenheimer Acquisition Corp. and of
Centennial Asset Management Corporation; an officer of other Oppenheimer funds;
formerly Principal and Chief Operating Officer, Bankers Trust Company - Mutual
Fund Services Division (March 1995 - March 1999); Vice President and Chief
Financial Officer of CS First Boston Investment Management Corp. (September 1991
- March 1995).
Robert G. Zack, Assistant Secretary, Age: 52.
Two World Trade Center, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since
May 1981) of the Manager; Assistant Secretary of Shareholder Services, Inc.
(since May 1985), Shareholder Financial Services, Inc. (since November 1989);
OppenheimerFunds International Ltd. and Oppenheimer Millennium Funds plc
(since October 1997); an officer of other Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer, Age: 41.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996) and a Fund
Controller of the Manager.
Scott T. Farrar, Assistant Treasurer, Age: 35.
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 of
the Manager.
Ronald H. Fielding, Vice President and Portfolio Manager, Age: 51. 350 Linden
Oaks, Rochester, NY 14625 Senior Vice President (since January 1996) of the
Manager; Chairman of the Rochester Division of the Manager (since January 1996);
an officer and portfolio manager of other Oppenheimer funds; prior to joining
the Manager in January 1996, he was President and a director of Rochester
Capital Advisors, Inc. (1993 - 1995), the Fund's prior investment advisor, and
of Rochester Fund Services, Inc. (1986 - 1995), the Fund's prior distributor;
President and a trustee of Limited Term New York Municipal Fund (1991 - 1995),
Oppenheimer Convertible Securities Fund (1986 - 1995) and Rochester Fund
Municipals (1986 - 1995); President and a director of Rochester Tax Managed
Fund, Inc. (1982 - 1995) and of Fielding Management Company, Inc. (1982 - 1995),
an investment advisor.
Anthony A. Tanner, Portfolio Manager, Age: 39.
350 Linden Oaks, Rochester, NY 14625
Vice President of the Rochester Division of the Manager (since January 1996);
assistant portfolio manager of other Oppenheimer funds; formerly Vice President
of Research of Rochester Capital Advisors, Inc. and Fielding
Management Company, Inc. (1991 - December 1995).
|X| Remuneration of Trustees. The officers of the Fund and certain
Trustees of the Fund (Ms. Macaskill and Mr. Spiro) who are affiliated with the
Manager receive no salary or fee from the Fund. The remaining Trustees of the
Fund received the compensation shown below. The compensation from the Fund was
paid during its fiscal year ended July 31, 2000. The compensation from all of
the New York-based Oppenheimer funds (including the Fund) was received as a
director, trustee or member of a committee of the boards of those funds during
the calendar year 1999.
<PAGE>
----------------------------------------------------------------------
Total
Retirement Compensation
Benefits from all
Aggregate Accrued New York-Based
Compensation as Fund Oppenheimer
Name and Position from Fund1 Expenses Funds (29
Funds)2
----------------------------------------------------------------------
----------------------------------------------------------------------
Leon Levy $6,762 $3,791 $166,700
Chairman
----------------------------------------------------------------------
----------------------------------------------------------------------
Robert G. Galli 3 $1,491 None $177,715
Study Committee
Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Philip Griffiths4 $631 None $5,125
----------------------------------------------------------------------
----------------------------------------------------------------------
Benjamin Lipstein $6,268 $3,699 $144,100
Study Committee
Chairman,
Audit Committee
Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Elizabeth B. Moynihan $2,987 $1,178 $101,500
Study Committee
Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Kenneth A. Randall $3,861 $2,220 $93,100
Audit Committee
Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Edward V. Regan $1,642 None $92,100
Proxy Committee
Chairman, Audit
Committee Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Russell S. Reynolds, $1,962 $734 $68,900
Jr.
Proxy Committee
Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Pauline Trigere $673 None $10,250
----------------------------------------------------------------------
----------------------------------------------------------------------
Clayton K. Yeutter $1,086 None $51,675
Proxy Committee
Member
----------------------------------------------------------------------
------------------
1 Aggregate compensation includes fees, deferred compensation, if any, and
retirement plan benefits accrued for a Director.
2 For the 1999 calendar year.
3 Calendar year 1999 include compensation received from the Oppenheimer New
York, Quest and Rochester funds. 4 Includes $631 deferred under Deferred
Compensation Plan described below. 5 Includes $217 deferred under Deferred
Compensation Plan described below.
|X| Retirement Plan for Trustees. The Fund has adopted a retirement plan
that provides for payments to retired Trustees. Payments are up to 80% of the
average compensation paid during a Trustee's five (5) years of service in which
the highest compensation was received. A Trustee must serve as trustee for any
of the New York-based Oppenheimer funds for at least fifteen (15) years to be
eligible for the maximum payment. Each Trustee's retirement benefits will depend
on the amount of the Trustee's future compensation and length of service.
Therefore the amount of those benefits cannot be determined at this time, nor
can we estimate the number of years of credited service that will be used to
determine those benefits.
|X| Deferred Compensation Plan for Trustees. The Board of Trustees has
adopted a Deferred Compensation Plan for disinterested trustees that enables
them to elect to defer receipt of all or a portion of the annual fees they are
entitled to receive from the Fund. Under the plan, the compensation deferred by
a Trustee is periodically adjusted as though an equivalent amount had been
invested in shares of one or more Oppenheimer funds selected by the Trustee. The
amount paid to the Trustee under the plan will be determined based upon the
performance of the selected funds.
Deferral of Trustees' fees under the plan will not materially affect the
Fund's assets, liabilities or net income per share. The plan will not obligate
the Fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
|X| Major Shareholders. As of October 10, 2000, the only persons who owned
of record or who were known by the Fund to own beneficially 5% or more of the
Fund's outstanding Class A, Class B or Class C shares were:
Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E., 3rd Floor,
Jacksonville, Florida 32246, which owned 129,898.958 Class B shares
(representing approximately 6.26% of the Fund's then-outstanding Class B
shares), for the benefit of its customers, and owned 46,616,380 Class C
shares (representing approximately 7.44% of the Fund's then-outstanding
Class C shares), for the benefit of its customers.
PaineWebber, 1604 Fieldstone Lane, Sewickley, Pennsylvania 15143, which
owned 79,522.868 Class C shares (representing approximately 12.69% of the
Fund's then-outstanding Class C shares), for the benefit of Louis A.
Raimond and Jean Anne Raimond JT WROS.
PaineWebber, 2500 Gulf Tower, 700 Grant Street, Pittsburgh, Pennsylvania
15219, which owned 41,775.190 Class C shares (representing approximately
6.66% of the Fund's then-outstanding Class C shares), for the benefit of
Robert N. Pierce and Joan C.
Pierce JT WROS.
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company.
|X| Code of Ethics. The Fund, the Manager and the Distributor have a Code
of Ethics. It is designed to detect and prevent improper personal trading by
certain employees, including portfolio managers, that would compete with or take
advantage of the Fund's portfolio transactions. Covered persons include persons
with knowledge of the investments and investment intentions of the Fund and
other funds advised by the Manager. The Code of Ethics does permit personnel
subject to the Code to invest in securities, including securities that may be
purchased or held by the Fund, subject to a number of restrictions and controls.
Compliance with the Code of Ethics is carefully monitored and enforced by the
Manager.
The Code of Ethics is an exhibit to the Fund's registration statement
filed with the Securities and Exchange Commission and can be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. You can obtain
information about the hours of operation of the Public Reference Room by calling
the SEC at 1-202-942-8090. The Code of Ethics can also be viewed as part of the
Fund's registration statement on the SEC's EDGAR database at the SEC's Internet
web site at http://www.sec.gov. Copies may be obtained, after paying a
duplicating fee, by electronic request at the following E-mail address:
[email protected]., or by writing to the SEC's Public Reference Section,
Washington, D.C. 20549-0102.
|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to day business.
The portfolio manager of the Fund is employed by the manager and is the
person who is principally responsible for the day-to-day management of the
Fund's investment portfolio. Other members of the Manager's Fixed-Income
Portfolio Team provide the portfolio manager with research and counsel in
managing the Fund's investments.
That agreement requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective corporate administration for
the Fund. Those responsibilities include the compilation and maintenance of
records with respect to the Fund's operations, the preparation and filing of
specified reports, and the composition of proxy materials and registration
statements for continuous public sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories relate to interest, taxes, fees to disinterested
Trustees, legal and audit expenses, custodian and transfer agent expenses, share
issuance costs, certain printing and registration costs, brokerage commissions,
and non-recurring expenses, including litigation cost. The management fees paid
by the Fund to the Manager are calculated at the rates described in the
Prospectus, which are applied to the assets of the Fund as a whole. The fees are
allocated to each class of shares based upon the relative proportion of the
Fund's net assets represented by that class. The management fees paid by the
Fund to the Manager during its last three (3) fiscal years are listed below.
----------------------------------------------------------------------
Management Fee Paid to
Fiscal Year Management Fee OppenheimerFunds, Inc.
Ending 7/31 (Without Voluntary (after waiver)
Waiver)
----------------------------------------------------------------------
----------------------------------------------------------------------
1998 $565,307 $537,042
$109,426
----------------------------------------------------------------------
----------------------------------------------------------------------
1999 $609,168 $578,710
$230,723
----------------------------------------------------------------------
----------------------------------------------------------------------
2000 $565,820 $515,101
----------------------------------------------------------------------
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties, or
reckless disregard for its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss sustained by reason of any
investment of the Fund assets made with due care and in good faith. The
agreement permits the Manager to act as investment adviser for any other person,
firm or corporation. The Manager can use the name "Oppenheimer" in connection
with other investment companies for which it or an affiliate is the investment
adviser or general distributor. If the Manager shall no longer act as investment
adviser to the Fund, the Manager can withdraw its permission to the Fund to use
the name "Oppenheimer" as part of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to buy and sell portfolio
securities for the Fund. The investment advisory agreement allows the Manager to
use broker-dealers to effect the Fund's portfolio transactions. Under the
agreement, the Manager may employ those broker-dealers (including "affiliated"
brokers, as that term is defined in the Investment Company Act) that, in the
Manager's best judgment based on all relevant factors, will implement the Fund's
policy to obtain, at reasonable expense, the "best execution" of portfolio
transactions. "Best execution" refers to prompt and reliable execution at the
most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, the Manager is expected to minimize the commissions
paid to the extent consistent with the interest and policies of the Fund as
established by its Board of Trustees.
Under the investment advisory agreement, the Manager may select brokers
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager or its affiliates have investment discretion.
The concessions paid to such brokers may be higher than another qualified broker
would charge, if the Manager makes a good faith determination that the
concession is fair and reasonable in relation to the services provided. Subject
to those other considerations, as a factor in selecting brokers for the Fund's
portfolio transactions, the Manager may also consider sales of shares of the
Fund and other investment companies managed by the Manager or its affiliates.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally the Manager's portfolio traders
allocate brokerage upon recommendations from the Manager's portfolio managers.
In certain instances, portfolio managers may directly place trades and allocate
brokerage. In either case, the Manager's executive officers supervise the
allocation of brokerage.
Most securities purchases made by the Fund are in principal transactions
at net prices. The Fund usually deals directly with the selling or purchasing
principal or market maker without incurring charges for the services of a broker
on its behalf unless the Manager determines that a better price or execution may
be obtained by using the services of a broker. Therefore, the Fund does not
incur substantial brokerage costs. Portfolio securities purchased from
underwriters include a commission or concession paid by the issuer to the
underwriter in the price of the security. Portfolio securities purchased from
dealers include a spread between the bid and asked price.
The Fund seeks to obtain prompt execution of orders at the most favorable
net prices. In an option transaction, the Fund ordinarily uses the same broker
for the purchase or sale of the option and any transaction in the investment to
which the option relates. Other funds advised by the Manager have investment
objectives and policies similar to those of the Fund. Those other funds may
purchase or sell the same securities as the Fund at the same time as the Fund,
which could affect the supply and price of the securities. When possible, the
Manager tries to combine concurrent orders to purchase or sell the same security
by more than one of the accounts managed by the Manager or its affiliates. The
transactions under those combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each account.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The research services provided by a particular
broker may be useful only to one or more of the advisory accounts of the Manager
and its affiliates. Investment research received by the Manager for the
commissions paid by those other accounts may be useful both to the Fund and one
or more of the Manager's other accounts. Investment research services may be
supplied to the Manager by a third party at the instance of a broker through
which trades are placed. Investment research services include information and
analyses on particular companies and industries as well as market or economic
trends and portfolio strategy, market quotations for portfolio evaluations,
information systems, computer hardware and similar products and services. If a
research service also assists the Manager in a non-research capacity (such as
bookkeeping or other administrative functions), then only the percentage or
component that provides assistance to the Manager in the investment
decision-making process may be paid in commission dollars.
The Board of Trustees has permitted the Manager to use concessions on
fixed-price offerings to obtain research, in the same manner as is permitted for
agency transactions. The Board permits the Manager to use stated commissions on
secondary fixed-income agency trades to obtain research if the broker represents
to the Manager that: (i) the trade is not from or for the broker's own
inventory, (ii) the trade was executed by the broker on an agency basis at the
stated commission, and (iii) the trade is not a riskless principal transaction.
The research services provided by brokers broaden the scope and supplement
the research activities of the Manager. That research provides additional views
and comparisons for consideration and helps the Manager to obtain market
information for the valuation of securities that are either held in the Fund's
portfolio or are being considered for purchase. The Manager provides information
to the Board of the Fund about the commissions paid to brokers furnishing
research services, together with the Manager's representation that the amount of
such commissions was reasonably related to the value or benefit of such
services.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the different classes of shares of the Fund. The Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is discussed in the table below:
-------------------------------------------------------------------
Aggregate Class A Concessions ConcessionsConcessions
Fiscal Front-End Front-End on Class A on Class on Class C
Year Sales Sales Shares B Shares Shares
Ended Charges on Charges Advanced by Advanced Advanced
7/31: Class A Retained Distributor1 by by
Shares by DistributorDistributor1
Distributor*
-------------------------------------------------------------------
-------------------------------------------------------------------
1998 $250,587 $48,212 $ 7,000 $205,688 $24,690
-------------------------------------------------------------------
-------------------------------------------------------------------
1999 $242,377 $53,861 $25,160 $259,090 $20,197
-------------------------------------------------------------------
-------------------------------------------------------------------
2000 $281,206 $53,378 $8,876 $250,985 $30,866
-------------------------------------------------------------------
1. The Distributor advances concession payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
* Includes amounts retained by a broker-dealer that is an affiliate or a
parent of the distributor.
-------------------------------------------------------------------
Class A Class B Class C Contingent
Fiscal Contingent Contingent Deferred Sales
Year Deferred Sales Deferred Sales Charges Retained
Ended Charges Retained Charges Retained by Distributor
7/31: by Distributor by Distributor
-------------------------------------------------------------------
-------------------------------------------------------------------
2000 N/A $80,345 $4,406
-------------------------------------------------------------------
For additional information about distribution of the Fund's shares,
including fees and expenses, please refer to "Distribution and Service Plans."
Distribution and Service Plans. The Fund has adopted a Service Plan for its
Class A shares and Distribution and Service Plans for its Class B and Class C
shares under Rule 12b-1 of the Investment Company Act. Under those plans, the
Fund makes payments to the Distributor in connection with the distribution
and/or servicing of the shares of the particular class. Each plan has been
approved by a vote of the Board of Trustees, including a mjaority of the
Independent Trustees,2 cast in person at a meeting called for the purpose of
voting on that plan.
Under the plans the Manager and the Distributor, in their sole discretion,
from time to time may use their own resources (at no direct cost to the Fund) to
make payments to brokers, dealers or other financial institutions for
distribution and administrative services they perform. The Manager may use
profits from the advisory fee it receives from the Fund. The Distributor and the
Manager may, in their sole discretion, increase or decrease the amount of
payments they make to plan recipients from their own resources.
Unless a plan is terminated as described below, the plan continues in
effect from year to year, but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board of Trustees and the Independent Trustees must approve all
material amendments to a plan. An amendment to increase materially the amount of
payments to be made under the plan must be approved by shareholders of the class
affected by the amendment. Because Class B shares automatically convert into
Class A shares after six (6) years, the Fund must obtain the approval of both
Class A and Class B shareholders for an amendment to the Class A plan that would
materially increase the amount to be paid under the plan. The approval must be
by a "majority" (as defined in the Investment Company Act) of the shares of each
class, voting separately by class.
While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Fund's Board of Trustees at least
quarterly for its review. The reports shall detail the amount of all payments
made under a plan and the purpose for which the payments were made. Those
reports are subject to the review and approval of the Independent Trustees in
the exercise of their fiduciary duty.
Each plan states that while it is in effect, the selection or replacement
and nomination of those Trustees of the Fund who are not "interested persons" of
the Fund is committed to the discretion of the Independent Trustees. This
provision does not prevent the involvement of others in the selection and
nomination process as long as the final decision as to selection or nomination
is approved by a majority of the Independent Trustees.
Under the plans, no payment will be made to any recipient in any quarter
in which the aggregate net asset value of all Fund shares held by the recipient
for itself and its customers does not exceed a minimum amount, if any, that may
be set from time to time by a majority of the Fund's Independent Trustees.
Initially, the Board of Trustees has set the fees at the maximum rate allowed
under the plans and has set no minimum asset amount needed to qualify for
payments.
|_| Class A Service Plan Fees. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions (they are referred to as "recipients")
for personal services and account maintenance services they provide for their
customers who hold Class A shares. The services include, among others, answering
customer inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and providing
other services at the request of the Fund or the Distributor. The Distributor
makes payments to plan recipients quarterly at an annual rate not to exceed
0.15% of the average annual net assets of Class A shares held in accounts of the
service providers or their customers.
For the fiscal year ended July 31, 2000, payments under the Plan for Class
A shares totaled $96,428, all of which was paid by the Distributor to
recipients. That included $5,685 paid to an affiliate of the Distributor. Any
unreimbursed expenses the Distributor incurs with respect to Class A shares for
any fiscal year may not be recovered in subsequent years. The Distributor may
not use payments received under the Class A plan to pay any of its interest
expenses, carrying charges, other financial costs, or allocation of overhead.
|_| Class B and Class C Service and Distribution Plans.
Under each plan, service fees and distribution fees are computed on the
average of the net asset value of shares in the respective class, determined as
of the close of each regular business day during the period. The Class B and
Class C plans provide for the Distributor to be compensated at a flat rate,
whether the Distributor's distribution expenses are more or less than the
amounts paid by the Fund under the plans during that period. The types of
services that recipients provide for the service fee are similar to the services
provided under Class A plans described above.
The Class B and Class C plans permit the Distributor to retain both the
asset-based sales charges and the service fee on shares or to pay recipients the
service fee on a quarterly basis, without payment in advance. The types of
services that recipients provide for the service fee are similar to the services
provided under Class A plans described above. The Distributor presently intends
to pay recipients the service fee on Class B and Class C shares in advance for
the first year the shares are outstanding. After the first year shares are
outstanding, the Distributor makes payments quarterly on those shares. The
advance payment is based on the net asset value of shares sold. Shares purchased
by exchange do not qualify for an advance service fee payment. If Class B or
Class C shares are redeemed during the first year after their purchase, the
recipient of the service fees on those shares will be obligated to repay the
Distributor a pro rata portion of the advance payment made on those shares.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
as an ongoing concession to the dealer on Class C shares outstanding for a year
or more. If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B and/or Class C service fees and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales concession and
service fee in advance at the time of purchase.
The asset-based sales charge on Class B and Class C shares allows
investors to buy shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell those shares. The Distributor's
actual expenses in selling Class B and Class C shares may be more than the
payments it receives from contingent deferred sales charges collected on
redeemed shares and from the Fund under the plans. The Fund pays the asset-based
sales charge to the Distributor for its services rendered in distributing Class
B and Class C shares. The payments are made to the Distributor in recognition
that the Distributor:
|_| pays sales concessions to authorized brokers and dealers at the time of
sale and pays service fees as described above,
|_| may finance payment of sales concessions and/or the advance of the service
fee payment to recipients under the plans, or may provide such financing
from its own resources or from the resources of an affiliate,
|_| employs personnel to support distribution of Class B and Class C shares, and
|_| bears the costs of sales literature, advertising and prospectuses (other
than those furnished to current shareholders) and state "blue sky"
registration fees and certain other distribution expenses.
If either the Class B or Class C plan is terminated by the Fund, the Board
of Trustees may allow the Fund to continue payments of the asset-based sales
charge to the Distributor for distributing shares before the plan was
terminated. The Class B plan allows for the carry-forward of distribution
expenses, to be recovered from asset-based sales charges in subsequent fiscal
periods.
--------------------------------------------------------------------
Distribution Fees Paid to the Distributor in the Fiscal Year Ended
7/31/00
--------------------------------------------------------------------
--------------------------------------------------------------------
Distributor's Distributor's
Aggregate Unreimbursed
Total Amount Unreimbursed Expenses as %
Payments Retained by Expenses of Net Assets
Class: Under Plan Distributor Under Plan of Class
--------------------------------------------------------------------
--------------------------------------------------------------------
Class B $214,013 $171,009 $801,015 3.69%
Plan
--------------------------------------------------------------------
--------------------------------------------------------------------
Class C $55,459 $21,828 $102,309 1.55%
Plan
--------------------------------------------------------------------
All payments under the Class B and Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees to NASD members.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its performance. These terms include "standardized yield,"
"tax-equivalent yield," "dividend yield," "average annual total return,"
"cumulative total return," "average annual total return at net asset value" and
"total return at net asset value." An explanation of how yields and total
returns are calculated is set forth below. The charts below show the Fund's
performance during its most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1, 5 and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication). Certain types of yields may also be shown, provided that they are
accompanied by standardized average annual total returns.
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other investments:
|_| Yields and total returns measure the performance of a hypothetical
account in the Fund over various periods and do not show the performance of each
shareholder's account. Your account's performance will vary from the model
performance data if your dividends are received in cash, or you buy or sell
shares during the period, or you bought your shares at a different time and
price than the shares used in the model.
|_| The Fund's performance returns do not reflect the effect of taxes
on distributions.
|_| An investment in the Fund is not insured by the FDIC or any other
government agency.
|_| The principal value of the Fund's shares, and its yields and total
returns are not guaranteed and normally will fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or less
than their original cost.
|_| Yields and total returns for any given past period represent
historical performance information and are not, and should not be considered, a
prediction of future yields or returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The yields and total
returns of each class of shares of the Fund are affected by market conditions,
the quality of the Fund's investments, the maturity of those investments, the
types of investments the Fund holds, and its operating expenses that are
allocated to the particular class.
|X| Yields. The Fund uses a variety of different yields to illustrate its
current returns. Each class of shares calculates its yield separately because of
the different expenses that affect each class.
|_| Standardized Yield. The "standardized yield" (sometimes referred to
just as "yield") is shown for a class of shares for a stated thirty (30) day
period. It is not based on actual distributions paid by the Fund to shareholders
in the thirty (30) day period, but is a hypothetical yield based upon the net
investment income from the Fund's portfolio investments for that period. It may
therefore differ from the "dividend yield" for the same class of shares,
described below.
Standardized yield is calculated using the following formula set forth in
rules adopted by the Securities and Exchange Commission, designed to assure
uniformity in the way that all funds calculate their yields:
Standardized Yield = 2[(a-b 6
--- + 1) - 1]
cd
The symbols above represent the following factors:
a =dividends and interest earned during the thirty (30) day period.
b =expenses accrued for the period (net of any expense assumptions).
c =the average daily number of shares of that class outstanding during
the thirty (30) day period that were entitled to receive dividends.
d =the maximum offering price per share of that class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield for a particular thirty (30) day period may differ
from the yield for other periods. The SEC formula assumes that the standardized
yield for a thirty (30) day period occurs at a constant rate for a six (6) month
period and is annualized at the end of the six (6) 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
thirty (30) day period.
|_| Dividend Yield. The Fund may quote a "dividend yield" for each class
of its shares. Dividend yield is based on the dividends paid on a class of
shares during the actual dividend period. To calculate dividend yield, the
dividends of a class declared during a stated period are added together, and the
sum is multiplied by twelve (12) (to annualize the yield) and divided by the
maximum offering price on the last day of the dividend period. The formula is
shown below:
Dividend Yield = dividends paid x 12/maximum offering price
(payment date)
The maximum offering price for Class A shares includes the current maximum
initial sales charge. The maximum offering price for Class B and Class C shares
is the net asset value per share, without considering the effect of contingent
deferred sales charges. The Class A dividend yield may also be quoted without
deducting the maximum initial sales charge.
|_| Tax-Equivalent Yield. The "tax-equivalent yield" of a class of shares
is the equivalent yield that would have to be earned on a taxable investment to
achieve the after-tax results represented by the Fund's tax-equivalent yield. It
adjusts the Fund's standardized yield, as calculated above, by a stated Federal
tax rate. Using different tax rates to show different tax equivalent yields
shows investors in different tax brackets the tax equivalent yield of the Fund
based on their own tax bracket.
The tax-equivalent yield is based on a thirty (30) day period, and is
computed by dividing the tax-exempt portion of the Fund's current yield (as
calculated above) by one minus a stated income tax rate. The result is added to
the portion (if any) of the Fund's current yield that is not tax-exempt.
The tax-equivalent yield may be used to compare the tax effects of income
derived from the Fund with income from taxable investments at the tax rates
stated. Your tax bracket is determined by your Federal and state taxable income
(the net amount subject to Federal and state income tax after deductions and
exemptions). The tax-equivalent yield table assumes that the investor is taxed
at the highest bracket, regardless of whether a switch to non-taxable
investments would cause a lower bracket to apply.
----------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 7/31/00
----------------------------------------------------------------------
----------------------------------------------------------------------
Tax-Equivalent
Standardized Yield Dividend Yield Yield (41.29%
Combined
Class of Federal/Pennsylvania
Shares Tax Bracket)
----------------------------------------------------------------------
----------------------------------------------------------------------
Without Without Without
Sales After Sales After Sales After
Charge Sales Charge Sales Charge Sales
Charge Charge Charge
----------------------------------------------------------------------
----------------------------------------------------------------------
Class A 5.87% 5.58% 6.07% 5.78% 10.00% 9.50%
----------------------------------------------------------------------
----------------------------------------------------------------------
Class B 5.12% N/A 5.35% N/A 8.72% N/A
----------------------------------------------------------------------
----------------------------------------------------------------------
Class C 5.11% N/A 5.36% N/A 8.70% N/A
----------------------------------------------------------------------
|X| Total Return Information. There are different types of "total returns"
to measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. The cumulative total return measures the change
in value over the entire period (for example, ten (10) years). An average annual
total return shows the average rate of return for each year in a period that
would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown without sales charge, as
described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the one (1) year period.
|_| Average Annual Total Return. The "average annual total return" of each
class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV" in the
formula) of that investment, according to the following formula:
1/n
ERV
--- - 1 = Average Annual Total Return
P
|_| Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV-P
----- = Total Return
P
|_| Total Returns at Net Asset Value. From time to time the Fund may also
quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for Class A, Class B or Class C shares. Each
is based on the difference in net asset value per share at the beginning and the
end of the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.
----------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 7/31/00
----------------------------------------------------------------------
----------------------------------------------------------------------
Cumulative Average Annual Total Returns
Total Returns
(10 years or
life of class)
Class
of
Shares
----------------------------------------------------------------------
----------------------------------------------------------------------
5-Year 10-Year
1-Year (or life of (or life of
class) class)
----------------------------------------------------------------------
----------------------------------------------------------------------
After WithoutAfter WithoutAfter Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
----------------------------------------------------------------------
----------------------------------------------------------------------
Class A 67.25%1 75.59%1 -5.71% -1.00% 3.33% 4.34% 5.28% 5.79%
----------------------------------------------------------------------
----------------------------------------------------------------------
Class B 29.19%2 29.19%2 -6.42% -1.75% 3.21% 3.54% 3.60%2 3.60%2
----------------------------------------------------------------------
----------------------------------------------------------------------
Class C 18.90%3 18.90%3 -2.68% -1.75% 3.58%3 3.58%3 N/A N/A
----------------------------------------------------------------------
1 Inception of Class A: 9/18/89
2 Inception of Class B: 5/3/93
3 Inception of Class C: 8/29/95
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|_| Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its shares by Lipper Analytical Services, Inc. ("Lipper").
Lipper is a widely-recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. The performance of the Fund is ranked by Lipper against
all other general municipal debt funds, other than money market funds, and other
municipal bond funds. The Lipper performance rankings are based on total returns
that include the reinvestment of capital gain distributions and income dividends
but do not take sales charges or taxes into consideration. Lipper also publishes
"peer-group" indices of the performance of all mutual funds in a category that
it monitors and averages of the performance of the funds in particular
categories.
|_| Morningstar Ratings and Rankings. From time to time the Fund may
publish the ranking and/or star rating of the performance of its classes of
shares by Morningstar, Inc., ("Morningstar") an independent mutual fund
monitoring service. Morningstar rates and ranks mutual funds in broad investment
categories: domestic stock funds, international stock funds, taxable bond funds
and municipal bond funds. The Fund is included in the municipal bond funds
category.
Morningstar proprietary star ratings reflect historical risk-adjusted
total investment return. Investment return measures a fund's (or class's) one,
three, five and ten-year average annual total returns (depending on the
inception of the fund or class) in excess of 90-day U.S. Treasury bill returns
after considering the fund's sales charges and expenses. Risk measures a fund's
(or class's) performance below ninety (90) day U.S. Treasury bill returns. Risk
and investment return are combined to produce star ratings reflecting
performance relative to the other funds in a fund's category. Five stars is the
"highest" rating (top 10% of funds in a category), four stars is "above average"
(next 22.5%), three stars is "average" (next 35%), two stars is "below average"
(next 22.5%) and one star is "lowest" (bottom 10%). The current star rating is
the fund's (or class's) 3-year rating or its combined 3- and 5-year rating
(weighted 60%/40% respectively), or its combined 3-, 5-, and 10-year rating
(weighted 40%, 30% and 30%, respectively), depending on the inception date of
the fund (or class). Ratings are subject to change monthly.
The Fund may also compare its total return ranking to that of other funds
in its Morningstar category, in addition to its star ratings. Those total return
rankings are percentages from one percent to one hundred percent and are not
risk adjusted. For example, if a fund is in the 94th percentile, that means that
94% of the funds in the same category performed better than it did.
|_| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, the Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's Class A, Class B or Class C shares may be compared in publications to the
performance of various market indices or other investments, and averages,
performance rankings or other benchmarks prepared by recognized mutual fund
statistical services.
Investors may also wish to compare the Fund's Class A, Class B or Class C
returns to the return on fixed-income investments available from banks and
thrift institutions. Those include certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or
variable time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed or insured by the
FDIC or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates of return.
Repayment of principal and payment of interest on Treasury securities is backed
by the full faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
-------------------------------------------------------------------------------
ABOUT YOUR ACCOUNT
-------------------------------------------------------------------------------
How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix C contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund three (3) days after the transfers are initiated. The
Distributor and the Fund are not responsible for any delays in purchasing shares
resulting from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can add
together:
|_| Class A and Class B shares you purchase for your individual
accounts, or for your joint accounts, or for trust or custodial
accounts on behalf of your children who are minors,
|_|current purchases of Class A and Class B shares of the Fund and
other Oppenheimer funds to reduce the sales charge rate that applies
to current purchases of Class A shares, and
|_|Class A and Class B shares of Oppenheimer funds you previously
purchased subject to an initial or contingent deferred sales charge
to reduce the sales charge rate for current purchases of Class A
shares, provided that you still hold your investment in one of the
Oppenheimer funds.
A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the same
employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the
sub-distributor and currently include the following:
Oppenheimer Main Street California
Oppenheimer Bond Fund Municipal Fund
Oppenheimer Capital Appreciation Oppenheimer Main Street Growth &
Fund Income Fund
Oppenheimer Capital Preservation Oppenheimer Main Street Small Cap
Fund Fund
Oppenheimer California Municipal
Fund Oppenheimer MidCap Fund
Oppenheimer Multiple Strategies
Oppenheimer Champion Income Fund Fund
Oppenheimer Convertible Securities
Fund Oppenheimer Municipal Bond Fund
Oppenheimer Developing Markets Fund Oppenheimer New York Municipal Fund
Oppenheimer Disciplined Allocation Oppenheimer New Jersey Municipal
Fund Fund
Oppenheimer Pennsylvania Municipal
Oppenheimer Disciplined Value Fund Fund
Oppenheimer Quest Balanced Value
Oppenheimer Discovery Fund Fund
Oppenheimer Quest Capital Value
Oppenheimer Emerging Growth Fund Fund, Inc.
Oppenheimer Emerging Technologies Oppenheimer Quest Global Value
Fund Fund, Inc.
Oppenheimer Quest Opportunity
Oppenheimer Enterprise Fund Value Fund
Oppenheimer Quest Small Cap Value
Oppenheimer Capital Income Fund Fund
Oppenheimer Europe Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Florida Municipal Fund Oppenheimer Real Asset Fund
Oppenheimer Senior Floating Rate
Oppenheimer Global Fund Fund
Oppenheimer Global Growth & Income
Fund Oppenheimer Strategic Income Fund
Oppenheimer Gold & Special Oppenheimer Total Return Fund,
Minerals Fund Inc.
Oppenheimer Growth Fund Oppenheimer Trinity Core Fund
Oppenheimer High Yield Fund Oppenheimer Trinity Growth Fund
Oppenheimer Insured Municipal Fund Oppenheimer Trinity Value Fund
Oppenheimer Intermediate Municipal
Fund Oppenheimer U.S. Government Trust
Oppenheimer International Bond Fund Oppenheimer World Bond Fund
Oppenheimer International Growth Limited-Term New York Municipal
Fund Fund
Oppenheimer International Small
Company Fund Rochester Fund Municipals
and the following money market
funds
:
and the following money markets Centennial New York Tax Exempt
funds Trust
Centennial America Fund, L. P. Centennial Tax Exempt Trust
Centennial California Tax Exempt
Trust Oppenheimer Cash Reserves
Oppenheimer Money Market Fund,
Centennial Government Trust Inc.
Centennial Money Market Trust
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or
Class A and Class B shares of the Fund and other Oppenheimer funds during a
13-month period, you can reduce the sales charge rate that applies to your
purchases of Class A shares. The total amount of your intended purchases of both
Class A and Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. You can include purchases made up
to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a thirteen (13) month
period (the "Letter of Intent period"). At the investor's request, this may
include purchases made up to ninety (90) days prior to the date of the Letter.
The Letter states the investor's intention to make the aggregate amount of
purchases of shares which, when added to the investor's holdings of shares of
those funds, will equal or exceed the amount specified in the Letter. Purchases
made by reinvestment of dividends or distributions of capital gains and
purchases made at net asset value without sales charge do not count toward
satisfying the amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the public offering price
(including the sales charge) that applies to a single lump-sum purchase of
shares in the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the concessions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
only if and when the dealer returns to the Distributor the excess of the amount
of concessions allowed or paid to the dealer over the amount of concessions that
apply to the actual amount of purchases. The excess concessions 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.
|X| 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 (13) month Letter of Intent period, the escrowed shares will
be promptly released to the investor.
3. If, at the end of the thirteen (13) month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor an
amount equal to the difference between the dollar amount of sales charges
actually paid and the amount of sales charges which would have been paid if the
total amount purchased had been made at a single time. That sales charge
adjustment will apply to any shares redeemed prior to the completion of the
Letter. If the difference in sales charges is not paid within twenty days after
a request from the Distributor or the dealer, the Distributor will, within sixty
days of the expiration of the Letter, redeem the number of escrowed shares
necessary to realize such difference in sales charges. Full and fractional
shares remaining after such redemption will be released from escrow. If a
request is received to redeem escrowed shares prior to the payment of such
additional sales charge, the sales charge will be withheld from the redemption
proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class A
shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(2) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares" and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly
from a bank account, you must enclose a check (the minimum is $25) for the
initial purchase with your application. Shares purchased by Asset Builder Plan
payments from bank accounts are subject to the redemption restrictions for
recent purchases described in the Prospectus. Asset Builder Plans are available
only if your bank is an ACH member. Asset Builder Plans may not be used to buy
shares for OppenheimerFunds employer-sponsored qualified retirement accounts.
Asset Builder Plans also enable shareholders of Oppenheimer Cash Reserves to use
their fund account to make monthly automatic purchases of shares of up to four
other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be debited automatically. Normally the debit will
be made two business days prior to the investment dates you selected on your
Application. Neither the Distributor, the Transfer Agent nor the Fund shall be
responsible for any delays in purchasing shares that result from delays in ACH
transmission.
Before you establish Asset Builder payments, you should obtain a
prospectus of the selected fund(s) from your financial advisor (or the
Distributor) and request an application from the Distributor. Complete the
application and return it. You may change the amount of your Asset Builder
payment or your can terminate these automatic investments at any time by writing
to the Transfer Agent. The Transfer Agent requires a reasonable period
(approximately ten (10) days) after receipt of your instructions to implement
them. The Fund reserves the right to amend, suspend, or discontinue offering
Asset Builder plans at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of three (3) classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares in general are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares - to compensate the
Distributor and brokers, dealers and financial institutions that sell shares of
the Fund. A salesperson who is entitled to receive compensation from his or her
firm for selling Fund shares may receive different levels of compensation for
selling one class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
|X| Class B Conversion. The conversion of Class B shares to Class A shares
after six (6) years is subject to the continuing availability of a private
letter ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable event for the shareholder under Federal income tax law. If that
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended. In that 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 (6) years years. Shareholders should consult their
tax advisors regarding the state and local tax consequences of the conversion of
Class B shares into Class A shares, or any other conversion or exchange of
shares.
|X| Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, trustees' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, share registration fees and
shareholder meeting expenses (to the extent that such expenses pertain only to a
specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. It is done by
dividing the value of the Fund's net assets attributable to that class by the
number of shares of that class that are outstanding. The Exchange normally
closes at 4:00 P.M., New York time, but may close earlier on some other days
(for example, in case of weather emergencies or on days falling before a
holiday). The Exchange's most recent annual announcement (which is subject to
change) states that it will close on New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in municipal
securities on days on which the Exchange is closed (including weekends and U.S.
holidays) or after 4:00 P.M. on a regular business day. Because the Fund's net
asset values will not be calculated on those days, the Fund's net asset values
per share may be significantly affected on such days when shareholders may not
purchase or redeem shares.
|X| Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
|_| Long-term debt securities having a remaining maturity in excess of
sixty (60) days are valued based on the mean between the "bid" and "asked"
prices determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry.
|_| The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the
security on the basis of reasonable inquiry: (1) debt instruments that have a
maturity of more than three hundred
ninety-seven (397) days when issued,
(2) debt instruments that had a maturity of three hundred ninety-seven (397)
days or less when issued and have a remaining maturity of more than
sixty (60) days, and
(3) non-money market debt instruments that had a maturity of three hundred
ninety-seven (397) days or less when issued and which have a remaining
maturity of sixty (60) days or less.
|_| The following securities are valued at cost, adjusted for
amortization of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a
maturity of less than three hundred ninety-seven (397) days when issued
that have a remaining maturity of sixty (60) days or less, and
(2) debt instruments held by a money market fund that have a remaining
maturity of three hundred ninety-seven (397) days or less.
|_| Securities not having readily-available market quotations are valued
at fair value determined under the Board's procedures.
If the Manager is unable to locate two market makers willing to give
quotes, a security may be priced at the mean between the "bid" and "asked"
prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).
In the case of municipal securities, when last sale information is not
generally available, the Manager may use pricing services approved by the Board
of Trustees. The pricing service may use "matrix" comparisons to the prices for
comparable instruments on the basis of quality, yield, maturity. Other special
factors may be involved (such as the tax-exempt status of the interest paid by
municipal securities). The Manager will monitor the accuracy of the pricing
services. That monitoring may include comparing prices used for portfolio
valuation to actual sales prices of selected securities.
Puts, calls, Interest Rate Futures and Municipal Bond Index Futures are
valued at the last sale price on the principal exchange on which they are traded
or on NASDAQ, as applicable, as determined by a pricing service approved by the
Board of Trustees or by the Manager. If there were no sales that day, they shall
be valued at the last sale price on the preceding trading day if it is within
the spread of the closing "bid" and "asked" prices on the principal exchange or
on NASDAQ on the valuation date. If not, the value shall be the closing bid
price on the principal exchange or on NASDAQ on the valuation date. If the put,
call or future is not traded on an exchange or on NASDAQ, it shall be valued by
the mean between "bid" and "asked" prices obtained by the Manager from two
active market makers. In certain cases that may be at the "bid" price if no
"asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming
shares set forth in the Prospectus.
Checkwriting. When a check is presented to the Fund's bank for clearance, the
bank will ask the Fund to redeem a sufficient number of full and fractional
shares in the shareholder's account to cover the amount of the check. This
enables the shareholder to continue to receive dividends on those shares until
the check is presented to the Fund. Checks may not be presented for payment at
the offices of the bank listed on the check or at the Fund's custodian bank.
That limitation does not affect the use of checks for the payment of bills or to
obtain cash at other banks. The Fund reserves the right to amend, suspend or
discontinue offering Checkwriting privileges at any time without prior notice.
In choosing to take advantage of the Checkwriting privilege by signing the
Account Application or by completing a Checkwriting card, each individual who
signs: (1) for individual accounts, represents that they are the registered
owner(s) of the shares of the Fund in that account;
(2) for accounts for corporations, partnerships, trusts and other entities,
represents that they are an officer, general partner, trustee or other
fiduciary or agent, as applicable, duly authorized to act on behalf of
such registered owner(s);
(3) authorizes the Fund, its Transfer Agent and any bank through which the
Fund's drafts (checks) are payable to pay all checks drawn on the Fund
account of such person(s) and to redeem a sufficient amount of shares
from that account to cover payment of each check;
(4) specifically acknowledges that if they choose to permit checks to be
honored if there is a single signature on checks drawn against joint
accounts, or accounts for corporations, partnerships, trusts or other
entities, the signature of any one signatory on a check will be
sufficient to authorize payment of that check and redemption from the
account, even if that account is registered in the names of more than
one person or more than one authorized signature appears on the
Checkwriting card or the Application, as applicable;
(5) understands that the Checkwriting privilege may be terminated or amended
at any time by the Fund and/or the Fund's bank; and
(6) acknowledges and agrees that neither the Fund nor its bank shall incur
any liability for that amendment or termination of checkwriting
privileges or for redeeming shares to pay checks reasonably believed by
them to be genuine, or for returning or not paying checks that have not
been accepted for any reason.
Reinvestment Privilege. Within six (6) months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of :
|_| Class A shares that you purchased subject to an initial sales charge or
Class A shares on which a contingent deferred sales charge was paid,
or
|_| Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
shares. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within ninety (90) days of payment of
the sales charge, the shareholder's basis in the shares of the Fund that were
redeemed may not include the amount of the sales charge paid. That would reduce
the loss or increase the gain recognized from the redemption. However, in that
case the sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Trustees of the
Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly
or partly in cash. In that case, the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of liquid securities from the
portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
90-day period for any one shareholder. If shares are redeemed in kind, the
redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $200 or such lesser amount as the Board
may fix. The Board of Trustees will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of such shares has fallen
below the stated minimum solely as a result of market fluctuations. If the Board
exercises this right, it may also fix the requirements for any notice to be
given to the shareholders in question (not less than thirty (30) days). The
Board may alternatively set requirements for the shareholder to increase the
investment, or set other terms and conditions so that the shares would not be
involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to a contingent deferred sales
charge if redeemed at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class B or Class
C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, if the Distributor receives a
repurchase order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's net asset
value if the order was received by the dealer or broker from its customers prior
to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the shareholder for
receipt of the payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for
the account and the address must not have been changed within the prior thirty
(30) days. Required minimum distributions from OppenheimerFunds-sponsored
retirement plans may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the Account
Application or by signature-guaranteed instructions to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three (3)
business days before the payment transmittal date you select in the Account
Application. If a contingent deferred sales charge applies to the redemption,
the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in Appendix C, below).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent to exchange a pre-determined amount of shares of the Fund for shares (of
the same class) of other Oppenheimer funds automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is $25.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. Exchanges made under these plans are subject
to the restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. Shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time after mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the shares in certificated form. Upon
written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
|_| All of the Oppenheimer funds currently offer Class A, B and C shares
except Oppenheimer Money Market Fund, Inc., Centennial Money Market Trust,
Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New York
Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America
Fund, L.P., which only offer Class A shares.
|_| Oppenheimer Main Street California Municipal Fund currently offers
only Class A and Class B shares.
|_| Class B and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other Oppenheimer
funds or through OppenheimerFunds sponsored 401 (k) plans
|_| Only certain Oppenheimer funds currently offer Class Y shares. Class Y
shares of Oppenheimer Real Asset Fund are not exchangeable.
|_| Class M shares of Oppenheimer Convertible Securities Fund may be
exchanged only for Class A shares of other Oppenheimer funds. They may not be
acquired by exchange of shares of any class of any other Oppenheimer funds
except Class A shares of Oppenheimer Money Market Fund or Oppenheimer Cash
Reserves acquired by exchange of Class M shares.
|_| Class A shares of Senior Floating Rate Fund are not available by
exchange of Class A shares of other Oppenheimer funds. Class A shares of Senior
Floating Rate Fund that are exchanged for shares of the other Oppenheimer funds
may not be exchanged back for Class A shares of Senior Floating Rate Fund.
|_| Class X shares of Limited Term New York Municipal Fund can be
exchanged only for Class B shares of other Oppenheimer funds and no exchanges
may be made to Class X shares.
|_| Shares of Oppenheimer Capital Preservation Fund may not be exchanged
for shares of Oppenheimer Money Market Fund, Inc., Oppenheimer Cash Reserves or
Oppenheimer Limited-Term Government Fund. Only participants in certain
retirement plans may purchase shares of Oppenheimer Capital Preservation Fund,
and only those paticipants may exchange shares of other Oppenheimer funds for
shares of Oppenheimer Capital Preservation Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund. Shares of any money market fund purchased
without a sales charge may be exchanged for shares of Oppenheimer funds offered
with a sales charge upon payment of the sales charge. They may also be used to
purchase shares of Oppenheimer funds subject to a contingent deferred sales
charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds managed by
the Manager or its subsidiaries) redeemed within the thirty (30) days 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.
To qualify for that privilege, the investor or the investor's dealer must notify
the Distributor of eligibility for this privilege at the time the shares of
Oppenheimer Money Market Fund, Inc. are purchased. If requested, they must
supply proof of entitlement to this privilege.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
|_| How Exchanges Affect Contingent Deferred Sales Charges. No contingent
deferred sales charge is imposed on exchanges of shares of any class purchased
subject to a contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds purchased
subject to a Class A contingent deferred sales charge are redeemed within
eighteen (18) months of the end of the calendar month of the initial purchase of
the exchanged Class A shares, the Class A contingent deferred sales charge is
imposed on the redeemed shares. The Class B contingent deferred sales charge is
imposed on Class B shares acquired by exchange if they are redeemed within six
(6) years of the initial purchase of the exchanged Class B shares. The Class C
contingent deferred sales charge is imposed on Class C shares acquired by
exchange if they are redeemed within twelve (12) months of the initial purchase
of the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging
shares, shareholders should take into account how the exchange may affect any
contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
class must specify which class of shares they wish to exchange.
|_| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to fifty (50) accounts per day from representatives of authorized dealers
that qualify for this privilege.
|_| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. If all telephone lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone
and would have to submit written exchange requests.
|_| Processing Exchange Requests. Shares to be exchanged are redeemed on
the regular business day the Transfer Agent receives an exchange request in
proper form (the "Redemption Date"). Normally, shares of the fund to be acquired
are purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund
reserves the right, in its discretion, to refuse any exchange request that may
disadvantage it. For example, if the receipt of multiple exchange requests from
a dealer might require the disposition of portfolio securities at a time or at a
price that might be disadvantageous to the Fund, the Fund may refuse the
request. 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. When you exchange some or all of your shares from one fund
to another, any special account feature such as an Asset Builder Plan or
Automatic Withdrawal Plan, will be switched to the new fund account unless you
tell the Transfer Agent not to do so. However, special redemption and exchange
features such as Automatic Exchange Plans and Automatic Withdrawal Plans cannot
be switched to an account in Oppenheimer Senior Floating Rate Fund.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value, or as otherwise
described in "How to Buy Shares." Daily dividends will not be declared or paid
on newly purchased shares until such time as Federal Funds (funds credited to a
member bank's account at the Federal Reserve Bank) are available from the
purchase payment for such shares. Normally, purchase checks received from
investors are converted to Federal Funds on the next business day. Shares
purchased through dealers or brokers normally are paid for by the third business
day following the placement of the purchase order.
Shares redeemed through the regular redemption procedure will be paid
dividends through and including the day on which the redemption request is
received by the Transfer Agent in proper form. Dividends will be declared on
shares repurchased by a dealer or broker for three (3) business days following
the trade date (that is, up to and including the day prior to settlement of the
repurchase). If all shares in an account are redeemed, all dividends accrued on
shares of the same class in the account will be paid together with the
redemption proceeds.
The Fund's practice of attempting to pay dividends on Class A shares at a
constant level requires the Manager to monitor the Fund's portfolio and, if
necessary, to select higher-yielding securities when it is deemed appropriate to
seek income at the level needed to meet the target. Those securities must be
within the Fund's investment parameters, however. The Fund expects to pay
dividends at a targeted level from its net investment income and other
distributable income without any impact on the net asset values per share.
The amount of a distribution paid on a class of shares may vary from time
to time depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class. Dividends are
calculated in the same manner, at the same time and on the same day for shares
of each class. However, dividends on Class B and Class C shares are expected to
be lower than dividends on Class A shares. That is due to the effect of the
asset-based sales charge on Class B and Class C shares. Those dividends will
also differ in amount as a consequence of any difference in net asset value
among Class A, Class B and Class C shares.
Dividends, distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends and Distributions. The Fund intends to
qualify under the Internal Revenue Code during each fiscal year to pay
"exempt-interest dividends" to its shareholders. Exempt-interest dividends that
are derived from net investment income earned by the Fund on municipal
securities will be excludable from gross income of shareholders for federal
income tax purposes.
Net investment income includes the allocation of amounts of income from
the municipal securities in the Fund's portfolio that are free from federal
income taxes. This allocation will be made by the use of one designated
percentage applied uniformly to all income dividends paid during the Fund's tax
year. That designation will normally be made following the end of each fiscal
year as to income dividends paid in the prior year. The percentage of income
designated as tax-exempt may substantially differ from the percentage of the
Fund's income that was tax-exempt for a given period.
A portion of the exempt-interest dividends paid by the Fund may be an item
of tax preference for shareholders subject to the federal alternative minimum
tax. The amount of any dividends attributable to tax preference items for
purposes of the alternative minimum tax will be identified when tax information
is distributed by the Fund.
A shareholder receiving a dividend from income earned by the Fund from one
or more of the following sources treats the dividend as a receipt of either
ordinary income or long-term capital gain in the computation of gross income,
regardless of whether the dividend is reinvested: (1) certain taxable temporary
investments (such as certificates of deposit,
repurchase agreements, commercial paper and obligations of the U.S.
government, its agencies and instrumentalities);
(2) income from securities loans; or
(3) an excess of net short-term capital gain over net long-term capital loss
from the Fund.
The Fund's dividends will not be eligible for the dividends-received
deduction for corporations. Shareholders receiving Social Security benefits
should be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to federal income tax. Losses realized by
shareholders on the redemption of Fund shares within six months of purchase
(which period may be shortened by regulation) will be disallowed for federal
income tax purposes to the extent of exempt-interest dividends received on such
shares.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for federal income taxes on amounts
paid by it as dividends and distributions. That qualification enables the Fund
to "pass through" its income and realized capital gains to shareholders without
having to pay tax on them. The Fund qualified as a regulated investment company
in its last fiscal year and intends to qualify in future years, but reserves the
right not to qualify. The Internal Revenue Code contains a number of complex
tests to determine whether the Fund qualifies. The Fund might not meet those
tests in a particular year. If it does not qualify, the Fund will be treated for
tax purposes as an ordinary corporation and will receive no tax deduction for
payments of dividends and distributions made to shareholders.
Shares of the Fund will be exempt from Pennsylvania county personal
property taxes to the extent that on the annual assessment date the Fund's
portfolio securities consist of :
|_| Pennsylvania municipal securities,
|_| obligations of the U.S. government (and certain qualifying
obligations of governments of U.S. territories, agencies and
instrumentalities), and
|_| certain other obligations that are not subject to such personal property
taxes.
To the extent that distributions paid by the Fund are derived from
interest on Pennsylvania municipal securities, qualifying obligations of the
U.S. government and certain qualifying obligations of governments of U.S.
territories, agencies and instrumentalities, those distributions will also be
exempt from Pennsylvania personal income tax, and in the case of residents of
Philadelphia, exempt from the investment income tax of the School District of
Philadelphia. Distributions from the Fund attributable to income from sources
other than those will generally be subject to Pennsylvania personal income tax.
Corporations that are subject to the Pennsylvania corporate net income tax
will not be subject to tax on distributions received from the Fund provided that
such distributions are not included in federal taxable income determined before
net operating loss deductions and special deductions. As a result of a
pronouncement by the Pennsylvania Department of Revenue, an investment in the
Fund by a corporate shareholder will apparently qualify as an exempt asset for
purposes of the single asset apportionment fraction available in computing the
Pennsylvania capital stock/foreign franchise tax to the extent that the Fund's
portfolio securities comprise investments in Pennsylvania and/or U.S. government
securities that would be exempt assets if owned directly by the corporation.
Under the Internal Revenue Code, by December 31 each year the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Fund's Board of Trustees and the Manager might determine in a particular year
that it would be in the best interest of shareholders not to make distributions
at the required levels and to pay the excise tax on the undistributed amounts.
That would reduce the amount of income or capital gains available for
distribution to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made at net asset value without sales charge. To elect this option, the
shareholder must notify the Transfer Agent in writing and must have an existing
account in the fund selected for reinvestment. Otherwise the shareholder must
first obtain a prospectus for that fund and an application from the Transfer
Agent to establish an account. The investment will be made at the net asset
value per share in effect at the close of business on the payable date of the
dividend or distribution. Dividends and/or distributions from certain of the
other Oppenheimer funds may be invested in shares of this Fund on the same
basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. The Fund's Transfer Agent, OppenheimerFunds Services, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders of the Fund. It also handles
shareholder servicing and administrative functions. It is paid on an "at-cost"
basis.
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities, and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the Custodian in
excess of $100,000 are not protected by Federal Deposit Insurance. Those
uninsured balances may at times be substantial.
Independent Auditors. KPMG LLP are the independent auditors of the Fund. They
audit the Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager and its
affiliates.
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Trustees and Shareholders of
Oppenheimer Pennsylvania Municipal Fund:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Pennsylvania Municipal Fund as of
July 31, 2000, and the related statement of operations for the year then ended,
the statements of changes in net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in the
four-year period then ended, the seven-month period ended July 31, 1996, and the
year 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 auditing standards generally
accepted in the United States of America. 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, 2000, by correspondence with the custodian and
brokers; and where confirmations were not received from brokers, we performed
other auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Oppenheimer Pennsylvania Municipal Fund as of July 31, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the four-year period then ended, the seven-month period
ended July 31, 1996, and the year ended December 31, 1995, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
------------
KPMG LLP
Denver, Colorado
August 21, 2000
<PAGE>
STATEMENT OF INVESTMENTS July 31, 2000
<TABLE>
<CAPTION>
Ratings:
Moody's/ Market
S&P/Fitch Principal Value
(Unaudited) Amount See Note 1
=========================================================================================================================
<S> <C> <C> <C>
Municipal Bonds and Notes--105.0%
-------------------------------------------------------------------------------------------------------------------------
Pennsylvania--102.0%
Allegheny Cnty., PA HDAU RB, Health System, Series A,
MBIA Insured, 6.50%, 11/15/30(1) Aaa/AAA $5,000,000 $5,261,300
-------------------------------------------------------------------------------------------------------------------------
Allegheny Cnty., PA HDAU RB, Health System,
Series B, 9.25%, 11/15/30(1) B1/B+/B+ 5,000,000 4,638,250
-------------------------------------------------------------------------------------------------------------------------
Allegheny Cnty., PA HDAU RB, Inverse Floater, 6.50%, 11/15/30(1,2,3) Aaa/AAA 1,500,000 1,678,575
-------------------------------------------------------------------------------------------------------------------------
Allegheny Cnty., PA IDAU Airport SPF RRB, USAir, Inc. Project,
Series A, 8.875%, 3/1/21 B1/B+ 40,000 41,036
-------------------------------------------------------------------------------------------------------------------------
Allegheny Cnty., PA IDAU RRB, Environmental Improvements,
Series USX-A, 6.70%, 12/1/20 Baa2/BBB- 25,000 25,418
-------------------------------------------------------------------------------------------------------------------------
Allegheny Cnty., PA Residential FAU SFM RB, 5.625%, 11/1/23 Aaa/NR 10,000 9,592
-------------------------------------------------------------------------------------------------------------------------
Allegheny Cnty., PA Residential FAU SFM RB, Series M, 7.95%, 6/1/23 Aaa/NR 45,000 46,168
-------------------------------------------------------------------------------------------------------------------------
Allegheny Cnty., PA Residential FAU SFM RRB, Series Y, 6.60%, 11/1/14 Aaa/NR 25,000 25,379
-------------------------------------------------------------------------------------------------------------------------
Beaver Cnty., PA IDAU PC RB, J. Ray McDermott Project, 6.80%, 2/1/09 Ba1/BBB- 65,000 65,045
-------------------------------------------------------------------------------------------------------------------------
Beaver Cnty., PA IDAU PC RB, St. Joe Minerals Corp. Project, 6%, 5/1/07(3) A2/A 20,000 20,030
-------------------------------------------------------------------------------------------------------------------------
Beaver Cnty., PA IDAU PC RRB, Colt Industries, Inc. Project, 7%, 6/1/08 Baa2/A- 40,000 40,300
-------------------------------------------------------------------------------------------------------------------------
Beaver Cnty., PA IDAU PC RRB, Ohio Edison Co./Mansfield,
Series A, 7%, 6/1/21 Aaa/AAA/AAA 1,055,000 1,094,468
-------------------------------------------------------------------------------------------------------------------------
Beaver Cnty., PA IDAU PC RRB, Speciality Products Corp., 6.60%, 9/1/10 Aa3/NR 50,000 50,048
-------------------------------------------------------------------------------------------------------------------------
Beaver Cnty., PA IDAU PC RRB, Toledo Edison Co. Project, 7.625%, 5/1/20 Ba1/BB+/BB 105,000 110,538
-------------------------------------------------------------------------------------------------------------------------
Beaver Cnty., PA IDAU PC RRB, Toledo Edison Co. Project, 7.75%, 5/1/20 Ba1/BB+/BB 10,000 10,601
-------------------------------------------------------------------------------------------------------------------------
Beaver Cnty., PA IDAU PC RRB, Toledo Edison Co. Project,
Series A, 7.75%, 5/1/20 Ba1/BB+/BB 2,000,000 2,141,680
-------------------------------------------------------------------------------------------------------------------------
Berks Cnty., PA GOB, Prerefunded, FGIC Insured,
Inverse Floater, 8.132%, 11/10/20(2) Aaa/AAA/AAA 1,000,000 1,110,000
-------------------------------------------------------------------------------------------------------------------------
Berks Cnty., PA IDAU Manufacturer Facility Development RB,
Construction Fasteners Project, 6.40%, 3/1/15 A1/NR 75,000 75,019
-------------------------------------------------------------------------------------------------------------------------
Bucks Cnty., PA IDAU RB, HCF-Chandler Hall, 6.30%, 5/1/29 NR/NR 1,300,000 1,119,703
-------------------------------------------------------------------------------------------------------------------------
Cambria Cnty., PA IDAU PC RRB, Bethlehem Steel
Corp. Project, 7.50%, 9/1/15 NR/NR 355,000 357,801
-------------------------------------------------------------------------------------------------------------------------
Carbon Cnty., PA HA RRB, Gnaden Huetten Memorial Hospital,
Series A, AMBAC Insured, 7%, 11/15/14 Aaa/AAA/AAA 140,000 143,721
-------------------------------------------------------------------------------------------------------------------------
Carbon Cnty., PA IDAU RRB, Panther Creek Partners Project,
6.65%, 5/1/10 NR/BBB- 1,500,000 1,514,460
-------------------------------------------------------------------------------------------------------------------------
Columbia Cnty., PA HA Healthcare RRB, Bloomsburg
Hospital Project, 5.90%, 6/1/29 NR/BBB- 370,000 296,825
-------------------------------------------------------------------------------------------------------------------------
Crawford Cnty., PA HA Senior Living Facilities RRB, 6.25%, 8/15/29 NR/NR/BBB 1,000,000 877,300
-------------------------------------------------------------------------------------------------------------------------
Cumberland Cnty., PA Municipal Authority RRB,
Presbyterian Homes Project, 6%, 12/1/26 NR/A /A 125,000 118,434
-------------------------------------------------------------------------------------------------------------------------
Delaware Cnty., PA Authority First Mtg. RB, White Horse
Village Project, Series A, 7.625%, 7/1/30 NR/NR 750,000 758,835
-------------------------------------------------------------------------------------------------------------------------
Delaware Cnty., PA Authority RB, Villanova University Project,
MBIA Insured, Prerefunded, 6.90%, 8/1/16 Aaa/AAA 230,000 235,200
-------------------------------------------------------------------------------------------------------------------------
Delaware Cnty., PA College Authority RRB, Neumann College,
Series A, 5.375%, 10/1/26 NR/BBB- 300,000 256,950
-------------------------------------------------------------------------------------------------------------------------
Delaware Cnty., PA IDAU PC RRB, Series A, 7.375%, 4/1/21 Baa2/A 35,000 36,152
9 | OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
<PAGE>
Ratings:
Moody's/ Market
S&P/Fitch Principal Value
(Unaudited) Amount See Note 1
-------------------------------------------------------------------------------------------------------------------------
Pennsylvania Continued
Delaware Cnty., PA Regional Water & Sewer Quality Control
Authority RB, Series A, MBIA Insured, 7%, 5/1/12 Aaa/AAA $ 15,000 $ 15,030
-------------------------------------------------------------------------------------------------------------------------
Delaware Valley, PA Regional FAU RB, Series C, AMBAC Insured,
Inverse Floater, 6.152%, 8/1/18(2) Aaa/AAA/AAA 1,250,000 1,207,812
-------------------------------------------------------------------------------------------------------------------------
Erie, PA Municipal Airport Authority General RB,
Series B, 5.875%, 7/1/16 NR/BBB- 245,000 225,383
-------------------------------------------------------------------------------------------------------------------------
Lancaster Cnty., PA HA RB, St. Anne's Home
Health Center, 6.625%, 4/1/28 NR/NR 300,000 267,777
-------------------------------------------------------------------------------------------------------------------------
Lancaster, PA IDAU RRB, Garden Spot Village Project,
Series A, 7.625%, 5/1/31 NR/NR 1,650,000 1,661,962
-------------------------------------------------------------------------------------------------------------------------
Lawrence Cnty., PA IDAU PC RRB, PA Power Co. New
Castle Project, Series A, 7.15%, 3/1/17 Baa2/BB+ 20,000 20,570
-------------------------------------------------------------------------------------------------------------------------
Lebanon Cnty., PA HFAU Health Center RB, Series A, 6.625%, 12/15/29 NR/NR 440,000 404,712
-------------------------------------------------------------------------------------------------------------------------
Lehigh Cnty., PA GP RRB, Bible Fellowship Project-A, 6%, 12/15/23 NR/NR 1,000,000 841,450
-------------------------------------------------------------------------------------------------------------------------
Lehigh Cnty., PA GP RRB, Kidspeace Obligation Group, 6%, 11/1/18 NR/NR 4,220,000 3,564,212
-------------------------------------------------------------------------------------------------------------------------
Lehigh Cnty., PA GP RRB, Kidspeace Obligation Group, 6%, 11/1/23 NR/NR 3,000,000 2,469,660
-------------------------------------------------------------------------------------------------------------------------
Luzerne Cnty., PA IDAU Exempt Facilities RB, Pennsylvania
Gas & Water Co. Project, Series B, 7.125%, 12/1/22 A3/NR 25,000 26,483
-------------------------------------------------------------------------------------------------------------------------
Luzerne Cnty., PA IDAU Exempt Facilities RB, Pennsylvania
Gas & Water Co. Project, Series B, AMBAC Insured, 7.125%, 12/1/22 Aaa/AAA/AAA 10,000 10,655
-------------------------------------------------------------------------------------------------------------------------
Luzerne Cnty., PA IDAU Exempt Facilities RRB, Pennsylvania
Gas & Water Co. Project, Series A, 7.20%, 10/1/17 A3/A 390,000 412,686
-------------------------------------------------------------------------------------------------------------------------
Mercer Cnty., PA IDAU RRB, Zero Coupon, 7.06%, 1/15/13(4) NR/AAA 2,430,000 1,010,224
-------------------------------------------------------------------------------------------------------------------------
Montgomery Cnty., PA Health & HEFAU RB,
Temple Continuing Care Center, 6.75%, 7/1/29 NR/NR 3,500,000 3,085,495
-------------------------------------------------------------------------------------------------------------------------
Montgomery Cnty., PA HEFAU RB, Philadelphia
Geriatric Center, 7.375%, 12/1/30 NR/NR 700,000 661,017
-------------------------------------------------------------------------------------------------------------------------
Montgomery Cnty., PA Higher Education & Health Authority RB,
Temple Continuing Care Center Project, 6.625%, 7/1/19 NR/NR 50,000 44,664
-------------------------------------------------------------------------------------------------------------------------
Montgomery Cnty., PA IDAU PC PA Electric Co. RRB,
Series A, 7.60%, 4/1/21 Baa2/A 25,000 25,866
-------------------------------------------------------------------------------------------------------------------------
Montgomery Cnty., PA IDAU PC RRB, Series B,
MBIA Insured, 6.70%, 12/1/21 Aaa/AAA 80,000 83,378
-------------------------------------------------------------------------------------------------------------------------
Montgomery Cnty., PA IDAU Retirement Community RRB,
Adult Communities Total Services, Series A, 5.875%, 11/15/22 NR/A- 370,000 335,675
-------------------------------------------------------------------------------------------------------------------------
Montgomery Cnty., PA IDAU RRB, 7.50%, 1/1/12 NR/A 1,725,000 1,772,731
-------------------------------------------------------------------------------------------------------------------------
Northampton Cnty., PA HA RB, Unrefunded Balance,
MBIA-IBC Insured, 7.875%, 1/1/19 Aaa/AAA 25,000 25,314
-------------------------------------------------------------------------------------------------------------------------
Northampton Cnty., PA HA RRB, Easton Hospital,
Series A, 6.35%, 1/1/06 Aaa/AAA 20,000 20,986
-------------------------------------------------------------------------------------------------------------------------
Northeastern PA Education & HA RRB, Kings College Project,
Series B, 6%, 7/15/18 NR/BBB 25,000 24,515
-------------------------------------------------------------------------------------------------------------------------
Northhampton Cnty., PA IDAU RRB, PC Bethlehem Steel, 7.55%, 6/1/17 NR/NR 480,000 484,147
-------------------------------------------------------------------------------------------------------------------------
Northumberland Cnty., PA Lease RB, Career & Arts Center
Project, 6.65%, 9/15/20 NR/NR 1,350,000 1,313,145
10 | OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
<PAGE>
STATEMENT OF INVESTMENTS Continued
Ratings:
Moody's/ Market
S&P/Fitch Principal Value
(Unaudited) Amount See Note 1
-------------------------------------------------------------------------------------------------------------------------
Pennsylvania Continued
PA EDFAU Facilities RB, National Gypsum Co., Series A, 6.25%, 11/1/27 NR/NR $3,500,000 $3,185,980
-------------------------------------------------------------------------------------------------------------------------
PA EDFAU Facilities RB, National Gypsum Co., Series B, 6.125%, 11/2/27 NR/NR 6,500,000 5,818,475
-------------------------------------------------------------------------------------------------------------------------
PA EDFAU RR RB, Colver Project, Series D, 7.15%, 12/1/18 NR/BBB- 3,000,000 3,062,160
-------------------------------------------------------------------------------------------------------------------------
PA EDFAU RR RB, Northampton Generating, Series A, 6.50%, 1/1/13 NR/BBB- 1,450,000 1,417,360
-------------------------------------------------------------------------------------------------------------------------
PA EDFAU RRB, Colver Project, Series D, 7.125%, 12/1/15 NR/BBB- 1,500,000 1,536,075
-------------------------------------------------------------------------------------------------------------------------
PA EDFAU Wastewater Treatment RB, Sun Co., Inc., R & M Project,
Series A, 7.60%, 12/1/24 Baa2/BBB 2,225,000 2,333,691
-------------------------------------------------------------------------------------------------------------------------
PA FAU RRB, Municipal Capital Improvements Program, 6.60%, 11/1/09 NR/A 35,000 37,210
-------------------------------------------------------------------------------------------------------------------------
PA GOUN, First Series, 6.375%, 9/15/07 Aa3/AA/AA 100,000 104,019
-------------------------------------------------------------------------------------------------------------------------
PA HEAA Student Loan RB, Series A, AMBAC Insured, 7.05%, 10/1/16 Aaa/AAA/AAA 75,000 80,842
-------------------------------------------------------------------------------------------------------------------------
PA HEAA Student Loan RB, Series B, AMBAC Insured,
Inverse Floater, 7.683%, 3/1/22(2) Aaa/AAA/AAA 1,250,000 1,289,063
-------------------------------------------------------------------------------------------------------------------------
PA HEAA Student Loan RB, Series C, AMBAC Insured, 7.15%, 9/1/21 Aaa/AAA/AAA 100,000 107,718
-------------------------------------------------------------------------------------------------------------------------
PA HEFAU College & University RRB, Temple University, 7.40%, 10/1/10 NR/A 5,000 5,020
-------------------------------------------------------------------------------------------------------------------------
PA HEFAU Health Services RRB, University of Pennyslvania
Health Services, Series A, 5.75%, 1/1/17 A3/A 35,000 31,095
-------------------------------------------------------------------------------------------------------------------------
PA HEFAU RRB, Dickinson College, 6%, 8/1/01 NR/BBB+ 100,000 100,100
-------------------------------------------------------------------------------------------------------------------------
PA HEFAU RRB, University of Pennsylvania Health Services,
Series B, 5.875%, 1/1/15 A3/A 10,000 9,236
-------------------------------------------------------------------------------------------------------------------------
PA HEFAU RRB, Unrefunded Balance, Series A,
MBIA Insured, 6.625%, 8/15/09 Aaa/AAA 305,000 321,891
-------------------------------------------------------------------------------------------------------------------------
PA HFA RB, Series 67A, Inverse Floater, 7.77%, 10/1/18(2,3) NR/NR 2,000,000 2,021,880
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RB, 6.75%, 10/1/14 Aa2/AA+ 15,000 15,517
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RB, 6.85%, 4/1/16 Aa2/AA+ 325,000 336,092
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RB, Inverse Floater, 9.356%, 10/3/23(2) Aa2/AA+ 1,000,000 1,065,000
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RB, Series 30, 7.30%, 10/1/17 Aa2/AA+ 30,000 30,589
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RB, Series 34B, 7%, 4/1/24 Aa2/AA+ 1,315,000 1,364,562
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RB, Series 40, 6.80%, 10/1/15 Aa2/AA+ 2,000,000 2,082,200
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RB, Series 40, 6.90%, 4/1/25 Aa2/AA+ 145,000 151,954
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RB, Series 44C, 6.65%, 10/1/21 Aa2/AA+ 1,000,000 1,043,540
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RB, Series 51, 6.30%, 10/1/15 Aa2/AA+ 50,000 50,692
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RB, Series 54A, 6.15%, 10/1/22 Aa2/AA+ 25,000 25,112
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RB, Series Y, 6.60%, 4/1/27 Aa2/AA+ 25,000 25,818
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RRB, Series 1991-31A, 6.80%, 10/1/02 Aa2/AA+ 25,000 25,426
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RRB, Series 1991-31A, 6.80%, 10/1/17 Aa2/AA+ 25,000 25,351
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RRB, Series 1991-31A, 7%, 10/1/05 Aa2/AA+ 300,000 307,980
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RRB, Series 33, 6.90%, 4/1/17 Aa2/AA+ 15,000 15,377
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RRB, Series 39B, 6.875%, 10/1/24 Aa2/AA+ 3,015,000 3,155,710
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RRB, Series 41B, 6.30%, 4/1/09 Aa2/AA+ 10,000 10,078
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RRB, Series 41B, 6.45%, 10/1/12 Aa2/AA+ 10,000 10,208
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RRB, Series 41B, 6.65%, 4/1/25 Aa2/AA+ 55,000 56,425
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RRB, Series 42, 4/1/25 Aa2/AA+ 185,000 193,005
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RRB, Series 46, 6.30%, 10/1/27 Aa2/AA+ 20,000 20,170
-------------------------------------------------------------------------------------------------------------------------
PA HFA SFM RRB, Series 50B, 6.35%, 10/1/27 Aa2/AA+ 50,000 51,709
-------------------------------------------------------------------------------------------------------------------------
PA TUCM RRB, Series L, MBIA Insured, 6%, 6/1/15 Aaa/AAA 40,000 40,635
11 | OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
<PAGE>
Ratings:
Moody's/ Market
S&P/Fitch Principal Value
(Unaudited) Amount See Note 1
-------------------------------------------------------------------------------------------------------------------------
Pennsylvania Continued
Philadelphia, PA Airport RB, 6%, 6/15/15 Aaa/AAA/AAA $ 100,000 $ 102,391
-------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA Hospital & HEFAU RB, Frankford Hospital,
Series A, 6%, 6/1/23 A3/NR/A 40,000 40,556
-------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA Hospital & HEFAU RRB,
Jeanes Health System Project, 6.60%, 7/1/10 Baa3/BBB+ 3,560,000 3,441,879
-------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA Hospital & HEFAU RRB,
Jeanes Hospital Project, 5.875%, 7/1/17 Baa3/BBB+ 1,500,000 1,285,710
-------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA Hospital & HEFAU RRB,
Temple University Hospital, Series A, 6.50%, 11/15/08 Baa2/BBB+ 15,000 14,679
-------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA Hospital & HEFAU RRB,
Temple University Hospital, Series A, 6.625%, 11/15/23 Baa2/BBB+ 4,330,000 3,988,536
-------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA IDAU HCF RRB, Baptist Home of Philadelphia,
Series A, 5.60%, 11/15/28 NR/NR 2,450,000 1,942,066
-------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA IDAU RB, First Mtg.-Crime Prevention Assn.,
6.125%, 4/1/19 NR/NR 1,550,000 1,425,566
-------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA Redevelopment Authority Home Mtg. RB,
Series A, 10.25%, 6/1/17 A1/A 30,000 30,668
-------------------------------------------------------------------------------------------------------------------------
Philadelphia, PA Regional POAU Lease RB, MBIA Insured,
Inverse Floater, 8.03%, 9/1/20(2) Aaa/AAA 2,100,000 2,189,250
-------------------------------------------------------------------------------------------------------------------------
Pittsburgh, PA URDA Mtg. RRB, Series C, 6.55%, 4/1/28 Aa1/A 1,590,000 1,615,631
-------------------------------------------------------------------------------------------------------------------------
Pittsburgh, PA URDA SFM RRB, Series B, 7.125%, 4/1/15 Aa1/A 1,000,000 1,030,210
-------------------------------------------------------------------------------------------------------------------------
Pittsburgh, PA URDA Mtg. RRB, Series A, 6.05%, 10/1/26 Aa1/A 45,000 45,215
-------------------------------------------------------------------------------------------------------------------------
Pittsburgh, PA URDA Mtg. RB, FHA Insured Mtg. Loan Projects,
Series C, 7%, 8/1/06 Aa2/NR 10,000 10,293
-------------------------------------------------------------------------------------------------------------------------
Pittsburgh, PA URDA Mtg. RRB, Series H, 6.85%, 4/1/16 Aa1/AAA 25,000 25,458
-------------------------------------------------------------------------------------------------------------------------
Sayre, PA HCF Authority RB, Tioga Nursing Facility Project,
Series A, AMBAC Insured, 7.25%, 10/1/10 Aaa/AAA/AAA 300,000 306,588
-------------------------------------------------------------------------------------------------------------------------
Sayre, PA HCF Authority RRB, Guthrie Healthcare System,
Series A, AMBAC Insured, 7%, 3/1/11 Aaa/AAA 50,000 51,634
-------------------------------------------------------------------------------------------------------------------------
Sayre, PA HCF Authority RRB, Guthrie Healthcare System,
Series A, AMBAC Insured, 7.10%, 3/1/17 Aaa/AAA 60,000 61,999
-------------------------------------------------------------------------------------------------------------------------
Sayre, PA HCF Authority RRB, VHA-CAP Asset Finance Program,
Series C, AMBAC Insured, 7.70%, 12/1/15 NR/NR/AAA 10,000 10,201
-------------------------------------------------------------------------------------------------------------------------
Schuylkill Cnty., PA IDAU RR RRB, Schuylkill Energy
Resources, Inc., 6.50%, 1/1/10 NR/NR/BB+ 845,000 828,666
-------------------------------------------------------------------------------------------------------------------------
Schuylkill Cnty., PA RA Lease RB, Series A,
FGIC Insured, 7.125%, 6/1/13 Aaa/AAA/AAA 50,000 52,028
-------------------------------------------------------------------------------------------------------------------------
St. Mary HA Langhorne, PA RB, 7%, 7/1/09 Aaa/AAA/AAA 70,000 70,832
-------------------------------------------------------------------------------------------------------------------------
St. Mary HA Langhorne, PA RRB, Franciscan Health Project,
Series B, BIG Insured, 7%, 7/1/14 Aaa/AAA/AAA 500,000 505,950
-------------------------------------------------------------------------------------------------------------------------
Westmoreland Cnty., PA IDAU RRB, Redstone HCF, 5.85%, 11/15/29 NR/NR 2,030,000 1,635,835
-----------
94,451,183
12 | OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
<PAGE>
STATEMENT OF INVESTMENTS Continued
Ratings:
Moody's/ Market
S&P/Fitch Principal Value
(Unaudited) Amount See Note 1
-------------------------------------------------------------------------------------------------------------------------
U.S. Possessions--3.0%
Guam Water System RB, FSA Insured, 7%, 7/1/09 Aaa/AAA/AAA $ 100,000 $ 103,051
-------------------------------------------------------------------------------------------------------------------------
PR CMWLTH GORB, MBIA Insured, Inverse Floater, 7.284%, 7/1/08(2) Aaa/AAA 1,000,000 1,061,250
-------------------------------------------------------------------------------------------------------------------------
PR CMWLTH Infrastructure FAU Special RRB, Unrefunded Balance,
Series A, 7.90%, 7/1/07 Baa1/BBB+ 25,000 25,513
-------------------------------------------------------------------------------------------------------------------------
PR CMWLTH Urban Renewal & Housing Corp.
Refunding Bonds, 7.875%, 10/1/04 Baa3/BBB 390,000 398,662
-------------------------------------------------------------------------------------------------------------------------
PR HFA MH RRB, Portfolio A-I, 7.50%, 10/1/15 NR/AA 30,000 30,657
-------------------------------------------------------------------------------------------------------------------------
PR HFA SFM RB, Portfolio 1-C, 6.75%, 10/15/13 Aaa/AAA 10,000 10,255
-------------------------------------------------------------------------------------------------------------------------
PR POAU SPF RB, American Airlines, Series A, 6.30%, 6/1/23 Baa3/BBB- 35,000 34,912
-------------------------------------------------------------------------------------------------------------------------
PR Public Buildings Authority Public Education & HF RRB,
Series I, 6%, 7/1/12 Baa1/A 175,000 175,203
-------------------------------------------------------------------------------------------------------------------------
Rio Grande, PR CMWLTH Municipal Lease Purchase
Agreement Bonds, 8%, 12/10/03 NR/NR 970,492 982,516
-----------
2,822,019
-------------------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $100,211,065) 105.0% 97,273,202
-------------------------------------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (5.0) (4,633,358)
---------------------------
Net Assets 100.0% $92,639,844
===========================
</TABLE>
Footnotes to Statement of Investments
To simplify the listings of securities, abbreviations are used per the table
below:
<TABLE>
<S> <C> <C> <C>
CAP Capital Appreciation HFA Housing Finance Agency
CMWLTH Commonwealth HFAU Health Facilities Authority
EDFAU Economic Development Finance Authority IDAU Industrial Development Authority
FAU Finance Authority MH Multifamily Housing
GP General Purpose PC Pollution Control
GOB General Obligation Bonds POAU Port Authority
GORB General Obligation Refunding Bonds RA Redevelopment Agency
GOUN General Obligation Unlimited Nts. RB Revenue Bonds
HA Hospital Authority RR Resource Recovery
HCF Health Care Facilities RRB Revenue Refunding Bonds
HDAU Hospital Development Authority SFM Single Family Mtg.
HEAA Higher Education Assistance Agency SPF Special Facilities
HEFAU Higher Educational Facilities Authority TUCM Turnpike Commission
HF Health Facilities URDA Urban Redevelopment Authority
</TABLE>
1. When-issued security to be delivered and settled after July 31, 2000. 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 $11,622,830 or 12.55% of the
Fund's net assets as of July 31, 2000. 3. Identifies issues considered to be
illiquid or restricted--See Note 5 of Notes to Financial Statements. 4. For zero
coupon bonds, the interest rate shown is the effective yield on the date of
purchase.
13 | OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
<PAGE>
Footnotes to Statement of Investments Continued
As of July 31, 2000, securities subject to the alternative minimum tax amount to
$33,469,423 or 36.13% 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 $23,012,523 23.7%
Adult Living Facilities 13,256,152 13.6
Single Family Housing 13,144,036 13.5
Resource Recovery 12,465,144 12.8
Manufacturing, Durable Goods 9,427,301 9.7
Not-for-Profit Organization 7,795,113 8.0
Pollution Control 2,850,837 2.9
Marine/Aviation Facilities 2,700,690 2.8
Municipal Leases 2,522,892 2.6
General Obligation 2,275,269 2.3
Multi-Family Housing 2,238,577 2.3
Student Loans 1,369,905 1.4
Electric Utilities 1,272,328 1.3
Education 1,207,813 1.2
Higher Education 988,340 1.0
Water Utilities 530,768 0.5
Manufacturing, Non-Durable Goods 75,019 0.1
Sales Tax 62,722 0.1
Gas Utilities 37,138 0.1
Highways 40,635 0.1
-------------------------------
Total $97,273,202 100.0%
===============================
</TABLE>
See accompanying Notes to Financial Statements.
14 | OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
<PAGE>
STATEMENT OF ASSETS & LIABILITIES July 31, 2000
<TABLE>
=========================================================================================================================
<S> <C>
Assets
Investments, at value (cost $100,211,065)--see accompanying statement $ 97,273,202
-------------------------------------------------------------------------------------------------------------------------
Cash 743,918
-------------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold (including $577,567 sold on a when-issued basis) 13,359,196
Interest 1,493,186
Shares of beneficial interest sold 104,633
Other 598
------------
Total assets 112,974,733
=========================================================================================================================
Liabilities
Payables and other liabilities:
Investments purchased (including $11,525,561 purchased on a when-issued basis) 19,769,841
Dividends 298,228
Shares of beneficial interest redeemed 107,459
Trustees' compensation 80,109
Transfer and shareholder servicing agent fees 12,073
Distribution and service plan fees 10,652
Other 56,527
------------
Total liabilities 20,334,889
=========================================================================================================================
Net Assets $ 92,639,844
============
=========================================================================================================================
Composition of Net Assets
Paid-in capital $ 99,202,436
-------------------------------------------------------------------------------------------------------------------------
Undistributed net investment income 5,968
-------------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (3,630,697)
-------------------------------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments (2,937,863)
------------
Net Assets $ 92,639,844
============
=========================================================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of $64,336,138
and 5,704,930 shares of beneficial interest outstanding) $11.28
Maximum offering price per share (net asset value plus sales charge of 4.75% of offering price) $11.84
-------------------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $21,696,363
and 1,924,591 shares of beneficial interest outstanding) $11.27
-------------------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $6,607,343
and 586,410 shares of beneficial interest outstanding) $11.27
</TABLE>
See accompanying Notes to Financial Statements.
15 | OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
<PAGE>
STATEMENT OF OPERATIONS For the Year Ended July 31, 2000
<TABLE>
=========================================================================================================================
<S> <C>
Investment Income
Interest $ 6,577,521
=========================================================================================================================
Expenses
Management fees 565,820
-------------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 96,428
Class B 214,013
Class C 55,459
-------------------------------------------------------------------------------------------------------------------------
Interest expense 129,262
-------------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 69,222
-------------------------------------------------------------------------------------------------------------------------
Shareholder reports 61,571
-------------------------------------------------------------------------------------------------------------------------
Trustees' compensation 27,363
-------------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 13,842
-------------------------------------------------------------------------------------------------------------------------
Other 29,773
-----------
Total expenses 1,262,753
Less expenses paid indirectly (7,853)
Less waiver of expenses (50,719)
-----------
Net expenses 1,204,181
=========================================================================================================================
Net Investment Income 5,373,340
=========================================================================================================================
Realized and Unrealized Loss
Net realized loss on investments (2,078,025)
-------------------------------------------------------------------------------------------------------------------------
Net change in unrealized depreciation on investments (4,958,174)
-----------
Net realized and unrealized loss (7,036,199)
=========================================================================================================================
Net Decrease in Net Assets Resulting from Operations $(1,662,859)
===========
</TABLE>
See accompanying Notes to Financial Statements.
16 | OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Ended July 31, 2000 1999
=========================================================================================================================
<S> <C> <C>
Operations
Net investment income $ 5,373,340 $ 4,876,517
-------------------------------------------------------------------------------------------------------------------------
Net realized loss (2,078,025) (106,698)
-------------------------------------------------------------------------------------------------------------------------
Net change in unrealized depreciation (4,958,174) (3,152,830)
-----------------------------
Net increase (decrease) in net assets resulting from operations (1,662,859) 1,616,989
=========================================================================================================================
Dividends and/or Distributions to Shareholders
Dividends from net investment income:
Class A (3,934,408) (3,432,062)
Class B (1,086,946) (957,717)
Class C (282,650) (235,856)
=========================================================================================================================
Beneficial Interest Transactions
Net increase (decrease) in net assets resulting from beneficial interest
transactions:
Class A (3,393,495) 6,194,843
Class B (944,328) 2,794,536
Class C 1,119,024 803,073
=========================================================================================================================
Net Assets
Total increase (decrease) (10,185,662) 6,783,806
-------------------------------------------------------------------------------------------------------------------------
Beginning of period 102,825,506 96,041,700
-----------------------------
End of period [including undistributed (overdistributed) net investment
income of $5,968 and $(63,368), respectively] $ 92,639,844 $102,825,506
=============================
</TABLE>
See accompanying Notes to Financial Statements.
17 | OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Year
Ended Ended
July 31, Dec. 31,
Class A 2000 1999 1998 1997 1996(1) 1995
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $12.08 $12.42 $12.45 $12.01 $12.36 $11.19
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .67 .63 .61 .70 .40 .68
Net realized and unrealized gain (loss) (.81) (.37) -- .43 (.35) 1.18
---------------------------------------------------------------------
Total income (loss) from investment operations (.14) .26 .61 1.13 .05 1.86
----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.66) (.60) (.64) (.69) (.40) (.67)
Dividends in excess of net investment income -- -- -- -- -- (.02)
---------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.66) (.60) (.64) (.69) (.40) (.69)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.28 $12.08 $12.42 $12.45 $12.01 $12.36
=====================================================================
============================================================================================================================
Total Return, at Net Asset Value(2) (1.00)% 2.01% 4.99% 9.68% 0.44% 16.94%
============================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $64,336 $72,794 $68,720 $68,280 $64,391 $66,483
----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $67,252 $71,835 $69,202 $65,710 $64,997 $64,901
----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 5.93% 5.03% 4.82% 5.79% 5.71% 5.68%
Expenses 1.10% 0.95% 1.00%(4) 0.93%(4) 1.03%(4) 1.02%(4)
Expenses, net of indirect expenses and
waiver of expenses 1.06% 0.90% 0.93% 0.90% N/A N/A
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 98% 37% 35% 22% 6% 31%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. Assumes a $1,000 hypothetical initial
investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
See accompanying Notes to Financial Statements.
18 | OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
<PAGE>
FINANCIAL HIGHLIGHTS Continued
<TABLE>
<CAPTION>
Year Year
Ended Ended
July 31, Dec. 31,
Class B 2000 1999 1998 1997 1996(1) 1995
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $12.07 $12.42 $12.45 $12.01 $12.36 $11.19
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .58 .53 .52 .61 .35 .59
Net realized and unrealized gain (loss) (.81) (.38) -- .42 (.35) 1.17
---------------------------------------------------------------------
Total income (loss) from investment operations (.23) .15 .52 1.03 -- 1.76
----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.57) (.50) (.55) (.59) (.35) (.57)
Dividends in excess of net investment income -- -- -- -- -- (.02)
---------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.57) (.50) (.55) (.59) (.35) (.59)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.27 $12.07 $12.42 $12.45 $12.01 $12.36
=====================================================================
============================================================================================================================
Total Return, at Net Asset Value(2) (1.75)% 1.16% 4.20% 8.86% (0.01)% 16.06%
============================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $21,696 $24,206 $22,124 $19,339 $16,005 $14,466
----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $21,368 $23,845 $20,969 $17,243 $15,085 $12,183
----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 5.16% 4.26% 4.10% 5.02% 4.94% 4.89%
Expenses 1.96% 1.80% 1.75%(4) 1.78%(4) 1.89%(4) 1.89%(4)
Expenses, net of indirect expenses and
waiver of expenses 1.82% 1.65% 1.68% 1.65% 1.79% 1.78%
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 98% 37% 35% 22% 6% 31%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. Assumes a $1,000 hypothetical initial
investment on the business day before the first day of the fiscal period (or
inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
See accompanying Notes to Financial Statements.
19 | OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
Year Year
Ended Ended
July 31, Dec. 31,
Class C 2000 1999 1998 1997 1996(1) 1995(2)
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $12.07 $12.41 $12.44 $12.00 $12.36 $11.91
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .57 .53 .51 .60 .34 .21
Net realized and unrealized gain (loss) (.80) (.37) -- .43 (.36) .45
---------------------------------------------------------------------
Total income (loss) from investment operations (.23) .16 .51 1.03 (.02) .66
----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.57) (.50) (.54) (.59) (.34) (.21)
Dividends in excess of net investment income -- -- -- -- -- --
---------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.57) (.50) (.54) (.59) (.34) (.21)
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.27 $12.07 $12.41 $12.44 $12.00 $12.36
=====================================================================
============================================================================================================================
Total Return, at Net Asset Value(3) (1.75)% 1.25% 4.20% 8.84% (0.15)% 5.55%
============================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $6,607 $5,826 $5,198 $2,611 $482 $264
----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $5,542 $5,867 $4,063 $1,390 $296 $ 51
----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(4)
Net investment income 5.16% 4.26% 4.28% 4.99% 4.83% 4.40%
Expenses 1.95% 1.80% 1.76%(5) 1.79%(5) 1.97%(5) 2.07%(5)
Expenses, net of indirect expenses and
waiver of expenses 1.81% 1.65% 1.67% 1.66% 1.87% 1.96%
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 98% 37% 35% 22% 6% 31%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31. 2. For the period from August 29, 1995
(inception of offering) to December 31, 1995. 3. Assumes a $1,000 hypothetical
initial investment on the business day before the first day of the fiscal period
(or inception of offering), with all dividends and distributions reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year. 4. Annualized for periods of less than one
full year. 5. Expense ratio has not been grossed up to reflect the effect of
expenses paid indirectly.
See accompanying Notes to Financial Statements.
20 | 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, an open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek as high a level of current interest
income exempt from federal and Pennsylvania personal income taxes as is
available from municipal securities, consistent with preservation of capital.
The Fund's investment advisor is OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B and Class C shares. Class A shares are
sold at their offering price, which is normally net asset value plus a front-end
sales charge. Class B and Class C shares are sold without a front-end sales
charge but may be subject to a contingent deferred sales charge (CDSC). All
classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own expenses directly attributable to
that class and exclusive voting rights with respect to matters affecting that
class. Classes A, B and C have separate distribution and/or service plans. Class
B shares will automatically convert to Class A shares six years after the date
of purchase. The following is a summary of significant accounting policies
consistently followed by the Fund.
--------------------------------------------------------------------------------
Securities Valuation. Securities listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the last sale price of
the security traded on that exchange prior to the time when the Fund's assets
are valued. In the absence of a sale, the security is valued at the last sale
price on the prior trading day, if it is within the spread of the closing bid
and asked prices, and if not, at the closing bid price. Securities (including
restricted securities) for which quotations are not readily available are valued
primarily using dealer- supplied valuations, a portfolio pricing service
authorized by the Board of Trustees, or at their fair value. Fair value is
determined in good faith under consistently applied procedures under the
supervision of the Board of Trustees. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
--------------------------------------------------------------------------------
Securities Purchased on a When-Issued Basis. Delivery and payment for securities
that have been purchased by the Fund on a when-issued basis can take place a
month or more after the trade date. Normally the settlement date occurs within
six months after the trade date; however, the Fund may, from time to time,
purchase securities whose settlement date extends beyond six months and possibly
as long as two years or more beyond trade date. During this period, such
securities do not earn interest, are subject to market fluctuation and may
increase or decrease in value prior to their delivery. The Fund maintains
segregated assets with a market value equal to or greater than the amount of its
purchase commitments. The purchase of securities on a when-issued or forward
commitment basis may increase the volatility of the Fund's net asset value to
the extent the Fund makes such purchases while remaining substantially fully
invested. As of July 31, 2000, the Fund had entered into outstanding net
when-issued or forward commitments of $10,947,994.
--------------------------------------------------------------------------------
Non-Diversification Risk. The Fund is "non-diversified" and can invest in the
securities of a single issuer without limit. To the extent the Fund invests a
relatively high percentage of its assets in the obligations of a single issuer
or a limited number of issuers, the Fund is subject to additional risk of loss
if those obligations lose market value or the borrower or issuer of those
obligations defaults.
--------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
21 | OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required. As of July 31, 2000, the
Fund had available for federal tax purposes an unused capital loss carryover as
follows:
<TABLE>
<CAPTION>
Expiring
------------------------------------------------
<S> <C>
2002 $834,493
------------------------------------------------
2003 290,707
------------------------------------------------
2004 27,458
------------------------------------------------
2006 292,959
------------------------------------------------
2007 106,698
------------------------------------------------
2008 321,862
</TABLE>
--------------------------------------------------------------------------------
Trustees' Compensation. The Fund has adopted an unfunded retirement plan for the
Fund's independent Board of Trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
July 31, 2000, a provision of $11,622 was made for the Fund's projected benefit
obligations and payments of $2,133 were made to retired trustees, resulting in
an accumulated liability of $70,423 as of July 31, 2000.
The Board of Trustees has adopted a deferred compensation plan for
independent trustees that enables trustees to elect to defer receipt of all or a
portion of annual compensation they are entitled to receive from the Fund. Under
the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Board of Trustees in shares of one
or more Oppenheimer funds selected by the trustee. The amount paid to the Board
of Trustees under the plan will be determined based upon the performance of the
selected funds. Deferral of trustees' fees under the plan will not affect the
net assets of the Fund, and will not materially affect the Fund's assets,
liabilities or net investment income per share.
--------------------------------------------------------------------------------
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
Classification of Dividends and Distributions to Shareholders. Net investment
income (loss) and net realized gain (loss) may differ for financial statement
and tax purposes. The character of dividends and distributions made during the
fiscal 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 dividends and distributions, the fiscal year in which amounts are distributed
may differ from the fiscal year in which the income or realized gain was
recorded by the Fund.
--------------------------------------------------------------------------------
Expense Offset Arrangements. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
--------------------------------------------------------------------------------
Other. Investment transactions are accounted for as of trade date. Original
issue discount is accreted and premium is amortized in accordance with federal
income tax requirements. For municipal bonds acquired after April 30, 1993, on
disposition or maturity, taxable ordinary income is recognized to the extent of
the lesser of gain or market discount that would have accrued over the holding
period. Realized gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is the same basis
used for federal income tax purposes.
There are certain risks arising from geographic concentration in any state.
Certain revenue or tax related event in a state may impair the ability of
certain issuers of municipal securities to pay principal and interest on their
obligations.
22 | 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, 2000 Year Ended July 31, 1999
Shares Amount Shares Amount
-------------------------------------------------------------------------------------------------------------------------
Class A:
<S> <C> <C> <C> <C>
Sold 1,513,143 $ 17,156,475 1,238,583 $ 15,411,150
Dividends and/or distributions reinvested 205,734 2,324,177 175,431 2,182,442
Redeemed (2,041,709) (22,874,147) (918,356) (11,398,749)
-----------------------------------------------------------------
Net increase (decrease) (322,832) $ (3,393,495) 495,658 $ 6,194,843
=================================================================
-------------------------------------------------------------------------------------------------------------------------
Class B:
Sold 625,212 $ 7,034,655 568,446 $ 7,057,504
Dividends and/or distributions reinvested 52,212 589,440 44,913 558,600
Redeemed (757,637) (8,568,423) (389,892) (4,821,568)
-----------------------------------------------------------------
Net increase (decrease) (80,213) $ (944,328) 223,467 $ 2,794,536
=================================================================
-------------------------------------------------------------------------------------------------------------------------
Class C:
Sold 333,624 $ 3,727,992 196,171 $ 2,436,879
Dividends and/or distributions reinvested 18,259 205,216 14,078 175,032
Redeemed (248,221) (2,814,184) (146,208) (1,808,838)
-----------------------------------------------------------------
Net increase 103,662 $ 1,119,024 64,041 $ 803,073
=================================================================
</TABLE>
================================================================================
3. Purchases and Sales of Securities
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended July 31, 2000, were $95,947,343
and $94,782,604, respectively.
As of July 31, 2000, unrealized appreciation (depreciation) based on cost of
securities for federal income tax purposes of $100,211,425 was:
Gross unrealized appreciation $ 1,318,249
Gross unrealized depreciation (4,257,054)
-----------
Net unrealized depreciation $(2,938,805)
===========
23 | OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
<PAGE>
================================================================================
4. Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee of 0.60% of
the first $200 million of average annual net assets, 0.55% of the next $100
million, 0.50% of the next $200 million, 0.45% of the next $250 million, 0.40%
of the next $250 million, and 0.35% of average annual net assets in excess of $1
billion. Effective January 1, 1997, the Manager had 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. Effective June 1, 2000, the voluntary waiver
was withdrawn. The Fund's management fee for the year ended July 31, 2000, was
an annualized rate of 0.60%, before any waiver by the Manager if applicable.
--------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund on an
"at-cost" basis. OFS also acts as the transfer and shareholder servicing agent
for the other Oppenheimer funds.
--------------------------------------------------------------------------------
Distribution and Service Plan Fees. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
<TABLE>
<CAPTION>
Aggregate Class A Commissions Commissions Commissions
Front-End Front-End On Class A On Class B On Class C
Sales Charges Sales Charges Shares Shares Shares
On Class A Retained by Advanced by Advanced by Advanced by
Year Ended Shares Distributor Distributor(1) Distributor(1) Distributor(1)
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
July 31, 2000 $281,206 $53,378 $8,876 $250,985 $30,866
</TABLE>
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
<TABLE>
<CAPTION>
Class A Class B Class C
Contingent Deferred Contingent Deferred Contingent Deferred
Sales Charges Sales Charges Sales Charges
Year Ended Retained by Distributor Retained by Distributor Retained by Distributor
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
July 31, 2000 $-- $80,345 $4,406
</TABLE>
The Fund has adopted a Service Plan for Class A shares and Distribution and
Service Plans for Class B and Class C shares under Rule 12b-1 of the Investment
Company Act. Under those plans the Fund pays the Distributor for all or a
portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
--------------------------------------------------------------------------------
Class A Service Plan Fees. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.15% of average annual net assets of Class A
shares purchased. The Distributor makes payments to plan recipients quarterly at
an annual rate not to exceed 0.15% of the average annual net assets consisting
of Class A shares of the Fund. For the year ended July 31, 2000, payments under
the Class A plan totaled $96,428 prior to Manager waivers if applicable, all of
which were paid by the Distributor to recipients, and included $5,685 paid to an
affiliate of the Manager. Any unreimbursed expenses the Distributor incurs with
respect to Class A shares in any fiscal year cannot be recovered in subsequent
years.
24 | OPPENHEIMER PENNSYLVANIA MUNICIPAL FUND
<PAGE>
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
4. Management Fees and Other Transactions with Affiliates Continued Class B and
Class C Distribution and Service Plan Fees. Under each plan, service fees and
distribution fees are computed on the average of the net asset value of shares
in the respective class, determined as of the close of each regular business day
during the period. The Class B and Class C plans provide for the Distributor to
be compensated at a flat rate, whether the Distributor's distribution expenses
are more or less than the amounts paid by the Fund under the plan during the
period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares. The
Distributor retains the asset-based sales charge on Class C shares during the
first year the shares are outstanding. The asset-based sales charges on Class B
and Class C shares allow investors to buy shares without a front-end sales
charge while allowing the Distributor to compensate dealers that sell those
shares.
The Distributor's actual expenses in selling Class B and Class C shares may
be more than the payments it receives from the contingent deferred sales charges
collected on redeemed shares and asset-based sales charges from the Fund under
the plans. If any plan is terminated by the Fund, the Board of Trustees may
allow the Fund to continue payments of the asset-based sales charge to the
Distributor for distributing shares before the plan was terminated. The plans
allow for the carry-forward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended July 31, 2000, were
as follows:
<TABLE>
<CAPTION>
Distributor's Distributor's
Aggregate Unreimbursed
Unreimbursed Expenses as %
Total Payments Amount Retained Expenses of Net Assets
Under Plan by Distributor Under Plan of Class
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $214,013 $171,009 $801,015 3.69%
Class C Plan 55,459 21,828 102,309 1.55
</TABLE>
================================================================================
5. Illiquid Securities
As of July 31, 2000, investments in securities included issues that are
illiquid. A security may be considered illiquid if it lacks a readily available
market or if its valuation has not changed for a certain period of time. The
Fund intends to invest no more than 15% of its net assets (determined at the
time of purchase and reviewed periodically) in illiquid securities. The
aggregate value of illiquid securities subject to this limitation as of July 31,
2000, was $3,720,485, which represents 4.02% of the Fund's net assets. Certain
restricted securities, eligible for resale to qualified institutional investors,
are not subject to that limit.
================================================================================
6. Bank Borrowings
The Fund may borrow up to a certain percentage of its total assets from a bank
to purchase portfolio securities, or for temporary and emergency purposes. The
Fund has entered into an agreement which enables it to participate with certain
other Oppenheimer funds in an unsecured line of credit with a bank, which
permits borrowings up to $100 million, collectively. Interest is charged to each
fund, based on its borrowings, at a rate equal to the Federal Funds Rate plus
0.625%. The Fund also pays a commitment fee equal to its pro rata share of the
average unutilized amount of the credit facility at a rate of 0.09% per annum.
The Fund had no borrowings outstanding at July 31, 2000. For the year ended
July 31, 2000, the average monthly loan balance was $2,043,686 at an average
interest rate of 6.388%. The maximum amount of borrowings outstanding at any
month-end was $5,700,000. The interest expense for the year ended July 31, 2000,
was $129,262.
<PAGE>
<PAGE>
Appendix A
MUNICIPAL BOND RATINGS DEFINITIONS
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below for municipal securities. Those ratings represent
the opinion of the agency as to the credit quality of issues that they rate. The
summaries below are based upon publicly-available information provided by the
rating organizations.
Moody's Investors Service, Inc.
-------------------------------------------------------------------------------
Long-Term Bond Ratings
Aaa: Bonds rated "Aaa" are judged to be the best quality. They carry the
smallest degree of investment risk. Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated "Aa" are judged to be of high quality by all standards. Together
with the "Aaa" group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as with Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the of "Aaa" securities.
A: Bonds rated "A" possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa: Bonds rated "Baa" are considered medium-grade obligations; that is, they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated "Ba" are judged to have speculative elements. Their future
cannot be considered well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B: Bonds rated "B" generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated "Caa" are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or
interest.
Ca: Bonds rated "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C: Bonds rated "C" are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Con. (...): Bonds for which the security depends on the completion of some act
or the fulfillment of some condition are rated conditionally. These bonds are
secured by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals that begin when facilities are
completed, or (d) payments to which some other limiting condition attaches. The
parenthetical rating denotes probable credit stature upon completion of
construction or elimination of the basis of the condition. Moody's applies
numerical modifiers 1, 2, and 3 in each generic rating classification from "Aa"
through "Caa." The modifier "1" indicates that the obligation ranks in the
higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates a ranking in the lower end of
that generic rating category. Advanced refunded issues that are secured by
certain assets are identified with a # symbol.
Short-Term Ratings - U.S. Tax-Exempt Municipals
There are three ratings for short-term obligations that are investment grade.
Short-term speculative obligations are designated "SG." For variable rate demand
obligations, a two-component rating is assigned. The first (MIG) element
represents an evaluation by Moody's of the degree of risk associated with
scheduled principal and interest payments. The second element (VMIG) represents
an evaluation of the degree of risk associated with the demand feature.
MIG 1/VMIG 1: Denotes superior credit quality. Excellent protection is afforded
by established cash flows, highly reliable liquidity support or demonstrated
broad-based access to the market for refinancing..
MIG 2/VMIG 2: Denotes strong credit quality. Margins of protection are ample
although not as large as in the preceding group.
MIG 3/VMIG 3: Denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to be less
well established.
SG: Denotes speculative-grade credit quality. Debt instruments in this
category may lack margins of protection.
-------------------------------------------------------------------------------
Standard & Poor's Rating Services
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: Bonds rated "BBB" exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC, and C
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having significant
speculative characteristics. "BB" indicates the least degree of speculation and
"C" the highest. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions.
BB: Bonds rated "BB" are less vulnerable to nonpayment than other speculative
issues. However, these face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Bonds rated "B" are more vulnerable to nonpayment than obligations rated
"BB," but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC: Bonds rated "CCC" are currently vulnerable to nonpayment, and are dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: Bonds rated "CC" are currently highly vulnerable to nonpayment.
C: The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Bonds rated "D" are in default. Payments on the obligation are not being made
on the date due even if the applicable grace period has not expired, unless
Standard and Poor's believes that such payments will be made during such grace
period. The "D" rating will also be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation 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. The
"p" symbol indicates that the rating is provisional. The "r" symbol is attached
to the ratings of instruments with significant noncredit risks.
Short-Term Issue Credit Ratings
SP-1: Strong capacity to pay principal and interest. An issue with a very strong
capacity to pay debt service is given a (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
Fitch, Inc.
-------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
<PAGE>
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. The ratings of obligations in this category are based
on their prospects for achieving partial or full recovery in a reorganization or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines. "DDD" obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest. "DD" indicates
potential recoveries in the range of 50%-90%, and "D" the lowest recovery
potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the major rating categories. Plus and minus signs are not
added to the "AAA" category or to categories below "CCC," nor to short-term
ratings other than "F1" (see below).
-------------------------------------------------------------------------------
International Short-Term Credit Ratings
-------------------------------------------------------------------------------
F1: Highest credit quality. Strongest capacity for timely payment of financial
commitments. May have an added "+" to denote any exceptionally strong credit
feature.
F2: Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of higher
ratings.
F3: Fair credit quality. Capacity for timely payment of financial commitments is
adequate. However, near-term adverse changes could result in a reduction to
non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business
and economic environment.
D: Default. Denotes actual or imminent payment default.
<PAGE>
Appendix B
Municipal Bond Industry Classifications
Adult Living Facilities
Bond Anticipation Notes
Education
Electric Utilities
Gas Utilities
General Obligation
Higher Education
Highways/Railways
Hospital/Healthcare
Manufacturing, Durable Goods
Manufacturing, Non Durable Goods Marine/Aviation Facilities Multi-Family Housing
Municipal Leases Non Profit Organization Parking Fee Revenue Pollution Control
Resource Recovery Revenue Anticipation Notes Sales Tax Revenue Sewer Utilities
Single Family Housing Special Assessment Special Tax Sports Facility Revenue
Student Loans Tax Anticipation Notes Tax & Revenue Anticipation Notes Telephone
Utilities Water Utilities
<PAGE>
Appendix C
-------------------------------------------------------------------------------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
-------------------------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of
Class A shares1 of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived. That is
because of the economies of sales efforts realized by OppenheimerFunds
Distributor, Inc., (referred to in this document as the "Distributor"), or by
dealers or other financial institutions that offer those shares to certain
classes of investors.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds that were merged into
or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans: (1)
plans qualified under Sections 401(a) or 401(k) of the Internal Revenue
Code,
(2) non-qualified deferred compensation plans, (3) employee benefit plans2 (4)
Group Retirement Plans3 (5) 403(b)(7) custodial plan accounts (6) Individual
Retirement Accounts ("IRAs"), including traditional IRAs,
Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a
special arrangement or waiver in a particular case is in the sole discretion of
the Distributor or the transfer agent (referred to in this document as the
"Transfer Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager").
Waivers that apply at the time shares are redeemed must be requested by the
shareholder and/or dealer in the redemption request.
--------------
1. Certain waivers also apply to Class M shares of Oppenheimer Convertible
Securities Fund.
2. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
3. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
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I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
-------------------------------------------------------------------------------
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable concession described in the Prospectus under "Class A
Contingent Deferred Sales Charge."3 This waiver provision applies to: |_|
Purchases of Class A shares aggregating $1 million or more. |_| Purchases by a
Retirement Plan (other than an IRA or 403(b)(7) custodial plan) that: (1) buys
shares costing $500,000 or more, or (2) has, at the time of purchase, 100 or
more eligible employees or total plan assets of $500,000 or more, or (3)
certifies to the Distributor that it projects to have annual plan purchases of
$200,000 or more. |_| Purchases by an OppenheimerFunds-sponsored Rollover IRA,
if the purchases are made: through a broker, dealer, bank or registered
investment adviser that has made special arrangements with the Distributor for
those purchases, or by a direct rollover of a distribution from a qualified
Retirement Plan if the administrator of that Plan has made special arrangements
with the Distributor for those purchases. |_| Purchases of Class A shares by
Retirement Plans that have any of the following record-keeping arrangements: (1)
The record keeping is performed by Merrill Lynch Pierce Fenner & Smith, Inc.
("Merrill Lynch") on a daily valuation basis for the Retirement Plan. On the
date the plan sponsor signs the record-keeping service agreement with Merrill
Lynch, the Plan must have $3 million or more of its assets invested in (a)
mutual funds, other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), that are made available under a Service Agreement
between Merrill Lynch and the mutual fund's principal underwriter or
distributor, and (b) funds advised or managed by MLAM (the funds described in
(a) and (b) are referred to as "Applicable Investments"). (2) The record keeping
for the Retirement Plan is performed on a daily valuation basis by a record
keeper whose services are provided under a contract or arrangement between the
Retirement Plan and Merrill Lynch. On the date the plan sponsor signs the record
keeping service agreement with Merrill Lynch, the Plan must have $3 million or
more of its assets (excluding assets invested in money market funds) invested in
Applicable Investments. (3) The record keeping for a Retirement Plan is handled
under a service agreement with Merrill Lynch and on the date the plan sponsor
signs that agreement, the Plan has 500 or more eligible employees (as determined
by the Merrill Lynch plan conversion manager). |_| Purchases by a Retirement
Plan whose record keeper had a cost-allocation agreement with the Transfer Agent
on or before May 1, 1999.
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II. Waivers of Class A Sales Charges of Oppenheimer Funds
-------------------------------------------------------------------------------
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any Class
A sales charges (and no concessions are paid by the Distributor on such
purchases): |_| The Manager or its affiliates. |_| Present or former officers,
directors, trustees and employees (and their
"immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. The term
"immediate family" refers to one's spouse, children, grandchildren,
grandparents, parents, parents-in-law, brothers and sisters, sons- and
daughters-in-law, a sibling's spouse, a spouse's siblings, aunts,
uncles, nieces and nephews; relatives by virtue of a remarriage
(step-children, step-parents, etc.) are included.
|_| Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees.
|_| Employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are
identified as such to the Distributor) or with the Distributor. The
purchaser must certify to the Distributor at the time of purchase that
the purchase is for the purchaser's own account (or for the benefit of
such employee's spouse or minor children).
|_| Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products made
available to their clients. Those clients may be charged a transaction
fee by their dealer, broker, bank or advisor for the purchase or sale of
Fund shares.
|_| Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
|_| Clients of investment advisors or financial planners (that have entered
into an agreement for this purpose with the Distributor) who buy
shares for their own accounts may also purchase shares without sales
charge but only if their accounts are linked to a master account of
their investment advisor or financial planner on the books and records
of the broker, agent or financial intermediary with which the
Distributor has made such special arrangements . Each of these
investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares.
|_| Directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit sharing
or other benefit plan which beneficially owns shares for those persons.
|_| Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this arrangement)
and persons who are directors or trustees of the company or trust which
is the beneficial owner of such accounts.
|_| A unit investment trust that has entered into an appropriate agreement
with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to defined
contribution employee retirement plans for which the dealer, broker or
investment adviser provides administration services.
|_| Retirement Plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in
each case if those purchases are made through a broker, agent or other
financial intermediary that has made special arrangements with the
Distributor for those purchases.
|_| A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value
Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November 24,
1995.
|_| A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through DCXchange,
a sub-transfer agency mutual fund clearinghouse, if that arrangement was
consummated and share purchases commenced by December 31, 1996.
B. Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no concessions are paid by the Distributor on such
purchases): |_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
|_| Shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor.
|_| Shares purchased through a broker-dealer that has entered into a special
agreement with the Distributor to allow the broker's customers to
purchase and pay for shares of Oppenheimer funds using the proceeds of
shares redeemed in the prior 30 days from a mutual fund (other than a
fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid.
This waiver also applies to shares purchased by exchange of shares of
Oppenheimer Money Market Fund, Inc. that were purchased and paid for
in this manner. This waiver must be requested when the purchase order
is placed for shares of the Fund, and the Distributor may require
evidence of qualification for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by a participant
in a Retirement Plan for which the Manager or an affiliate acts as
sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases: |_| To make Automatic Withdrawal Plan payments that are limited
annually to
no more than 12% of the account value measured at the time the Plan is
established, adjusted annually.
|_| Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
|_| For distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary. The death or disability must
occur after the participant's account was established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact. (4) Hardship
withdrawals, as defined in the plan.4
(5) Under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code, or, in the case of an IRA, a divorce or
separation agreement described in Section 71(b) of the Internal
Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue
Code.
(7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries. (9) Separation from service.5
(10)Participant-directed redemptions to purchase shares of a mutual fund
(other than a fund managed by the Manager or a subsidiary of the
Manager) if the plan has made special arrangements with the Distributor.
(11) Plan termination or "in-service distributions," if the redemption
proceeds are rolled over directly to an OppenheimerFunds-sponsored IRA.
|_| For distributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
|_| For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing this
waiver.
III. Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be applied to
shares purchased in certain types of transactions or redeemed in certain
circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases: |_| Shares redeemed involuntarily,
as described in "Shareholder Account
Rules and Policies," in the applicable Prospectus.
|_| Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a
trustee of a grantor trust or revocable living trust for which the
trustee is also the sole beneficiary. The death or disability must have
occurred after the account was established, and for disability you must
provide evidence of a determination of disability by the Social Security
Administration.
|_| Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
|_| Redemptions of Class B shares held by Retirement Plans whose records are
maintained on a daily valuation basis by Merrill Lynch or an independent
record keeper under a contract with Merrill Lynch.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
|_| Redemptions requested in writing by a Retirement Plan sponsor of Class C
shares of an Oppenheimer fund in amounts of $1 million or more held by
the Retirement Plan for more than one year, if the redemption proceeds
are invested in Class A shares of one or more Oppenheimer funds.
|_| Distributions from Retirement Plans or other employee benefit plans for
any of the following purposes:
(1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established in an Oppenheimer fund.
(2) To return excess contributions made to a participant's account. (3) To
return contributions made due to a mistake of fact. (4) To make hardship
withdrawals, as defined in the plan.6 (5) To make distributions required under a
Qualified Domestic Relations
Order or, in the case of an IRA, a divorce or separation agreement
described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal
Revenue Code.
(7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.7 (9) On account of the
participant's separation from service.8 (10) Participant-directed redemptions to
purchase shares of a mutual fund
(other than a fund managed by the Manager or a subsidiary of the
Manager) offered as an investment option in a Retirement Plan if
the plan has made special arrangements with the Distributor.
(11) Distributions made on account of a plan termination or
"in-service" distributions," if the redemption proceeds are rolled
over directly to an OppenheimerFunds-sponsored IRA.
(12) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the Plan's
elimination as investment options under the Plan of all of the
Oppenheimer funds that had been offered.
(13) For distributions from a participant's account under an Automatic
Withdrawal Plan after the participant reaches age 59 1/2, as
long as the aggregate value of the distributions does not exceed
10% of the account's value annually (measured from the
establishment of the Automatic Withdrawal Plan).
|_|Redemptions of Class B shares (or Class C shares, effective August
1, 1999) under an Automatic Withdrawal Plan from an account other
than a Retirement Plan if the aggregate value of the redeemed shares
does not exceed 10% of the account's value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
|_| Shares sold to the Manager or its affiliates.
|_| Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is a party.
IV. Special Sales Charge Arrangements for Shareholders of Certain
Oppenheimer Funds Who Were Shareholders of Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
Oppenheimer Quest Value Fund, Oppenheimer Quest Small Cap
Inc. Value Fund
Oppenheimer Quest Balanced Oppenheimer Quest Global
Value Fund Value Fund
Oppenheimer Quest Opportunity
Value Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Quest for Value New York
Income Fund Tax-Exempt Fund
Quest for Value Investment Quest for Value National
Quality Income Fund Tax-Exempt Fund
Quest for Value Global Income Fund Quest for Value California
Tax-Exempt Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either: |_| acquired by such shareholder pursuant to an exchange of
shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or |_|
purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of the
Former Quest for Value Funds into that other Oppenheimer fund on
November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
----------------------------------------------------------------------
Number of Initial Sales
Eligible Initial Sales Charge as a % Commission as %
Employees or Charge as a % of of Net Amount of Offering
Members Offering Price Invested Price
----------------------------------------------------------------------
----------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
----------------------------------------------------------------------
----------------------------------------------------------------------
At least 10 but 2.00% 2.04% 1.60%
not more than 49
----------------------------------------------------------------------
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders who were shareholders of the AMA Family of Funds on
February 28, 1991 and who acquired shares of any of the Former Quest for
Value Funds by merger of a portfolio of the AMA Family of Funds.
|_| Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with: |_| withdrawals under an
automatic withdrawal plan holding only either Class
B or Class C shares if the annual withdrawal does not exceed 10% of the
initial value of the account, and
|_| liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum value of
such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995: |_| redemptions following
the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration);
|_| withdrawals under an automatic withdrawal plan (but only for Class B or
Class C shares) where the annual withdrawals do not exceed 10% of the
initial value of the account; and
|_| liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section): o Oppenheimer U. S. Government Trust, o Oppenheimer Bond Fund, o
Oppenheimer Disciplined Value Fund and o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return
Account
Connecticut Mutual Government CMIA LifeSpan Capital
Securities Account Appreciation Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
? Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund
and the other Former Connecticut Mutual Funds are entitled to continue to make
additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (1)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of the
Former Connecticut Mutual Funds to purchase shares valued at $500,000 or
more over a 13-month period entitled those persons to purchase shares at
net asset value without being subject to the Class A initial sales
charge.
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18,
1996, remain subject to the prior Class A CDSC, or if any additional
shares are purchased by those shareholders at net asset value pursuant to
this arrangement they will be subject to the prior Class A CDSC.
? Class A Sales Charge Waivers. Additional Class A shares of a Fund may be
purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares: (1) any purchaser, provided the total initial amount
invested in the Fund or
any one or more of the Former Connecticut Mutual Funds totaled $500,000
or more, including investments made pursuant to the Combined Purchases,
Statement of Intention and Rights of Accumulation features available at
the time of the initial purchase and such investment is still held in
one or more of the Former Connecticut Mutual Funds or a Fund into which
such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the Former
Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund or
any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or beneficiaries
from retirement plans qualified under Sections 401(a) or 403(b)(7)of the
Code, or from IRAs, deferred compensation plans created under Section
457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or liquidate
the Fund;
(8) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S. Government
Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity Income Fund who
acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those Oppenheimer
funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on
March 30, 1990, may purchase Class A shares of those four Oppenheimer funds at a
maximum sales charge rate of 4.50%.
-------------------------------------------------------------------------------
VII. Sales Charge Waivers on Purchases of Class M Shares of Oppenheimer
Convertible Securities Fund
-------------------------------------------------------------------------------
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge:
|_| the Manager and its affiliates,
|_| present or former officers, directors, trustees and employees (and their
"immediate families" as defined in the Fund's Statement of Additional
Information) of the Fund, the Manager and its affiliates, and retirement
plans established by them or the prior investment advisor of the Fund
for their employees,
|_| registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or distributor for that purpose,
|_| dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees,
|_| employees and registered representatives (and their spouses) of dealers
or brokers described in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
|_| dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of the
Fund specifically providing for the use of Class M shares of the Fund in
specific investment products made available to their clients, and
dealers, brokers or registered investment advisors that had entered into an
agreement with the Distributor or prior distributor of the Fund's shares to sell
shares to defined contribution employee retirement plans for which the dealer,
broker, or investment advisor provides administrative services.
<PAGE>
-------------------------------------------------------------------------------
Oppenheimer Pennsylvania Municipal Fund
-------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian Bank
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019-5820
PX740.1100
--------
1 Ms. Macaskill and Mr. Griffiths are not Directors of Oppenheimer Money Market
Fund, Inc. Mr. Griffiths is also not a Trustee of Oppenheimer Discovery Fund. 2
In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Trustees" in this Statement of Additional Information refers to
those Trustees who are not "interested persons" of the Fund and the Trust and
who do not have any direct or indirect financial interest in the operation of
the distribution plan or any agreement under the plan.
3 However, that commission will not be paid on purchases of shares in amounts of
$1 million or more (including any right of accumulation) by a Retirement Plan
that pays for the purchase with the redemption proceeds of Class C shares of one
or more Oppenheimer funds held by the Plan for more than one year. 4 This
provision does not apply to IRAs. 5 This provision does not apply to 403(b)(7)
custodial plans if the participant is less than age 55, nor to IRAs. 6 This
provision does not apply to IRAs. 7 This provision does not apply to loans from
403(b)(7) custodial plans. 8 This provision does not apply to 403(b)(7)
custodial plans if the participant is less than age 55, nor to IRAs.
<PAGE>
Oppenheimer Florida Municipal Fund
Prospectus dated November 27, 2000
Oppenheimer Florida Municipal Fund is a
mutual fund. It seeks current income exempt
from federal income taxes by investing in
municipal securities, while attempting to
preserve capital. It also offers investors
the opportunity to own fund shares exempt
from Florida intangible personal property
taxes.
This Prospectus contains
important information about the
Fund's objective, its
investment policies, strategies
and risks. It also contains
As with all mutual funds, the important information about how
Securities and Exchange to buy and sell shares of the
Commission has not approved or Fund and other account
disapproved the Fund's features. Please read this
securities nor has it Prospectus carefully before you
determined that this invest and keep it for future
Prospectus is accurate or reference about your account.
complete. It is a criminal
offense to represent otherwise.
1234
[OppenheimerFunds logo]
<PAGE>
Contents
About The Fund
-------------------------------------------------------------------------------
The Fund's Investment Objective and Strategies
Main Risks of Investing in the Fund
The Fund's Past Performance
Fees and Expenses of the Fund
About the Fund's Investments
How the Fund is Managed
About Your Account
-------------------------------------------------------------------------------
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
PhoneLink
OppenheimerFunds Internet Web Site
How to Sell Shares
By Mail
By Telephone
By Checkwriting
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Financial Highlights
<PAGE>
-------------------------------------------------------------------------------
About the Fund
-------------------------------------------------------------------------------
The Fund's Investment Objective and Strategies
-------------------------------------------------------------------------------
What Is the Fund's Investment Objective? The Fund seeks as high a level of
current interest income exempt from federal income taxes for individual
investors as is available from municipal securities, consistent with
preservation of capital. The Fund also seeks to offer investors the opportunity
to own fund shares exempt from Florida intangible personal property taxes
-------------------------------------------------------------------------------
What Does the Fund Invest In? The Fund invests mainly in Florida municipal
securities that pay interest exempt from federal personal income taxes. The Fund
invests in Florida municipal securities (and certain other permitted
securities), so that its shares will be exempt from the Florida tax on
intangible personal property. These securities primarily include municipal bonds
(which are debt obligations having a maturity of more than one (1) year when
issued), municipal notes (short-term obligations), and interests in municipal
leases. Most of the securities the Fund buys must be "investment grade"
(securities rated in the four (4) highest rating categories of national rating
organizations, such as Moody's Investors Services ("Moody's")), although the
Fund can hold lower-grade securities as well.
Under normal market conditions, the Fund:
|_| attempts to invest 100% of its assets in municipal securities, |_| as
a fundamental policy, invests at least 80% of its assets in
municipal securities, and
|_| invests at least 65% of its total assets in Florida municipal
securities.
The Fund does not limit its investments to securities of a particular
maturity range, and may hold both short- and long-term securities. However, it
currently focuses on longer-term securities to seek higher yields. These
investments are more fully explained in "About the Fund's Investments," below.
|X| How Does the Portfolio Manager Decide What Securities to Buy or Sell?
In selecting securities for the Fund, the portfolio manager looks primarily
throughout Florida for municipal securities using a variety of factors which may
change over time and may vary in particular cases. The portfolio manager
currently looks for:
|_| Securities that provide high current income |_| A wide range of
securities of different issuers within the state,
including different agencies and municipalities, to spread risk |_|
Securities having favorable credit characteristics |_| Special situations that
provide opportunities for value
Who Is the Fund Designed For? The Fund is designed for individual investors who
are seeking income exempt from federal personal income taxes and Florida
intangible personal property taxes. The Fund does not seek capital gains or
growth. Because it invests in tax-exempt securities, the Fund is not appropriate
for retirement plan accounts or for investors seeking capital growth. The Fund
is not a complete investment program.
Main Risks of Investing in the Fund
All investments have risks to some degree. The Fund's investments are
subject to changes in their value from a number of factors, described below.
There is also the risk that poor security selection by the Fund's investment
Manager, OppenheimerFunds Inc., will cause the Fund to underperform other funds
having a similar objective.
These risks collectively form the risk profile of the Fund and can affect
the value of the Fund's investments, its investment performance, and the prices
of its shares. These risks mean that you can lose money by investing in the
Fund. When you redeem your shares, they may be worth more or less than what you
paid for them. There is no assurance that the Fund will achieve its objective.
|X| Credit Risk. Municipal securities are subject to credit risk. Credit
risk is the risk that the issuer of a municipal security might not make interest
and principal payments on the security as they become due. If the issuer fails
to pay interest, the Fund's income may be reduced and if the issuer fails to
repay principal, the value of that security and of the Fund's shares may be
reduced. Because the Fund can invest as much as 25% of its assets in municipal
securities below investment grade to seek higher income, the Fund's credit risks
are greater than those of funds that buy only investment-grade bonds. A
downgrade in an issuer's credit rating or other adverse news about an issuer can
reduce the market value of that issuer's securities.
|X| Interest Rate Risks. Municipal securities are debt securities that are
subject to changes in value when prevailing interest rates change. When interest
rates fall, the values of already-issued municipal securities generally rise.
When prevailing interest rates rise, the values of already-issued municipal
securities generally fall, and the securities may sell at a discount from their
face amount. The magnitude of these price changes is generally greater for bonds
with longer maturities. The Fund currently focuses on longer-term securities to
seek higher income. Callable bonds the Fund buys are more likely to be called
when interest rates fall, and the Fund might then have to reinvest the proceeds
of the callable instrument in other securities that have lower yields, reducing
its income.
|X| Risks of Non-Diversification. The Fund is "non-diversified." That
means that compared to funds that are diversified, it can invest a greater
portion of its assets in the securities of one issuer, such as bonds issued by
the State of Florida. Having a higher percentage of its assets invested in the
securities of fewer issuers, particularly government issuers of one state, could
result in greater fluctuations of the Fund's share prices due to economic,
regulatory or political problems in Florida.
|X| Risks in Using Derivative Investments. The Fund can use derivatives to
seek increased returns or to try to hedge investment risks. In general terms, a
derivative investment is an investment contract whose value depends on (or is
derived from) the value of an underlying asset, interest rate or index. Options,
futures, "inverse floaters" and variable rate obligations are examples of
derivatives.
If the issuer of the derivative investment does not pay the amount due,
the Fund can lose money on its investment. Also, the underlying security or
investment on which the derivative is based, and the derivative itself, may not
perform the way the Manager expected it to perform. If that happens, the Fund
will get less income than expected or its share price could decline. To try to
preserve capital, the Fund has limits on the amount of particular types of
derivatives it can hold. However, using derivatives can increase the volatility
of the Fund's share prices. Some derivatives may be illiquid, making it
difficult for the Fund to sell them quickly at an acceptable price.
How Risky Is the Fund Overall? The value of the Fund's investments will change
over time due to a number of factors. They include changes in general bond
market movements, the change in value of particular bonds because of an event
affecting the issuer, or changes in interest rates that can affect bond prices
overall. The Fund focuses its investments in Florida municipal securities and is
non-diversified. It will therefore be vulnerable to the effects of economic
changes that affect Florida governmental issuers. These changes can affect the
value of the Fund's investments and its prices per share. In the
OppenheimerFunds spectrum, the Fund is more conservative than some types of
taxable bond funds, such as high yield bond funds, but has greater risks than
money market funds.
An investment in the Fund is not a deposit of any bank, and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
The Fund's Past Performance
The bar chart and table below show one measure of the risks of investing in the
Fund, by showing changes in the Fund's performance (for its Class A shares) from
year to year for the full calendar years since the Fund's inception (10/1/93)
and by showing how the average annual total returns of the Fund's shares compare
to those of a broad-based market index. The Fund's past investment performance
is not necessarily an indication of how the Fund will perform in the future.
[See Appendix for Bar Chart Data]
For the period from 1/1/00 through 9/30/00, the cumulative return (not
annualized) for Class A shares was 6.47%. Sales charges are not included in the
calculations of return in this bar chart, and if those charges were included,
the returns would be less than those shown.
During the period shown in the bar chart, the highest return (not annualized)
for a calendar quarter was 7.65% (1Q'95) and the lowest return (not annualized)
for a calendar quarter was -6.62% (1Q'94).
----------------------------------------------------------------------
Average Annual
Total Returns for 5 Years 10 Years
the periods 1 Year (or life of (or life of
ending December class, if less) class, if less)
31, 1999
------------------- ----------------------------------
----------------------------------------------------------------------
Class A Shares
(Inception -9.59% 5.04% 3.40%
10/1/93)
----------------------------------------------------------------------
------------------- ----------------------------------
Lehman Brothers
Municipal Bond -2.06% 6.91% 4.38%
Index
(from 9/30/93)
----------------------------------------------------------------------
----------------------------------------------------------------------
Class B Shares -10.37% 4.94% 3.48%
(Inception
10/1/93)
----------------------------------------------------------------------
----------------------------------------------------------------------
Class C Shares
(Inception -6.70% 3.70% N/A
8/29/95)
----------------------------------------------------------------------
----------------------------------------------------------------------
The Fund's average annual total returns include the applicable sales charge: for
Class A, the current maximum initial sales charge of 4.75%; for Class B, the
applicable contingent deferred sales charges of 5% (1-year) and 2% (5 years);
for Class C, the 1% contingent deferred sales charge for the 1-year period. The
returns measure the performance of a hypothetical account and assume that all
dividends and capital gains distributions have been reinvested in additional
shares. The Fund's performance is compared to the Lehman Brothers Municipal Bond
Index, an unmanaged index of a broad range of investment grade municipal bonds.
The index includes municipal securities from many states while the Fund focuses
on Florida municipal securities, and the index performance does not consider the
effects of capital gains or transaction costs.
Fees and Expenses of the Fund
The Fund pays a variety of expenses directly for management of its assets,
administration, distribution of its shares and other services. Those expenses
are subtracted from the Fund's assets to calculate the Fund's net asset values
per share. All shareholders therefore pay those expenses indirectly.
Shareholders pay other expenses directly, such as sales charges and account
transaction charges. The following tables are meant to help you understand the
fees and expenses you may pay if you buy and hold shares of the Fund. The
numbers below are based on the Fund's expenses during its fiscal year ended July
31, 2000.
Shareholder Fees (charges paid directly from your investment):
----------------------------------------------------------------------
Class A Class B Class C
Shares Shares Shares
----------------------------------------------------------------------
----------------------------------------------------------------------
Maximum Sales Charge (Load) 4.75% None None
on purchases (as a % of
offering price)
----------------------------------------------------------------------
----------------------------------------------------------------------
Maximum Deferred Sales None1 5%2 1%3
Charge (Load) (as % of the
lower of the original
offering price or
redemption proceeds)
----------------------------------------------------------------------
1. A 1% contingent deferred sales charge may apply to redemptions of investments
of $1 million or more of Class A shares. See "How to Buy Shares" for details.
2. Applies to redemptions in first year after purchase. The contingent
deferred sales charge declines to 1% in the sixth year and is eliminated
after that.
3. Applies to shares redeemed within twelve (12) months of purchase.
Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)
----------------------------------------------------------------------
Class A Class B Class C
Shares Shares Shares
----------------------------------------------------------------------
----------------------------------------------------------------------
Management Fees* 0.60% 0.60% 0.60%
----------------------------------------------------------------------
----------------------------------------------------------------------
Distribution and/or Service
(12b-1) Fees 0.14% 0.90% 0.90%
----------------------------------------------------------------------
----------------------------------------------------------------------
Other Expenses 0.39% 0.39% 0.39%
----------------------------------------------------------------------
----------------------------------------------------------------------
Total Annual Operating Expenses 1.13% 1.89% 1.89%
----------------------------------------------------------------------
* The management fee expenses in the table are based on the fees the Fund would
have paid if the Manager had not waived a portion of its fee under a voluntary
undertaking to the Fund. After the Manager's waiver, the actual management fee
as a percentage of average daily net assets was 0.43% for each class of shares.
The Manager can withdraw that voluntary waiver at any time. The service fee
payable under the 12b-1 plans for each class of shares is a maximum of 0.25%
(currently set by the Board at 0.15%) of average annual net assets of the class.
Expenses may vary in future years. "Other Expenses" include transfer agent fees,
custodial fees, and accounting and legal expenses the Fund pays.
Examples. The following examples are intended to help you compare the cost of
investing in the Fund with the cost of investing in other mutual funds. The
examples assume that you invest $10,000 in a class of shares of the Fund for the
time periods indicated, and reinvest your dividends and distributions.
The first example assumes that you redeem all of your shares at the end of
those periods. The second example assumes you keep your shares. Both examples
also assume that your investment has a 5% return each year and that the class's
operating expenses remain the same. Your actual costs may be higher or lower
because expenses will vary over time. Based on these assumptions your expenses
would be as follows:
----------------------------------------------------------------------
If shares are 1 year 3 years 5 years 10 years1
redeemed:
----------------------------------------------------------------------
----------------------------------------------------------------------
Class A Shares $585 $817 $1,068 $1,784
----------------------------------------------------------------------
----------------------------------------------------------------------
Class B Shares $692 $894 $1,221 $1,832
----------------------------------------------------------------------
----------------------------------------------------------------------
Class C Shares $292 $594 $1,021 $2,212
----------------------------------------------------------------------
----------------------------------------------------------------------
If shares are not 1 year 3 years 5 years 10 years1
redeemed:
----------------------------------------------------------------------
----------------------------------------------------------------------
Class A Shares $585 $817 $1,068 $1,784
----------------------------------------------------------------------
----------------------------------------------------------------------
Class B Shares $192 $594 $1,021 $1,832
----------------------------------------------------------------------
----------------------------------------------------------------------
Class C Shares $192 $594 $1,021 $2,212
----------------------------------------------------------------------
In the first example, expenses include the initial sales charge for Class A and
the applicable Class B or Class C contingent deferred sales charges. In the
second example, the Class A expenses include the sales charge, but Class B and
Class C expenses do not include contingent deferred sales charges.
1. Class B expense for years 7 through 10 are based on Class A expenses, since
Class B shares automatically convert to Class A after six (6) years.
About the Fund's Investments
The Fund's Principal Investment Policies. The allocation of the Fund's portfolio
among different types of investments will vary over time based on the Manager's
evaluation of economic and market trends. The Fund's portfolio might not always
include all of the different types of investments described below.
The Manager tries to reduce risks by selecting a wide variety of municipal
investments and by carefully researching securities before they are purchased.
However, changes in the overall market prices of municipal securities and the
income they pay can occur at any time. The yield and share prices of the Fund
will change daily based on changes in market prices of securities interest rates
and market conditions and in response to other economic events. The Statement of
Additional Information contains more detailed information about the Fund's
investment policies and risks.
Because the Fund also seeks to offer investors the opportunity to own
securities exempt from Florida intangible personal property taxes, the Fund will
attempt to hold on the last business day of each calendar year only those
investments that will not subject the Fund's shares to that tax.
What is A Municipal Security? A municipal security is essentially a loan by the
buyer to the issuer of the security. The issuer promises to pay back the
principal amount of the loan and normally pay interest exempt from federal
personal income taxes.
|X| Municipal Securities. The Fund buys municipal bonds and notes,
certificates of participation in municipal leases and other debt obligations.
Florida municipal securities are debt obligations issued by the State of Florida
and its political subdivisions (such as cities, towns, counties, agencies and
authorities). The Fund can also buy other municipal securities issued by the
governments of the District of Columbia and of other states, as well as their
political subdivisions, authorities and agencies, and securities issued by any
commonwealths, territories or possessions of the United States, or their
respective agencies, instrumentalities or authorities, if the interest paid on
the security is not subject to federal personal income tax (in the opinion of
bond counsel to the issuer at the time the security is issued).
Municipal securities are issued to raise money for a variety of public or
private purposes, including financing state or local governments, financing
specific projects or public facilities. The Fund can buy both long-term and
short-term municipal securities. Long-term securities have a maturity of more
than one (1) year. The Fund generally focuses on longer-term securities, to seek
higher income.
The Fund can buy municipal securities that are "general obligations,"
secured by the issuer's pledge of its full faith, credit and taxing power for
the payment of principal and interest. The Fund can also buy "revenue
obligations," payable only from the revenues derived from a particular facility
or class of facilities, or a specific excise tax or other revenue source. Some
of these revenue obligations are private activity bonds that pay interest that
may be a tax preference for investors subject to federal alternative minimum
tax.
|X| Municipal Lease Obligations. Municipal leases are used by state and
local government authorities to obtain funds to acquire land, equipment or
facilities. The Fund can invest in certificates of participation that represent
a proportionate interest in payments made under municipal lease obligations.
Most municipal leases, while secured by the leased property, are not general
obligations of the issuing municipality. They often contain "non-appropriation"
clauses that provide that the municipal government has no obligation to make
lease or installment payments in future years unless money is appropriated on a
yearly basis. If the government stops making payments or transfers its payment
obligations to a private entity, the obligation could lose value or become
taxable. Some lease obligations might not have an active trading market, making
it difficult for the Fund to sell them quickly at an acceptable price.
|X| Ratings of Municipal Securities the Fund Buys. Most of the municipal
securities the Fund buys are "investment grade" at the time of purchase. The
Fund does not invest more than 25% of its total assets in municipal securities
that at the time of purchase are not "investment-grade." "Investment grade"
securities are those rated within the four (4) highest rating categories of
Moody's, Standard & Poor's Rating Services, Fitch, Inc. or another nationally
recognized rating organization, or (if unrated) judged by the Manager to be
comparable to rated investment grade securities. Rating categories are described
in the Statement of Additional Information. If a security the Fund buys is not
rated, the Manager will use its judgment to assign a rating that it believes is
comparable to that of a rating organization.
The Manager relies to some extent on credit ratings by nationally
recognized rating agencies in evaluating the credit risk of securities selected
for the Fund's portfolio. It also uses its own research and analysis. Many
factors affect an issuer's ability to make timely payments, and the credit risks
of a particular security may change over time. If a rating of a security is
reduced after the Fund buys it, the Fund is not required automatically to
dispose of that security. However, the Manager will evaluate those securities to
determine whether to keep them in the Fund's portfolio.
|_| Special Credit Risks of Lower-Grade Securities. Municipal
securities below investment-grade (sometimes called "junk bonds") usually offer
higher yields than investment-grade securities but are subject to greater price
fluctuations and risks of loss of income and principal than investment-grade
municipal securities. Securities that are (or that have fallen) below investment
grade have a greater risk that the issuers may not meet their debt obligations.
They may also be less liquid than investment-grade securities, making it harder
for the Fund to sell them at an acceptable price.
|X| Can the Fund's Investment Objective and Policies Change? The Fund's
Board of Trustees can change non-fundamental policies without shareholder
approval, although significant changes will be described in amendments to this
Prospectus. Fundamental policies cannot be changed without the approval of a
majority of the Fund's outstanding voting shares. The Fund's investment
objective is a fundamental policy. Other investment restrictions that are
fundamental policies are listed in the Statement of Additional Information. An
investment policy or technique is not fundamental unless this Prospectus or the
Statement of Additional Information says that it is.
Other Investment Strategies. To seek its objective, the Fund can also use the
investment techniques and strategies described below. The Manager might not
always use all of the different types of techniques and investments described
below. These techniques involve risks, although some are designed to help reduce
investment or market risk.
|X| Floating Rate/Variable Rate Obligations. Some municipal securities
have variable or floating interest rates. Variable rates are adjustable at
stated periodic intervals. Floating rates are automatically adjusted according
to a specified market rate for such investments, such as the percentage of the
prime rate of a bank, or the ninety-one (91) day U.S.
Treasury Bill rate.
|X| Inverse Floaters Have Special Risks. Variable rate bonds known as
"inverse floaters" pay interest at rates that move in the opposite direction of
yields on short-term bonds in response to market changes. As interest rates
rise, inverse floaters produce less current income, and their market value can
become volatile. Inverse floaters are a type of "derivative security." Some have
a "cap," so that if interest rates rise above the "cap," the security pays
additional interest income. If rates do not rise above the "cap," the Fund will
have paid an additional amount for a feature that proves worthless. The Fund
will not invest more than 20% of its total assets in inverse floaters.
|X| Other Derivatives. The Fund can invest in other derivative securities
that pay interest that depends on the change in value of an underlying asset,
interest rate or index. Examples are interest rate swaps, municipal bond indices
or swap indices.
|X| "When-Issued" and "Delayed Delivery" Transactions. The Fund can
purchase municipal securities on a "when-issued" basis and can purchase or sell
such securities on a "delayed delivery" basis. Between the purchase and
settlement, no payment is made for the security and no interest accrues to the
buyer from the investment. There is a risk of loss to the Fund if the value of
the security declines prior to the settlement date.
|X| Puts and Stand-By Commitments. The Fund can acquire "stand-by
commitments" or "puts" with respect to municipal securities. The investments
give the Fund the right to sell securities at a set price on demand to the
issuing broker-dealer or bank. However, a security having this feature may have
a lower interest rate. The Fund will acquire stand-by commitments or puts solely
to enhance portfolio liquidity.
|X| Illiquid and Restricted Securities. Investments may be illiquid
because they do not have an active trading market, making it difficult to value
them or dispose of them promptly at an acceptable price. Restricted securities
may have terms that limit their resale to other investors or may require
registration under federal securities laws before they can be sold publicly. The
Fund will not invest more than 15% of its net assets in illiquid securities and
cannot invest more than 10% of its net assets in restricted securities. Certain
restricted securities that are eligible for resale to qualified institutional
purchasers may not be subject to that limit. The Manager monitors holdings of
illiquid securities on an ongoing basis to determine whether to sell any
holdings to maintain adequate liquidity.
|X| Borrowing for Investment Leverage. The Fund can borrow money to
purchase additional securities, a technique referred to as "leverage." As a
fundamental policy, the Fund's borrowing for investment purposes must be from
banks and is limited to not more than 10% of the Fund's total assets. The
interest on borrowed money is an expense that might reduce the Fund's yield.
|X| Hedging. The Fund can purchase and sell futures contracts, put and
call options, and enter into interest rate swap agreements. These are all
referred to as "hedging instruments." The Fund does not use hedging instruments
for speculative purposes, and has limits on its use of them. The Fund does not
use hedging instruments to a substantial degree and is not required to use them
in seeking its goal.
Hedging involves risks. If the Manager uses a hedging instrument at the
wrong time or judges market conditions incorrectly, the hedge might be
unsuccessful and the strategy could reduce the Fund's return. The Fund could
also experience losses if the prices of its futures and options positions were
not correlated with its other investments or if it could not close out a
position because of an illiquid market for the future or option.
Interest rate swaps are subject to credit risks and interest rate risks.
The Fund could be obligated to pay more under its swap agreements than it
receives under them, as a result of interest rate changes. The Fund cannot enter
into swaps with respect to more than 25% of its total assets.
Temporary Defensive Investments. The Fund can invest up to 100% of its total
assets in temporary defensive investments during periods of unusual market
conditions. Generally, the Fund's defensive investments will be short-term
municipal securities, but could be U.S. government securities or highly-rated
corporate debt securities. The income from some temporary defensive investments
might not be tax-exempt, and therefore when making those investments the Fund
might not achieve its objective.
Under normal market conditions, the Fund can also hold these types of
investments for cash management purposes pending the investment of proceeds from
the sale of Fund shares or portfolio securities or to meet anticipated
redemptions of Fund shares.
How the Fund is Managed
The Manager. The Manager chooses the Fund's investments and handles its
day-to-day business. The Manager carries out its duties, subject to the policies
established by the Board of Trustees, under an investment advisory agreement
that states the Manager's responsibilities. The agreement sets the fees the Fund
pays to the Manager and describes the expenses that the Fund is responsible to
pay to conduct its business.
The Manager has operated as an investment advisor since January 1960. The
Manager (including subsidiaries) managed more than $125 billion in assets as of
October 31, 2000, including other Oppenheimer funds with more than 5 million
shareholder accounts. The Manager is located at Two World Trade Center, 34th
Floor, New York, New York 10048-0203.
|X| Portfolio Manager. The portfolio manager of the Fund is Jerry A.
Webman, a Senior Vice President of the Manager. Mr. Webman is the person
principally responsible for the day-to-day management of the Fund's portfolio
effective October 2, 2000. Mr. Webman serves as a Senior Investment Officer
and Director of the Fixed Income Department of the Manager since February
1996 and a Senior Vice President of HarbourView Asset Management Corporation
since May 1999. He is also a portfolio manager of other Oppenheimer funds.
Before joining the Manager, Mr. Webman was a Vice President and portfolio
manager with Prudential Investment Corporation from March 1986 through
February 1996.
|X| Advisory Fees. Under the investment advisory agreement, the Fund pays
the Manager an advisory fee at an annual rate that declines as the Fund's assets
grow: 0.60% of the first $200 million of average annual net assets, 0.55% of the
next $100 million, 0.50% of the next $200 million, 0.45% of the next $250
million, 0.40% of the next $250 million, and 0.35% of average annual net assets
in excess of $1 billion. The Fund's management fees for its last fiscal year
ended July 31, 2000, was 0.43% of average annual net assets for each class of
shares (after the Manager's waiver of a portion of its fee).
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About Your Account
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How to Buy Shares
How Do You Buy Shares? You can buy shares several ways, as described below. The
Fund's Distributor, OppenheimerFunds Distributor, Inc., may appoint servicing
agents to accept purchase (and redemption) orders. The Distributor, in its sole
discretion, may reject any purchase order for the
Fund's shares.
|X| Buying Shares Through Your Dealer. You can buy shares through any
dealer, broker or financial institution that has a sales agreement with the
Distributor. Your dealer will place your order with the Distributor on your
behalf.
|X| Buying Shares Through the Distributor. Complete an OppenheimerFunds New
Account Application and return it with a check payable to "OppenheimerFunds
Distributor, Inc." Mail it to P.O. Box 5270, Denver, Colorado 80217. If you
don't list a dealer on the application, the Distributor will act as your agent
in buying the shares. However, we recommend that you discuss your investment
with a financial advisor before you make a purchase to be sure that the Fund is
appropriate for you.
|X| Paying by Federal Funds Wire. Shares purchased through the Distributor
may be paid for by Federal Funds wire. The minimum investment is $2,500. Before
sending a wire, call the Distributor's Wire Department at 1.800.525.7048 to
notify the Distributor of the wire and to receive further instructions.
|X| Buying Shares Through OppenheimerFunds AccountLink. With AccountLink,
shares are purchased for your account by a transfer of money from your bank
account through the Automated Clearing House (ACH) system. You can provide those
instructions automatically, under an Asset Builder Plan, described below, or by
telephone instructions using OppenheimerFunds PhoneLink, also described below.
Please refer to "AccountLink," below for more details.
|X| Buying Shares Through Asset Builder Plans. You may purchase shares of
the Fund (and up to four (4) other Oppenheimer funds) automatically each month
from your account at a bank or other financial institution under an Asset
Builder Plan with AccountLink. Details are in the Asset Builder Application and
the Statement of Additional Information.
How Much Must You Invest? You can buy Fund shares with a minimum initial
investment of $1,000. You can make additional investments at any time with as
little as $25. There are reduced minimum investments under special investment
plans.
|X| With Asset Builder Plans, Automatic Exchange Plans and military
allotment plans, you can make initial and subsequent investments for as little
as $25. You can make additional purchases of at least $25 by telephone through
AccountLink.
|X| The minimum investment requirement does not apply to reinvesting
dividends from the Fund or other Oppenheimer funds (a list of them appears in
the Statement of Additional Information, or you can ask your dealer or call the
Transfer Agent), or reinvesting distributions from unit investment trusts that
have made arrangements with the Distributor.
At What Price Are Shares Sold? Shares are sold at their offering price which is
the net asset value per share plus any initial sales charge that applies. The
offering price that applies to a purchase order is based on the next calculation
of the net asset value per share that is made after the Distributor receives the
purchase order at its offices in Denver, Colorado, or after any agent appointed
by the Distributor receives the order and sends it to the Distributor.
Net Asset Value. The Fund calculates the net asset value of each class of shares
as of the close of The New York Stock Exchange, on each day the Exchange is open
for trading (referred to in this Prospectus as a "regular business day"). The
Exchange normally closes at 4:00 P.M., New York time, but may close earlier on
some days. All references to time in this Prospectus mean "New York time".
The net asset value per share is determined by dividing the value of the
Fund's net assets attributable to a class by the number of shares of that class
that are outstanding. To determine net asset value, the Fund's Board of Trustees
has established procedures to value the Fund's securities, in general based on
market value. The Board has adopted special procedures for valuing illiquid
securities and obligations for which market values cannot be readily obtained.
|X| The Offering Price. To receive the offering price for a particular day,
in most cases the Distributor or its designated agent must receive your order by
the time of day The New York Stock Exchange closes that day. If your order is
received on a day when the Exchange is closed or after it has closed, the order
will receive the next offering price that is determined after your order is
received. Shares purchased for your account through AccountLink normally will be
purchased two (2) business days after the regular business day on which you
instructed the Distributor to initiate the ACH transfer to buy the shares.
|X| Buying Through a Dealer. Your dealer must receive the order by the
close of The New York Stock Exchange and transmit it to the Distributor so that
it is received before the Distributor's close of business on a regular business
day (normally 5:00 P.M.) to receive that day's offering price. Otherwise, the
order will receive the next offering price that is determined.
What Classes of Shares Does the Fund Offer? The Fund offers investors three
(3) different classes of shares. The different classes of shares represent
investments in the same portfolio of securities, but the classes are subject
to different expenses and will likely have different share prices. When you
buy shares, be sure to specify the class of shares. If you do not choose a
class, your investment will be made in Class A shares.
|X| Class A Shares. If you buy Class A shares, you pay an initial sales
charge (on investments up to $1 million). The amount of that sales charge will
vary depending on the amount you invest. The sales charge rates are listed in
"How Can You Buy Class A Shares?" below.
|X| Class B Shares. If you buy Class B shares, you pay no sales charge
at the time of purchase, but you will pay an annual asset-based sales
charge. If you sell your shares within six (6) years of buying them, you
will normally pay a contingent deferred sales charge. That contingent
deferred sales charge varies depending on how long you own your shares, as
described in "How Can You Buy Class B Shares?" below.
|X| Class C Shares. If you buy Class C shares, you pay no sales charge at
the time of purchase, but you will pay an annual asset-based sales charge. If
you sell your shares within twelve (12) months of buying them, you will normally
pay a contingent deferred sales charge of 1%, as described in "How Can You Buy
Class C Shares?" below.
Which Class of Shares Should You Choose? Once you decide that the Fund is an
appropriate investment for you, the decision as to which class of shares is best
suited to your needs depends on a number of factors that you should discuss with
your financial advisor. Some factors to consider are how much you plan to invest
and how long you plan to hold your investment. If your goals and objectives
change over time and you plan to purchase additional shares, you should
re-evaluate those factors to see if you should consider another class of shares.
The Fund's operating costs that apply to a class of shares and the effect of the
different types of sales charges on your investment will vary your investment
results over time.
The discussion below is not intended to be investment advice or a
recommendation, because each investor's financial considerations are different.
The discussion below assumes that you will purchase only one class of shares and
not a combination of shares of different classes. Of course, these examples are
based on approximations of the effect of current sales charges and expenses
projected over time, and do not detail all of the considerations in selecting a
class of shares. You should analyze your options carefully with your financial
advisor before making that choice.
|X| How Long Do You Expect to Hold Your Investment? While future financial
needs cannot be predicted with certainty, knowing how long you expect to hold
your investment will assist you in selecting the appropriate class of shares.
Because of the effect of class-based expenses, your choice will also depend on
how much you plan to invest. For example, the reduced sales charges available
for larger purchases of Class A shares may, over time, offset the effect of
paying an initial sales charge on your investment, compared to the effect over
time of higher class-based expenses on shares of Class B or Class C .
|_| Investing for the Shorter Term. While the Fund is meant to be a
long-term investment, if you have a relatively short-term investment horizon
(that is, you plan to hold your shares for not more than six (6) years), you
should probably consider purchasing Class A or Class C shares rather than Class
B shares. That is because of the effect of the Class B contingent deferred sales
charge if you redeem within six (6) 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 (1) year.
However, if you plan to invest more than $100,000 for the shorter term,
then as your investment horizon increases toward six (6) years, Class C shares
might not be as advantageous as Class A shares. That is because the annual
asset-based sales charge on Class C shares will have a greater impact on your
account over the longer term than the reduced front-end sales charge available
for larger purchases of Class A shares.
And for investors who invest $1 million or more, in most cases Class A
shares will be the most advantageous choice, no matter how long you intend to
hold your shares. For that reason, the Distributor normally will not accept
purchase orders of $500,000 or more of Class B shares or $1 million or more of
Class C shares from a single investor.
|_| Investing for the Longer Term. If you are investing less than $100,000
for the longer-term, for example for retirement, and do not expect to need
access to your money for seven (7) years or more, Class B shares may be
appropriate.
Of course, these examples are based on approximations of the effect of
current sales charges and expenses projected over time, and do not detail all of
the considerations in selecting a class of shares. You should analyze your
options carefully with your financial advisor before making that choice.
|X| Are There Differences in Account Features That Matter to You? Some
account features may not be available to Class B or Class C shareholders. Other
features may not be advisable (because of the effect of the contingent deferred
sales charge) for Class B or Class C shareholders. Therefore, you should
carefully review how you plan to use your investment account before deciding
which class of shares to buy. Additionally, the dividends payable to Class B and
Class C shareholders will be reduced by the additional expenses borne by those
classes that are not borne by Class A shares, such as the Class B and Class C
asset-based sales charge described below and in the Statement of Additional
Information. Share certificates 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. Also, checkwriting privileges are not
available for Class B or Class C shares.
|X| How Does It Affect Payments to My Broker? A financial advisor may
receive different compensation for selling one class of shares than for selling
another class. It is important to remember that Class B and Class C contingent
deferred sales charges and asset-based sales charges have the same purpose as
the front-end sales charge on sales of Class A shares: to compensate the
Distributor for concessions and expenses it pays to dealers and financial
institutions for selling shares. The Distributor may pay additional compensation
from its own resources to securities dealers or financial institutions based
upon the value of shares of the Fund owned by the dealer or financial
institution for its own account or for its customers.
Special Sales Charge Arrangements and Waivers. Appendix C to the Statement of
Additional Information details the conditions for the waiver of sales charges
that apply in certain cases, and the special sales charge rates that apply to
purchases of shares of the Fund by certain groups, or under specified retirement
plan arrangements or in other special types of transactions. To receive a waiver
or special sales charge rate, you must advise the Distributor when purchasing
shares or the Transfer Agent when redeeming shares that the special conditions
apply.
How Can You Buy Class A Shares? Class A shares are sold at their offering price,
which is normally net asset value plus an initial sales charge. However, in some
cases, described below, purchases are not subject to an initial sales charge,
and the offering price will be the net asset value. In other cases, reduced
sales charges may be available, as described below or in the Statement of
Additional Information. Out of the amount you invest, the Fund receives the net
asset value to invest for your account.
The sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor or allocated to
your dealer as concession. The Distributor reserves the right to reallow the
entire concession to dealers. The current sales charge rates and concessions
paid to dealers and brokers are as follows:
----------------------------------------------------------------------
Front-End Sales Front-End
Sales Concession As a
Charge As a Charge As
a Percentage of
Percentage of Percentage of Net Offering
Amount of Purchase Offering Price Amount Invested Price
----------------------------------------------------------------------
Less than $50,000 4.75% 4.98% 4.00%
----------------------------------------------------------------------
$50,000 or more but 4.50% 4.71% 4.00%
less than $100,000
----------------------------------------------------------------------
----------------------------------------------------------------------
$100,000 or more but 3.50% 3.63% 3.00%
less than $250,000
----------------------------------------------------------------------
----------------------------------------------------------------------
$250,000 or more but 2.50% 2.56% 2.25%
less than $500,000
----------------------------------------------------------------------
----------------------------------------------------------------------
$500,000 or more but 2.00% 2.04% 1.80%
less than $1 million
----------------------------------------------------------------------
|X| 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
concessions in an amount equal to 0.50% of purchases of $1 million or more other
than by retirement accounts. That concession will be paid only on purchases that
were not previously subject to a front-end sales charge and dealer concession.
If you redeem any of those shares within eighteen (18) months of the end
of the calendar month of their purchase, a contingent deferred sales charge
(called the "Class A contingent deferred sales charge") may be deducted from the
redemption proceeds. That sales charge will be equal to 1.0% of the lesser of
(1) the aggregate net asset value of the redeemed shares at the time of
redemption (excluding shares purchased by reinvestment of dividends or capital
gain distributions) or (2) the original net asset value of the redeemed shares.
However, the Class A contingent deferred sales charge will not exceed the
aggregate amount of the concessions the Distributor paid to your dealer on all
purchases of Class A shares of all Oppenheimer funds you made that were subject
to the Class A contingent deferred sales charge.
How Can You Reduce Sales Charges in Buying Class A Shares? You may be eligible
to buy Class A shares at reduced sales charge rates under the Fund's "Right of
Accumulation" or a Letter of Intent, as described in "Reduced Sales Charges" in
the Statement of Additional Information.
How Can You Buy Class B Shares? Class B shares are sold at net asset value per
share without an initial sales charge. However, if Class B shares are redeemed
within six (6) years of their purchase, a contingent deferred sales charge will
be deducted from the redemption proceeds. The Class B contingent deferred sales
charge is paid to compensate the Distributor for its expenses of providing
distribution-related services to the Fund in connection with the sale of Class B
shares.
The 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 for the Class B contingent deferred sales
charge holding period:
----------------------------------------------------------------------
Years Since Beginning of Contingent Deferred Sales Charge
Month in which Purchase On Redemptions in That Year
Order Was Accepted (As % of Amount Subject to Charge)
----------------------------------------------------------------------
----------------------------------------------------------------------
0-1 5.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
1-2 4.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
2-3 3.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
3-4 3.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
4-5 2.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
5-6 1.0%
----------------------------------------------------------------------
----------------------------------------------------------------------
6 and following None
----------------------------------------------------------------------
In the table, a "year" is a twelve (12) month period. In applying the sales
charge, all purchases are considered to have been made on the first regular
business day of the month in which the purchase was made.
|X| Automatic Conversion of Class B Shares. Class B shares automatically
convert to Class A shares seventy-two (72) months after you purchase them. This
conversion feature relieves Class B shareholders of the asset-based sales charge
that applies to Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset value of the
two classes, and no sales load or other charge is imposed. When Class B shares
you hold 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 the Statement of Additional
Information.
How Can You Buy Class C Shares? Class C shares are sold at net asset value per
share without an initial sales charge. However, if Class C shares are redeemed
within twelve (12) months of their purchase, a contingent deferred sales charge
of 1.0% will be deducted from the redemption proceeds. The Class C contingent
deferred sales charge is paid to compensate the Distributor for its expenses of
providing distribution-related services to the Fund in connection with the sale
of Class C shares.
Distribution and Service (12b-1) Plans.
|X| Service Plan for Class A Shares. The Fund has adopted a Service Plan
for Class A shares. It reimburses the Distributor for a portion of its costs
incurred for services provided to accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate of up to 0.15% of the average
annual net assets of Class A shares of the Fund. The Distributor currently uses
all of those fees to compensate dealers, brokers, banks and other financial
institutions quarterly for providing personal service and maintenance of
accounts of their customers that hold Class A shares.
|X| Distribution and Service Plans for Class B and Class C Shares. The
Fund has adopted Distribution and Service Plans for Class B and Class C shares
to compensate the Distributor for its services and costs in distributing Class B
and Class C shares and servicing accounts. Under the plans, the Fund pays the
Distributor an annual asset-based sales charge of 0.75% per year on Class B
shares and on Class C shares. The Distributor also receives a service fee of
0.15% per year under each plan.
The asset-based sales charge and service fees increase Class B and Class C
expenses by up to 0.90% of the net assets per year of the respective class.
Because these fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than other types of sales charges.
The Distributor uses the service fees to compensate dealers for providing
personal services for accounts that hold Class B or Class C shares. The
Distributor pays the 0.15% service fees to dealers in advance for the first year
after the shares were sold by the dealer. After the shares have been held for a
year, the Distributor pays the service fees to dealers on a quarterly basis.
The Distributor currently pays a sales concession of 3.85% of the purchase
price of Class B shares to dealers from its own resources at the time of sale.
Including the advance of the service fee, the total amount paid by the
Distributor to the dealer at the time of sale of Class B shares is therefore
4.00% of the purchase price. The Distributor retains the Class B asset-based
sales charge.
The Distributor currently pays sales concessions 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 concession to the dealer on Class C shares that have been
outstanding for a year or more.
Special Investor Services
AccountLink. You can use our AccountLink feature to link your Fund account
with an account at a U.S. bank or other financial institution. It must be an
Automated Clearing House (ACH) member. AccountLink lets you:
|X| transmit funds electronically to purchase shares by telephone
(through a service representative or by PhoneLink) or automatically
under Asset Builder Plans, or
|X| have the Transfer Agent send redemption proceeds or to transmit
dividends and distributions directly to your bank account. Please
call the Transfer Agent for more information.
You may purchase shares by telephone only after your account has been
established. To purchase shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1.800.852.8457. The purchase payment
will be debited from your bank account.
AccountLink privileges should be requested on your Application or your
dealer's settlement instructions if you buy your shares through a dealer. After
your account is established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent. AccountLink privileges
will apply to each shareholder listed in the registration on your account as
well as to your dealer representative of record unless and until the Transfer
Agent receives written instructions terminating or changing those privileges.
After you establish AccountLink for your account, any change of bank account
information must be made by signature-guaranteed instructions to the Transfer
Agent signed by all shareholders who own the account.
PhoneLink. PhoneLink is the OppenheimerFunds automated telephone system that
enables shareholders to perform a number of account transactions automatically
using a touch-tone phone. PhoneLink may be used on already-established Fund
accounts after you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number, 1.800.533.3310.
|X| 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.
|X| 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.
|X| Selling Shares. You can redeem shares by telephone automatically by
calling the PhoneLink number and the Fund will send the proceeds directly to
your AccountLink bank account. Please refer to "How to Sell Shares," below for
details.
Can You Submit Transaction Requests by Fax? You may send requests for certain
types of account transactions to the Transfer Agent by fax (telecopier). Please
call 1.800.525.7048 for information about which transactions may be handled this
way. Transaction requests submitted by fax are subject to the same rules and
restrictions as written and telephone requests described in this Prospectus.
OppenheimerFunds Internet Web Site. You can obtain information about the Fund,
as well as your account balance, on the OppenheimerFunds Internet web site, at
http://www.oppenheimerfunds.com. Additionally, shareholders listed in the
account registration (and the dealer of record) may request certain account
transactions through a special section of that web site. To perform account
transactions, you must first obtain a personal identification number (PIN) by
calling the Transfer Agent at 1.800.533.3310. If you do not want to have
Internet account transaction capability for your account, please call the
Transfer Agent at 1.800.525.7048.
Automatic Withdrawal and Exchange Plans. The Fund has several plans that enable
you to sell shares automatically or exchange them to another Oppenheimer fund
account on a regular basis. Please call the Transfer Agent or consult the
Statement of Additional Information for details.
Reinvestment Privilege. If you redeem some or all of your Class A or Class B
shares of the Fund, you have up to six (6) months to reinvest all or part of the
redemption proceeds in Class A shares of the Fund or other Oppenheimer funds
without paying a sales charge. This privilege applies only to Class A shares
that you purchased subject to an initial sales charge and to Class A or Class B
shares on which you paid a contingent deferred sales charge when you redeemed
them. This privilege does not apply to Class C shares. You must be sure to ask
the Distributor for this privilege when you send your payment.
How to Sell Shares
You can sell (redeem) some or all of your shares on any regular business
day. Your shares will be sold at the next net asset value calculated after your
order is received in proper form (which means that it must comply with the
procedures described below) and is accepted by the Transfer Agent. The Fund lets
you sell your shares by writing a letter, by using the Fund's checkwriting
privilege or by telephone. You can also set up Automatic Withdrawal Plans to
redeem shares on a regular basis. If you have questions about any of these
procedures, and especially if you are redeeming shares in a special situation,
such as due to the death of the owner, please call the Transfer Agent first, at
1.800.525.7048, for assistance.
Certain Requests Require a Signature Guarantee. To protect you and the
Fund from fraud, the following redemption requests must be in writing and must
include a signature guarantee (although there may be other situations that
require a signature guarantee):
|X| You wish to redeem $100,000 or more and receive a check |X| The
redemption check is not payable to all shareholders listed on
the account statement
|X| The redemption check is not sent to the address of record on your
account statement
|X| Shares are being transferred to a Fund account with a different
owner or name
|X| Shares are being redeemed by someone (such as an Executor) other
than the owners
Where Can You Have Your Signature Guaranteed? The Transfer Agent will
accept a guarantee of your signature by a number of financial institutions,
including:
|X| a U.S. bank, trust company, credit union or savings association,
|X| by a foreign bank that has a U.S. correspondent bank,
|X| by a U.S. registered dealer or broker in securities, municipal
securities or government securities,
|X| by a U.S. national securities exchange, a registered securities
association or a clearing agency.
If you are signing on behalf of a corporation, partnership or other
business or as a fiduciary, you must also include your title in the signature.
How Do You Sell Shares by Mail? Write a letter of instructions that
includes:
|X| Your name
|X| The Fund's name
|X| Your Fund account number (from your account statement) |X| The dollar
amount or number of shares to be redeemed |X| Any special payment
instructions |X| Any share certificates for the shares you are selling |X|
The signatures of all registered owners exactly as the account is
registered, and
|X| Any special documents requested by the Transfer Agent to assure proper
authorization of the person asking to sell the shares.
-------------------------------------------------------------------------------
Use the following address for requests by mail:
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
OppenheimerFunds Services
-------------------------------------------------------------------------------
P.O. Box 5270, Denver, Colorado 80217-5270
-------------------------------------------------------------------------------
Send courier or express mail requests to:
-------------------------------------------------------------------------------
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
How Do You Sell Shares by Telephone? You and your dealer representative of
record may also sell your shares by telephone. To receive the redemption price
calculated on a particular regular business day, your call must be received by
the Transfer Agent by the close of The New York Stock Exchange that day, which
is normally 4:00 P.M., but may be earlier on some days. You may not redeem
shares held under a share certificate by telephone.
|X| To redeem shares through a service representative, call
1.800.852.8457
|X| To redeem shares automatically on PhoneLink, call 1.800.533.3310
Whichever method you use, you may have a check sent to the address on the
account statement, or, if you have linked your Fund account to your bank account
on AccountLink, you may have the proceeds sent to that bank account.
Are There Limits on Amounts Redeemed by Telephone?
|X| Telephone Redemptions Paid by Check. Up to $100,000 may be redeemed by
telephone in any seven (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 thirty (30) days of changing the
address on an account.
|X| Telephone Redemptions Through AccountLink. There are no dollar limits
on telephone redemption proceeds sent to a bank account designated when you
establish AccountLink. Normally the ACH transfer to your bank is initiated on
the business day after the redemption. You do not receive dividends on the
proceeds of the shares you redeemed while they are waiting to be transferred.
Checkwriting. To write checks against your Fund account, request that privilege
on your account Application, or contact the Transfer Agent for signature cards.
They must be signed (with a signature guarantee) by all owners of the account
and returned to the Transfer Agent so that checks can be sent to you to use.
Shareholders with joint accounts can elect in writing to have checks paid over
the signature of one owner. If you previously signed a signature card to
establish checkwriting in another Oppenheimer fund, simply call 1.800.525.7048
to request checkwriting for an account in this Fund with the same registration
as the other account. See the Statement of Additional Information for terms and
conditions applicable to checkwriting.
|X| Checks can be written to the order of whomever you wish, but may not
be cashed at the bank the checks are payable through or the Fund's custodian
bank.
|X| Checkwriting privileges are not available for accounts holding shares
that are subject to a contingent deferred sales charge.
|X| Checks must be written for at least $100.
|X| 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.
|X| You may not write a check that would require the Fund to redeem shares
that were purchased by check or Asset Builder Plan payments within the prior 10
days.
|X| Don't use your checks if you changed your Fund account number, until
you receive new checks.
Can You Sell Shares Through Your Dealer? The Distributor has made arrangements
to repurchase Fund shares from dealers and brokers on behalf of their customers.
Brokers or dealers may charge for that service. If your shares are held in the
name of your dealer, you must redeem them through your dealer.
How Do Contingent Deferred Sales Charges Affect Redemptions? If you
purchase shares subject to a Class A, Class B or Class C contingent deferred
sales charge and redeem any of those shares during the applicable holding period
for the class of shares you own, the contingent deferred sales charge will be
deducted from redemption proceeds (unless you are eligible for a waiver of that
sales charge based on the categories listed in Appendix C to the Statement of
Additional Information) and you advise the Transfer Agent of your eligibility
for the waiver when you place your redemption request.
A contingent deferred sales charge will be based on the lesser of the net
asset value of the redeemed shares at the time of redemption or the original net
asset value. A contingent deferred sales charge is not imposed on: |X| the
amount of your account value represented by an increase in net asset value over
the initial purchase price, |X| shares purchased by the reinvestment of
dividends or capital gains distributions, or |X| shares redeemed in the special
circumstances described in Appendix C to the Statement of Additional Information
To determine whether a 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 the holding period that applies to the class, and (3) shares
held the longest during the holding period.
Contingent deferred sales charges are not charged when you exchange shares
of the Fund for shares of other Oppenheimer funds. However, if you exchange them
within the applicable contingent deferred sales charge holding period, the
holding period will carry over to the fund whose shares you acquire. Similarly,
if you acquire shares of this Fund by exchanging shares of another Oppenheimer
fund that are still subject to a contingent deferred sales charge holding
period, that holding period will carry over to this Fund.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain Oppenheimer
funds at net asset value per share at the time of exchange, without sales
charge. Shares of the Fund can be purchased by exchange of shares of other
Oppenheimer funds on the same basis. To exchange shares, you must meet several
conditions:
|X| Shares of the fund selected for exchange must be available for sale in
your state of residence.
|X| The prospectuses of both funds must offer the exchange privilege.
|X| You must hold the shares you buy when you establish your account for
at least seven (7) days before you can exchange them. After the account is open
seven (7) days, you can exchange shares every regular business day.
|X| You must meet the minimum purchase requirements for the fund whose
shares you purchase by exchange.
|X| Before exchanging into a fund, you must obtain and read its
prospectus.
Shares of a particular class of the Fund may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, you can exchange
Class A shares of this Fund only for Class A shares of another fund. In some
cases, sales charges may be imposed on exchange transactions. For tax purposes,
exchanges of shares involve a sale of the shares of the fund you own and a
purchase of the shares of the other fund, which may result in a capital gain or
loss. Please refer to "How to Exchange Shares" in the Statement of Additional
Information for more details.
You can find a list of Oppenheimer funds currently available for exchange
in the Statement of Additional Information or obtain one by calling a service
representative at 1.800.525.7048. That list can change from time to time.
How Do You Submit Exchange Requests? Exchanges may be requested in writing or
by telephone:
|X| Written Exchange Requests. Submit an OppenheimerFunds Exchange Request
form, signed by all owners of the account. Send it to the Transfer Agent at the
address on the back cover. Exchanges of shares held under certificates cannot be
processed unless the Transfer Agent receives the certificate with the request.
|X| Telephone Exchange Requests. Telephone exchange requests may be made
either by calling a service representative at 1.800.852.8457, or by using
PhoneLink for automated exchanges by calling 1.800.533.3310. Telephone exchanges
may be made only between accounts that are registered with the same name(s) and
address. Shares held under certificates may not be exchanged by telephone.
Are There Limitations on Exchanges? There are certain exchange policies you
should be aware of:
|X| Shares are normally redeemed from one fund and purchased from the
other fund in the exchange transaction on the same regular business day on which
the Transfer Agent receives an exchange request that conforms to the policies
described above. It must be received by the close of The New York Stock Exchange
that day, which is normally 4:00 P.M. but may be earlier on some days. However,
either fund may delay the purchase of shares of the fund you are exchanging into
up to seven (7) days if it determines it would be disadvantaged by a same-day
exchange. For example, the receipt of multiple exchange requests from a "market
timer" might require the Fund to sell securities at a disadvantageous time
and/or price.
|X| Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange request that it
believes will disadvantage it, or to refuse multiple exchange requests submitted
by a shareholder or dealer.
|X| The Fund may amend, suspend or terminate the exchange privilege at any
time. The Fund will provide you notice whenever it is required to do so by
applicable law, but it may impose changes at any time for emergency purposes.
|X| If the Transfer Agent cannot exchange all the shares you request
because of a restriction cited above, only the shares eligible for exchange will
be exchanged.
Shareholder Account Rules and Policies
More information about the Fund's policies and procedures for buying,
selling and exchanging shares is contained in the Statement of Additional
Information.
|X| 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.
|X| Telephone Transaction Privileges for purchases, redemptions or
exchanges may be modified, suspended or terminated by the Fund at any time. If
an account has more than one owner, the Fund and the Transfer Agent may rely on
the instructions of any one owner. Telephone privileges apply to each owner of
the account and the dealer representative of record for the account unless the
Transfer Agent receives cancellation instructions from an owner of the account.
|X| The Transfer Agent will record any telephone calls to verify data
concerning transactions and has adopted other procedures to confirm that
telephone instructions are genuine, by requiring callers to provide tax
identification numbers and other account data or by using PINs, and by
confirming such transactions in writing. The Transfer Agent and the Fund will
not be liable for losses or expenses arising out of telephone instructions
reasonably believed to be genuine.
|X| 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.
|X| 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.
|X| The redemption price for shares will vary from day to day because the
value of the securities in the Fund's portfolio fluctuates. The redemption
price, which is the net asset value per share, will normally differ for each
class of shares. The redemption value of your shares may be more or less than
their original cost.
|X| Payment for redeemed shares ordinarily is made in cash. It is
forwarded by check or through AccountLink (as elected by the shareholder) within
seven (7) days after the Transfer Agent receives redemption instructions in
proper form. However, under unusual circumstances determined by the Securities
and Exchange Commission, payment may be delayed or suspended. For accounts
registered in the name of a broker-dealer, payment will normally be forwarded
within three (3) business days after redemption.
|X| 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 ten (10) days from
the date the shares were purchased. That delay may be avoided if you purchase
shares by Federal Funds wire or certified check, or arrange with your bank to
provide telephone or written assurance to the Transfer Agent that your purchase
payment has cleared.
|X| Involuntary redemptions of small accounts may be made by the Fund if
the account value has fallen below $200 for reasons other than the fact that the
market value of shares has dropped. In some cases involuntary redemptions may be
made to repay the Distributor for losses from the cancellation of share purchase
orders.
|X| Shares may be "redeemed in kind" under unusual circumstances (such as
a lack of liquidity in the Fund's portfolio to meet redemptions). This means
that the redemption proceeds will be paid with liquid securities from the Fund's
portfolio.
|X| "Backup Withholding" of federal income tax may be applied against
taxable dividends, distributions and redemption proceeds (including exchanges)
if you fail to furnish the Fund your correct, certified Social Security or
Employer Identification Number when you sign your application, or if you
under-report your income to the Internal Revenue Service.
|X| To avoid sending duplicate copies of materials to households, the Fund
will mail only one copy of each prospectus, annual and semi-annual report to
shareholders having the same last name and address on the Fund's records. The
consolidation of these mailings, called householding, benefits the Fund through
reduced mailing expense.
If you want to receive multiple choices of these materials, you may call
the Transfer Agent at 1.800.525.7048. You may also notify the Transfer Agent in
writing. Individual copies of prospectuses and reports will be sent to you
within thirty (30) days after the Transfer Agent receives your request to stop
householding.
Dividends, Capital Gains and Taxes
Dividends. The Fund intends to declare dividends separately for each class of
shares from net tax-exempt income and/or net investment income each regular
business day and to pay those dividends to shareholders monthly on a date
selected by the Board of Trustees. Daily dividends will not be declared or paid
on newly purchased shares until Federal Funds are available to the Fund from the
purchase payment for such shares.
The Fund attempts to pay dividends on Class A shares at a constant level.
There is no assurance that it will be able to do so. The Board of Trustees may
change the targeted dividend level at any time, without prior notice to
shareholders. Dividends and distributions paid on Class A shares will generally
be higher than for Class B and Class C shares, which normally have higher
expenses than Class A. The Fund cannot guarantee that it will pay any dividends
or distributions.
Capital Gains. Although the Fund does not seek capital gains, it may realize
capital gains on the sale of portfolio securities. If it does, it may make
distributions out of any net short-term or long-term capital gains in December
of each year. The Fund may make supplemental distributions of dividends and
capital gains following the end of its fiscal year. Long-term capital gains will
be separately identified in the tax information the Fund sends you after the end
of the calendar year.
What Are Your Choices for Receiving Distributions? When you open your account,
specify on your application how you want to receive your dividends and
distributions. You have four (4) options:
|X| Reinvest All Distributions in the Fund. You can elect to reinvest
all dividends and capital gains distributions in additional shares of the
Fund.
|X| Reinvest Dividends and Capital Gains. You can elect to reinvest some
distributions (dividends, short-term capital gains or long-term capital gains
distributions) in the Fund while receiving dividends by check or having them
sent to your bank account through AccountLink.
|X| Receive All Distributions in Cash. You can elect to receive a check
for all dividends and capital gains distributions or have them sent to your
bank through AccountLink.
|X| Reinvest Your Distributions in Another OppenheimerFunds Account.
You can reinvest all distributions in the same class of shares of another
OppenheimerFunds account you have established.
Taxes. Dividends paid from net investment income earned by the Fund on municipal
securities will be excludable from gross income for federal personal income tax
purposes. A portion of a dividend that is derived from interest paid on certain
"private activity bonds" may be an item of tax preference if you are subject to
the alternative minimum tax. If the Fund earns interest on taxable investments,
any dividends derived from those earnings will be taxable as ordinary income to
shareholders.
To the extent that the Fund's assets on the last business day of a
calendar year include only assets that are exempt from the Florida intangible
personal property tax, such as Florida tax-exempt securities and obligations of
the U.S. government, its agencies, instrumentalities and territories, shares of
the Fund owned by a Florida resident will be exempt from the Florida intangible
personal property tax for the following year.
Dividends and capital gains distributions may be subject to state or local
taxes. Long-term capital gains are taxable as long-term capital gains when
distributed to shareholders. It does not matter how long you have held your
shares. Dividends paid from short-term capital gains are taxable as ordinary
income. Whether you reinvest your distributions in additional shares or take
them in cash, the tax treatment is the same. Every year the Fund will send you
and the IRS a statement showing the amount of any taxable distribution you
received in the previous year as well as the amount of your tax-exempt income.
|X| Remember There May be Taxes on Transactions. Even though the Fund
seeks to distribute tax-exempt income to shareholders, you may have a capital
gain or loss when you sell or exchange your shares. A capital gain or loss is
the difference between the price you paid for the shares and the price you
received when you sold them. Any capital gain is subject to capital gains tax.
|X| Returns of Capital Can Occur. In certain cases, distributions made
by the Fund may be considered a non-taxable return of capital to
shareholders. If that occurs, it will be identified in notices to
shareholders.
This information is only a summary of certain federal income tax and
Florida tax information about your investment. You should consult with your tax
adviser about the effect of an investment in the Fund on your particular tax
situation.
<PAGE>
Financial Highlights
The Financial Highlights Table is presented to help you understand the Fund's
financial performance since its inception. Certain information reflects
financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by KPMG LLP, the Fund's independent auditors, whose
report, along with the Fund's financial statements, is included in the Statement
of Additional Information, which is available on request.
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
July 31, Dec. 31,
Class A 2000 1999 1998 1997 19961 1995
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $ 11.24 $ 11.62 $ 11.47 $ 11.07 $ 11.40 $ 10.26
------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .58 .56 .54 .64 .36 .63
Net realized and unrealized gain (loss) (.45) (.39) .19 .37 (.34) 1.14
----------------------------------------------------------------------
Total income from investment operations .13 .17 .73 1.01 .02 1.77
------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.57) (.55) (.58) (.61) (.35) (.63)
Distributions from net realized gain (.04) -- -- -- -- --
----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.61) (.55) (.58) (.61) (.35) (.63)
------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.76 $11.24 $ 11.62 $ 11.47 $ 11.07 $ 11.40
======================================================================
========================================================================================================================
Total Return, at Net Asset Value2 1.28% 1.36% 6.52% 9.39% 0.25% 17.60%
========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $34,050 $35,924 $35,074 $27,446 $19,366 $19,377
------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $34,296 $36,532 $32,153 $24,333 $18,415 $14,508
------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:3
Net investment income 5.41% 4.78% 4.61% 5.70% 5.50% 5.71%
Expenses 1.13% 1.13% 1.15%4 1.02%4 1.23%4 1.36%4
Expenses, net of indirect expenses
and waiver of expenses 0.96% 0.95% 0.96% 0.87% 1.09% 0.53%
------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 12% 55% 35% 43% 21% 18%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
<TABLE>
<CAPTION>
Year Year
Ended Ended
July 31, Dec. 31,
Class B 2000 1999 1998 1997 19961 1995
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $ 11.26 $ 11.64 $ 11.49 $ 11.09 $ 11.42 $ 10.27
--------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .50 .47 .46 .55 .31 .55
Net realized and unrealized gain (loss) (.45) (.39) .18 .37 (.34) 1.15
----------------------------------------------------------------
Total income (loss) from investment
operations .05 .08 .64 .92 (.03) 1.70
--------------------------------------------------------------------------------------------------------------
Dividends and/or distributions
to shareholders:
Dividends from net investment income (.49) (.46) (.49) (.52) (.30) (.55)
Distributions from net realized gain (.04) -- -- -- -- --
Total dividends and/or distributions ----------------------------------------------------------------
to shareholders (.53) (.46) (.49) (.52) (.30) (.55)
--------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.78 $ 11.26 $ 11.64 $ 11.49 $ 11.09 $ 11.42
================================================================
==============================================================================================================
Total Return, at Net Asset Value2 0.51% 0.60% 5.71% 8.56% (0.19)% 16.81%
==============================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $17,866 $21,524 $19,344 $15,348 $12,865 $12,658
--------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $19,249 $21,648 $17,024 $13,812 $12,843 $10,772
--------------------------------------------------------------------------------------------------------------
Ratios to average net assets:3
Net investment income 4.64% 4.02% 3.85% 4.93% 4.75% 4.92%
Expenses 1.89% 1.88% 1.91%4 1.79%4 1.97%4 2.11%4
Expenses, net of indirect expenses
and waiver of expenses 1.72% 1.70% 1.72% 1.64% 1.83% 1.29%
--------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 12% 55% 35% 43% 21% 18%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
<PAGE>
<TABLE>
<CAPTION>
Year Year
Ended Ended
July 31, Dec. 31,
Class C 2000 1999 1998 1997 19961 19952
========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $11.23 $11.61 $11.46 $11.07 $11.40 $10.96
--------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .50 .47 .46 .53 .31 .20
Net realized and unrealized gain (loss) (.45) (.39) .18 .38 (.34) .44
------------------------------------------------------------
Total income (loss) from investment
operations .05 .08 .64 .91 (.03) .64
--------------------------------------------------------------------------------------------------------
Dividends and/or distributions
to shareholders:
Dividends from net investment income (.49) (.46) (.49) (.52) (.30) (.20)
Distributions from net realized gain (.04) -- -- -- -- --
--------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.53) (.46) (.49) (.52) (.30) (.20)
--------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.75 $11.23 $11.61 $11.46 $11.07 $11.40
==============================================================
========================================================================================================
Total Return, at Net Asset Value3 0.51% 0.60% 5.72% 8.41% (0.22)% 5.86%
========================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $2,442 $3,504 $2,439 $ 956 $ 72 $ 39
--------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $2,790 $3,260 $1,638 $ 380 $ 78 $ 5
Ratios to average net assets:4
Net investment income 4.65% 4.02% 3.82% 4.87% 4.68% 4.68%
Expenses 1.89% 1.88% 1.91%5 1.75%5 1.99%5 1.92%5
Expenses, net of indirect expenses
and waiver of expenses 1.72% 1.70% 1.72% 1.60% 1.87% 1.43%
--------------------------------------------------------------------------------------------------------
Portfolio turnover rate 12% 55% 35% 43% 21% 18%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
3. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
4. Annualized for periods of less than one full year.
5. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
<PAGE>
Appendix to Prospectus of
Oppenheimer Florida Municipal Fund
Graphic material included in the Prospectus of Oppenheimer Florida
Municipal Fund: "Annual Total Returns (Class A)(% as of 12/31 each year)":
A bar chart will be included in the Prospectus of Oppenheimer Florida
Municipal Fund (the "Fund") depicting the annual total returns of a hypothetical
investment in Class A shares of the Fund for each of the four most recent
calendar years, without deducting sales charges. Set forth below are the
relevant data points that will appear on the bar chart:
Calendar Oppenheimer Florida
Year Municipal Bond Fund
Ended Class A Shares
12/31/94 - 7.66%
12/31/95 17.60%
12/31/96 4.01%
12/31/97 9.13%
12/31/98 5.95%
12/31/99 -5.08%
-------------------------------------------------------------------------------
<PAGE>
Information and Services
-------------------------------------------------------------------------------
----------------------------------------------------------------------------
For More Information About Oppenheimer Florida Municipal Fund:
----------------------------------------------------------------------------
The following additional information about the Fund is available without charge
upon request:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Statement of Additional Information
----------------------------------------------------------------------------
This document includes additional information about the Fund's investment
policies, risks, and operations. It is incorporated by reference into this
Prospectus (which means it is legally part of this Prospectus).
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Annual and Semi-Annual Reports
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Additional information about the Fund's investments and performance is available
in the Fund's Annual and Semi-Annual Reports to shareholders. The Annual Report
includes a discussion of market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
How to Get More Information:
----------------------------------------------------------------------------
You can request the Statement of Additional Information, the Annual and
Semi-Annual Reports, and other information about the Fund or your account:
By Telephone:
Call OppenheimerFunds Services toll-free:
1-800-525-7048
By Mail:
Write to:
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217-5270
On the Internet:
You can send us a request by e-mail or
read or down-load documents on the OppenheimerFunds web site:
http://www.oppenheimerfunds.com
You can also obtain copies of the Statement of Additional Information and
other Fund documents and reports by visiting the SEC's Public Reference
Room in Washington, D.C. (Phone 1-800-942-8090) or the EDGAR database on
the SEC's Internet web site at http://www.sec.gov. Copies may be obtained
after payment of a duplicating fee by electronic request at the SEC's
e-mail address: [email protected]. or by writing to the SEC's Public
Reference Section, Washington, D.C. 20549-0102.
No one has been authorized to provide any information about the Fund or to make
any representations about the Fund other than what is contained in this
Prospectus. This Prospectus is not an offer to sell shares of the Fund, nor a
solicitation of an offer to buy shares of the Fund, to any person in any state
or other jurisdiction where it is unlawful to make such an offer.
The Fund's shares are distributed by:
OppenheimerFunds Distributor, Inc.
The Fund's SEC File No. is 811-5867
PR0795.001.1100 Printed on recycled paper.
<PAGE>
-------------------------------------------------------------------------------
Oppenheimer Florida Municipal Fund
-------------------------------------------------------------------------------
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048
Statement of Additional Information dated November 27, 2000
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated November 27, 2000. It should be read
together with the Prospectus. You can obtain the Prospectus by writing to the
Fund's Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver,
Colorado 80217 or by calling the Transfer Agent at the toll-free number shown
above or by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.
Contents Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks
The Fund's Investment Policies.................................
Municipal Securities...........................................
Other Investment Techniques and Strategies.....................
Investment Restrictions........................................
How the Fund is Managed............................................
Organization and History.......................................
Trustees and Officers of the Fund..............................
The Manager ...................................................
Brokerage Policies of the Fund.....................................
Distribution and Service Plans.....................................
Performance of the Fund............................................
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: Municipal Bond Ratings..............................A-1
Appendix B: Industry Classifications............................B-1
Appendix C: Special Sales Charge Arrangements and Waivers.......C-1
<PAGE>
-------------------------------------------------------------------------------
ABOUT THE FUND
-------------------------------------------------------------------------------
Additional Information About the Fund's Investment Policies and Risks
The investment objective and the principal investment policies of the Fund
are described in the Prospectus. This Statement of Additional Information
contains supplemental information about those policies and the types of
securities that the Fund's investment Manager, OppenheimerFunds, Inc., can
select for the Fund. Additional explanations are also provided about the
strategies the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the
techniques and strategies that the Fund's Manager uses in selecting portfolio
securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below at all times in seeking its
goals. It may use some of the special investment techniques and strategies at
some times or not at all.
The Fund does not make investments with the objective of seeking capital
growth, since that would be inconsistent with its goal of seeking tax exempt
income. However, the values of the securities held by the Fund may be affected
by changes in general interest rates and other factors, prior to their maturity.
Because the current value of debt securities vary inversely with changes in
prevailing interest rates, if interest rates increased after a security is
purchased, that security will normally decline in value. Conversely, should
interest rates decrease after a security is purchased, normally its value will
rise.
However, those fluctuations in value will not generally result in realized
gains or losses to the Fund unless the Fund sells the security prior to the
security's maturity. A debt security held to maturity is redeemable by its
issuer at full principal value plus accrued interest. The Fund does not usually
intend to dispose of securities prior to their maturity, but may do so for
liquidity purposes, or because of other factors affecting the issuer that cause
the Manager to sell the particular security. In that case, the Fund could
realize a capital gain or loss on the sale.
There are variations in the credit quality of municipal securities, both
within a particular rating classification and between classifications. These
variations depend on numerous factors. The yields of municipal securities depend
on a number of factors, including general conditions in the municipal securities
market, the size of a particular offering, the maturity of the obligation and
rating (if any) of the issue. These factors are discussed in greater detail
below.
Municipal Securities. The types of municipal securities in which the Fund may
invest are described in the Prospectus under "About the Fund's Investments."
Municipal securities are generally classified as general obligation bonds,
revenue bonds and notes. A discussion of the general characteristics of these
principal types of municipal securities follows below.
|X| Municipal Bonds. We have classified municipal securities having a
maturity (when the security is issued) of more than one (1) year as "municipal
bonds." The principal classifications of long-term municipal bonds are "general
obligation" and "revenue" (including "industrial development") bonds. They may
have fixed, variable or floating rates of interest, as described below.
Some bonds may be "callable," allowing the issuer to redeem them before
their maturity date. To protect bondholders, callable bonds may be issued with
provisions that prevent them from being called for a period of time. Typically,
that is five (5) to ten (10) years from the issuance date. When interest rates
decline, if the call protection on a bond has expired, it is more likely that
the issuer may call the bond. If that occurs, the Fund might have to reinvest
the proceeds of the called bond in bonds that pay a lower rate of return.
|_| General Obligation Bonds. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and taxing
power, if any, for the repayment of principal and the payment of interest.
Issuers of general obligation bonds include states, counties, cities, towns, and
regional districts. The proceeds of these obligations are used to fund a wide
range of public projects, including construction or improvement of schools,
highways and roads, and water and sewer systems. The rate of taxes that can be
levied for the payment of debt service on these bonds may be limited or
unlimited. Additionally, there may be limits as to the rate or amount of special
assessments that can be levied to meet these obligations.
|_| Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise tax or other
specific revenue source. Revenue bonds are issued to finance a wide variety of
capital projects. Examples include electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals.
Although the principal security for these types of bonds may vary
from bond to bond, many provide additional security in the form of a debt
service reserve fund that may be used to make principal and interest payments on
the issuer's obligations. Housing finance authorities have a wide range of
security, including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.
|_| Industrial Development Bonds. Industrial development bonds are
considered municipal bonds if the interest paid is exempt from federal income
tax. They are issued by or on behalf of public authorities to raise money to
finance various privately operated facilities for business and manufacturing,
housing, sports, and pollution control. These bonds may also be used to finance
public facilities such as airports, mass transit systems, ports, and parking.
The payment of the principal and interest on such bonds is dependent solely on
the ability of the facility's user to meet its financial obligations and the
pledge, if any, of real and personal property financed by the bond as security
for those payments.
|_| Private Activity Municipal Securities. The Tax Reform Act of 1986
(the "Tax Reform Act") reorganized, as well as amended, the rules governing tax
exemption for interest on certain types of municipal securities. The Tax Reform
Act generally did not change the tax treatment of bonds issued in order to
finance governmental operations. Thus, interest on general obligation bonds
issued by or on behalf of state or local governments, the proceeds of which are
used to finance the operations of such governments, continues to be tax-exempt.
However, the Tax Reform Act limited the use of tax-exempt bonds for
non-governmental (private) purposes. More stringent restrictions were placed on
the use of proceeds of such bonds. Interest on certain private activity bonds is
taxable under the revised rules. There is an exception for "qualified"
tax-exempt private activity bonds, for example, exempt facility bonds including
certain industrial development bonds, qualified mortgage bonds, qualified
Section 501(c)(3) bonds, and qualified student loan bonds.
In addition, limitations as to the amount of private activity bonds which
each state may issue were revised downward by the Tax Reform Act, which will
reduce the supply of such bonds. The value of the Fund's portfolio could be
affected if there is a reduction in the availability of such bonds.
Interest on certain private activity bonds issued after August 7, 1986,
which continues to be tax-exempt, will be treated as a tax preference item
subject to the alternative minimum tax (discussed below) to which certain
taxpayers are subject. The Fund may hold municipal securities the interest on
which (and thus a proportionate share of the exempt-interest dividends paid by
the Fund) will be subject to the Federal alternative minimum tax on individuals
and corporations. There are no limits on the amount of assets the Fund may
invest in private activity securities.
The Federal alternative minimum tax is designed to ensure that all persons
who receive income pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference items
that are used to calculate alternative minimum taxable income. The Tax Reform
Act made tax-exempt interest from certain private activity bonds a tax
preference item for purposes of the alternative minimum tax on individuals and
corporations. Any exempt-interest dividend paid by a regulated investment
company will be treated as interest on a specific private activity bond to the
extent of the proportionate relationship the interest the investment company
receives on such bonds bears to all its exempt interest dividends.
In addition, corporate taxpayers subject to the alternative minimum tax
may, under some circumstances, have to include exempt-interest dividends in
calculating their alternative minimum taxable income. That could occur in
situations where the "adjusted current earnings" of the corporation exceeds its
alternative minimum taxable income.
To determine whether a municipal security is treated as a taxable private
activity bond, it is subject to a test for: (a) a trade or business use and
security interest, or (b) a private loan restriction. Under the trade or
business use and security interest test, an obligation is a private activity
bond if: (i) more than 10% of the bond proceeds are used for private business
purposes and (ii) 10% or more of the payment of principal or interest on the
issue is directly or indirectly derived from such private use or is secured by
the privately used property or the payments related to the use of the property.
For certain types of uses, a 5% threshold is substituted for this 10% threshold.
The term "private business use" means any direct or indirect use in a
trade or business carried on by an individual or entity other than a state or
municipal governmental unit. Under the private loan restriction, the amount of
bond proceeds that may be used to make private loans is limited to the lesser of
5% or $5.0 million of the proceeds. Thus, certain issues of municipal securities
could lose their tax-exempt status retroactively if the issuer fails to meet
certain requirements as to the expenditure of the proceeds of that issue or the
use of the bond-financed facility. The Fund makes no independent investigation
of the users of such bonds or their use of proceeds of the bonds. If the Fund
should hold a bond that loses its tax-exempt status retroactively, there might
be an adjustment to the tax-exempt income previously distributed to
shareholders.
Additionally, a private activity bond that would otherwise be a qualified
tax-exempt private activity bond will not, under Internal Revenue Code Section
147(a), be a qualified bond for any period during which it is held by a person
who is a "substantial user" of the facilities or by a "related person" of such a
substantial user. This "substantial user" provision applies primarily to exempt
facility bonds, including industrial development bonds. The Fund may invest in
industrial development bonds and other private activity bonds. Therefore, the
Fund may not be an appropriate investment for entities which are "substantial
users" (or persons related to "substantial users") of such exempt facilities.
Those entities and persons should consult their tax advisers before purchasing
shares of the Fund.
A "substantial user" of such facilities is defined generally as a
"non-exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be a
"related person" under the Internal Revenue Code unless such individual or the
individual's immediate family (spouse, brothers, sisters and immediate
descendants) own directly or indirectly in the aggregate more than 50% in value
of the equity of a corporation or partnership which is a "substantial user" of a
facility financed from the proceeds of exempt facility bonds.
|X| Municipal Notes. Municipal securities having a maturity (when the
security is issued) of less than one (1) year are generally known as municipal
notes. Municipal notes generally are used to provide for short-term working
capital needs. Some of the types of municipal notes the Fund can invest in are
described below.
|_| Tax Anticipation Notes. These are issued to finance working
capital needs of municipalities. Generally, they are issued in anticipation of
various seasonal tax revenue, such as income, sales, use or other business
taxes, and are payable from these specific future taxes.
|_| Revenue Anticipation Notes. These are notes issued in
expectation of receipt of other types of revenue, such as Federal revenues
available under Federal revenue-sharing programs.
|_| Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. The
long-term bonds that are issued typically also provide the money for the
repayment of the notes.
|_| Construction Loan Notes. These are sold to provide project
construction financing until permanent financing can be secured. After
successful completion and acceptance of the project, it may receive permanent
financing through public agencies, such as the Federal Housing Administration.
|X| Municipal Lease Obligations. The Fund's investments in municipal lease
obligations may be through certificates of participation that are offered to
investors by public entities. Municipal leases may take the form of a lease or
an installment purchase contract issued by a state or local government authority
to obtain funds to acquire a wide variety of equipment and facilities.
Some municipal lease securities may be deemed to be "illiquid"
securities. Their purchase by the Fund would be limited as described below in
"Illiquid Securities." From time to time the Fund may invest more than 5% of its
net assets in municipal lease obligations that the Manager has determined to be
liquid under guidelines set by the Board of Trustees. Those guidelines require
the Manager to evaluate:
|_| the frequency of trades and price quotations for such securities; |_|
the number of dealers or other potential buyers willing to purchase or
sell such securities; |_| the availability of market-makers; and |_| the
nature of the trades for such securities.
Municipal leases have special risk considerations. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for that purpose on a yearly basis. While the obligation
might be secured by the lease, it might be difficult to dispose of that property
in case of a default.
Projects financed with certificates of participation generally are not
subject to state constitutional debt limitations or other statutory requirements
that may apply to other municipal securities. Payments by the public entity on
the obligation underlying the certificates are derived from available revenue
sources. That revenue might be diverted to the funding of other municipal
service projects. Payments of interest and/or principal with respect to the
certificates are not guaranteed and do not constitute an obligation of a state
or any of its political subdivisions.
In addition to the risk of "non-appropriation," municipal lease securities
do not have as highly liquid a market as conventional municipal bonds. Municipal
leases, like other municipal debt obligations, are subject to the risk of
non-payment of interest or repayment of principal by the issuer. The ability of
issuers of municipal leases to make timely lease payments may be adversely
affected in general economic downturns and as relative governmental cost burdens
are reallocated among federal, state and local governmental units. A default in
payment of income would result in a reduction of income to the Fund. It could
also result in a reduction in the value of the municipal lease and that, as well
as a default in repayment of principal, could result in a decrease in the net
asset value of the Fund. While the Fund holds such securities, the Manager will
also evaluate the likelihood of a continuing market for these securities and
their credit quality.
|X| Ratings of Municipal Securities. Ratings by ratings organizations such
as Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Rating
Services ("S&P") and Fitch, Inc. ("Fitch") represent the respective rating
agency's opinions of the credit quality of the municipal securities they
undertake to rate. However, their ratings are general opinions and are not
guarantees of quality. Municipal securities that have the same maturity, coupon
and rating may have different yields, while other municipal securities that have
the same maturity and coupon but different ratings may have the same yield.
Lower grade securities may have a higher yield than securities rated in
the higher rating categories. In addition to having a greater risk of default
than higher-grade, securities, there may be less of a market for these
securities. As a result they may be harder to sell at an acceptable price. The
additional risks mean that the Fund may not receive the anticipated level of
income from these securities, and the Fund's net asset value may be affected by
declines in the value of lower-grade securities. However, because the added risk
of lower quality securities might not be consistent with the Fund's policy of
preservation of capital, the Fund limits its investments in lower quality
securities. While securities rated "Baa" by Moody's or "BBB" by S&P are
investment grade, they may be subject to special risks and have some speculative
characteristics.
Subsequent to its purchase by the Fund, a municipal security may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither event requires the Fund to sell the security, but the Manager
will consider such events in determining whether the Fund should continue to
hold the security. To the extent that ratings given by Moody's, S&P, or Fitch
change as a result of changes in those rating organizations or their rating
systems, the Fund will attempt to use comparable ratings as standards for
investments in accordance with the Fund's investment policies.
The Fund may buy municipal securities that are "pre-refunded." The
issuer's obligation to repay the principal value of the security is generally
collateralized with U.S. government securities placed in an escrow account. This
causes the pre-refunded security to have essentially the same risks of default
as a AAA-rated security.
The rating definitions of Moody's, S&P and Fitch for municipal securities
are contained in Appendix A to this Statement of Additional Information. The
Fund can purchase securities that are unrated by nationally recognized rating
organizations, the Manager will make its own assessment of the credit quality of
unrated issues the Fund buys. The Manager will use criteria similar to those
used by the rating agencies, and assign a rating category to a security that is
comparable to what the Manager believes a rating agency would assign to that
security. However, the Manager's rating does not constitute a guarantee of the
quality of a particular issue.
Special Risks of Investing Primarily in Florida Municipal Securities. Because
the Fund focuses its investments primarily on Florida municipal securities, the
value of its portfolio investments will be highly sensitive to events affecting
the fiscal stability of the State of Florida and its municipalities, authorities
and other instrumentalities that issue securities. The ability of the state
government and its agencies, authorities, instrumentalities and subdivisions
(such as cities, towns and counties) to meet their debt obligations depends
primarily on the availability of tax revenues and other revenues.
The financial condition of the state and those other agencies and local
governments may be affected from time to time by economic, political,
demographic and natural conditions. In addition, constitutional amendments,
legislative measures, executive orders and voter initiatives may limit a
government's power to raise revenues or increase taxes. That could adversely
affect the ability of an issuer of particular debt obligations to meet its
financial obligations. The market value and marketability of Florida municipal
securities and the availability of the interest income and repayment of
principal on those securities could be adversely affected by a default or
financial crisis relating to the State, its agencies, authorities,
instrumentalities and subdivisions.
There have been a number of political developments, economic issues and
legislation in Florida in recent years that may affect the ability of the State
government, municipal governments and other issuers to pay interest and repay
principal on the securities they have issued. It is not possible to predict the
future impact of the legislation and economic considerations described below on
the long-term ability of the State of Florida or Florida municipal issuers and
other issuers to pay interest or repay principal on their obligations. The
information below about these factors and conditions is only a brief summary,
based upon information the Fund has drawn from sources that it believes are
reliable, but does not purport to be a complete description of those factors and
conditions.
|_| Effect of General Economic Conditions in the State. In recent years
the State of Florida and its economy have experienced steady growth. The state's
population has grown in recent years so that the state is now the fourth most
populous state in the country. The State's population is expected to grow to 16
million by the end of the year 2001. While there are indications that the
population growth in Florida is slowing, the growth is likely to continue to
nearly double the national rates. The percent growth rates in both personal
income and employment continue to outpace those of the nation. The state's
unemployment rate has generally been on par with or slightly below the national
unemployment rate.
Florida's economy is characterized by rapid growth, substantial capital
needs, a manageable debt burden, a diversifying but still somewhat narrow
economic base and good financial operations. Florida's economy remains heavily
dependent on tourism and agriculture; however, foreign trade, technology-based
manufacturing, healthcare, construction and financial services have become key
elements of Florida's economic growth.
The financial operations of Florida's state government are considerably
different than most other states, because Florida does not impose an individual
income tax. Specifically, Florida's Constitution does not permit a state or
local individual income tax upon the income of natural persons who are residents
or citizens of Florida in excess of amounts that may be credited against or
deducted from any similar tax levied by the United States or any other state.
Accordingly, a constitutional amendment approved by the electors of the State
would be necessary to impose a state individual income tax in excess of the
foregoing constitutional limitations. The lack of an individual income tax
exposes total State tax collections to considerably more volatility than would
otherwise be the case and, in the event of an economic downswing, could effect
the State's ability to pay its obligations in a timely manner.
The Florida Constitution and Florida Statutes mandate that the State
budget as a whole, and each separate fund within the State budget, be kept in
balance from currently available revenues each State fiscal year (July 1 - June
30). Pursuant to a constitutional amendment commonly referred to as the
"Limitation on State Revenues Amendment," State revenues collected for any
fiscal year are limited to State revenues allowed under the amendment for the
prior fiscal year plus an adjustment for growth. Growth is defined as an amount
equal to the average annual rate of growth in State personal income over the
previous twenty fiscal quarters multiplies by the State revenues allowed under
the amendment for the prior fiscal year. Revenues collected in excess of the
limitation are required to be deposited into the Budget Stabilization Fund until
the fund reaches a maximum balance as set forth in the Florida Constitution. Any
further excess is required to be refunded to taxpayers as provided by general
law. The limitation on Statue revenues imposed by the amendment may be increased
by two-thirds vote of each house of the Legislature.
Many of the provisions of that constitutional amendment are ambiguous and
likely will not be clarified until State courts have ruled on their meanings.
Further, it is unclear how the Florida Legislature will implement the language
of the amendment and whether that implementing legislation will be subject to
court interpretation. The impact of that amendment on State finances cannot be
predicted. To the extent local governments traditionally receive revenues from
the State that are subject to, and limited by, the amendment, the future
distribution of such State revenues may be adversely affected by the operation
of the amendment.
Financial operations of the State of Florida covering all receipts and
expenditures are maintained through the use of four funds: the General Revenue
Fund, Trust Funds, the Working Capital Fund and the Budget Stabilization Fund.
Direct revenue is derived mostly from taxes and fees, with Federal grants and
other special revenues constituting the remainder. The majority of the State tax
revenues is deposited in the General Revenue Fund. The Working Capital Fund
receives those revenues in the General Revenue Fund that exceed the amount
needed to meet all appropriations. Monies received by the State which under law
or trust agreement are segregated for a purpose authorized by law are held in
the Trust Funds.
Total State taxation produced $27.2 billion in revenue in fiscal year
1999-2000, a 5.1% increase from fiscal year 1998-99. The Sales and Use Tax is
the greatest single source of tax receipts in Florida. For the State Fiscal year
ended June 30, 2000, receipts from this source were approximately $15.1 billion,
an increase of 8.3% from fiscal year 1998-99. The second largest source of State
tax receipts is the Motor Fuel Tax, which produced an estimated $1,663 million
in collections during the fiscal year 1999-2000. Gross Receipt Tax collections
for the fiscal year 1999-2000, an increase of 3.9% from fiscal year 1998-99. The
receipts of corporate tax income were $1,407 million for fiscal year 1999-2000.
Gross Receipts Tax collection for fiscal year 1999-2000 totaled $666 million, an
increase of 4.2% over the previous fiscal year. Documentary stamp tax receipts
totaled $1,223.5, posting a 3.2% increase from the previous fiscal year.
The intangible personal property tax is a tax on stocks, bonds, notes,
governmental leaseholds, certain implied partnership interests, mortgages and
other obligations not secured by liens on Florida realty, and other intangible
personal property. Total collections from intangible personal property taxes
were $995 million during the fiscal year ending June 30, 2000. The intangible
personal property tax rate is currently 1.5 mills (a mill is $1.00 of tax per
$1,000.00 of property value), but will decrease to 1 mill effective for those
tax years beginning after December 21, 2000. Also effective December 31, 2000,
the Florida Legislature exempted the value of accounts receivable from the
intangible tax. The proposed fiscal impact of these changes to the General
Revenue is $202.3 million for the 2000-2001 fiscal year. Florida has proposed
eliminating the intangible tax entirely by the 2001-2002 fiscal year.
In November 1986, the voters of the State of Florida approved a
constitutional amendment allowing the State to establish and operate a statewide
lottery. The estimated ticket sales from the lottery during fiscal year
1999-2000 were approximately $2.27 billion.
For fiscal year 2000-2001, the estimated General Revenue plus Working
Capital and Budget Stabilization funds available total $21.7 billion, a 8.1%
increase over fiscal year 1999-2000. The $19.4 billion in estimated revenues
represents a 4.3% increase over the fiscal year 1999-2000 level. With combined
General Revenue, Working Capital and Budget Stabilization Fund appropriations of
$20.1 billion, unencumbered reserves at the end of fiscal year 1999-2000 are
estimated at $1,521 million.
Due to Florida's size and the activities of its many government agencies,
it (as well as its officers and employees) is often involved in various
litigation matters. The effects of these lawsuits on the State's economic
condition cannot be accurately forecasted or predicted.
Florida coastal communities and, to a lesser extent, interior communities
remain susceptible to the potential destructive power of tropical storms and
hurricanes. In 1992, Hurricane Andrew caused severe damage to the South Florida
region. The 1998 and 1999 hurricane seasons produced several severe storms that
caused significant damage to the many coastal communities. The severity of the
economic impact of future hurricanes and tropical storms cannot be accurately
predicted.
Florida's general obligation debt currently carries ratings of Aa2, AA+
and AA by Moody's, S&P, and Fitch, respectively. Those ratings are subject to
change.
|_| Economic Issues Relating to Particular Governments in the State. In
its annual report for fiscal year 1999-2000, the Office of the Chief Inspector
General of the State of Florida reported that 30 municipalities or special
districts were in a state of financial emergency (including the City of Miami).
For these purposes, a state of financial emergency is generally considered to be
two consecutive years of budget deficits. Municipalities or special districts
that may be in a state of financial emergency are those that the Auditor General
for the State of Florida was unable to conclude to have had sufficient revenues
to cover their deficits. The operations of all these entities mentioned in the
Office of the Chief Inspector General's annual report may be adversely affected
by their financial condition.
Other Investment Techniques and Strategies. In seeking its objective, the Fund
may from time to time employ the types of investment strategies and investments
described below. It is not required to use all of these strategies at all times,
and at times may not use them.
|X| Portfolio Turnover. The Fund may engage in some short-term trading to
seek its objective. Portfolio turnover can increase the Fund's transaction costs
(and reduce its performance). However, in most cases the Fund does not pay
brokerage commissions on debt securities it trades, so active trading is not
expected to increase Fund expenses greatly. While securities trading can cause
the Fund to realize gains that are distributed to shareholders as taxable
distributions.
|X| Floating Rate and Variable Rate Obligations. Variable rate demand
obligations have a demand feature that allows the Fund to tender the obligation
to the issuer or a third party to its maturity. The tender may be at par value
plus accrued interest, according to the terms of the obligation.
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 ninety-one (91) day
U.S. Treasury Bill rate, or some other standard, and is adjusted automatically
each time such rate is adjusted. The interest rate on a variable rate demand
note is also based on a stated prevailing market rate but is adjusted
automatically at specified intervals of not less than one (1) year. Generally,
the changes in the interest rate on such securities reduce the fluctuation in
their market value. As interest rates decrease or increase, the potential for
capital appreciation or depreciation is less than that for fixed-rate
obligations of the same maturity.
The Manager may determine that an unrated floating rate or variable rate
demand obligation meets the Fund's quality standards by reason of being backed
by a letter of credit or guarantee issued by a bank that meets those quality
standards.
Floating rate and variable rate demand notes that have a stated maturity
in excess of one (1) year may have features that permit the holder to recover
the principal amount of the underlying security at specified intervals not
exceeding one (1) year and upon no more than thirty (30) days' notice. The
issuer of that type of note normally has a corresponding right in its
discretion, after a given period, to prepay the outstanding principal amount of
the note plus accrued interest. Generally the issuer must provide a specified
number of days' notice to the holder. Floating rate or variable rate obligations
that do not provide for the recovery of principal and interest within seven (7)
days are subject to the Fund's limitations on investments in illiquid
securities.
|X| Inverse Floaters and Other Derivative Investments. Inverse floaters
may offer relatively high current income, reflecting the spread between
short-term and long-term tax exempt interest rates. As long as the municipal
yield curve remains relatively steep and short term rates remain relatively low,
owners of inverse floaters will have the opportunity to earn interest at
above-market rates because they receive interest at the higher long-term rates
but have paid for bonds with lower short-term rates. If the yield curve flattens
and shifts upward, an inverse floater will lose value more quickly than a
conventional long-term bond. The Fund will invest in inverse floaters to seek
higher tax-exempt yields than are available from fixed-rate bonds that have
comparable maturities and credit ratings. In some cases, the holder of an
inverse floater may have an option to convert the floater to a fixed-rate bond,
pursuant to a "rate-lock option."
Some inverse floaters have a feature known as an interest rate "cap" as
part of the terms of the investment. Investing in inverse floaters that have
interest rate caps might be part of a portfolio strategy to try to maintain a
high current yield for the Fund when the Fund has invested in inverse floaters
that expose the Fund to the risk of short-term interest rate fluctuations.
"Embedded" caps can be used to hedge a portion of the Fund's exposure to rising
interest rates. When interest rates exceed a pre-determined rate, the cap
generates additional cash flows that offset the decline in interest rates on the
inverse floater, and the hedge is successful. However, the Fund bears the risk
that if interest rates do not rise above the pre-determined rate, the cap (which
is purchased for additional cost) will not provide additional cash flows and
will expire worthless.
Inverse floaters are a form of derivative investment. Certain derivatives,
such as options, futures, indexed securities and entering into swap agreements,
can be used to increase or decrease the Fund's exposure to changing security
prices, interest rates or other factors that affect the value of securities.
However, these techniques could result in losses to the Fund, if the Manager
judges market conditions incorrectly or employs a strategy that does not
correlate well with the Fund's other investments. These techniques can cause
losses if the counterparty does not perform its promises. An additional risk of
investing in municipal securities that are derivative investments is that their
market value could be expected to vary to a much greater extent than the market
value of municipal securities that are not derivative investments but have
similar credit quality, redemption provisions and maturities.
|X| "When-Issued" and "Delayed Delivery" Transactions. The Fund can
purchase securities on a "when-issued" basis, and may purchase or sell such
securities on a "delayed delivery" (or "forward commitment") basis.
"When-issued" or "delayed delivery" refers to securities whose terms and
indenture are available and for which a market exists, but which are not
available for immediate delivery.
When such transactions are negotiated the price (which is generally
expressed in yield terms) is fixed at the time the commitment is made. Delivery
and payment for the securities take place at a later date. Normally the
settlement date is within six (6) months of the purchase of municipal bonds and
notes. However, the Fund may, from time to time, purchase municipal securities
having a settlement date more than six (6) months and possibly as long as two
(2) years or more after the trade date. The securities are subject to change in
value from market fluctuation during the settlement period. The value at
delivery may be less than the purchase price. For example, changes in interest
rates in a direction other than that expected by the Manager before settlement
will affect the value of such securities and may cause loss to the Fund. No
income begins to accrue to the Fund on a when-issued security until the Fund
receives the security at settlement of the trade.
The Fund will engage in when-issued transactions in order to secure what
is considered to be an advantageous price and yield at the time of entering into
the obligation. When the Fund engages in when-issued or delayed delivery
transactions, it relies on the buyer or seller, as the case may be, to complete
the transaction. Their failure to do so may cause the Fund to lose the
opportunity to obtain the security at a price and yield it considers
advantageous.
When the Fund engages in when-issued and delayed delivery transactions, it
does so for the purpose of acquiring or selling securities consistent with its
investment objective and policies for its portfolio or for delivery pursuant to
options contracts it has entered into, and not for the purposes of investment
leverage. Although the Fund will enter into when-issued or delayed-delivery
purchase transactions to acquire securities, the Fund may dispose of a
commitment prior to settlement. If the Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or to dispose of its
right to deliver or receive against a forward commitment, it may incur a gain or
loss.
At the time the Fund makes a commitment to purchase or sell a security on
a when-issued or forward commitment basis, it records the transaction on its
books and reflects the value of the security purchased. In a sale transaction,
it records the proceeds to be received, in determining its net asset value. The
Fund will identify on its books liquid assets at least equal to the value of
purchase commitments until the Fund pays for the investment.
When-issued transactions and forward commitments can be used by the Fund
as a defensive technique to hedge against anticipated changes in interest rates
and prices. For instance, in periods of rising interest rates and falling
prices, the Fund might sell securities in its portfolio on a forward commitment
basis to attempt to limit its exposure to anticipated falling prices. In periods
of falling interest rates and rising prices, the Fund might sell portfolio
securities and purchase the same or similar securities on a when-issued or
forward commitment basis, to obtain the benefit of currently higher cash yields.
|X| Zero-Coupon Securities. The Fund may buy zero-coupon and delayed
interest municipal securities. Zero-coupon securities do not make periodic
interest payments and are sold at a deep discount from their face value. The
buyer recognizes a rate of return determined by the gradual appreciation of the
security, which is redeemed at face value on a specified maturity date. This
discount depends on the time remaining until maturity, as well as prevailing
interest rates, the liquidity of the security and the credit quality of the
issuer. In the absence of threats to the issuer's credit quality, the discount
typically decreases as the maturity date approaches. Some zero-coupon securities
are convertible, in that they are zero-coupon securities until a predetermined
date, at which time they convert to a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound semi-annually
at the rate fixed at the time of their issuance, their value is generally more
volatile than the value of other debt securities. Their value may fall more
dramatically than the value of interest-bearing securities when interest rates
rise. When prevailing interest rates fall, zero-coupon securities tend to rise
more rapidly in value because they have a fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to
recognize income and make distributions to shareholders before it receives any
cash payments on the zero-coupon investment. To generate cash to satisfy those
distribution requirements, the Fund may have to sell portfolio securities that
it otherwise might have continued to hold or to use cash flows from other
sources such as the sale of Fund shares.
|X| Puts and Standby Commitments. When the Fund buys a municipal security
subject to a standby commitment to repurchase the security, the Fund is entitled
to same-day settlement from the purchaser. The Fund receives an exercise price
equal to the amortized cost of the underlying security plus any accrued interest
at the time of exercise. A put purchased in conjunction with a municipal
security enables the Fund to sell the underlying security within a specified
period of time at a fixed exercise price.
The Fund might purchase a standby commitment or put separately in cash or
it might acquire the security subject to the standby commitment or put (at a
price that reflects that additional feature). The Fund will enter into these
transactions only with banks and securities dealers that, in the Manager's
opinion, present minimal credit risks. The Fund's ability to exercise a put or
standby commitment will depend on the ability of the bank or dealer to pay for
the securities if the put or standby commitment is exercised. If the bank or
dealer should default on its obligation, the Fund might not be able to recover
all or a portion of any loss sustained from having to sell the security
elsewhere.
Puts and standby commitments are not transferable by the Fund. They
terminate if the Fund sells the underlying security to a third party. The Fund
intends to enter into these arrangements to facilitate portfolio liquidity,
although such arrangements might enable the Fund to sell a security at a
pre-arranged price that may be higher than the prevailing market price at the
time the put or standby commitment is exercised. However, the Fund might refrain
from exercising a put or standby commitment if the exercise price is
significantly higher than the prevailing market price, to avoid imposing a loss
on the seller that could jeopardize the Fund's business relationships with the
seller.
A put or standby commitment increases the cost of the security and reduces
the yield otherwise available from the security. ny consideration paid by the
Fund for the put or standby commitment will be reflected on the Fund's books as
unrealized depreciation while the put or standby commitment is held, and a
realized gain or loss when the put or commitment is exercised or expires.
Interest income received by the Fund from municipal securities subject to puts
or stand-by commitments may not qualify as tax exempt in its hands if the terms
of the put or stand-by commitment cause the Fund not to be treated as the tax
owner of the underlying municipal securities.
|X| Repurchase Agreements. The Fund may acquire securities subject to
repurchase agreements. It may do so for liquidity purposes to meet anticipated
redemptions of Fund shares, or pending the investment of the proceeds from sales
of Fund shares, or pending the settlement of portfolio securities.
In a repurchase transaction, the Fund acquires a security from, and
simultaneously resells it to an approved vendor for delivery on an agreed upon
future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the
repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks or broker-dealers that have been
designated a primary dealer in government securities, which meet the credit
requirements set by the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day. Delivery pursuant
to resale typically will occur within one (1) to five (5) days of the purchase.
Repurchase agreements having a maturity beyond seven (7) days are subject to the
Fund's limits on holding illiquid investments. There is no limit on the amount
of the Fund's net assets that may be subject to repurchase agreements of seven
(7) days or less.
Repurchase agreements, considered "loans" under the Investment Company
Act, are collateralized by the underlying security. The Fund's repurchase
agreements require that at all times while the repurchase agreement is in
effect, the collateral's value must equal or exceed the repurchase price to
fully collateralize the repayment obligation.
The Manager will monitor the vendor's creditworthiness to confirm that the
vendor is financially sound and will continuously monitor the collateral's
value. However, if the vendor fails to pay the resale price on the delivery
date, the Fund may incur costs in disposing of the collateral and may experience
losses if there is any delay in its ability to do so.
|X| Illiquid and Restricted Securities. The Fund has percentage
limitations that apply to purchases of illiquid and restricted securities, as
stated in the Prospectus. The Manager monitors holdings of illiquid and
restricted securities on an ongoing basis to determine whether to sell any
holdings to maintain adequate liquidity.
|X| Borrowing for Leverage. The Fund has the ability to borrow from banks
on an unsecured basis in amounts limited (as a fundamental policy) to a maximum
of 10% of its total assets, to invest the borrowed funds in portfolio
securities. This technique is known as "leverage." The Fund may borrow only from
banks for investment purposes and extraordinary or emergency purposes, and may
borrow from affiliated investment companies only for extraordinary or emergency
purposes subject to obtaining all required authorizations and regulatory
approvals. As a fundamental policy, borrowings can be made only to the extent
that the value of the Fund's assets, less its liabilities other than borrowings,
is equal to at least 300% of all borrowings (including the proposed borrowing).
If the value of the Fund's assets fails to meet this 300% asset coverage
requirement, the Fund is required to reduce its bank debt within three (3) days
to meet the requirement. To do so, the Fund might have to sell a portion of its
investments at a disadvantageous time.
The Fund will pay interest on these loans, and that interest expense will
raise the overall expenses of the Fund and reduce its returns. If it does
borrow, its expenses will be greater than comparable funds that do not borrow
for leverage. The interest on a loan might be more (or less) than the yield on
the securities purchased with the loan proceeds. Additionally, the Fund's net
asset value per share might fluctuate more than that of funds that do not
borrow.
|X| Loans of Portfolio Securities. To attempt to raise income or raise
cash for liquidity purposes, the Fund may lend its portfolio securities to
brokers, dealers and other financial institutions. These loans are limited to
not more than 25% of the value of the Fund's total assets. There are risks in
connection with securities lending. The Fund might experience a delay in
receiving additional collateral to secure a loan, or a delay in recovery of the
loaned securities. The Fund presently does not intend to engage in loans of
securities that will exceed 5% of the value of the Fund's total assets in the
coming year. Income from securities loans does not constitute exempt-interest
income for the purpose of paying tax-exempt dividends.
The Fund must receive collateral for a loan. Under current applicable
regulatory requirements (which are subject to change), on each business day the
loan collateral must be at least equal to the value of the loaned securities. It
must consist of cash, bank letters of credit, securities of the U.S. government
or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit
must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both
must be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends
or interest on the loaned securities, It also receives one or more of (a)
negotiated loan fees, (b) interest on securities used as collateral, and (c)
interest on short-term debt securities purchased with the loan collateral.
Either type of interest may be shared with the borrower. The Fund may pay
reasonable finder's, administrative or other fees in connection with these
loans. The terms of the Fund's loans must meet applicable tests under the
Internal Revenue Code and must permit the Fund to reacquire loaned securities on
five (5) days' notice or in time to vote on any important matter.
|X| Hedging. The Fund may use hedging to attempt to protect against
declines in the market value of its portfolio, to permit the Fund to retain
unrealized gains in the value of portfolio securities that have appreciated, or
to facilitate selling securities for investment reasons. To do so the Fund
could:
|_| sell interest rate futures or municipal bond index futures, |_| buy
puts on such futures or securities, or |_| write covered calls on
securities, interest rate futures or municipal bond index futures. The
Fund can also write covered calls on debt securities to attempt to
increase the Fund's income, but that income would not be tax-exempt.
Therefore it is unlikely that the Fund would write covered calls for that
purpose.
The Fund may also use hedging to establish a position in the debt
securities market as a temporary substitute for purchasing individual debt
securities. In that case the Fund would normally seek to purchase the
securities, and then terminate that hedging position. For this type of hedging,
the Fund could:
|_| buy interest rate futures or municipal bond index futures, or |_| buy
calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is
permitted to use them in the Manager's discretion, as described below. The
Fund's strategy of hedging with futures and options on futures will be
incidental to the Fund's investment activities in the underlying cash market.
The particular hedging instruments the Fund can use are described below. The
Fund may employ new hedging instruments and strategies when they are developed,
if those investment methods are consistent with the Fund's investment objective,
are approved by its Board, and are permissible under applicable regulations
governing the Fund.
|_| Futures. The Fund may buy and sell futures contracts relating to debt
securities (these are called "interest rate futures") and municipal bond indices
(these are referred to as "municipal bond index futures").
An interest rate future obligates the seller to deliver (and the purchaser
to take) cash or a specific type of debt security to settle the futures
transaction. Either party could also enter into an offsetting contract to close
out the futures position.
A "municipal bond index" assigns relative values to the municipal bonds in
the index, and is used as the basis for trading long-term municipal bond futures
contracts. Municipal bond index futures are similar to interest rate futures
except that settlement is made only in cash. The obligation under the contract
may also be satisfied by entering into an offsetting contract. The strategies
which the Fund employs in using municipal bond index futures are similar to
those with regard to interest rate futures.
No money is paid or received by the Fund on the purchase or sale of a
futures contract. Upon entering into a futures transaction, the Fund will be
required to deposit an initial margin payment in cash or U.S. government
securities with the futures commission merchant (the "futures broker"). Initial
margin payments will be deposited with the Fund's Custodian in an account
registered in the futures broker's name. However, the futures broker can gain
access to that account only under certain specified conditions. As the future is
marked to market (that is, its value on the Fund's books is changed) to reflect
changes in its market value, subsequent margin payments, called variation
margin, will be paid to or by the futures broker daily.
At any time prior to the expiration of the future, the Fund may elect to
close out its position by taking an opposite position at which time a final
determination of variation margin is made and additional cash is required to be
paid by or released to the Fund. Any gain or loss is then realized by the Fund
on the Future for tax purposes. Although interest rate futures by their terms
call for settlement by the delivery of debt securities, in most cases the
obligation is fulfilled without such delivery by entering into an offsetting
transaction. All futures transactions are effected through a clearing house
associated with the exchange on which the contracts are traded.
The Fund may concurrently buy and sell futures contracts in a strategy
anticipating that the future the Fund purchased will perform better than the
future the Fund sold. For example, the Fund might buy municipal bond futures and
concurrently sell U.S. Treasury Bond futures (a type of interest rate future).
The Fund would benefit if municipal bonds outperform U.S. Treasury Bonds on a
duration-adjusted basis.
Duration is a volatility measure that refers to the expected percentage
change in the value of a bond resulting from a change in general interest rates
(measured by each 1% change in the rates on U.S. Treasury securities). For
example, if a bond has an effective duration of three (3) years, a 1% increase
in general interest rates would be expected to cause the value of the bond to
decline about 3%. There are risks that this type of futures strategy will not be
successful. U.S. Treasury bonds might perform better on a duration-adjusted
basis than municipal bonds, and the assumptions about duration that were used
might be incorrect (for example, the duration of municipal bonds relative to
U.S. Treasury Bonds might have been greater than anticipated).
|_| Put and Call Options. The Fund can buy and sell certain kinds of
put options (puts) and call options (calls). These strategies are described
below.
|_| Writing Covered Call Options. The Fund can write (that is, sell)
call options. The Fund's call writing is subject to a number of
restrictions:
(1) After the Fund writes a call, not more than 25% of the Fund's total
assets may be subject to calls.
(2) Calls the Fund sells must be listed on a securities or commodities
exchange or quoted on NASDAQ, the automated quotation system of The
Nasdaq Stock Market, Inc. or traded in the over-the-counter market.
(3) Each call the Fund writes must be "covered" while it is outstanding.
That means the Fund must own the investment on which the call was
written.
When the Fund writes a call on a security, it receives cash (a premium).
The Fund agrees to sell the underlying investment to a purchaser of a
corresponding call on the same security during the call period at a fixed
exercise price regardless of market price changes during the call period. The
call period is usually not more than nine (9) months. The exercise price may
differ from the market price of the underlying security. The Fund has retained
the risk of loss that the price of the underlying security may decline during
the call period. That risk may be offset to some extent by the premium the Fund
receives. If the value of the investment does not rise above the call price, it
is likely that the call will lapse without being exercised. In that case the
Fund would keep the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If
the buyer of the call exercises it, the Fund will pay an amount of cash equal to
the difference between the closing price of the call and the exercise price,
multiplied by the specified multiple that determines the total value of the call
for each point of difference. If the value of the underlying investment does not
rise above the call price, it is unlikely that the call will lapse without being
exercised. In that case the Fund would keep the cash premium.
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.
In that way, no margin will be required for such transactions. OCC will release
the securities on the expiration of the calls or upon the Fund's entering into a
closing purchase transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter
into an arrangement with a primary U.S. Government securities dealer which will
establish a formula price at which the Fund will have the absolute right to
repurchase that OTC option. The formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the market price of the underlying security (that
is, the option is "in-the-money"). When the Fund writes an OTC option, it will
treat as illiquid (for purposes of its restriction on illiquid securities) the
mark-to-market value of any OTC option held by it, unless the option is subject
to a buy-back agreement by the executing broker. The Securities and Exchange
Commission is evaluating whether OTC options should be considered liquid
securities. The procedure described above could be affected by the outcome of
that evaluation.
To terminate its obligation on a call it has written, the Fund may
purchase a corresponding call in a "closing purchase transaction." The Fund will
then realize a profit or loss, depending upon whether the net of the amount of
the option transaction costs and the premium received on the call the Fund wrote
was more or less than the price of the call the Fund purchased to close out the
transaction. A profit may also be realized if the call lapses unexercised,
because the Fund retains the underlying investment and the premium received. Any
such profits are considered short-term capital gains for Federal tax purposes,
as are premiums on lapsed calls. When distributed by the Fund they are taxable
as ordinary income.
The Fund may also write calls on futures contracts without owning the
futures contract or securities deliverable under the contract. To do so, at the
time the call is written, the Fund must cover the call by segregating in escrow
an equivalent dollar value of liquid assets identified on the Fund's books. The
Fund will segregate additional liquid assets if the value of the escrowed assets
drops below 100% of the current value of the future. Because of this escrow
requirement, in no circumstances would the Fund's receipt of an exercise notice
as to that future put the Fund in a "short" futures position.
|_| Purchasing Calls and Puts. The Fund may buy calls only on
securities, broadly-based municipal bond indices, municipal bond index futures
and interest rate futures. It can also buy calls to close out a call it has
written, as discussed above. Calls the Fund buys must be listed on a securities
or commodities exchange, or quoted on NASDAQ, or traded in the over-the-counter
market. A call or put option may not be purchased if the purchase would cause
the value of all the Fund's put and call options to exceed 5% of its total
assets. The aggregate premiums paid on all options that the Fund holds at any
time are limited to 20% of the Fund's total assets. The aggregate margin
deposits on all futures or options on futures at any time will be limited to 5%
of the Fund's total assets.
When the Fund purchases a call (other than in a closing purchase
transaction), it pays a premium. For calls on securities that the Fund buys, it
has the right to buy the underlying investment from a seller of a corresponding
call on the same investment during the call period at a fixed exercise price.
The Fund benefits only if (1) the call is sold at a profit or (2) the call is
exercised when the market price of the underlying investment is above the sum of
the exercise price plus the transaction costs and premium paid for the call. If
the call is not either exercised or sold (whether or not at a profit), it will
become worthless at its expiration date. In that case the Fund will lose its
premium payment and the right to purchase the underlying investment.
Calls on municipal bond indices, interest rate futures and municipal bond
index futures are settled in cash rather than by delivering the underlying
investment. Gain or loss depends on changes in the securities included in the
index in question (and thus on price movements in the debt securities market
generally) rather than on changes in price of the individual futures contract.
The Fund may buy only those puts that relate to securities that the Fund
owns, broadly-based municipal bond indices, municipal bond index futures or
interest rate futures (whether or not the Fund owns the futures). The Fund may
not sell puts other than puts it has previously purchased.
When the Fund purchases a put, it pays a premium. The Fund then has the
right to sell the underlying investment to a seller of a corresponding put on
the same investment during the put period at a fixed exercise price. Puts on
municipal bond indices are settled in cash. Buying a put on a debt security,
interest rate future or municipal bond index future the Fund owns enables it to
protect itself during the put period against a decline in the value of the
underlying investment below the exercise price. If the market price of the
underlying investment is equal to or above the exercise price and as a result
the put is not exercised or resold, the put will become worthless at its
expiration date. In that case the Fund will lose its premium payment and the
right to sell the underlying investment. A put may be sold prior to expiration
(whether or not at a profit).
|_| Risks of Hedging with Options and Futures. The use of hedging
instruments requires special skills and knowledge of investment techniques that
are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument at the wrong time or judges market conditions
incorrectly, hedging strategies may reduce the Fund's returns.
The Fund's option activities may affect its portfolio turnover rate and
brokerage commissions. The exercise of calls written by the Fund may cause the
Fund to sell related portfolio securities, thus increasing its turnover rate.
The exercise by the Fund of puts on securities will cause the sale of underlying
investments, increasing portfolio turnover. Although the decision whether to
exercise a put it holds is within the Fund's control, holding a put might cause
the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put,
sells a call, or buys or sells an underlying investment in connection with the
exercise of a call or put. Such commissions may be higher on a relative basis
than the commissions for direct purchases or sales of the underlying
investments. Premiums paid for options are small in relation to the market value
of the underlying investments. Consequently, put and call options offer large
amounts of leverage. The leverage offered by trading in options could result in
the Fund's net asset value being more sensitive to changes in the value of the
underlying investment.
If a covered call written by the Fund is exercised on an investment that
has increased in value, the Fund will be required to sell the investment at the
call price. It will not be able to realize any profit if the investment has
increased in value above the call price.
There is a risk in using short hedging by selling interest rate futures
and municipal bond index futures or purchasing puts on municipal bond indices or
futures to attempt to protect against declines in the value of the Fund's
securities. The risk is that the prices of such futures or the applicable index
will correlate imperfectly with the behavior of the cash (that is, market)
prices of the Fund's securities. It is possible for example, that while the Fund
has used hedging instruments in a short hedge, the market may advance and the
value of debt securities held in the Fund's portfolio might decline. If that
occurred, the Fund would lose money on the hedging instruments and also
experience a decline in value of its debt securities. However, while this could
occur over a brief period or to a very small degree, over time the value of a
diversified portfolio of debt securities will tend to move in the same direction
as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the
Fund's portfolio diverges from the securities included in the applicable index.
To compensate for the imperfect correlation of movements in the price of debt
securities being hedged and movements in the price of the hedging instruments,
the Fund may use hedging instruments in a greater dollar amount than the dollar
amount of debt securities being hedged. It might do so if the historical
volatility of the prices of the debt securities being hedged is greater than the
historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are
subject to distortions due to differences in the natures of those markets. All
participants in the futures markets are subject to margin deposit and
maintenance requirements. Rather than meeting additional margin deposit
requirements, investors may close out futures contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. From the point of view of speculators, the deposit requirements
in the futures markets are less onerous than margin requirements in the
securities markets. Therefore, increased participation by speculators in the
futures markets may cause temporary price distortions.
The Fund may use hedging instruments to establish a position in the
municipal securities markets as a temporary substitute for the purchase of
individual securities (long hedging). It is possible that the market may
decline. If the Fund then concludes not to invest in such securities because of
concerns that there may be further market decline or for other reasons, the Fund
will realize a loss on the hedging instruments that is not offset by a reduction
in the purchase price of the securities.
An option position may be closed out only on a market that provides
secondary trading for options of the same series. There is no assurance that a
liquid secondary market will exist for a particular option. If the Fund could
not effect a closing purchase transaction due to a lack of a market, it would
have to hold the callable investment until the call lapsed or was exercised, and
could incur losses.
|_| Interest Rate Swap Transactions. In an interest rate swap, the Fund
and another party exchange their right to receive or their obligation to pay
interest on a security. For example, they may swap a right to receive floating
rate payments for fixed rate payments. The Fund can enter into swaps only on
securities it owns. The Fund may not enter into swaps with respect to more than
25% of its total assets. Also, the Fund will segregate liquid assets (such as
cash or U.S. Government securities) to cover any amounts it could owe under
swaps that exceed the amounts it is entitled to receive, and it will adjust that
amount daily, as needed. Income from interest rate swaps may be taxable.
Swap agreements entail both interest rate risk and credit risk. There is a
risk that, based on movements of interest rates in the future, the payments made
by the Fund under a swap agreement will have been greater than those received by
it. Credit risk arises from the possibility that the counterparty will default.
If the counterparty to an interest rate swap defaults, the Fund's loss will
consist of the net amount of contractual interest payments that the Fund has not
yet received. The Manager will monitor the creditworthiness of counterparties to
the Fund's interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with appropriate counterparties
pursuant to master netting agreements. A master netting agreement provides that
all swaps done between the Fund and that counterparty under the master agreement
shall be regarded as parts of an integral agreement. If on any date amounts are
payable under one or more swap transactions, the net amount payable on that date
shall be paid. In addition, the master netting agreement may provide that if one
party defaults generally or on one swap, the counterparty can terminate the
swaps with that party. Under master netting agreements, if there is a default
resulting in a loss to one party, that party's damages are calculated by
reference to the average cost of a replacement swap with respect to each swap.
The gains and losses on all swaps are then netted, and the result is the
counterparty's gain or loss on termination. The termination of all swaps and the
netting of gains and losses on termination is generally referred to as
"aggregation."
|_| Regulatory Aspects of Hedging Instruments. When using futures and
options on futures, the Fund is required to operate within certain guidelines
and restrictions established by the Commodity Futures Trading Commission (the
"CFTC"). In particular, the Fund is exempted from registration with the CFTC as
a "commodity pool operator" if the Fund complies with the requirements of Rule
4.5 adopted by the CFTC. That Rule does not limit the percentage of the Fund's
assets that may be used for Futures margin and related options premiums for a
bona fide hedging osition. However, under the Rule the Fund must limit its
aggregate initial futures margin and related options premiums to no more than 5%
of the Fund's net assets for hedging strategies that are not considered bona
fide hedging strategies under the Rule. Under the Rule, the Fund also must use
short futures and options on futures positions solely for bona fide hedging
purposes within the meaning and intent of the applicable provisions of the
Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established
by the option exchanges. The exchanges limit the maximum number of options that
may be written or held by a single investor or group of investors acting in
concert. Those limits apply regardless of whether the options were written or
purchased on the same or different exchanges, or are held in one or more
accounts or through one or more different exchanges or through one or more
brokers. Thus, the number of options that the Fund may write or hold may be
affected by options written or held by other entities, including other
investment companies having the same adviser as the Fund (or an adviser that is
an affiliate of the Fund's adviser). The exchanges also impose position limits
on futures transactions. An exchange may order the liquidation of positions
found to be in violation of those limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases an interest rate
future or municipal bond index future, it must maintain cash or readily
marketable short-term debt instruments in an amount equal to the market value of
the investments underlying the future, less the margin deposit applicable to it.
The account must be a segregated account or accounts held by its custodian bank.
|X| Temporary Defensive Investments. The securities the Fund can invest
in for temporary defensive purposes include the following:
|_| short-term municipal securities;
|_| obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
|_| corporate debt securities rated within the three highest grades
by a nationally recognized rating agency;
|_| commercial paper rated "A-1" by S&P, or a comparable rating by
another nationally recognized rating agency; and
|_| certificates of deposit of domestic banks with assets of $1
billion or more.
|X| Taxable Investments. While the Fund can invest up to 20% of its total
assets in investments that generate income subject to income taxes, it does not
anticipate investing substantial amounts of its assets in taxable investments
under normal market conditions or as part of its normal trading strategies and
policies. To the extent it invests in taxable securities, the Fund would not be
able to meet its objective of providing tax exempt income to its shareholders.
Taxable investments include, for example, hedging instruments, repurchase
agreements, and some of the types of securities it would buy for temporary
defensive purposes.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Fund has adopted to govern its investments that can be changed
only by the vote of a "majority" of the Fund's outstanding voting securities.
Under the Investment Company Act, such a "majority" vote is defined as the vote
of the holders of the lesser of:
|_| 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or |_| more than 50% of the
outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Fund's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Fund's most significant investment policies are described in
the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Fund:
|_| The Fund cannot concentrate its investments to the extent of 25% of
its total assets in any industry. However, there is no limitation as to the
Fund's investments in municipal securities in general or in Florida municipal
securities, or in obligations issued by the U.S. Government and its agencies or
instrumentalities.
|_| The Fund cannot invest in real estate. This restriction shall not
prevent the Fund from investing in municipal securities or other permitted
securities that are secured by real estate or interests in real estate.
|_| The Fund cannot make loans except (a) by lending portfolio securities,
(b) through the purchase of debt instruments or similar evidences of
indebtedness, (c) through repurchase agreements, and (d) through an interfund
lending program with other affiliated funds. No loan may be made through
interfund lending if, as a result, the aggregate of those loans would exceed 33
1/3% of the value of the Fund's total assets (taken at market value at the time
the loan is made).
|_| The Fund cannot borrow money or securities for any purposes except
that (a) borrowing up to 10% of the Fund's total assets from banks and/or
affiliated investment companies as a temporary measure for extraordinary or
emergency purposes and (b) borrowing up to 5% of the Fund's total assets from
banks for investment purposes, is permitted.
|_| The Fund cannot underwrite securities of other companies. A permitted
exception is in case it is deemed to be an underwriter under the Securities Act
of 1933 when reselling any securities held in its own portfolio.
|_| The Fund cannot issue "senior securities," but this does not prohibit
certain investment activities for which assets of the Fund are designated as
segregated, or margin, collateral or escrow arrangements are established, to
cover the related obligations. Examples of those activities include borrowing
money, reverse repurchase agreements, delayed-delivery and when-issued
arrangements for portfolio securities transactions, and contracts to buy or sell
derivatives, hedging instruments, options or futures.
Unless the Prospectus or Statement of Additional Information states that a
percentage restriction applies on an ongoing basis, it applies only at the time
the Fund makes an investment. In that case the Fund need not sell securities to
meet the percentage limits if the value of the investment increases in
proportion to the size of the Fund.
|X| Does the Funds Have Other Restrictions that are Not Fundamental
Policies?
The Fund has several additional restrictions on its investment policies
that are not fundamental, which means that they can be changed by the Board of
Trustees, without obtaining shareholder approval.
|_| The Fund cannot invest in securities or other investments other than
municipal securities, the temporary investments described in its Prospectus,
repurchase agreements, covered calls, private activity municipal securities and
hedging instruments described in "About the Fund" in the Prospectus or this
Statement of Additional Information.
|_| The Fund will not invest more than 10% of its net assets in securities
which are restricted as to disposition under the federal securities laws, except
that the Fund may purchase without regard to this limitation restricted
securities which are eligible for resale pursuant to Rule 144A under the
Securities Act of 1933.
|_| The Fund cannot pledge, mortgage or otherwise encumber, transfer or
assign its assets to secure a debt. However, the use of escrow or other
collateral arrangements in connection with the Fund's policy on borrowing and
hedging instruments is permitted.
|_| The Fund cannot buy or sell futures contracts other than interest rate
futures and municipal bond index futures.
|_| The Fund cannot purchase securities other than hedging instruments on
margin. However, the Fund may obtain short-term credits that may be necessary
for the clearance of purchases and sales of securities.
|_| The Fund cannot sell securities short.
Non-Diversification of the Fund's Investments. The Fund is a series of a trust
that is "non-diversified," as defined in the Investment Company Act. Funds that
are diversified have restrictions against investing too much of their assets in
the securities of any one "issuer." That means that the Fund can invest more of
its assets in the securities of a single issuer than a fund that is diversified.
Being non-diversified poses additional investment risks, because if the
Fund invests more of its assets in fewer issuers, the value of its shares is
subject to greater fluctuations from adverse conditions affecting any one of
those issuers. However, the Fund does limit its investments in the securities of
any one issuer to qualify for tax purposes as a "regulated investment company"
under the Internal Revenue Code. By qualifying, it does not have to pay federal
income taxes if more than 90% of its earnings are distributed to shareholders.
To qualify, the Fund must meet a number of conditions. First, not more than 25%
of the market value of the Fund's total assets may be invested in the securities
of a single issuer. Second, with respect to 50% of the market value of its total
assets, (1) no more than 5% of the market value of its total assets may be
invested in the securities of a single issuer, and (2) the Fund must not own
more than 10% of the outstanding voting securities of a single issuer.
The identification of the issuer of a municipal security depends on the
terms and conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating it and the security is backed only by the
assets and revenues of the subdivision, agency, authority or instrumentality,
the latter would be deemed to be the sole issuer. Similarly, if an industrial
development bond is backed only by the assets and revenues of the
non-governmental user, then that user would be deemed to be the sole issuer.
However, if in either case the creating government or some other entity
guarantees a security, the guarantee would be considered a separate security and
would be treated as an issue of such government or other entity.
Applying the Restriction Against Concentration. To implement its policy not
to concentrate its assets, the Fund has adopted the industry classifications
set forth in Appendix B to this Statement of Additional Information. Those
industry classifications are not a fundamental policy.
In implementing the Fund's policy not to concentrate its investments, the
Manager will consider a non-governmental user of facilities financed by
industrial development bonds as being in a particular industry. That is done
even though the bonds are municipal securities, as to which the Fund has no
concentration limitation. Although this application of the concentration
restriction is not a fundamental policy of the Fund, it will not be changed
without shareholder approval. The Manager has no present intention of investing
more than 25% of the Fund's total assets in securities paying interest from
revenues of similar type projects or in industrial development bonds. This is
not a fundamental policy and therefore could be changed without shareholder
approval. However, if that change were made, the Prospectus or this Statement of
Additional Information would be supplemented to reflect the change.
How the Fund Is Managed
Organization and History. The Fund is a series of a Massachusetts business trust
that was originally organized in 1989, as a trust having one series. In 1993 it
was reorganized to be a multi-series business trust (now called Oppenheimer
Multi-State Municipal Trust). The Fund was added as a separate series of that
Trust in June 1993. The Trust is an open-end, non-diversified management
investment company with an unlimited number of authorized shares of beneficial
interest. Each of the three series of the Trust is a separate fund that issues
its own shares, has its own investment portfolio, and has 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. Although the Fund will
not normally hold annual meetings of its shareholders, it may hold shareholder
meetings from time to time on important matters, and shareholders have the right
to call a meeting to remove a Trustee or to take other action described in the
Fund's Declaration of Trust.
|X| Classes of Shares. The Board of Trustees has the power, without
shareholder approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has three classes of
shares, Class A, Class B and Class C. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different
classes,
o may have a different net asset value,
o may have separate voting rights on matters in which the interests of one
class are different from the interests of another class, and o votes as a
class on matters that affect that class alone.
All classes invest in the same investment portfolio. Shares are freely
transferable. Each share has one vote at shareholder meetings, with fractional
shares voting proportionally on matters submitted to the vote of shareholders.
Each share of the Fund represents an interest in the Fund proportionately equal
to the interest of each other share of the same class.
The Trustees are authorized to create new series and classes of shares.
The Trustees may reclassify unissued shares of the Fund into additional series
or classes of shares. The Trustees also may divide or combine the shares of a
class into a greater or lesser number of shares without changing the
proportionate beneficial interest of a shareholder in the Fund. Shares do not
have cumulative voting rights or preemptive or subscription rights. Shares may
be voted in person or by proxy at shareholder meetings.
|X| Meetings of Shareholders. 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. It will also do so
when a shareholder meeting is called by the Trustees or upon proper request of
the shareholders.
Shareholders have the right, upon the declaration in writing or vote of
two-thirds of the outstanding shares of the Fund, to remove a Trustee. The
Trustees will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the record holders of 10% of its outstanding shares.
If the Trustees receive a request from at least ten (10) shareholders stating
that they wish to communicate with other shareholders to request a meeting to
remove a Trustee, the Trustees will then either make the shareholder lists
available to the applicants or mail their communication to all other
shareholders at the applicants' expense. The shareholders making the request
must have been shareholders for at least six (6) months and must hold shares of
the Fund valued at $25,000 or more or constituting at least 1% of the Fund's
outstanding shares, whichever is less. The Trustees may also take other action
as permitted by the Investment Company Act.
|X| Shareholder and Trustee Liability. The Fund's Declaration of Trust
contains an express disclaimer of shareholder or Trustee liability for the
Fund's obligations. It also provides for indemnification and reimbursement of
expenses out of the Fund's property for any shareholder held personally liable
for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any
act or obligation of the Fund and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the trust
of which the Fund is a series) to be held personally liable as a "partner" under
certain circumstances. However, the risk that a Fund shareholder will incur
financial loss from being held liable as a "partner" of the Fund is limited to
the relatively remote circumstances in which the Fund would be unable to meet
its obligations.
The Fund's contractual arrangements state that any person doing business
with the Fund (and each shareholder of the Fund) agrees under its Declaration of
Trust to look solely to the assets of the Fund for satisfaction of any claim or
demand that may arise out of any dealings with the Fund. The contracts further
states that the Trustees shall have no personal liability to any such person, to
the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their
principal occupations and business affiliations and occupations during the past
five (5) years are listed below. Trustees denoted with an asterisk (*) below are
deemed to be "interested persons" of the Fund under the Investment Company Act.
All of the Trustees are Trustees or Directors of the following New York-based
Oppenheimer funds1:
Oppenheimer California Municipal Fund Oppenheimer Large Cap Growth Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Capital Preservation Fund
Oppenheimer Money Market Fund, Inc. Oppenheimer Developing Markets Oppenheimer
Multiple Strategies Fund Fund Oppenheimer Discovery Fund Oppenheimer
Multi-Sector Income Oppenheimer Emerging Growth Fund Trust Oppenheimer
Enterprise Fund Oppenheimer Emerging Oppenheimer Multi-State Municipal
Technologies Fund Trust Oppenheimer Europe Fund Oppenheimer Municipal Bond Fund
Oppenheimer Global Fund Oppenheimer New York Municipal Fund Oppenheimer Global
Growth & Income Fund Oppenheimer Series Fund, Inc. Oppenheimer Gold & Special
Minerals Fund Oppenheimer U.S. Government Trust Oppenheimer Growth Fund
Oppenheimer Trinity Core Fund Oppenheimer International Growth Fund Oppenheimer
Trinity Growth Fund Oppenheimer International Small Company Fund Oppenheimer
Trinity Value Fund
Oppenheimer World Bond Fund
Ms. Macaskill and Messrs. Spiro, Donohue, Zack, Wixted, Bishop and Farrar
respectively hold the same offices with the other New York-based Oppenheimer
funds as with the Fund. As of November 15, 2000, the Trustees and Officers of
the Fund as a group owned of record or beneficially more than 1% of the
outstanding Class A shares of the Fund and no shares of Class B or C. The
foregoing statement does not reflect ownership of shares of the Fund held of
record by an employee benefit plan for employees of the Manager, other than the
shares beneficially owned under the plan by the officers of the Fund listed
above. Ms. Macaskill and Mr. Donohue are trustees of that plan.
Leon Levy, Chairman of the Board of Trustees, Age: 75.
280 Park Avenue, New York, NY 10017
General Partner of Odyssey Partners, L.P. (investment partnership) (since
1982) and Chairman of Avatar Holdings, Inc. (real estate development).
Donald W. Spiro, Vice Chairman of the Board of Trustees, Age: 74. 399 Ski Trail,
Smoke Rise, New Jersey 07405 Formerly he held the following positions: Chairman
Emeritus (August 1991 August 1999), Chairman (November 1987 - January 1991) and
a director (January 1969 - August 1999) of the Manager; President and Director
of OppenheimerFunds Distributor, Inc., a subsidiary of the Manager and the
Fund's Distributor (July 1978 - January 1992).
Bridget A. Macaskill*, President and Trustee; Age: 52.
Two World Trade Center, New York, New York 10048-0203
Chairman (since August 2000), Chief Executive Officer (since September 1995) and
a director (since December 1994) of the Manager; President (since September
1995) and a director (since October 1990) of Oppenheimer Acquisition Corp., the
Manager's parent holding company; President, Chief Executive Officer and a
director (since March 2000) of OFI Private Investments, Inc., an investment
adviser subsidiary of the Manager; Chairman and a director of Shareholder
Services, Inc. (since August 1994) and Shareholder Financial Services, Inc.
(since September 1995), transfer agent subsidiaries of the Manager; President
(since September 1995) and a director (since November 1989) of Oppenheimer
Partnership Holdings, Inc., a holding company subsidiary of the Manager;
President and a director (since October 1997) of OppenheimerFunds International
Ltd., an offshore fund management subsidiary of the Manager and of Oppenheimer
Millennium Funds plc; a director of HarbourView Asset Management Corporation
(since July 1991) and of Oppenheimer Real Asset Management, Inc. (since July
1996), investment adviser subsidiaries of the Manager; a director (since April
2000) of OppenheimerFunds Legacy Program, a charitable trust program established
by the Manager; a director of Prudential Corporation plc (a U.K. financial
service company); President and a trustee of other Oppenheimer funds; formerly
President of the Manager (June 1991 - August 2000).
Robert G. Galli, Trustee, Age: 67.
19750 Beach Road, Jupiter, FL 33469
A Trustee or Director of other Oppenheimer funds. Formerly he held the following
positions: Vice Chairman (October 1995 - December 1997) and Executive Vice
President (December 1977 - October 1995) of the Manager; Executive Vice
President and a director (April 1986 - October 1995) of
HarbourView Asset Management Corporation.
Phillip A. Griffiths, Trustee, Age: 62.
97 Olden Lane, Princeton, N. J. 08540
The Director of the Institute for Advanced Study, Princeton, N.J. (since 1991)
and a member of the National Academy of Sciences (since 1979); formerly (in
descending chronological order) a director of Bankers Trust Corporation, Provost
and Professor of Mathematics at Duke University, a director of Research Triangle
Institute, Raleigh, N.C., and a Professor of Mathematics at Harvard University.
Benjamin Lipstein, Trustee, Age: 77.
591 Breezy Hill Road, Hillsdale, N.Y. 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
Elizabeth B. Moynihan, Trustee, Age: 71.
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the Freer Gallery of Art
(Smithsonian Institute), Executive Committee of Board of Trustees of the
National Building Museum; a member of the Trustees Council, Preservation League
of New York State.
Kenneth A. Randall, Trustee, Age: 73.
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding company),
Dominion Energy, Inc. (electric power and oil & gas producer), and Prime Retail,
Inc. (real estate investment trust); formerly President and Chief Executive
Officer of The Conference Board, Inc. (international economic and business
research) and a director of Lumbermens Mutual Casualty Company, American
Motorists Insurance Company and American Manufacturers Mutual Insurance Company.
Edward V. Regan, Trustee, Age: 70.
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of New York; Senior
Fellow of Jerome Levy Economics Institute, Bard College; a director of RBAsset
(real estate manager); a director of OffitBank; Trustee, Financial Accounting
Foundation (FASB and GASB); President, Baruch College of the City University of
New York; formerly New York State Comptroller and trustee, New York State and
Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee, Age: 68.
8 Sound Shore Drive, Greenwich, Connecticut 06830
Chairman of The Directorship Search Group, Inc. (corporate governance
consulting and executive recruiting); a director of Professional Staff
Limited (a U.K. temporary staffing company); a life trustee of International
House (non-profit educational organization), and a trustee of the Greenwich
Historical Society.
Clayton K. Yeutter, Trustee, Age: 69.
10475 E. Laurel Lane, Scottsdale, Arizona 85259
Of Counsel, Hogan & Hartson (a Washington, D.C. law firm). Other
directorships: Allied Zurich Pl.c; ConAgra, Inc.; FMC Corporation; Farmers
Group Inc.; Oppenheimer Funds; Texas Instruments Incorporated; Weyerhaeuser
Co. and Zurich Allied AG.
Andrew J. Donohue, Secretary, Age: 50.
Two World Trade Center, New York, New York 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a Director (since September 1995) of the Manager; Executive Vice
President and General Counsel (since September 1993) and a director (since
January 1992) of OppenheimerFunds Distributor, Inc.; Executive Vice President,
General Counsel and a director (since September 1995) of HarbourView Asset
Management Corporation, Shareholder Services, Inc., Shareholder Financial
Services, Inc. and Oppenheimer Partnership Holdings, Inc.; President and a
director of Centennial Asset Management Corporation (since September 1995); and
of Oppenheimer Real Asset Management, Inc. (since July 1996); Vice President and
a director (since October 1997) of OppenheimerFunds International Ltd. and
Oppenheimer Millennium Funds plc; General Counsel (since May 1996) and Secretary
(since April 1997) of Oppenheimer Acquisition Corp.; an officer of other
Oppenheimer funds.
Robert J. Bishop, Assistant Treasurer, Age: 41.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an
officer of other Oppenheimer funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund
Controller for the Manager.
Scott T. Farrar, Assistant Treasurer, Age: 36.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant
Treasurer of Oppenheimer Millennium Funds plc (since October 1997); an officer
of other Oppenheimer Funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller
for the Manager.
Brian W. Wixted, Treasurer, Age: 41.
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since March 1999) of the Manager; Treasurer
(since April 1999) of HarbourView Asset Management Corporation, Shareholder
Services, Inc., Oppenheimer Real Asset Management Corporation, Shareholder
Financial Services, Inc. and Oppenheimer Partnership Holdings, Inc.; of OFI
Private Investments, Inc. (since March 2000) and of OppenheimerFunds
International Ltd. and Oppenheimer Millenium Funds plc (since May 2000),
Treasurer and Chief Financial Officer (since May 2000) of PIMCO Trust Company;
Assistant Treasurer (since March 1999) of Oppenheimer Acquisition Corp. and
Centennial Asset Management Corporation; an officer of other Oppenheimer funds;
formerly Principal and Chief Operating Officer, Bankers Trust Company - Mutual
Fund Services Division (March 1995 - March 1999); Vice President and Chief
Financial Officer of CS First Boston Investment Management Corp. (September 1991
- March 1995).
Robert G. Zack, Assistant Secretary, Age: 52.
Two World Trade Center, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since
May 1981) of the Manager, Assistant Secretary of Shareholder Services, Inc.
(since May 1985), Shareholder Financial Services, Inc. (since November 1989);
Assistant Secretary of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
Jerry A. Webman, Portfolio Manager, Age: 51.
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Senior Investment Officer and Director of the Fixed
Income Department of the Manager (since February 1996); Senior Vice President of
HarbourView Asset Management Corporation (since May 1999); a portfolio manager
of other Oppenheimer funds; before joining the Manager in February 1996, he was
a Vice President and portfolio manager with Prudential Investment Corporation
(March 1986 - February 1996).
|X| Remuneration of Trustees. The officers of the Fund and certain
Trustees of the Fund (Ms. Macaskill and Mr. Spiro) are affiliated with the
Manager and 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, 2000. The compensation from all
of the New York-based Oppenheimer funds (including the Fund) was received as a
director, trustee or member of a committee of the boards of those funds during
the calendar year 1999.
<PAGE>
----------------------------------------------------------------------
Total
Retirement Compensation
Benefits from all
Aggregate Accrued New York-Based
Compensation as Fund Oppenheimer
Name and Position from Fund1 Expenses Funds (29
Funds)2
----------------------------------------------------------------------
----------------------------------------------------------------------
Leon Levy $2,102 $1,284 $166,700
Chairman
----------------------------------------------------------------------
----------------------------------------------------------------------
Robert G. Galli $411 None $177,714
Study Committee
Member 3
----------------------------------------------------------------------
----------------------------------------------------------------------
Phillip A. Griffiths4 $174 None $ 5,125
----------------------------------------------------------------------
----------------------------------------------------------------------
Benjamin Lipstein $1,961 $1,253 $144,100
Study Committee
Chairman,
Audit Committee
Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Elizabeth B. Moynihan $898 $399 $101,500
Study Committee
Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Kenneth A. Randall $1,204 $752 $ 93,100
Audit Committee
Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Edward V. Regan $452 None $ 92,100
Proxy Committee
Chairman, Audit
Committee Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Russell S. Reynolds, $587 $249 $ 68,900
Jr.
Proxy Committee
Member
----------------------------------------------------------------------
----------------------------------------------------------------------
Donald W. Spiro $185 None $ 10,250
----------------------------------------------------------------------
----------------------------------------------------------------------
Clayton K. Yeutter $60 None $ 51,675
Proxy Committee
Member 5
----------------------------------------------------------------------
-----------------------
1 Aggregate compensation includes fees, deferred compensation, if any, and
retirement plan benefits accrued for a Director.
2 For the 1999 calendar year.
3 Calendar year 1999 includes compensation from the Oppenheimer New York, Quest
and Rochester funds. 4 Includes $1,799 deferred under Deferred Compensation Plan
described below. 5 Includes $619 deferred under Deferred Compensation Plan
described below.
|X| Retirement Plan for Trustees. The Fund has adopted a retirement plan
that provides for payments to retired Trustees. Payments are up to 80% of the
average compensation paid during a Trustee's five (5) years of service in which
the highest compensation was received. A Trustee must serve as trustee for any
of the New York-based Oppenheimer funds for at least fifteen (15) years to be
eligible for the maximum payment. Each Trustee's retirement benefits will depend
on the amount of the Trustee's future compensation and length of service.
Therefore the amount of those benefits cannot be determined at this time, nor
can we estimate the number of years of credited service that will be used to
determine those benefits.
|X| Deferred Compensation Plan for Trustees. The Board of Trustees has
adopted a Deferred Compensation Plan for disinterested trustees that enables
them to elect to defer receipt of all or a portion of the annual fees they are
entitled to receive from the Fund. Under the plan, the compensation deferred by
a Trustee is periodically adjusted as though an equivalent amount had been
invested in shares of one or more Oppenheimer funds selected by the Trustee. The
amount paid to the Trustee under the plan will be determined based upon the
performance of the selected funds.
Deferral of Trustees' fees under the plan will not materially affect the
Fund's assets, liabilities or net income per share. The plan will not obligate
the Fund to retain the services of any Trustee or to pay any particular level of
compensation to any Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Fund may invest in the funds selected by the Trustee
under the plan without shareholder approval for the limited purpose of
determining the value of the Trustee's deferred fee account.
|X| Major Shareholders. As of October 10, 2000, the only persons who owned
of record or who were known by the Fund to own beneficially 5% or more of the
Fund's outstanding Class A, Class B or Class C shares were:
Merrill Lynch Pierce Fenner & Smith, 4800 Deer Lake Drive E., 3rd Floor,
Jacksonville, Florida 32246, which owned 243,863.366 Class B shares
(representing approximately 15.36% of the Fund's then-outstanding Class B
shares), for the benefit of its customers and also owned 53,156.729 Class
C shares (representing approximately 24.06% of the Fund's then-outstanding
Class C shares), for the benefit of its customers.
NFSC FEBO, 61 Osprey Village Drive, Amelia Island, Florida 32034,
which owned 19,647.765 Class C shares (representing approximately
8.89% of the Fund's then-outstanding Class C shares), for the
benefit of William S. Cashel, Jr. deceased, Marie C. Cashel JT WROS.
PaineWebber For the Benefit of Glenna B. Cohen or Donald S. Bauman
Trustees Under Deed of Trust dated 7/24/92, 4271 Bocaire Boulevard, Boca
Raton, Florida 33487, which owned 16,626.361 Class C shares (representing
approximately 7.52% of the Fund's then-outstanding Class C shares).
Donaldson Lufkin Jenrette Securities Corporation, Inc., P.O. Box 2052,
Jersey City, New Jersey 07303, which owned 13,297.179 Class C shares
(representing approximately 6.01% of the Fund's then-outstanding Class C
shares).
Doris Weisman, 32 Crescent Avenue, Buffalo, New York 14214, who owned
11,225.975 Class C shares (representing approximately 5.08% of the Fund's
then-outstanding Class C shares).
The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company.
|X| Code of Ethics. The Fund, the Manager and the Distributor have a Code
of Ethics. It is designed to detect and prevent improper personal trading by
certain employees, including portfolio managers, that would compete with or take
advantage of the Fund's portfolio transactions. Covered persons include persons
with knowledge of the investments and investment intentions of the Fund and
other funds advised by the Manager. The Code of Ethics does permit personnel
subject to the Code to invest in securities, including securities that may be
purchased or held by the Fund, subject to a number of restrictions and controls.
Compliance with the Code of Ethics is carefully monitored and enforced by the
Manager.
The Code of Ethics is an exhibit to the Fund's registration statement
filed with the Securities and Exchange Commission and can be reviewed and copied
at the SEC's Public Reference Room in Washington, D.C. You can obtain
information about the hours of operation of the Public Reference Room by calling
the SEC at 1-202-942-8090. The Code of Ethics can also be viewed as part of the
Fund's registration statement on the SEC's EDGAR database at the SEC's Internet
website at http://www.sec.gov. Copies may be obtained after paying a duplicating
fee, by electronic request at the following E-mail address: [email protected],
or by writing to the SEC's Public Reference Section, Washington, D.C.
20549-0102.
|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Fund under an investment advisory
agreement between the Manager and the Fund. The Manager selects securities for
the Fund's portfolio and handles its day-to day business.
The portfolio manager of the Fund is employed by the Manager and is the
person who is responsible for the day-to-day management of the Fund's investment
portfolio. Other members of the Manager's Fixed-Income Portfolio Team provide
the portfolio manager with research and counsel in managing the Fund's
investments.
That agreement requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the
Manager to provide and supervise the activities of all administrative and
clerical personnel required to provide effective corporate administration for
the Fund. Those responsibilities include the compilation and maintenance of
records with respect to the Fund's operations, the preparation and filing of
specified reports, and the composition of proxy materials and registration
statements for continuous public sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the
advisory agreement. The advisory agreement lists examples of expenses paid by
the Fund. The major categories relate to interest, taxes, fees to disinterested
Trustees, legal and audit expenses, custodian and transfer agent expenses, share
issuance costs, certain printing and registration costs, brokerage commissions,
and non-recurring expenses, including litigation cost. The management fees paid
by the Fund to the Manager are calculated at the rates described in the
Prospectus, which are applied to the assets of the Fund as a whole. The fees are
allocated to each class of shares based upon the relative proportion of the
Fund's net assets represented by that class. The management fees paid by the
Fund to the Manager during its last three (3) fiscal years are listed below.
----------------------------------------------------------------------
Management Fee Paid to
Fiscal Year Management Fee OppenheimerFunds, Inc.
Ending 7/31 (Without Voluntary (after waiver)
Waiver)
----------------------------------------------------------------------
----------------------------------------------------------------------
1998 $304,671 $276,744
$109,426
----------------------------------------------------------------------
----------------------------------------------------------------------
1999 $368,319 $334,792
$230,723
----------------------------------------------------------------------
----------------------------------------------------------------------
2000 $338,509 $251,063
----------------------------------------------------------------------
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties, or
reckless disregard for its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss sustained by reason of any
investment of the Fund assets made with due care and in good faith. The
agreement permits the Manager to act as investment adviser for any other person,
firm or corporation. The Manager can use the name "Oppenheimer" in connection
with other investment companies for which it or an affiliate is the investment
adviser or general distributor. If the Manager shall no longer act as investment
adviser to the Fund, the Manager can withdraw its permission to the Fund to use
the name "Oppenheimer" as part of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of
the Manager under the investment advisory agreement is to buy and sell portfolio
securities for the Fund. The investment advisory agreement allows the Manager to
use broker-dealers to effect the Fund's portfolio transactions. Under the
agreement, the Manager may employ those broker-dealers (including "affiliated"
brokers, as that term is defined in the Investment Company Act) that, in the
Manager's best judgment based on all relevant factors, will implement the Fund's
policy to obtain, at reasonable expense, the "best execution" of portfolio
transactions. "Best execution" refers to prompt and reliable execution at the
most favorable price obtainable. The Manager need not seek competitive
commission bidding. However, the Manager is expected to minimize the commissions
paid to the extent consistent with the interest and policies of the Fund as
established by its Board of Trustees.
Under the investment advisory agreement, the Manager may select brokers
that provide brokerage and/or research services for the Fund and/or the other
accounts over which the Manager or its affiliates have investment discretion.
The concessions paid to such brokers may be higher than another qualified broker
would charge, if the Manager makes a good faith determination that the
concession is fair and reasonable in relation to the services provided. Subject
to those other considerations, as a factor in selecting brokers for the Fund's
portfolio transactions, the Manager may also consider sales of shares of the
Fund and other investment companies managed by the Manager or its affiliates.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for
the Fund subject to the provisions of the investment advisory agreement and the
procedures and rules described above. Generally the Manager's portfolio traders
allocate brokerage upon recommendations from the Manager's portfolio managers.
In certain instances, portfolio managers may directly place trades and allocate
brokerage. In either case, the Manager's executive officers supervise the
allocation of brokerage.
Most securities purchases made by the Fund are in principal transactions
at net prices. The Fund usually deals directly with the selling or purchasing
principal or market maker without incurring charges for the services of a broker
on its behalf unless the Manager determines that a better price or execution may
be obtained by using the services of a broker. Therefore, the Fund does not
incur substantial brokerage costs. Portfolio securities purchased from
underwriters include a commission or concession paid by the issuer to the
underwriter in the price of the security. Portfolio securities purchased from
dealers include a spread between the bid and asked price.
The Fund seeks to obtain prompt execution of orders at the most favorable
net prices. In an option transaction, the Fund ordinarily uses the same broker
for the purchase or sale of the option and any transaction in the investment to
which the option relates. Other funds advised by the Manager have investment
objectives and policies similar to those of the Fund. Those other funds may
purchase or sell the same securities as the Fund at the same time as the Fund,
which could affect the supply and price of the securities. When possible, the
Manager tries to combine concurrent orders to purchase or sell the same security
by more than one of the accounts managed by the Manager or its affiliates. The
transactions under those combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each account.
The investment advisory agreement permits the Manager to allocate
brokerage for research services. The research services provided by a particular
broker may be useful only to one or more of the advisory accounts of the Manager
and its affiliates. Investment research received by the Manager for the
commissions paid by those other accounts may be useful both to the Fund and one
or more of the Manager's other accounts. Investment research services may be
supplied to the Manager by a third party at the instance of a broker through
which trades are placed. Investment research services include information and
analyses on particular companies and industries as well as market or economic
trends and portfolio strategy, market quotations for portfolio evaluations,
information systems, computer hardware and similar products and services. If a
research service also assists the Manager in a non-research capacity (such as
bookkeeping or other administrative functions), then only the percentage or
component that provides assistance to the Manager in the investment
decision-making process may be paid in commission dollars.
The Board of Trustees permits the Manager to use concessions on
fixed-price offerings to obtain research, in the same manner as is permitted for
agency transactions. The Board also permits the Manager to use stated
commissions on secondary fixed-income agency trades to obtain research if the
broker represents to the Manager that: (i) the trade is not from or for the
broker's own inventory, (ii) the trade was executed by the broker on an agency
basis at the stated commission, and (iii) the trade is not a riskless principal
transaction.
The research services provided by brokers broaden the scope and supplement
the research activities of the Manager. That research provides additional views
and comparisons for consideration and helps the Manager to obtain market
information for the valuation of securities that are either held in the Fund's
portfolio or are being considered for purchase. The Manager provides information
to the Board of the Fund about the commissions paid to brokers furnishing
research services, together with the Manager's representation that the amount of
such commissions was reasonably related to the value or benefit of such
services.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the
Distributor acts as the Fund's principal underwriter in the continuous public
offering of the different classes of shares of the Fund. The Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales are borne by the Distributor.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is discussed in the table below:
-------------------------------------------------------------------
Aggregate Class A Concessions ConcessionsConcessions
Fiscal Front-End Front-End on Class A on Class on Class C
Year Sales Sales Shares B Shares Shares
Ended Charges on Charges Advanced by Advanced Advanced
7/31: Class A Retained Distributor1 by by
Shares by DistributorDistributor1
Distributor*
-------------------------------------------------------------------
-------------------------------------------------------------------
1998 $231,974 $359,950 $10,873 $245,210 $15,018
-------------------------------------------------------------------
-------------------------------------------------------------------
1999 $110,080 $20,665 $ 2,577 $244,821 $13,047
-------------------------------------------------------------------
-------------------------------------------------------------------
2000 $ 61,567 $12,979 $ 1,377 $115,116 $ 3,640
-------------------------------------------------------------------
1. The Distributor advances concession payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
* Includes amounts retained by a broker-dealer that is an affiliate or a
parent of the Distributor.
-------------------------------------------------------------------
Class A Class B Class C Contingent
Fiscal Contingent Contingent Deferred Sales
Year Deferred Sales Deferred Sales Charges Retained
Ended Charges Retained Charges Retained by Distributor
7/31: by Distributor by Distributor
-------------------------------------------------------------------
-------------------------------------------------------------------
2000 $238 $66,402 $742
-------------------------------------------------------------------
For additional information about distribution of the Fund's shares,
including fees and expenses, please refer to "Distribution and Service Plans."
Distribution and Service Plans. The Fund has adopted a Service Plan for its
Class A shares and Distribution and Service Plans for its Class B and Class C
shares under Rule 12b-1 of the Investment Company Act. Under those plans, the
Fund makes payments to the Distributor in connection with the distribution
and/or servicing of the shares of the particular class. Each plan has been
approved by a vote of the Board of Trustees of the Fund, including a majority of
the Independent Trustees,2 cast in person at a meeting called for the purpose of
voting on that plan.
Under the plans the Manager and the Distributor, in their sole discretion,
from time to time may use their own resources (at no direct cost to the Fund) to
make payments to brokers, dealers or other financial institutions for
distribution and administrative services they perform. The Manager may use
profits from the advisory fee it receives from the Fund. The Distributor and the
Manager may, in their sole discretion, increase or decrease the amount of
payments they make to plan recipients from their own resources.
Unless a plan is terminated as described below, the plan continues in
effect from year to year, but only if the Fund's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of that class.
The Board and the Independent Trustees must approve all material
amendments to a plan. An amendment to increase materially the amount of payments
to be made under the plan must be approved by shareholders of the class affected
by the amendment. Because Class B shares automatically convert into Class A
shares after six (6) years, the Fund must obtain the approval of both Class A
and Class B shareholders for an amendment to the Class A plan that would
materially increase the amount to be paid under that plan. That approval must be
by a "maturity" (as defined in the Investment Company Act) of the shares of each
class, voting separately by class.
While the plans are in effect, the Treasurer of the Fund shall provide
separate written reports on the plans to the Fund's Board of Trustees at least
quarterly for its review. The reports shall detail the amount of all payments
made under a plan and the purpose for which the payments were made. Those
reports are subject to the review and approval of the Independent Trustees in
the exercise of their fiduciary duty.
Each plan states that while it is in effect, the selection or replacement
and nomination of those Trustees of the Fund who are not "interested persons" of
the Fund is committed to the discretion of the Independent Trustees. This
provision does not prevent the involvement of others in the selection and
nomination process as long as the final decision as to selection or nomination
is approved by a majority of the Independent Trustees.
Under the plan for a class, no payment will be made to any recipient in
any quarter in which the aggregate net asset value of all Fund shares held by
the recipient for itself and its customers does not exceed a minimum amount, if
any, that may be set from time to time by a majority of the Fund's Independent
Trustees. Initially, the Board of Trustees has set the fees at the maximum rate
allowed under the plans and has set no minimum asset amount needed to qualify
for payments.
|_| Class A Service Plan Fees. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions (they are referred to as "recipients")
for personal services and account maintenance services they provide for their
customers who hold Class A shares. The services include, among others, answering
customer inquiries about the Fund, assisting in establishing and maintaining
accounts in the Fund, making the Fund's investment plans available and providing
other services at the request of the Fund or the Distributor. The Distributor
makes payments to plan recipients quarterly at an annual rate not to exceed
0.15% of the average annual net assets of Class A shares held in accounts of the
service providers or their customers.
For the fiscal year ended July 31, 2000, payments under the Plan for Class
A shares totaled $83,434, all of which was paid by the Distributor to
recipients. That included $882 paid to an affiliate of the Distributor. Any
unreimbursed expenses the Distributor incurs with respect to Class A shares for
any fiscal year may not be recovered in subsequent years. The Distributor may
not use payments received under the Class A plan to pay any of its interest
expenses, carrying charges, other financial costs, or allocation of overhead.
|_| Class B and Class C Service and Distribution Plans.
Under each plan, service fees and distribution fees are computed on the
average of the net asset value of shares in the respective class, determined as
of the close of each regular business day during the period. The Class B and
Class C plans provide for the Distributor to be compensated at a flat rate,
whether the Distributor's distribution expenses are more or less than the
amounts paid by the Fund under the plans during that period. The types of
services that recipients provide for the service fee are similar to the services
provided under Class A plans, described above.
The Class B and Class C plans permit the Distributor to retain both the
asset-based sales charges and the service fee on shares or to pay recipients the
service fee on a quarterly basis, without payment in advance. However, the
Distributor presently intends to pay recipients the service fee on Class B and
Class C shares in advance for the first year the shares are outstanding. After
the first year shares are outstanding, the Distributor makes service fee
payments quarterly on those shares. The advance payment is based on the net
asset value of shares sold. Shares purchased by exchange do not qualify for an
advance service fee payment. If Class B or Class C shares are redeemed during
the first year after their purchase, the recipient of the service fees on those
shares will be obligated to repay the Distributor a pro rata portion of the
advance payment made on those shares.
The Distributor retains the asset-based sales charge on Class B shares.
The Distributor retains the asset-based sales charge on Class C shares during
the first year the shares are outstanding. It pays the asset-based sales charge
as an ongoing concession to the dealer on Class C shares outstanding for a year
or more. If a dealer has a special agreement with the Distributor, the
Distributor will pay the Class B and/or Class C service fees and the asset-based
sales charge to the dealer quarterly in lieu of paying the sales concession and
service fee in advance at the time of purchase.
The asset-based sales charge on Class B and Class C shares allows
investors to buy shares without a front-end sales charge while allowing the
Distributor to compensate dealers that sell those shares. The Distributor's
actual expenses in selling Class B and Class C shares may be more than the
payments it receives from contingent deferred sales charges collected on
redeemed shares and from the Fund under the plans. The Fund pays the asset-based
sales charge to the Distributor for its services rendered in distributing Class
B and Class C shares. The payments are made to the Distributor in recognition
that the Distributor:
|_| pays sales concessions to authorized brokers and dealers at the time
of sale and pays service fees as described in the Prospectus, |_| may
finance payment of sales concessions and/or the advance of the service fee
payment to recipients under the plans, or may provide such financing from
its own resources or from the resources of an affiliate, |_| employs
personnel to support distribution of shares, and |_| bears the costs of
sales literature, advertising and prospectuses (other than those furnished
to current shareholders) and state "blue sky" registration fees and
certain other distribution expenses.
The Distributor's actual expenses in selling Class B and Class C shares
may be more than the payments it receives from contingent deferred sales charges
collected on redeemed shares and from the Fund under the plans. If either the
Class B or Class C plan is terminated by the Fund, the Board of Trustees may
allow the Fund to continue payments of the asset-based sales charge to the
Distributor for distributing shares before the plan was terminated. The Class B
and Class C plans allow for the carry-forward of distribution expenses, to be
recovered from asset-based sales charges in subsequent fiscal periods.
--------------------------------------------------------------------
Distribution Fees Paid to the Distributor in the Fiscal Year Ended
7/31/00
--------------------------------------------------------------------
--------------------------------------------------------------------
Distributor's Distributor's
Aggregate Unreimbursed
Total Amount Unreimbursed Expenses as %
Payments Retained by Expenses of Net Assets
Class: Under Plan Distributor Under Plan of Class
--------------------------------------------------------------------
--------------------------------------------------------------------
Class B $192,858 $154,110 $563,708 3.16%
Plan
--------------------------------------------------------------------
--------------------------------------------------------------------
Class C $ 27,962 $ 7,304 $ 30,968 1.27%
Plan
--------------------------------------------------------------------
All payments under the Class B and Class C plans are subject to the
limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service
fees to NASD members.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to
illustrate its performance. These terms include "standardized yield,"
"tax-equivalent yield," "dividend yield," "average annual total return,"
"cumulative total return," "average annual total return at net asset value" and
"total return at net asset value." An explanation of how yields and total
returns are calculated is set forth below. The charts below show the Fund's
performance during its most recent fiscal year end. You can obtain current
performance information by calling the Fund's Transfer Agent at 1-800-525-7048
or by visiting the OppenheimerFunds Internet web site at
http://www.oppenheimerfunds.com.
The Fund's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data
must include the average annual total returns for the advertised class of shares
of the Fund. Those returns must be shown for the 1, 5 and 10-year periods (or
the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for
publication). Certain types of yields may also be shown, provided that they are
accompanied by standardized average annual total returns.
Use of standardized performance calculations enables an investor to
compare the Fund's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other investments:
|_| Yields and total returns measure the performance of a hypothetical
account in the Fund over various periods and do not show the performance of each
shareholder's account. Your account's performance will vary from the model
performance data if your dividends are received in cash, or you buy or sell
shares during the period, or you bought your shares at a different time and
price than the shares used in the model.
|_| The Fund's performance returns do not reflect the effect of taxes
on distributions.
|_| An investment in the Fund is not insured by the FDIC or any other
government agency.
|_| The principal value of the Fund's shares, and its yields and total
returns are not guaranteed and normally will fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or less
than their original cost.
|_| Yields and total returns for any given past period represent
historical performance information and are not, and should not be considered, a
prediction of future yields or returns.
The performance of each class of shares is shown separately, because the
performance of each class of shares will usually be different. That is because
of the different kinds of expenses each class bears. The yields and total
returns of each class of shares of the Fund are affected by market conditions,
the quality of the Fund's investments, the maturity of those investments, the
types of investments the Fund holds, and its operating expenses that are
allocated to the particular class.
|X| Yields. The Fund uses a variety of different yields to illustrate its
current returns. Each class of shares calculates its yield separately because of
the different expenses that affect each class.
|_| Standardized Yield. The "standardized yield" (sometimes referred to
just as "yield") is shown for a class of shares for a stated thirty (30) day
period. It is not based on actual distributions paid by the Fund to shareholders
in the thirty (30) day period, but is a hypothetical yield based upon the net
investment income from the Fund's portfolio investments for that period. It may
therefore differ from the "dividend yield" for the same class of shares,
described below.
Standardized yield is calculated using the following formula set forth in
rules adopted by the Securities and Exchange Commission, designed to assure
uniformity in the way that all funds calculate their yields:
Standardized Yield = 2[(a-b 6
--- + 1) - 1]
cd
The symbols above represent the following factors:
a =dividends and interest earned during the thirty (30) day period.
b =expenses accrued for the period (net of any expense assumptions).
c =the average daily number of shares of that class outstanding during
the thirty (30) day period that were entitled to receive dividends.
d =the maximum offering price per share of that class on the last day of
the period, adjusted for undistributed net investment income.
The standardized yield for a particular thirty (30) day period may differ
from the yield for other periods. The SEC formula assumes that the standardized
yield for a thirty (30) day period occurs at a constant rate for a six (6) month
period and is annualized at the end of the six (6) 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
thirty (30) day period.
|_| Dividend Yield. The Fund may quote a "dividend yield" for each class
of its shares. Dividend yield is based on the dividends paid on a class of
shares during the actual dividend period. To calculate dividend yield, the
dividends of a class declared during a stated period are added together, and the
sum is multiplied by twelve (12) (to annualize the yield) and divided by the
maximum offering price on the last day of the dividend period. The formula is
shown below:
Dividend Yield = dividends paid x 12/maximum offering price
(payment date)
The maximum offering price for Class A shares includes the current maximum
initial sales charge. The maximum offering price for Class B and Class C shares
is the net asset value per share, without considering the effect of contingent
deferred sales charges. The Class A dividend yield may also be quoted without
deducting the maximum initial sales charge.
|_| Tax-Equivalent Yield. The "tax-equivalent yield" of a class of shares
is the equivalent yield that would have to be earned on a taxable investment to
achieve the after-tax results represented by the Fund's tax-equivalent yield. It
adjusts the Fund's standardized yield, as calculated above, by a stated Federal
tax rate. Using different tax rates to show different tax equivalent yields
shows investors in different tax brackets the tax equivalent yield of the Fund
based on their own tax bracket.
The tax-equivalent yield is based on a thirty (30) day period, and is
computed by dividing the tax-exempt portion of the Fund's current yield (as
calculated above) by one minus a stated income tax rate. The result is added to
the portion (if any) of the Fund's current yield that is not tax-exempt.
The tax-equivalent yield may be used to compare the tax effects of income
derived from the Fund with income from taxable investments at the tax rates
stated. Your tax bracket is determined by your Federal and state taxable income
(the net amount subject to Federal income tax after deductions and exemptions).
The tax-equivalent yield table assumes that the investor is taxed at the highest
bracket, regardless of whether a switch to non-taxable investments would cause a
lower bracket to apply.
----------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 7/31/00
----------------------------------------------------------------------
----------------------------------------------------------------------
Tax-Equivalent
Standardized Yield Dividend Yield Yield (39.6% Fed.
Tax Bracket)
Class of
Shares
----------------------------------------------------------------------
----------------------------------------------------------------------
Without Without Without
Sales After Sales After Sales After
Charge Sales Charge Sales Charge Sales
Charge Charge Charge
----------------------------------------------------------------------
----------------------------------------------------------------------
Class A 5.39% 5.13% 5.31% 5.06% 8.92% 8.49%
----------------------------------------------------------------------
----------------------------------------------------------------------
Class B 4.63% N/A 4.59% N/A 7.67% N/A
----------------------------------------------------------------------
----------------------------------------------------------------------
Class C 4.63% N/A 4.60% N/A 7.67% N/A
----------------------------------------------------------------------
|X| Total Return Information. There are different types of "total returns"
to measure the Fund's performance. Total return is the change in value of a
hypothetical investment in the Fund over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each
class are separately measured. The cumulative total return measures the change
in value over the entire period (for example, ten (10) years). An average annual
total return shows the average rate of return for each year in a period that
would produce the cumulative total return over the entire period. However,
average annual total returns do not show actual year-by-year performance. The
Fund uses standardized calculations for its total returns as prescribed by the
SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales
charge of 4.75% (as a percentage of the offering price) is deducted from the
initial investment ("P") (unless the return is shown without sales charge, as
described below). For Class B shares, payment of the applicable contingent
deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and
fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is
deducted for returns for the one (1) year period.
|_| Average Annual Total Return. The "average annual total return" of each
class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV" in the
formula) of that investment, according to the following formula:
1/n
ERV
--- - 1 = Average Annual Total Return
P
|_| Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV-P
----- = Total Return
P
|_| Total Returns at Net Asset Value. From time to time the Fund may also
quote a cumulative or an average annual total return "at net asset value"
(without deducting sales charges) for Class A, Class B or Class C shares. Each
is based on the difference in net asset value per share at the beginning and the
end of the period for a hypothetical investment in that class of shares (without
considering front-end or contingent deferred sales charges) and takes into
consideration the reinvestment of dividends and capital gains distributions.
----------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 7/31/00
----------------------------------------------------------------------
----------------------------------------------------------------------
Cumulative Average Annual Total Returns
Total Returns
(10 years or
life of class)
Class
of
Shares
----------------------------------------------------------------------
----------------------------------------------------------------------
5-Year 10-Year
1-Year (or life of (or life of
class) class)
----------------------------------------------------------------------
----------------------------------------------------------------------
After WithoutAfter WithoutAfter Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
----------------------------------------------------------------------
----------------------------------------------------------------------
Class A 29.49%1 35.94%1 -3.54% 1.28% 3.96% 4.98% 3.85%1 4.60%1
----------------------------------------------------------------------
----------------------------------------------------------------------
Class B 30.09%2 30.09%2 -4.27% 0.51% 3.85% 4.18% 3.92%2 3.92%2
----------------------------------------------------------------------
----------------------------------------------------------------------
Class C 22.43%3 22.43%3 -0.44% 0.51% 4.20%3 4.20%3 N/A N/A
----------------------------------------------------------------------
1 Inception of Class A: 10/1/93
2 Inception of Class B: 10/1/93
3 Inception of Class C: 8/29/95
Other Performance Comparisons. The Fund compares its performance annually to
that of an appropriate broadly based market index in its Annual Report to
shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of
Additional Information. The Fund may also compare its performance to that of
other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|_| Lipper Rankings. From time to time the Fund may publish the ranking of
the performance of its shares by Lipper Analytical Services, Inc. ("Lipper").
Lipper is a widely-recognized independent mutual fund monitoring service. Lipper
monitors the performance of regulated investment companies, including the Fund,
and ranks their performance for various periods based on categories relating to
investment objectives. The performance of the Fund is ranked by Lipper against
all other general municipal debt funds, other than money market funds, and other
municipal bond funds. The Lipper performance rankings are based on total returns
that include the reinvestment of capital gain distributions and income dividends
but do not take sales charges or taxes into consideration. Lipper also publishes
"peer-group" indices of the performance of all mutual funds in a category that
it monitors and averages of the performance of the funds in particular
categories.
|_| Morningstar Ratings and Rankings. From time to time the Fund may
publish the ranking and/or star ranking of the performance of its classes of
shares by Morningstar, Inc., ("Morningstar") an independent mutual fund
monitoring service. Morningstar rates and ranks mutual funds in broad investment
categories: domestic stock funds, international stock funds, taxable bond funds
and municipal bond funds. The Fund is included in the municipal bond funds
category.
Morningstar proprietary star ratings reflect historical risk-adjusted
total investment return. Investment return measures a fund's (or class's) one,
three, five and ten-year average annual total returns (depending on the
inception of the fund or class) in excess of ninety (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 ninety (90) day U.S. Treasury bill
returns. Risk and investment return are combined to produce star ratings
reflecting performance relative to the other funds in a fund's category. Five
stars is the "highest" rating (top 10% of funds in a category), four stars is
"above average" (next 22.5%), three stars is "average" (next 35%), two stars is
"below average" (next 22.5%) and one star is "lowest" (bottom 10%). The current
star rating is the fund's (or class's) 3-year rating or its combined 3- and
5-year rating (weighted 60%/40% respectively), or its combined 3-, 5-, and
10-year rating (weighted 40%, 30% and 30%, respectively), depending on the
inception date of the fund (or class). Ratings are subject to change monthly.
The Fund may also compare its total return ranking to that of other funds
in its Morningstar category, in addition to its star ratings. Those total return
rankings are percentages from one percent to one hundred percent and are not
risk adjusted. For example, if a fund is in the 94th percentile, that means that
94% of the funds in the same category performed better than it did.
|_| Performance Rankings and Comparisons by Other Entities and
Publications. From time to time the Fund may include in its advertisements and
sales literature performance information about the Fund cited in newspapers and
other periodicals such as The New York Times, the Wall Street Journal, Barron's,
or similar publications. That information may include performance quotations
from other sources, including Lipper and Morningstar. The performance of the
Fund's Class A, Class B or Class C shares may be compared in publications to the
performance of various market indices or other investments, and averages,
performance rankings or other benchmarks prepared by recognized mutual fund
statistical services.
Investors may also wish to compare the Fund's Class A, Class B or Class C
returns to the return on fixed-income investments available from banks and
thrift institutions. Those include certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or
variable time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed or insured by the
FDIC or any other agency and will fluctuate daily, while bank depository
obligations may be insured by the FDIC and may provide fixed rates of return.
Repayment of principal and payment of interest on Treasury securities is backed
by the full faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager
or Transfer Agent, and of the investor services provided by them to shareholders
of the Oppenheimer funds, other than performance rankings of the Oppenheimer
funds themselves. Those ratings or rankings of shareholder and investor services
by third parties may include comparisons of their services to those provided by
other mutual fund families selected by the rating or ranking services. They may
be based upon the opinions of the rating or ranking service itself, using its
research or judgment, or based upon surveys of investors, brokers, shareholders
or others.
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ABOUT YOUR ACCOUNT
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How to Buy Shares
Additional information is presented below about the methods that can be
used to buy shares of the Fund. Appendix D contains more information about the
special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must
be at least $25. Shares will be purchased on the regular business day the
Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased
with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York
Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier
on certain days. If Federal Funds are received on a business day after the close
of the Exchange, the shares will be purchased and dividends will begin to accrue
on the next regular business day. The proceeds of ACH transfers are normally
received by the Fund three (3) days after the transfers are initiated. The
Distributor and the Fund are not responsible for any delays in purchasing shares
resulting from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge
rate may be obtained for Class A shares under Right of Accumulation and Letters
of Intent because of the economies of sales efforts and reduction in expenses
realized by the Distributor, dealers and brokers making such sales. No sales
charge is imposed in certain other circumstances described in Appendix D to this
Statement of Additional Information because the Distributor or dealer or broker
incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates
that apply to larger purchases of Class A shares, you and your spouse can add
together:
|_| Class A and Class B shares you purchase for your individual
accounts, or for your joint accounts, or for trust or custodial
accounts on behalf of your children who are minors,
|_|Current purchases of Class A and Class B shares of the Fund and
other Oppenheimer funds to reduce the sales charge rate that applies
to current purchases of Class A shares, and
|_|Class A and Class B shares of Oppenheimer funds you previously
purchased subject to an initial or contingent deferred sales charge
to reduce the sales charge rate for current purchases of Class A
shares, provided that you still hold your investment in one of the
Oppenheimer funds.
A fiduciary can count all shares purchased for a trust, estate or other
fiduciary account (including one or more employee benefit plans of the same
employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own
to the value of current purchases to determine the sales charge rate that
applies. The reduced sales charge will apply only to current purchases. You must
request it when you buy shares.
|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual
funds for which the Distributor acts as the distributor or the
sub-distributor and currently include the following:
Oppenheimer Main Street California
Oppenheimer Bond Fund Municipal Fund
Oppenheimer Capital Appreciation Oppenheimer Main Street Growth &
Fund Income Fund
Oppenheimer Main Street Small Cap
Oppenheimer Capital Income Fund Fund
Oppenheimer Capital Preservation
Fund Oppenheimer MidCap Fund
Oppenheimer California Municipal Oppenheimer Multiple Strategies
Fund Fund
Oppenheimer Champion Income Fund Oppenheimer Municipal Bond Fund
Oppenheimer Convertible Securities
Fund Oppenheimer New York Municipal Fund
Oppenheimer New Jersey Municipal
Oppenheimer Developing Markets Fund Fund
Oppenheimer Disciplined Allocation Oppenheimer Pennsylvania Municipal
Fund Fund
Oppenheimer Quest Balanced Value
Oppenheimer Disciplined Value Fund Fund
Oppenheimer Quest Capital Value
Oppenheimer Discovery Fund Fund, Inc.
Oppenheimer Enterprise Fund
Oppenheimer Emerging Technologies Oppenheimer Quest Global Value
Fund Fund, Inc.
Oppenheimer Quest Opportunity
Oppenheimer Emerging Growth Fund Value Fund
Oppenheimer Quest Small Cap Value
Oppenheimer Europe Fund Fund
Oppenheimer Florida Municipal Fund Oppenheimer Quest Value Fund, Inc.
Oppenheimer Global Fund Oppenheimer Real Asset Fund
Oppenheimer Global Growth & Income Oppenheimer Senior Floating Rate
Fund Fund
Oppenheimer Gold & Special
Minerals Fund Oppenheimer Strategic Income Fund
Oppenheimer Total Return Fund,
Oppenheimer Growth Fund Inc.
Oppenheimer High Yield Fund Oppenheimer Trinity Core Fund Oppenheimer Insured
Municipal Fund Oppenheimer Trinity Growth Fund Oppenheimer Intermediate
Municipal Fund Oppenheimer Trinity Value Fund Oppenheimer International Bond
Fund Oppenheimer U.S. Government Trust Oppenheimer International Growth Fund
Oppenheimer World Bond Fund Oppenheimer International Small Limited-Term New
York Municipal Company Fund Fund Oppenheimer Large Cap Growth Fund Rochester
Fund Municipals Oppenheimer Limited-Term Government Fund
and the following money market
funds:
Centennial New York Tax Exempt
Centennial America Fund, L. P. Trust
Centennial California Tax Exempt
Trust Centennial Tax Exempt Trust
Centennial Government Trust Oppenheimer Cash Reserves
Oppenheimer Money Market Fund,
Centennial Money Market Trust Inc.
There is an initial sales charge on the purchase of Class A shares of each
of the Oppenheimer funds except the money market funds. Under certain
circumstances described in this Statement of Additional Information, redemption
proceeds of certain money market fund shares may be subject to a contingent
deferred sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or
Class A and Class B shares of the Fund and other Oppenheimer funds during a
thirteen (13) month period, you can reduce the sales charge rate that applies to
your purchases of Class A shares. The total amount of your intended purchases of
both Class A and Class B shares will determine the reduced sales charge rate for
the Class A shares purchased during that period. You can include purchases made
up to ninety (90) days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the
Distributor of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds) during a thirteen (13) month
period (the "Letter of Intent period"). At the investor's request, this may
include purchases made up to ninety (90) days prior to the date of the Letter.
The Letter states the investor's intention to make the aggregate amount of
purchases of shares which, when added to the investor's holdings of shares of
those funds, will equal or exceed the amount specified in the Letter. Purchases
made by reinvestment of dividends or distributions of capital gains and
purchases made at net asset value without sales charge do not count toward
satisfying the amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares
purchased under the Letter to obtain the reduced sales charge rate on purchases
of Class A shares of the Fund (and other Oppenheimer funds) that applies under
the Right of Accumulation to current purchases of Class A shares. Each purchase
of Class A shares under the Letter will be made at the public offering price
(including the sales charge) that applies to a single lump-sum purchase of
shares in the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase
shares. However, if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the investor's
holdings of shares on the last day of that period, do not equal or exceed the
intended purchase amount, the investor agrees to pay the additional amount of
sales charge applicable to such purchases. That amount is described in "Terms of
Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended
purchase amount will be held in escrow by the Transfer Agent subject to the
Terms of Escrow. Also, the investor agrees to be bound by the terms of the
Prospectus, this Statement of Additional Information and the Application used
for a Letter of Intent. If those terms are amended, as they may be from time to
time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do
not equal or exceed the intended purchase amount, the concessions previously
paid to the dealer of record for the account and the amount of sales charge
retained by the Distributor will be adjusted to the rates applicable to actual
total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for
the next sales charge rate reduction set forth in the Prospectus, the sales
charges paid will be adjusted to the lower rate. That adjustment will be made
only if and when the dealer returns to the Distributor the excess of the amount
of concessions allowed or paid to the dealer over the amount of concessions that
apply to the actual amount of purchases. The excess concessions 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.
|X| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made
pursuant to a Letter, shares of the Fund equal in value up to 5% of the intended
purchase amount specified in the Letter shall be held in escrow by the Transfer
Agent. For example, if the intended purchase amount is $50,000, the escrow shall
be shares valued in the amount of $2,500 (computed at the offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed
within the thirteen (13) month Letter of Intent period, the escrowed shares will
be promptly released to the investor.
3. If, at the end of the thirteen (13) month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended purchase
amount specified in the Letter, the investor must remit to the Distributor an
amount equal to the difference between the dollar amount of sales charges
actually paid and the amount of sales charges which would have been paid if the
total amount purchased had been made at a single time. That sales charge
adjustment will apply to any shares redeemed prior to the completion of the
Letter. If the difference in sales charges is not paid within twenty days after
a request from the Distributor or the dealer, the Distributor will, within sixty
(60) days of the expiration of the Letter, redeem the number of escrowed shares
necessary to realize such difference in sales charges. Full and fractional
shares remaining after such redemption will be released from escrow. If a
request is received to redeem escrowed shares prior to the payment of such
additional sales charge, the sales charge will be withheld from the redemption
proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the Transfer Agent as attorney-in-fact to surrender for redemption any
or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of
which may be counted toward completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a
Class A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a
contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class A
shares of one of the other Oppenheimer funds that were acquired
subject to a Class A initial or contingent deferred sales charge or
(2) Class B shares of one of the other Oppenheimer funds that were
acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for
shares of another fund to which an exchange is requested, as described in the
section of the Prospectus entitled "How to Exchange Shares" and the escrow will
be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly
from a bank account, you must enclose a check (the minimum is $25) for the
initial purchase with your application. Shares purchased by Asset Builder Plan
payments from bank accounts are subject to the redemption restrictions for
recent purchases described in the Prospectus. Asset Builder Plans are available
only if your bank is an ACH member. Asset Builder Plans may not be used to buy
shares for OppenheimerFunds employer-sponsored qualified retirement accounts.
Asset Builder Plans also enable shareholders of Oppenheimer Cash Reserves to use
their fund account to make monthly automatic purchases of shares of up to four
other Oppenheimer funds.
If you make payments from your bank account to purchase shares of the
Fund, your bank account will be debited automatically. Normally the debit will
be made two business days prior to the investment dates you selected on your
Application. Neither the Distributor, the Transfer Agent nor the Fund shall be
responsible for any delays in purchasing shares that result from delays in ACH
transmission.
Before you establish Asset Builder payments, you should obtain a
prospectus of the selected fund(s) from your financial advisor (or the
Distributor) and request an application from the Distributor. Complete the
application and return it. You may change the amount of your Asset Builder
payment or your can terminate these automatic investments at any time by writing
to the Transfer Agent. The Transfer Agent requires a reasonable period
(approximately ten (10) days) after receipt of your instructions to implement
them. The Fund reserves the right to amend, suspend, or discontinue offering
Asset Builder plans at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's
shares (for example, when a purchase check is returned to the Fund unpaid)
causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to
the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor
will do so. The Fund may reimburse the Distributor for that amount by redeeming
shares from any account registered in that investor's name, or the Fund or the
Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in
the same portfolio of investments of the Fund. However, each class has different
shareholder privileges and features. The net income attributable to Class B or
Class C shares and the dividends payable on Class B or Class C shares will be
reduced by incremental expenses borne solely by that class. Those expenses
include the asset-based sales charges to which Class B and Class C are subject.
The availability of three (3) classes of shares permits an investor to
choose the method of purchasing shares that is more appropriate for the
investor. That may depend on the amount of the purchase, the length of time the
investor expects to hold shares, and other relevant circumstances. Class A
shares in general are sold subject to an initial sales charge. While Class B and
Class C shares have no initial sales charge, the purpose of the deferred sales
charge and asset-based sales charge on Class B and Class C shares is the same as
that of the initial sales charge on Class A shares to compensate the Distributor
and brokers, dealers and financial institutions that sell shares of the Fund. A
salesperson who is entitled to receive compensation from his or her firm for
selling Fund shares may receive different levels of compensation for selling one
class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or
more for Class B shares or $1 million or more for Class C shares on behalf of a
single investor (not including dealer "street name" or omnibus accounts). That
is because generally it will be more advantageous for that investor to purchase
Class A shares of the Fund.
|X| Class B Conversion. The conversion of Class B shares to Class A shares
after six years is subject to the continuing availability of a private letter
ruling from the Internal Revenue Service, or an opinion of counsel or tax
adviser, to the effect that the conversion of Class B shares does not constitute
a taxable event for the shareholder under Federal income tax law. If that
revenue ruling or opinion is no longer available, the automatic conversion
feature may be suspended. In that event, no further conversions of Class B
shares would occur while the 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 (6) years. Shareholders should consult their tax
advisors regarding the state and local tax consequences of the conversion of
Class B shares into Class A shares, or any conversion or exchange of shares.
|X| Allocation of Expenses. The Fund pays expenses related to its daily
operations, such as custodian fees, trustees' fees, transfer agency fees, legal
fees and auditing costs. Those expenses are paid out of the Fund's assets and
are not paid directly by shareholders. However, those expenses reduce the net
asset value of shares, and therefore are indirectly borne by shareholders
through their investment.
The methodology for calculating the net asset value, dividends and
distributions of the Fund's share classes recognizes two types of expenses.
General expenses that do not pertain specifically to any one class are allocated
pro rata to the shares of all classes. The allocation is based on the percentage
of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general
expenses include management fees, legal, bookkeeping and audit fees, printing
and mailing costs of shareholder reports, Prospectuses, Statements of Additional
Information and other materials for current shareholders, fees to unaffiliated
Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses,
such as litigation costs.
Other expenses that are directly attributable to a particular class are
allocated equally to each outstanding share within that class. Examples of such
expenses include distribution and service plan (12b-1) fees, transfer and
shareholder servicing agent fees and expenses, and shareholder meeting expenses
(to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of
each class of shares of the Fund are determined as of the close of business of
The New York Stock Exchange on each day that the Exchange is open. It is done by
dividing the value of the Fund's net assets attributable to that class by the
number of shares of that class that are outstanding. The Exchange normally
closes at 4:00 P.M., New York time, but may close earlier on some other days
(for example, in case of weather emergencies or on days falling before a
holiday). The Exchange's most recent annual announcement (which is subject to
change) states that it will close on New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in municipal
securities on days on which the Exchange is closed (including weekends and U.S.
holidays) or after 4:00 P.M. on a regular business day. Because the Fund's net
asset values will not be calculated on those days, the Fund's net asset values
per share may be significantly affected on such days when shareholders may not
purchase or redeem shares.
|X| Securities Valuation. The Fund's Board of Trustees has established
procedures for the valuation of the Fund's securities. In general those
procedures are as follows:
|_| Long-term debt securities having a remaining maturity in excess of
sixty (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 (2) active market makers in the
security on the basis of reasonable inquiry.
|_| The following securities are valued at the mean between the "bid" and
"asked" prices determined by a pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two (2) active market makers in the
security on the basis of reasonable inquiry: (1) debt instruments that have a
maturity of more than three hundred ninety
seven (397) days when issued,
(2) debt instruments that had a maturity of three hundred ninety seven (397)
days or less when issued and have a remaining maturity of more than
sixty (60) days, and
(3) non-money market debt instruments that had a maturity of three hundred
ninety seven (397) days or less when issued and which have a remaining
maturity of sixty (60) days or less.
|_| The following securities are valued at cost, adjusted for
amortization of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a
maturity of less than three hundred ninety seven (397) days when issued
that have a remaining maturity of sixty (60) days or less, and
(2) debt instruments held by a money market fund that have a remaining
maturity of three hundred ninety seven (397) days or less.
|_| Securities not having readily-available market quotations are valued
at fair value determined under the Board's procedures.
If the Manager is unable to locate two market makers willing to give
quotes, a security may be priced at the mean between the "bid" and "asked"
prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).
In the case of municipal securities, when last sale information is not
generally available, the Manager may use pricing services approved by the Board
of Trustees. The pricing service may use "matrix" comparisons to the prices for
comparable instruments on the basis of quality, yield, maturity. Other special
factors may be involved (such as the tax-exempt status of the interest paid by
municipal securities). The Manager will monitor the accuracy of the pricing
services. That monitoring may include comparing prices used for portfolio
valuation to actual sales prices of selected securities.
Puts, calls, Interest Rate Futures and Municipal Bond Index Futures are
valued at the last sale price on the principal exchange on which they are traded
or on NASDAQ, as applicable, as determined by a pricing service approved by the
Board of Trustees or by the Manager. If there were no sales that day, they shall
be valued at the last sale price on the preceding trading day if it is within
the spread of the closing "bid" and "asked" prices on the principal exchange or
on NASDAQ on the valuation date. If not, the value shall be the closing bid
price on the principal exchange or on NASDAQ on the valuation date. If the put,
call or future is not traded on an exchange or on NASDAQ, it shall be valued by
the mean between "bid" and "asked" prices obtained by the Manager from two
active market makers. In certain cases that may be at the "bid" price if no
"asked" price is available.
When the Fund writes an option, an amount equal to the premium received is
included in the Fund's Statement of Assets and Liabilities as an asset. An
equivalent credit is included in the liability section. The credit is adjusted
("marked-to-market") to reflect the current market value of the option. In
determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or
put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a
gain or loss, depending on whether the premium received was more or less than
the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by
the amount of premium paid by the Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming
shares set forth in the Prospectus.
Checkwriting. When a check is presented to the Fund's bank for clearance, the
bank will ask the Fund to redeem a sufficient number of full and fractional
shares in the shareholder's account to cover the amount of the check. This
enables the shareholder to continue to receive dividends on those shares until
the check is presented to the Fund. Checks may not be presented for payment at
the offices of the bank listed on the check or at the Fund's custodian bank.
That limitation does not affect the use of checks for the payment of bills or to
obtain cash at other banks. The Fund reserves the right to amend, suspend or
discontinue offering Checkwriting privileges at any time without prior notice.
In choosing to take advantage of the Checkwriting privilege by signing the
Account Application or by completing a Checkwriting card, each individual who
signs: (1) for individual accounts, represents that they are the registered
owner(s) of the shares of the Fund in that account;
(2) for accounts for corporations, partnerships, trusts and other entities,
represents that they are an officer, general partner, trustee or other
fiduciary or agent, as applicable, duly authorized to act on behalf of
such registered owner(s);
(3) authorizes the Fund, its Transfer Agent and any bank through which the
Fund's drafts (checks) are payable to pay all checks drawn on the Fund
account of such person(s) and to redeem a sufficient amount of shares
from that account to cover payment of each check;
(4) specifically acknowledges that if they choose to permit checks to be
honored if there is a single signature on checks drawn against joint
accounts, or accounts for corporations, partnerships, trusts or other
entities, the signature of any one signatory on a check will be
sufficient to authorize payment of that check and redemption from the
account, even if that account is registered in the names of more than
one person or more than one authorized signature appears on the
Checkwriting card or the Application, as applicable;
(5) understands that the Checkwriting privilege may be terminated or amended
at any time by the Fund and/or the Fund's bank; and
(6) acknowledges and agrees that neither the Fund nor its bank shall incur
any liability for that amendment or termination of checkwriting
privileges or for redeeming shares to pay checks reasonably believed by
them to be genuine, or for returning or not paying checks that have not
been accepted for any reason.
Reinvestment Privilege. Within six (6) months of a redemption, a shareholder
may reinvest all or part of the redemption proceeds of:
|_| Class A shares that you purchased subject to an initial sales charge
or Class A shares on which a contingent deferred sales charge was paid, or
|_| Class B shares that were subject to the Class B contingent deferred
sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares
of the Fund or any of the other Oppenheimer funds into which shares of the Fund
are exchangeable as described in "How to Exchange Shares" below. Reinvestment
will be at the net asset value next computed after the Transfer Agent receives
the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C
shares. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment,
suspension or cessation.
Any capital gain that was realized when the shares were redeemed is
taxable, and reinvestment will not alter any capital gains tax payable on that
gain. If there has been a capital loss on the redemption, some or all of the
loss may not be tax deductible, depending on the timing and amount of the
reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the
Fund or another of the Oppenheimer funds within ninety (90) days of payment of
the sales charge, the shareholder's basis in the shares of the Fund that were
redeemed may not include the amount of the sales charge paid. That would reduce
the loss or increase the gain recognized from the redemption. However, in that
case the sales charge would be added to the basis of the shares acquired by the
reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, the Board of Trustees of the
Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly
or partly in cash. In that case, the Fund may pay the redemption proceeds in
whole or in part by a distribution "in kind" of liquid securities from the
portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment
Company Act. Under that rule, the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any
ninety (90) day period for any one shareholder. If shares are redeemed in kind,
the redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The Fund will value securities used to pay redemptions in
kind using the same method the Fund uses to value its portfolio securities
described above under "Determination of Net Asset Values Per Share." That
valuation will be made as of the time the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the
involuntary redemption of the shares held in any account if the aggregate net
asset value of those shares is less than $200 or such lesser amount as the Board
may fix. The Board of Trustees will not cause the involuntary redemption of
shares in an account if the aggregate net asset value of such shares has fallen
below the stated minimum solely as a result of market fluctuations. If the Board
exercises this right, it may also fix the requirements for any notice to be
given to the shareholders in question (not less than thirty (30) days). The
Board may alternatively set requirements for the shareholder to increase the
investment, or set other terms and conditions so that the shares would not be
involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an
event that triggers the payment of sales charges. Therefore, shares are not
subject to the payment of a contingent deferred sales charge of any class at the
time of transfer to the name of another person or entity. It does not matter
whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When
shares subject to a contingent deferred sales charge are transferred, the
transferred shares will remain subject to the contingent deferred sales charge.
It will be calculated as if the transferee shareholder had acquired the
transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but
not all shares in the account would be subject to a contingent deferred sales
charge if redeemed at the time of transfer, the priorities described in the
Prospectus under "How to Buy Shares" for the imposition of the Class B or Class
C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The
Distributor is the Fund's agent to repurchase its shares from authorized dealers
or brokers on behalf of their customers. Shareholders should contact their
broker or dealer to arrange this type of redemption. The repurchase price per
share will be the net asset value next computed after the Distributor receives
an order placed by the dealer or broker. However, if the Distributor receives a
repurchase order from a dealer or broker after the close of The New York Stock
Exchange on a regular business day, it will be processed at that day's net asset
value if the order was received by the dealer or broker from its customers prior
to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but
may do so earlier on some days. Additionally, the order must have been
transmitted to and received by the Distributor prior to its close of business
that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure,
payment will be made within three business days after the shares have been
redeemed upon the Distributor's receipt of the required redemption documents in
proper form. The signature(s) of the registered owners on the redemption
documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund
valued at $5,000 or more can authorize the Transfer Agent to redeem shares
(having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be
redeemed three business days prior to the date requested by the shareholder for
receipt of the payment. Automatic withdrawals of up to $1,500 per month may be
requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for
the account and the address must not have been changed within the prior thirty
(30) days. Required minimum distributions from OppenheimerFunds-sponsored
retirement plans may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink
privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal
Plan payments transferred to the bank account designated on the Account
Application or by signature-guaranteed instructions to the Transfer Agent.
Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three (3)
business days before the payment transmittal date you select in the Account
Application. If a contingent deferred sales charge applies to the redemption,
the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The
Fund reserves the right to amend, suspend or discontinue offering these plans at
any time without prior notice. Because of the sales charge assessed on Class A
share purchases, shareholders should not make regular additional Class A share
purchases while participating in an Automatic Withdrawal Plan. Class B and Class
C shareholders should not establish withdrawal plans, because of the imposition
of the contingent deferred sales charge on such withdrawals (except where the
contingent deferred sales charge is waived as described in Appendix C, below).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder
agrees to the terms and conditions that apply to such plans, as stated below.
These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing
Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent to exchange a pre-determined amount of shares of the Fund for shares (of
the same class) of other Oppenheimer funds automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The
minimum amount that may be exchanged to each other fund account is $25.
Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. Exchanges made under these plans are subject
to the restrictions that apply to exchanges as set forth in "How to Exchange
Shares" in the Prospectus and below in this Statement of Additional Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary
to meet withdrawal payments. Shares acquired without a sales charge will be
redeemed first. Shares acquired with reinvested dividends and capital gains
distributions will be redeemed next, followed by shares acquired with a sales
charge, to the extent necessary to make withdrawal payments. Depending upon the
amount withdrawn, the investor's principal may be depleted. Payments made under
these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal
Plan as agent for the shareholder(s) (the "Planholder") who executed the Plan
authorization and application submitted to the Transfer Agent. Neither the Fund
nor the Transfer Agent shall incur any liability to the Planholder for any
action taken or not taken by the Transfer Agent in good faith to administer the
Plan. Share certificates will not be issued for shares of the Fund purchased for
and held under the Plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Fund. Any share certificates
held by a Planholder may be surrendered unendorsed to the Transfer Agent with
the Plan application so that the shares represented by the certificate may be
held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done at
net asset value without a sales charge. Dividends on shares held in the account
may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value
per share determined on the redemption date. Checks or AccountLink payments
representing the proceeds of Plan withdrawals will normally be transmitted three
business days prior to the date selected for receipt of the payment, according
to the choice specified in writing by the Planholder. Receipt of payment on the
date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to
which checks are to be mailed or AccountLink payments are to be sent may be
changed at any time by the Planholder by writing to the Transfer Agent. The
Planholder should allow at least two weeks' time after mailing such notification
for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the
shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case,
the Transfer Agent will redeem the number of shares requested at the net asset
value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer
Agent. The Fund may also give directions to the Transfer Agent to terminate a
Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence
satisfactory to it that the Planholder has died or is legally incapacitated.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that have
not been redeemed will be held in uncertificated form in the name of the
Planholder. The account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the Planholder,
his or her executor or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder
may request issuance of a portion of the shares in certificated form. Upon
written request from the Planholder, the Transfer Agent will determine the
number of shares for which a certificate may be issued without causing the
withdrawal checks to stop. However, should such uncertificated shares become
exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the
Planholder will be deemed to have appointed any successor transfer agent to act
as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Oppenheimer
funds having more than one class of shares may be exchanged only for shares of
the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have
a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes
by calling the Distributor at 1-800-525-7048.
|_| All of the Oppenheimer funds currently offer Class A, B and C shares
except Oppenheimer Money Market Fund, Inc., Centennial Money Market Trust,
Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New York
Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America
Fund, L.P., which only offer Class A shares.
|_| Oppenheimer Main Street California Municipal Fund currently offers
only Class A and Class B shares.
|_| Class B and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other Oppenheimer
funds or through OppenheimerFunds sponsored 401 (k) plans.
|_| Only certain Oppenheimer funds currently offer Class Y shares. Class Y
shares of Oppenheimer Real Asset Fund are not exchangeable.
|_| Class M shares of Oppenheimer Convertible Securities Fund may be
exchanged only for Class A shares of other Oppenheimer funds. They may not be
acquired by exchange of shares of any class of any other Oppenheimer funds
except Class A shares of Oppenheimer Money Market Fund or Oppenheimer Cash
Reserves acquired by exchange of Class M shares.
|_| Class A shares of Senior Floating Rate Fund are not available by
exchange of Class A shares of other Oppenheimer funds. Class A shares of Senior
Floating Rate Fund that are exchanged for shares of the other Oppenheimer funds
may not be exchanged back for Class A shares of Senior Floating Rate Fund.
|_| Class X shares of Limited Term New York Municipal Fund can be
exchanged only for Class B shares of other Oppenheimer funds and no exchanges
may be made to Class X shares.
|_| Shares of Oppenheimer Capital Preservation Fund may not be exchanged
for shares of Oppenheimer Money Market Fund, Inc., Oppenheimer Cash Reserves or
Oppenheimer Limited-Term Government Fund. Only participants in certain
retirement plans may purchase shares of Oppenheimer Capital Preservation Fund,
and only those paticipants may exchange shares of other Oppenheimer funds for
shares of Oppenheimer Capital Preservation Fund.
Class A shares of Oppenheimer funds may be exchanged at net asset value
for shares of any money market fund offered by the Distributor. Shares of any
money market fund purchased without a sales charge may be exchanged for shares
of Oppenheimer funds offered with a sales charge upon payment of the sales
charge. They may also be used to purchase shares of Oppenheimer funds subject to
a contingent deferred sales charge.
Shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than funds managed by
the Manager or its subsidiaries) redeemed within the thirty (30) days 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.
To qualify for that privilege, the investor or the investor's dealer must notify
the Distributor of eligibility for this privilege at the time the shares of
Oppenheimer Money Market Fund, Inc. are purchased. If requested, they must
supply proof of entitlement to this privilege.
Shares of the Fund acquired by reinvestment of dividends or distributions
from any of the other Oppenheimer funds or from any unit investment trust for
which reinvestment arrangements have been made with the Distributor may be
exchanged at net asset value for shares of any of the Oppenheimer funds.
|_| How Exchanges Affect Contingent Deferred Sales Charges. No contingent
deferred sales charge is imposed on exchanges of shares of any class purchased
subject to a contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares of other Oppenheimer funds purchased
subject to a Class A contingent deferred sales charge are redeemed within
eighteen (18) months of the end of the calendar month of the initial purchase of
the exchanged Class A shares, the Class A contingent deferred sales charge is
imposed on the redeemed shares. The Class B contingent deferred sales charge is
imposed on Class B shares acquired by exchange if they are redeemed within six
(6) years of the initial purchase of the exchanged Class B shares. The Class C
contingent deferred sales charge is imposed on Class C shares acquired by
exchange if they are redeemed within twelve (12) months of the initial purchase
of the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the imposition
of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging
shares, shareholders should take into account how the exchange may affect any
contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. Shareholders owning shares of more than one
class must specify which class of shares they wish to exchange.
|_| Limits on Multiple Exchange Orders. The Fund reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Fund may accept requests for exchanges of
up to fifty (50) accounts per day from representatives of authorized dealers
that qualify for this privilege.
|_| Telephone Exchange Requests. When exchanging shares by telephone, a
shareholder must have an existing account in the fund to which the exchange is
to be made. Otherwise, the investors must obtain a Prospectus of that fund
before the exchange request may be submitted. 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.
s|_| Processing Exchange Requests. Shares to be exchanged are redeemed on
the regular business day the Transfer Agent receives an exchange request in
proper form (the "Redemption Date"). Normally, shares of the fund to be acquired
are purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund
reserves the right, in its discretion, to refuse any exchange request that may
disadvantage it. For example, if the receipt of multiple exchange requests from
a dealer might require the disposition of portfolio securities at a time or at a
price that might be disadvantageous to the Fund, the Fund may refuse the
request. 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. When you exchange some or all of your shares from one fund
to another, any special account feature such as an Asset Builder Plan or
Automatic Withdrawal Plan, will be switched to the new fund account unless you
tell the Transfer Agent not to do so. However, special redemption and exchange
features such as Automatic Exchange Plans and Automatic Withdrawal Plans cannot
be switched to an account in Oppenheimer Senior Floating Rate Fund.
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information, or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
The different Oppenheimer funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some
of the tax consequences of reinvestment of redemption proceeds in such cases.
The Fund, the Distributor, and the Transfer Agent are unable to provide
investment, tax or legal advice to a shareholder in connection with an exchange
request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of record
at the time of the previous determination of net asset value, or as otherwise
described in "How to Buy Shares." Daily dividends will not be declared or paid
on newly purchased shares until such time as Federal Funds (funds credited to a
member bank's account at the Federal Reserve Bank) are available from the
purchase payment for such shares. Normally, purchase checks received from
investors are converted to Federal Funds on the next business day. Shares
purchased through dealers or brokers normally are paid for by the third business
day following the placement of the purchase order.
Shares redeemed through the regular redemption procedure will be paid
dividends through and including the day on which the redemption request is
received by the Transfer Agent in proper form. Dividends will be declared on
shares repurchased by a dealer or broker for three business days following the
trade date (that is, up to and including the day prior to settlement of the
repurchase). If all shares in an account are redeemed, all dividends accrued on
shares of the same class in the account will be paid together with the
redemption proceeds.
The Fund's practice of attempting to pay dividends on Class A shares at a
constant level requires the Manager to monitor the Fund's portfolio and, if
necessary, to select higher-yielding securities when it is deemed appropriate to
seek income at the level needed to meet the target. Those securities must be
within the Fund's investment parameters, however. The Fund expects to pay
dividends at a targeted level from its net investment income and other
distributable income without any impact on the net asset values per share.
The amount of a distribution paid on a class of shares may vary from time
to time depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class. Dividends are
calculated in the same manner, at the same time and on the same day for shares
of each class. However, dividends on Class B and Class C shares are expected to
be lower than dividends on Class A shares. That is due to the effect of the
asset-based sales charge on Class B and Class C shares. Those dividends will
also differ in amount as a consequence of any difference in net asset value
among Class A, Class B and Class C shares.
Dividends, distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc.
Reinvestment will be made as promptly as possible after the return of such
checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment
laws, and the Fund and the Transfer Agent will not be liable to shareholders or
their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends and Distributions. The Fund intends to
qualify under the Internal Revenue Code during each fiscal year to pay
"exempt-interest dividends" to its shareholders. Exempt-interest dividends that
are derived from net investment income earned by the Fund on municipal
securities will be excludable from gross income of shareholders for federal
income tax purposes.
Net investment income includes the allocation of amounts of income from
the municipal securities in the Fund's portfolio that are excludable from
federal income taxes. This allocation will be made by the use of one designated
percentage applied uniformly to all income dividends paid during the Fund's tax
year. That designation will normally be made following the end of each fiscal
year as to income dividends paid in the prior year. The percentage of income
designated as tax-exempt may substantially differ from the percentage of the
Fund's income that was tax-exempt for a given period.
A portion of the exempt-interest dividends paid by the Fund may be an item
of tax preference for shareholders subject to the alternative minimum tax. The
amount of any dividends attributable to tax preference items for purposes of the
alternative minimum tax will be identified when tax information is distributed
by the Fund.
A shareholder receiving a dividend from income earned by the Fund from one
or more of the following sources treats the dividend as a receipt of either
ordinary income or long-term capital gain in the computation of gross income,
regardless of whether the dividend is reinvested: (1) certain taxable temporary
investments (such as certificates of deposit,
repurchase agreements, commercial paper and obligations of the U.S.
government, its agencies and instrumentalities);
(2) income from securities loans; or
(3) an excess of net short-term capital gain over net long-term capital loss
from the Fund.
The Fund's dividends will not be eligible for the dividends-received
deduction for corporations. Shareholders receiving Social Security benefits
should be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to federal income tax. Losses realized by
shareholders on the redemption of Fund shares within six (6) months of purchase
(which period may be shortened by regulation) will be disallowed for federal
income tax purposes to the extent of exempt-interest dividends received on such
shares.
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on amounts
paid by it as dividends and distributions. That qualification enables the Fund
to "pass through" its income and realized capital gains to shareholders without
having to pay tax on them. The Fund qualified as a regulated investment company
in its last fiscal year and intends to qualify in future years, but reserves the
right not to qualify. The Internal Revenue Code contains a number of complex
tests to determine whether the Fund qualifies. The Fund might not meet those
tests in a particular year. If it does not qualify, the Fund will be treated for
tax purposes as an ordinary corporation and will receive no tax deduction for
payments of dividends and distributions made to shareholders.
Under the Internal Revenue Code, by December 31 each year the Fund must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year. If it
does not, the Fund must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Fund will meet those requirements. However, the
Fund's Board of Trustees and the Manager might determine in a particular year
that it would be in the best interest of shareholders not to make distributions
at the required levels and to pay the excise tax on the undistributed amounts.
That would reduce the amount of income or capital gains available for
distribution to shareholders.
|_| Florida Intangible Personal Property Tax. The Florida Department of
Revenue has previously ruled that shares of a Florida series fund owned by a
Florida resident will be exempt from the Florida intangible personal property
tax for the following year so long as on the last business day of a calendar
year the fund's portfolio includes only assets that are exempt from the Florida
intangible personal property tax, such as Florida tax-exempt securities and
United States Government securities. Although the date of valuation is
prescribed as the close of business on the last business day of the previous
calendar year, only the assets held in the portfolio of the fund on January 1
are to be valued. The Fund itself has not applied to the Florida Department of
Revenue for a ruling with respect to the foregoing exemption and, although
previously issued rulings are evidence of the policy of the Department of
Revenue with respect to such exemption, such rulings are not binding upon the
Department in the case of the Fund. Additionally, the Florida Department of
Revenue has the authority to revoke or modify a previously issued ruling.
However, if a ruling is revoked or modified, the revocation or modification is
prospective only.
The Fund may from time to time hold assets that are not exempt from
Florida intangible personal property tax. It is possible that the Fund may not
be able to fully dispose of all of the assets subject to Florida intangible
personal property tax by the last business day of the calendar year. This would
subject the shares of the Fund to Florida intangible personal property tax. If
shares of the Fund are subject to Florida intangible personal property tax
because it holds non-exempt assets on the last business day of the calendar
year, only that portion of the value of the Fund's shares attributable to United
States Government securities will be exempt from Florida intangible personal
property taxes in the following year.
The Fund will attempt to monitor its portfolio so that on the last
business day of each calendar year the Fund's assets shall consist solely of
assets exempt from Florida intangible personal property tax. Transaction costs
in restructuring the Fund's portfolio in this fashion would likely reduce the
Fund's investment return and might exceed any increased investment return the
Fund achieved by investing in non-exempt assets during the year.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to
reinvest all dividends and/or capital gains distributions in shares of the same
class of any of the other Oppenheimer funds listed above. Reinvestment will be
made at net asset value without sales charge. To elect this option, the
shareholder must notify the Transfer Agent in writing and must have an existing
account in the fund selected for reinvestment. Otherwise the shareholder must
first obtain a prospectus for that fund and an application from the Transfer
Agent to establish an account. The investment will be made at the net asset
value per share in effect at the close of business on the payable date of the
dividend or distribution. Dividends and/or distributions from certain of the
other Oppenheimer funds may be invested in shares of this Fund on the same
basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with OppenheimerFunds
Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Oppenheimer
funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. The Fund's Transfer Agent, OppenheimerFunds Services, is a
division of the Manager. It is responsible for maintaining the Fund's
shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders of the Fund. It also handles
shareholder servicing and administrative functions. It is paid on an "at-cost"
basis.
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the Fund's
portfolio securities, and handling the delivery of such securities to and from
the Fund. It will be the practice of the Fund to deal with the Custodian in a
manner uninfluenced by any banking relationship the Custodian may have with the
Manager and its affiliates. The Fund's cash balances with the Custodian in
excess of $100,000 are not protected by Federal Deposit Insurance. Those
uninsured balances may at times be substantial.
Independent Auditors. KPMG LLP are the independent auditors of the Fund. They
audit the Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager and its
affiliates.
<PAGE>
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
================================================================================
The Board of Trustees and Shareholders of
Oppenheimer Florida Municipal Fund:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Oppenheimer Florida Municipal Fund as of July
31, 2000, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the years in the two-year period
then ended and the financial highlights for each of the years in the four-year
period then ended, the seven-month period ended July 31, 1996, and the year
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 auditing standards generally
accepted in the United States of America. 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, 2000, 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, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended and the financial highlights for
each of the years in the four-year period then ended, the seven-month period
ended July 31, 1996, and the year ended December 31, 1995, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
------------
KPMG LLP
Denver, Colorado
August 21, 2000
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS July 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/ Market
S&P/Fitch Principal Value
(Unaudited) Amount See Note 1
================================================================================================
Municipal Bonds and Notes--98.9%
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida--82.8%
Alachua Cnty., FL HFAU RRB, Santa Fe HCF Project,
Escrowed to Maturity, 6%, 11/15/09 NR/AAA $ 875,000 $ 914,760
------------------------------------------------------------------------------------------------
Brevard Cnty., FL Housing FAU MH RRB,
Windover Oaks Project, Series A, 6.90%, 2/1/27 NR/AAA 1,000,000 1,082,480
------------------------------------------------------------------------------------------------
Brevard Cnty., FL Housing FAU SFM RB, 6.70%, 9/1/27 Aaa/NR 830,000 861,332
------------------------------------------------------------------------------------------------
Broward Cnty., FL Housing FAU MH RB,
Pembroke Park Apts. Project, 5.70%, 10/1/33 NR/NR/A 980,000 893,456
------------------------------------------------------------------------------------------------
Broward Cnty., FL Housing FAU MH RB,
Pembroke Park Apts. Project, 5.75%, 4/1/38 NR/NR/A 975,000 880,035
------------------------------------------------------------------------------------------------
Broward Cnty., FL Housing FAU MH RB,
Stirling Apts. Project, 5.75%, 4/1/38 NR/NR/A 855,000 771,723
------------------------------------------------------------------------------------------------
Clay Cnty., FL Housing FAU SFM RB, 6.55%, 3/1/28 Aaa/NR 800,000 828,856
------------------------------------------------------------------------------------------------
Collier Cnty., FL HFAU RRB,
The Moorings, Inc. Project, 7%, 12/1/19 NR/A-/A 1,000,000 1,035,710
------------------------------------------------------------------------------------------------
Dade Cnty., FL Aviation RB, Series B,
MBIA Insured, 6.60%, 10/1/22 Aaa/AAA/AA- 1,000,000 1,053,420
------------------------------------------------------------------------------------------------
Dade Cnty., FL IDAU RB, Miami Cerebral Palsy
Services Project, 8%, 6/1/22 NR/NR 2,035,000 2,130,767
------------------------------------------------------------------------------------------------
Dade Cnty., FL Professional Sports Franchise
Facilities Tax & CAP RB, MBIA Insured,
Zero Coupon, 5.85%, 10/1/261 Aaa/AAA 3,200,000 721,408
------------------------------------------------------------------------------------------------
Fishhawk, FL CDD SPAST RB, 7.625%, 5/1/18 NR/NR 1,000,000 1,043,710
------------------------------------------------------------------------------------------------
FL BOE Capital Outlay RRB, Public Education,
Series D, 5.75%, 6/1/22 Aa2/AA+/AA 3,295,000 3,354,541
------------------------------------------------------------------------------------------------
FL Heritage Harbor CDD SPAST RB,
Series B, 6%, 5/1/03 NR/NR 700,000 696,864
------------------------------------------------------------------------------------------------
FL HFA RB, Maitland Club Apts. Project, Series B-1,
AMBAC Insured, 6.75%, 8/1/14 Aaa/AAA/AAA 1,000,000 1,049,740
------------------------------------------------------------------------------------------------
FL HFA RB, Riverfront Apts., Series A,
AMBAC Insured, 6.25%, 4/1/37 Aaa/AAA/AAA 1,400,000 1,420,412
------------------------------------------------------------------------------------------------
FL Housing Finance Corp. RB, FSA Insured,
Zero Coupon, 5.55%, 7/1/301 Aaa/AAA/AAA 7,990,000 1,241,966
------------------------------------------------------------------------------------------------
Grand Haven, FL CDD SPAST RB, Series A,
6.30%, 5/1/02 NR/NR 1,261,000 1,265,489
------------------------------------------------------------------------------------------------
Grand Haven, FL CDD SPAST RB, Series B,
6.90%, 5/1/19 NR/NR 735,000 734,508
------------------------------------------------------------------------------------------------
Heritage Springs, FL CDD Capital Improvement RB,
Series B, 6.25%, 5/1/05 NR/NR 1,445,000 1,436,937
------------------------------------------------------------------------------------------------
Lee Cnty., FL Housing FAU SFM RB,
Series A-2, 6.85%, 3/1/29 Aaa/NR 890,000 953,510
------------------------------------------------------------------------------------------------
Lee Cnty., FL IDAU HCF RRB, Shell Point
Village Project, Series A, 5.50%, 11/15/21 NR/BBB- 1,000,000 809,190
------------------------------------------------------------------------------------------------
Lee Cnty., FL IDAU HCF RRB, Shell Point
Village Project, Series A, 5.50%, 11/15/29 NR/BBB- 1,000,000 778,080
</TABLE>
12 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
Ratings:
Moody's/ Market
S&P/Fitch Principal Value
(Unaudited) Amount See Note 1
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida Continued
Martin Cnty., FL IDAU RRB, Indiantown
Cogeneration Project, Series A, 7.875%, 12/15/25 Baa3/BBB-/BBB $2,000,000 $2,016,180
------------------------------------------------------------------------------------------------
Miami Beach, FL HFAU Hospital RB, Mt. Sinai
Medical Center Project, 5.375%, 11/15/18 NR/BBB 1,500,000 1,228,500
------------------------------------------------------------------------------------------------
Miami Beach, FL RA Tax Increment RB, City Center
Historic Convention, Series B, 6.25%, 12/1/16 Baa1/BBB 500,000 516,155
------------------------------------------------------------------------------------------------
Miami Beach, FL RA Tax Increment RB, City Center
Historic Convention, Series B, 6.35%, 12/1/22 Baa1/BBB 500,000 519,425
------------------------------------------------------------------------------------------------
Miami, FL HFAU RRB, AMBAC Insured,
Inverse Floater, 5.92%, 8/15/152 Aaa/AAA/AAA 2,000,000 1,845,000
------------------------------------------------------------------------------------------------
Miami, FL Sanitation & Sewer Systems GOB,
FGIC Insured, 6.50%, 1/1/14 Aaa/AAA 1,750,000 1,831,620
------------------------------------------------------------------------------------------------
Miami-Dade Cnty., FL SPO RB, Sub. Lien, Series B,
MBIA Insured, Zero Coupon, 5.50%, 10/1/281 Aaa/AAA/AAA 4,500,000 834,165
------------------------------------------------------------------------------------------------
Miami-Dade Cnty., FL SPO RB, Sub. Lien, Series B,
MBIA Insured, Zero Coupon, 5.53%, 10/1/341 Aaa/AAA/AAA 3,170,000 406,457
------------------------------------------------------------------------------------------------
Miami-Dade Cnty., FL SPO RRB, Sub. Lien, Series A,
MBIA Insured, Zero Coupon, 5.52%, 10/1/171 Aaa/AAA/AAA 5,425,000 2,004,375
------------------------------------------------------------------------------------------------
Northern Palm Beach Cnty., FL Water Control &
Improvement District RB, Unit Development 9B,
5.90%, 8/1/19 NR/NR 1,085,000 1,030,978
------------------------------------------------------------------------------------------------
Northern Palm Beach Cnty., FL Water Control &
Improvement District RB, Unit Development 9B,
6%, 8/1/29 NR/NR 1,240,000 1,160,305
------------------------------------------------------------------------------------------------
Orlando, FL Utilities Commission Water & Electric RB,
Inverse Floater, 6.771%, 10/1/172 Aa2/AA- 1,000,000 1,011,250
------------------------------------------------------------------------------------------------
Palm Beach Cnty., FL Housing FAU MH RB,
Windsor Park Apts. Project, Series A, 5.90%, 6/1/38 NR/NR/A 500,000 460,515
------------------------------------------------------------------------------------------------
Stoneybrook, FL CDD Capital Improvement RB,
Series A, 6.10%, 5/1/19 NR/NR 830,000 764,314
------------------------------------------------------------------------------------------------
Stoneybrook, FL CDD Capital Improvement RB,
Series B, 5.70%, 5/1/08 NR/NR 2,315,000 2,221,705
------------------------------------------------------------------------------------------------
Tampa Palms, FL Open Space & Transportation
CDD SPAST RB, Capital Improvement-Area 7 Phase
Two Project, 7.50%, 5/1/18 NR/NR 1,140,000 1,179,034
----------
44,988,872
------------------------------------------------------------------------------------------------
U.S. Possessions--16.1%
PR CMWLTH Aqueduct & Sewer Authority RB,
Escrowed to Maturity, 10.25%, 7/1/09 Aaa/AAA 500,000 626,175
------------------------------------------------------------------------------------------------
PR CMWLTH HTAU RB, Inverse Floater, 5.26%, 7/1/282,3
NR/NR 2,500,000 2,118,400
------------------------------------------------------------------------------------------------
PR CMWLTH HTAU RB, Series W, Inverse Floater,
5.994%, 7/1/102 Baa1/A 1,000,000 1,041,250
------------------------------------------------------------------------------------------------
PR CMWLTH Infrastructure FAU Special RRB,
Unrefunded Balance, Series A, 7.90%, 7/1/07 Baa1/BBB+ 130,000 132,665
</TABLE>
13 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratings:
Moody's/ Market
S&P/Fitch Principal Value
(Unaudited) Amount See Note 1
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Possessions Continued
PR Telephone Authority RB, Prerefunded, MBIA
Insured, Inverse Floater, 6.763%, 1/16/152 Aaa/AAA $ 1,000,000 $ 1,055,000
------------------------------------------------------------------------------------------------
Virgin Islands PFAU RB, Series A, 6.375%, 10/1/19 NR/BBB- 1,500,000 1,529,250
------------------------------------------------------------------------------------------------
Virgin Islands Water & PAU Electric Systems RRB,
5.30%, 7/1/18 NR/NR/BBB 1,500,000 1,358,550
------------------------------------------------------------------------------------------------
Virgin Islands Water & PAU Electric Systems RRB,
5.30%, 7/1/21 NR/NR/BBB 1,000,000 891,290
-----------
8,752,580
------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $55,814,211) 98.9% $53,741,452
------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 1.1 616,494
--------------------------
Net Assets 100.0% $54,357,946
==========================
</TABLE>
Footnotes to Statement of Investments
To simplify the listings of securities, abbreviations are used per the table
below:
BOE Board of Education IDAU Industrial Development Authority
CAP Capital Appreciation MH Multifamily Housing
CDD Community Development District PAU Power Authority
CMWLTH Commonwealth PFAU Public Finance Authority
FAU Finance Authority RA Redevelopment Agency
GOB General Obligation Bonds RB Revenue Bonds
HCF Health Care Facilities RRB Revenue Refunding Bonds
HFA Housing Finance Agency SFM Single Family Mtg.
HFAU Health Facilities Authority SPAST Special Assessment
HTAU Highway & Transportation SPO Special Obligations
Authority
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 $7,070,900 or 13.01% of the
Fund's net assets as of July 31, 2000.
3. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $2,118,400 or 3.90% of the Fund's net
assets as of July 31, 2000.
14 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
Footnotes to Statement of Investments Continued
As of July 31, 2000, securities subject to the alternative minimum tax amount to
$11,010,734 or 20.26% 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
--------------------------------------------------------------------------------
Special Assessment $13,290,831 24.6%
Multifamily Housing 5,508,621 10.2
Single Family Housing 4,935,405 9.2
Sales Tax 4,906,912 9.1
Hospital/Healthcare 3,988,260 7.4
Education 3,354,541 6.2
Electric Utilities 3,261,090 6.1
Highways 3,159,650 5.9
Adult Living Facilities 2,622,980 4.9
Not-for-profit Organization 2,130,767 4.0
Resource Recovery 2,016,180 3.8
General Obligation 1,831,620 3.4
Marine/Aviation Facilities 1,053,420 2.0
Telephone Utilities 1,055,000 2.0
Water Utilities 626,175 1.2
----------------------------
Total $53,741,452 100.0%
============================
See accompanying Notes to Financial Statements.
15 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES July 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
=========================================================================================
Assets
<S> <C>
Investments, at value (cost $55,814,211)--see accompanying statement $ 53,741,452
-----------------------------------------------------------------------------------------
Cash 110,262
-----------------------------------------------------------------------------------------
Receivables and other assets:
Interest 763,320
Shares of beneficial interest sold 65,757
Other 716
----------
Total assets 54,681,507
=========================================================================================
Liabilities
Payables and other liabilities:
Dividends 152,742
Trustees' compensation 62,151
Shareholder reports 48,826
Shares of beneficial interest redeemed 17,932
Custodian fees 13,899
Transfer and shareholder servicing agent fees 7,130
Distribution and service plan fees 6,321
Other 14,560
------------
Total liabilities 323,561
==========================================================================================
Net Assets $54,357,946
============
==========================================================================================
Composition of Net Assets
Paid-in capital $57,456,731
------------------------------------------------------------------------------------------
Overdistributed net investment income (99,301)
------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (926,725)
------------------------------------------------------------------------------------------
Net unrealized depreciation on investments (2,072,759)
------------
Net Assets $54,357,946
============
==========================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redempton price per share (based on net assets of
$34,050,263 and 3,165,038 shares of beneficial interest outstanding) $10.76
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) $11.30
------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $17,865,695 and
1,658,006 shares of beneficial interest outstanding) $10.78
------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales
charge) and offering price per share (based on net assets of $2,441,988 and
227,213 shares of beneficial interest outstanding) $10.75 </TABLE>
See accompanying Notes to Financial Statements.
16 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Year Ended July 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
==========================================================================================
<S> <C>
Investment Income
Interest $ 3,586,889
==========================================================================================
Expenses
Management fees 338,509
------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 83,434
Class B 192,858
Class C 27,962
------------------------------------------------------------------------------------------
Shareholder reports 55,915
------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 35,625
------------------------------------------------------------------------------------------
Custodian fees and expenses 32,750
------------------------------------------------------------------------------------------
Trustees' compensation 8,273
------------------------------------------------------------------------------------------
Other 26,466
---------
Total expenses 801,792
Less expenses paid indirectly (6,959)
Less waiver of expenses (87,446)
---------
Net expenses 707,387
==========================================================================================
Net Investment Income 2,879,502
==========================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:Investments (671,247)
Closing of futures contracts 198,002
-------------
Net realized loss (473,245)
------------------------------------------------------------------------------------------
Net change in unrealized depreciation on investments (2,099,062)
-------------
Net realized and unrealized loss (2,572,307)
==========================================================================================
Net Increase in Net Assets Resulting from Operations $ 307,195
=============
</TABLE>
See accompanying Notes to Financial Statements.
17 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended July 31, 2000 1999
==========================================================================================
<S> <C> <C>
Operations
Net investment income $ 2,879,502 $ 2,748,965
------------------------------------------------------------------------------------------
Net realized gain (loss) (473,245) 424,490
------------------------------------------------------------------------------------------
Net change in unrealized depreciation (2,099,062) (2,594,407)
--------------------------
Net increase in net assets resulting from operations 307,195 579,048
===========================================================================================
Dividends and/or Distributions to Shareholders
Dividends from net investment income:
Class A (1,826,749) (1,711,561)
Class B (875,118) (848,422)
Class C (127,124) (128,069)
-------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (112,148) --
Class B (64,515) --
Class C (9,867) --
===========================================================================================
Beneficial Interest Transactions
Net increase (decrease) in net assets resulting from beneficial interest
transactions:
Class A (297,142) 2,068,521
Class B (2,686,483) 2,942,094
Class C (902,642) 1,194,095
===========================================================================================
Net Assets
Total increase (decrease) (6,594,593) 4,095,706
-------------------------------------------------------------------------------------------
Beginning of period 60,952,539 56,856,833
---------------------------
End of period (including overdistributed net investment
income of $99,301 and $149,812, respectively) 54,357,946 60,952,539
===========================
</TABLE>
See accompanying Notes to Financial Statements.
18 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
July 31, Dec. 31,
Class A 2000 1999 1998 1997 19961 1995
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $ 11.24 $ 11.62 $ 11.47 $ 11.07 $ 11.40 $ 10.26
------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .58 .56 .54 .64 .36 .63
Net realized and unrealized gain (loss) (.45) (.39) .19 .37 (.34) 1.14
----------------------------------------------------------------------
Total income from investment operations .13 .17 .73 1.01 .02 1.77
------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.57) (.55) (.58) (.61) (.35) (.63)
Distributions from net realized gain (.04) -- -- -- -- --
----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.61) (.55) (.58) (.61) (.35) (.63)
------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.76 $11.24 $ 11.62 $ 11.47 $ 11.07 $ 11.40
======================================================================
========================================================================================================================
Total Return, at Net Asset Value2 1.28% 1.36% 6.52% 9.39% 0.25% 17.60%
========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $34,050 $35,924 $35,074 $27,446 $19,366 $19,377
------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $34,296 $36,532 $32,153 $24,333 $18,415 $14,508
------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:3
Net investment income 5.41% 4.78% 4.61% 5.70% 5.50% 5.71%
Expenses 1.13% 1.13% 1.15%4 1.02%4 1.23%4 1.36%4
Expenses, net of indirect expenses
and waiver of expenses 0.96% 0.95% 0.96% 0.87% 1.09% 0.53%
------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 12% 55% 35% 43% 21% 18%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
See accompanying Notes to Financial Statements.
19 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS Continued
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Year
Ended Ended
July 31, Dec. 31,
Class B 2000 1999 1998 1997 19961 1995
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $ 11.26 $ 11.64 $ 11.49 $ 11.09 $ 11.42 $ 10.27
--------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .50 .47 .46 .55 .31 .55
Net realized and unrealized gain (loss) (.45) (.39) .18 .37 (.34) 1.15
----------------------------------------------------------------
Total income (loss) from investment
operations .05 .08 .64 .92 (.03) 1.70
--------------------------------------------------------------------------------------------------------------
Dividends and/or distributions
to shareholders:
Dividends from net investment income (.49) (.46) (.49) (.52) (.30) (.55)
Distributions from net realized gain (.04) -- -- -- -- --
Total dividends and/or distributions ----------------------------------------------------------------
to shareholders (.53) (.46) (.49) (.52) (.30) (.55)
--------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.78 $ 11.26 $ 11.64 $ 11.49 $ 11.09 $ 11.42
================================================================
==============================================================================================================
Total Return, at Net Asset Value2 0.51% 0.60% 5.71% 8.56% (0.19)% 16.81%
==============================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $17,866 $21,524 $19,344 $15,348 $12,865 $12,658
--------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $19,249 $21,648 $17,024 $13,812 $12,843 $10,772
--------------------------------------------------------------------------------------------------------------
Ratios to average net assets:3
Net investment income 4.64% 4.02% 3.85% 4.93% 4.75% 4.92%
Expenses 1.89% 1.88% 1.91%4 1.79%4 1.97%4 2.11%4
Expenses, net of indirect expenses
and waiver of expenses 1.72% 1.70% 1.72% 1.64% 1.83% 1.29%
--------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 12% 55% 35% 43% 21% 18%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
See accompanying Notes to Financial Statements.
20 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
<TABLE>
<CAPTION>
Year Year
Ended Ended
July 31, Dec. 31,
Class C 2000 1999 1998 1997 19961 19952
========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Data
Net asset value, beginning of period $11.23 $11.61 $11.46 $11.07 $11.40 $10.96
--------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .50 .47 .46 .53 .31 .20
Net realized and unrealized gain (loss) (.45) (.39) .18 .38 (.34) .44
------------------------------------------------------------
Total income (loss) from investment
operations .05 .08 .64 .91 (.03) .64
--------------------------------------------------------------------------------------------------------
Dividends and/or distributions
to shareholders:
Dividends from net investment income (.49) (.46) (.49) (.52) (.30) (.20)
Distributions from net realized gain (.04) -- -- -- -- --
--------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.53) (.46) (.49) (.52) (.30) (.20)
--------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.75 $11.23 $11.61 $11.46 $11.07 $11.40
==============================================================
========================================================================================================
Total Return, at Net Asset Value3 0.51% 0.60% 5.72% 8.41% (0.22)% 5.86%
========================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $2,442 $3,504 $2,439 $ 956 $ 72 $ 39
--------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $2,790 $3,260 $1,638 $ 380 $ 78 $ 5
Ratios to average net assets:4
Net investment income 4.65% 4.02% 3.82% 4.87% 4.68% 4.68%
Expenses 1.89% 1.88% 1.91%5 1.75%5 1.99%5 1.92%5
Expenses, net of indirect expenses
and waiver of expenses 1.72% 1.70% 1.72% 1.60% 1.87% 1.43%
--------------------------------------------------------------------------------------------------------
Portfolio turnover rate 12% 55% 35% 43% 21% 18%
</TABLE>
1. For the seven months ended July 31, 1996. The Fund changed its fiscal year
end from December 31 to July 31.
2. For the period from August 29, 1995 (inception of offering) to December 31,
1995.
3. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
4. Annualized for periods of less than one full year.
5. Expense ratio has not been grossed up to reflect the effect of expenses paid
indirectly.
See accompanying Notes to Financial Statements.
21 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, an open-end management investment
company registered under the Investment Company Act of 1940, as amended. The
Fund's investment objective is to seek as high a level of current interest
income exempt from federal income taxes for individual investors as is available
from municipal securities, consistent with preservation of capital. The Fund
also seeks to offer investors the opportunity to own Fund shares exempt from
Florida intangible personal property taxes. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B and Class C shares. Class A shares are sold
at their offering price, which is normally net asset value plus a front-end
sales charge. Class B and Class C shares are sold without a front-end sales
charge but may be subject to a contingent deferred sales charge (CDSC). All
classes of shares have identical rights to earnings, assets and voting
privileges, except that each class has its own expenses directly attributable to
that class and exclusive voting rights with respect to matters affecting that
class. Classes A, B and C have separate distribution and/or service plans. Class
B shares will automatically convert to Class A shares six years after the date
of purchase. The following is a summary of significant accounting policies
consistently followed by the Fund.
--------------------------------------------------------------------------------
Securities Valuation. Securities listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the last sale price of
the security traded on that exchange prior to the time when the Fund's assets
are valued. In the absence of a sale, the security is valued at the last sale
price on the prior trading day, if it is within the spread of the closing bid
and asked prices, and if not, at the closing bid price. Securities (including
restricted securities) for which quotations are not readily available are valued
primarily using dealer-supplied valuations, a portfolio pricing service
authorized by the Board of Trustees, or at their fair value. Fair value is
determined in good faith under consistently applied procedures under the
supervision of the Board of Trustees. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
--------------------------------------------------------------------------------
Non-Diversification Risk. The Fund is "non-diversified" and can invest in the
securities of a single issuer without limit. To the extent the Fund invests a
relatively high percentage of its assets in the obligations of a single issuer
or a limited number of issuers, the Fund is subject to additional risk of loss
if those obligations lose market value or the borrower or issuer of those
obligations defaults.
--------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily to
each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
22 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
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' Compensation. The Fund has adopted an unfunded retirement plan for the
Fund's independent Board of Trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
July 31, 2000, a provision of 3,936 was made for the Fund's projected benefit
obligations and payments of $2,049 were made to retired trustees, resulting in
an accumulated liability of $62,151 as of July 31, 2000.
The Board of Trustees has adopted a deferred compensation plan for
independent trustees that enables trustees to elect to defer receipt of all or a
portion of annual compensation they are entitled to receive from the Fund. Under
the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Board of Trustees in shares of one
or more Oppenheimer funds selected by the trustee. The amount paid to the Board
of Trustees under the plan will be determined based upon the performance of the
selected funds. Deferral of trustees' fees under the plan will not affect the
net assets of the Fund, and will not materially affect the Fund's assets,
liabilities or net investment income per share.
--------------------------------------------------------------------------------
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
Classification of Dividends and Distributions to Shareholders. Net investment
income (loss) and net realized gain (loss) may differ for financial statement
and tax purposes. The character of dividends and distributions made during the
fiscal 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 dividends and 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.
23 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
1.Significant Accounting Policies Continued
The Fund adjusts 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, 2000, $2,366 distributed in connection with Fund share redemptions
increased paid-in capital and increased accumulated net realized loss. Net
assets of the Fund were unaffected by the reclassifications.
--------------------------------------------------------------------------------
Expense Offset Arrangements. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.
--------------------------------------------------------------------------------
Other. Investment transactions are accounted for as of trade date. Original
issue discount is accreted and premium is amortized in accordance with federal
income tax requirements. For municipal bonds acquired after April 30, 1993, on
disposition or maturity, taxable ordinary income is recognized to the extent of
the lesser of gain or market discount that would have accrued over the holding
period. Realized gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is the same basis
used for federal income tax purposes.
There are certain risks arising from geographic concentration in any state.
Certain revenue or tax related event in a state may impair the ability of
certain issuers of municipal securities to pay principal and interest on their
obligations.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
24 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
================================================================================
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Year Ended July 31, 2000 Year Ended July 31, 1999
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
Class A
Sold 1,434,597 $ 15,263,868 789,844 $ 9,221,652
Dividends and/or
distributions reinvested 92,603 989,694 71,294 829,646
Redeemed (1,557,637) (16,550,704) (684,647) (7,982,777)
----------------------------------------------------------
Net increase (decrease) (30,437) $ (297,142) 176,491 $ 2,068,521
==========================================================
------------------------------------------------------------------------------------------
Class B
Sold 489,200 $ 5,237,647 645,846 $ 7,556,033
Dividends and/or
distributions reinvested 36,703 393,459 29,901 348,434
Redeemed (779,600) (8,317,589) (426,626) (4,962,373)
----------------------------------------------------------
Net increase (decrease) (253,697) $ (2,686,483) 249,121 $ 2,942,094
==========================================================
------------------------------------------------------------------------------------------
Class C
Sold 72,798 $ 772,696 170,949 $ 1,991,849
Dividends and/or
distributions reinvested 7,931 84,945 8,248 95,915
Redeemed (165,489) (1,760,283) (77,350) (893,669)
----------------------------------------------------------
Net increase (decrease) (84,760) $ (902,642) 101,847 $ 1,194,095
==========================================================
</TABLE>
================================================================================
3. Purchases and Sales of Securities
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended July 31, 2000, were $6,957,253
and $11,045,159, respectively.
As of July 31, 2000, unrealized appreciation (depreciation) based on cost of
securities for federal income tax purposes of $55,814,211 was:
Gross unrealized appreciation $ 860,261
Gross unrealized depreciation (2,933,020)
-----------
Net unrealized depreciation $(2,072,759)
===========
25 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
================================================================================
4. Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee of 0.60% of
the first $200 million of average annual net assets, 0.55% of the next $100
million, 0.50% of the next $200 million, 0.45% of the next $250 million, 0.40%
of the next $250 million and 0.35% of average annual net assets 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. The Manager can withdraw the voluntary
waiver at any time. The Fund's management fee for the year ended July 31, 2000,
was an annualized rate of 0.60%, before any waiver by the Manager if applicable.
--------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund on an
"at-cost" basis. OFS also acts as the transfer and shareholder servicing agent
for the other Oppenheimer funds.
--------------------------------------------------------------------------------
Distribution and Service Plan Fees. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
<TABLE>
<CAPTION>
Aggregate Class A Commissions Commissions Commissions
Front-End Front-End on Class A on Class B on Class C
Sales Charges Sales Charges Shares Shares Shares
on Class A Retained by Advanced by Advanced by Advanced by
Year Ended Shares Distributor Distributor1 Distributor1 Distributor1
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
July 31, 2000 $61,567 $12,979 $1,377 $115,116 $3,640
</TABLE>
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
<TABLE>
<CAPTION>
Class A Class B Class C
Contingent Deferred Contingent Deferred Contingent Deferred
Sales Charges Sales Charges Sales Charges
Year Ended Retained by Distributor Retained by Distributor Retained by Distributor
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
July 31, 2000 $-- $66,402 $--
</TABLE>
The Fund has adopted a Service Plan for Class A shares and Distribution and
Service Plans for Class B and Class C shares under Rule 12b-1 of the Investment
Company Act. Under those plans the Fund pays the Distributor for all or a
portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
26 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
Class A Service Plan Fees. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.15% of average annual net assets of Class A
shares purchased. The Distributor makes payments to plan recipients quarterly at
an annual rate not to exceed 0.15% of the average annual net assets consisting
of Class A shares of the Fund. For the year ended July 31, 2000, payments under
the Class A plan totaled $83,434, prior to Manager waivers if applicable, all of
which were paid by the Distributor to recipients. Any unreimbursed expenses the
Distributor incurs with respect to Class A shares in any fiscal year cannot be
recovered in subsequent years.
--------------------------------------------------------------------------------
Class B and Class C Distribution and Service Plan Fees. Under each plan, service
fees and distribution fees are computed on the average of the net asset value of
shares in the respective class, determined as of the close of each regular
business day during the period. The Class B and Class C plans provide for the
Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares. The
Distributor retains the asset-based sales charge on Class C shares during the
first year the shares are outstanding. The asset-based sales charges on Class B
and Class C shares allow investors to buy shares without a front-end sales
charge while allowing the Distributor to compensate dealers that sell those
shares.
The Distributor's actual expenses in selling Class B and Class C shares may
be more than the payments it receives from the contingent deferred sales charges
collected on redeemed shares and asset-based sales charges from the Fund under
the plans. If any plan is terminated by the Fund, the Board of Trustees may
allow the Fund to continue payments of the asset-based sales charge to the
Distributor for distributing shares before the plan was terminated. The plans
allow for the carryforward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended July 31, 2000, were
as follows:
<TABLE>
<CAPTION>
Distributor's Distributor's
Aggregate Unreimbursed
Unreimbursed Expenses as %
Total Payments Amount Retained Expenses of Net Assets
Under Plan by Distributor Under Plan of Class
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class B Plan $192,858 $154,110 $563,708 3.16%
Class C Plan 27,962 7,304 30,968 1.27
</TABLE>
27 OPPENHEIMER FLORIDA MUNICIPAL FUND
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
================================================================================
5. Futures Contracts
A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a particular price on a stipulated future
date at a negotiated price. Futures contracts are traded on a commodity
exchange. The Fund may buy and sell futures contracts that relate to broadly
based securities indices (Financial futures) or debt securities (interest rate
futures) in order to gain exposure to or to seek to protect against changes in
market value of stock and bonds or 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 decreases in market value of 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.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
================================================================================
6. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Oppenheimer funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of 0.08%
per annum.
The Fund had no borrowings outstanding during the year ended July 31, 2000.
<PAGE>
Appendix A
MUNICIPAL BOND RATINGS DEFINITIONS
Below are summaries of the rating definitions used by the nationally-recognized
rating agencies listed below for municipal securities. Those ratings represent
the opinion of the agency as to the credit quality of issues that they rate. The
summaries below are based upon publicly-available information provided by the
rating organizations.
Moody's Investors Service, Inc.
-------------------------------------------------------------------------------
Long-Term Bond Ratings
Aaa: Bonds rated "Aaa" are judged to be the best quality. They carry the
smallest degree of investment risk. Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, the changes that can be expected are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated "Aa" are judged to be of high quality by all standards. Together
with the "Aaa" group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as with Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risk appear somewhat larger than the of "Aaa" securities.
A: Bonds rated "A" possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future.
Baa: Bonds rated "Baa" are considered medium-grade obligations; that is, they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and have speculative
characteristics as well.
Ba: Bonds rated "Ba" are judged to have speculative elements. Their future
cannot be considered well-assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B: Bonds rated "B" generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small.
Caa: Bonds rated "Caa" are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or
interest.
Ca: Bonds rated "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C: Bonds rated "C" are the lowest class of rated bonds and can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Con. (...): Bonds for which the security depends on the completion of some act
or the fulfillment of some condition are rated conditionally. These bonds are
secured by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals that begin when facilities are
completed, or (d) payments to which some other limiting condition attaches. The
parenthetical rating denotes probable credit stature upon completion of
construction or elimination of the basis of the condition. Moody's applies
numerical modifiers 1, 2, and 3 in each generic rating classification from "Aa"
through "Caa." The modifier "1" indicates that the obligation ranks in the
higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates a ranking in the lower end of
that generic rating category. Advanced refunded issues that are secured by
certain assets are identified with a # symbol.
Short-Term Ratings - U.S. Tax-Exempt Municipals
There are three ratings for short-term obligations that are investment grade.
Short-term speculative obligations are designated "SG." For variable rate demand
obligations, a two-component rating is assigned. The first (MIG) element
represents an evaluation by Moody's of the degree of risk associated with
scheduled principal and interest payments. The second element (VMIG) represents
an evaluation of the degree of risk associated with the demand feature.
MIG 1/VMIG 1: Denotes superior credit quality. Excellent protection is afforded
by established cash flows, highly reliable liquidity support or demonstrated
broad-based access to the market for refinancing..
MIG 2/VMIG 2: Denotes strong credit quality. Margins of protection are ample
although not as large as in the preceding group.
MIG 3/VMIG 3: Denotes acceptable credit quality. Liquidity and cash-flow
protection may be narrow, and market access for refinancing is likely to be less
well established.
SG: Denotes speculative-grade credit quality. Debt instruments in this
category may lack margins of protection.
Standard & Poor's Rating Services
-------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The obligor's capacity to meet its financial commitment on the obligation is
extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: Bonds rated "BBB" exhibit adequate protection parameters. However, adverse
economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC, and C
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having significant
speculative characteristics. "BB" indicates the least degree of speculation and
"C" the highest. While such obligations will likely have some quality and
protective characteristics, these may be outweighed by large uncertainties or
major exposures to adverse conditions.
BB: Bonds rated "BB" are less vulnerable to nonpayment than other speculative
issues. However, these face major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to the obligor's
inadequate capacity to meet its financial commitment on the obligation.
B: Bonds rated "B" are more vulnerable to nonpayment than obligations rated
"BB," but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC: Bonds rated "CCC" are currently vulnerable to nonpayment, and are dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation.
CC: Bonds rated "CC" are currently highly vulnerable to nonpayment.
C: The "C" rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
D: Bonds rated "D" are in default. Payments on the obligation are not being made
on the date due even if the applicable grace period has not expired, unless
Standard and Poor's believes that such payments will be made during such grace
period. The "D" rating will also be used upon the filing of a bankruptcy
petition or the taking of a similar action if payments on an obligation 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. The
"p" symbol indicates that the rating is provisional. The "r" symbol is attached
to the ratings of instruments with significant noncredit risks.
Short-Term Issue Credit Ratings
SP-1: Strong capacity to pay principal and interest. An issue with a very strong
capacity to pay debt service is given a (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3: Speculative capacity to pay principal and interest.
Fitch, Inc.
-------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
<PAGE>
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of financial
commitments is considered adequate, but adverse changes in circumstances and
in economic conditions are more likely to impair this capacity. This is the
lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit
risk developing, particularly as the result of adverse economic change over
time. However, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
B: Highly Speculative. "B" ratings indicate that significant credit risk is
present, but a limited margin of safety remains. Financial commitments are
currently being met. However, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of
some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. The ratings of obligations in this category are based
on their prospects for achieving partial or full recovery in a reorganization or
liquidation of the obligor. While expected recovery values are highly
speculative and cannot be estimated with any precision, the following serve as
general guidelines. "DDD" obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest. "DD" indicates
potential recoveries in the range of 50%-90%, and "D" the lowest recovery
potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated "DDD" have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal
reorganization or liquidation process; those rated "DD" are likely to satisfy a
higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote
relative status within the major rating categories. Plus and minus signs are not
added to the "AAA" category or to categories below "CCC," nor to short-term
ratings other than "F1" (see below).
-------------------------------------------------------------------------------
International Short-Term Credit Ratings
-------------------------------------------------------------------------------
F1: Highest credit quality. Strongest capacity for timely payment of financial
commitments. May have an added "+" to denote any exceptionally strong credit
feature.
F2: Good credit quality. A satisfactory capacity for timely payment of financial
commitments, but the margin of safety is not as great as in the case of higher
ratings.
F3: Fair credit quality. Capacity for timely payment of financial commitments is
adequate. However, near-term adverse changes could result in a reduction to
non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments,
plus vulnerability to near-term adverse changes in financial and economic
conditions.
C: High default risk. Default is a real possibility. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business
and economic environment.
D: Default. Denotes actual or imminent payment default.
<PAGE>
Appendix B
Municipal Bond Industry Classifications
Adult Living Facilities
Bond Anticipation Notes
Education
Electric Utilities
Gas Utilities
General Obligation
Higher Education
Highways/Railways
Hospital/Healthcare
Manufacturing, Durable Goods
Manufacturing, Non Durable Goods Marine/Aviation Facilities Multi-Family Housing
Municipal Leases Non Profit Organization Parking Fee Revenue Pollution Control
Resource Recovery Revenue Anticipation Notes Sales Tax Revenue Sewer Utilities
Single Family Housing Special Assessment Special Tax Sports Facility Revenue
Student Loans Tax Anticipation Notes Tax & Revenue Anticipation Notes Telephone
Utilities Water Utilities
<PAGE>
C-13
Appendix C
-------------------------------------------------------------------------------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
-------------------------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of
Class A shares1 of the Oppenheimer funds or the contingent deferred sales charge
that may apply to Class A, Class B or Class C shares may be waived. That is
because of the economies of sales efforts realized by OppenheimerFunds
Distributor, Inc., (referred to in this document as the "Distributor"), or by
dealers or other financial institutions that offer those shares to certain
classes of investors.
Not all waivers apply to all funds. For example, waivers relating to
Retirement Plans do not apply to Oppenheimer municipal funds, because shares of
those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds that were merged into
or became Oppenheimer funds.
For the purposes of some of the waivers described below and in the
Prospectus and Statement of Additional Information of the applicable Oppenheimer
funds, the term "Retirement Plan" refers to the following types of plans: (1)
plans qualified under Sections 401(a) or 401(k) of the Internal Revenue
Code,
(2) non-qualified deferred compensation plans, (3) employee benefit plans2 (4)
Group Retirement Plans3 (5) 403(b)(7) custodial plan accounts (6) Individual
Retirement Accounts ("IRAs"), including traditional IRAs,
Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a
special arrangement or waiver in a particular case is in the sole discretion of
the Distributor or the transfer agent (referred to in this document as the
"Transfer Agent") of the particular Oppenheimer fund. These waivers and special
arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the
"Manager").
Waivers that apply at the time shares are redeemed must be requested by the
shareholder and/or dealer in the redemption request.
--------------
1. Certain waivers also apply to Class M shares of Oppenheimer Convertible
Securities Fund.
2. An "employee benefit plan" means any plan or arrangement, whether or not it
is "qualified" under the Internal Revenue Code, under which Class A shares of
an Oppenheimer fund or funds are purchased by a fiduciary or other
administrator for the account of participants who are employees of a single
employer or of affiliated employers. These may include, for example, medical
savings accounts, payroll deduction plans or similar plans. The fund accounts
must be registered in the name of the fiduciary or administrator purchasing
the shares for the benefit of participants in the plan.
3. The term "Group Retirement Plan" means any qualified or non-qualified
retirement plan for employees of a corporation or sole proprietorship,
members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the
group has made special arrangements with the Distributor and all members of
the group participating in (or who are eligible to participate in) the plan
purchase Class A shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution designated by the
group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group
Retirement Plan" also includes qualified retirement plans and non-qualified
deferred compensation plans and IRAs that purchase Class A shares of an
Oppenheimer fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor
enabling those plans to purchase Class A shares at net asset value but
subject to the Class A contingent deferred sales charge.
-------------------------------------------------------------------------------
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
-------------------------------------------------------------------------------
Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial
Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge
(unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of
the Oppenheimer funds in the cases listed below. However, these purchases may be
subject to the Class A contingent deferred sales charge if redeemed within 18
months of the end of the calendar month of their purchase, as described in the
Prospectus (unless a waiver described elsewhere in this Appendix applies to the
redemption). Additionally, on shares purchased under these waivers that are
subject to the Class A contingent deferred sales charge, the Distributor will
pay the applicable concession described in the Prospectus under "Class A
Contingent Deferred Sales Charge."3 This waiver provision applies to: |_|
Purchases of Class A shares aggregating $1 million or more. |_| Purchases by a
Retirement Plan (other than an IRA or 403(b)(7) custodial plan) that: (1) buys
shares costing $500,000 or more, or (2) has, at the time of purchase, 100 or
more eligible employees or total plan assets of $500,000 or more, or (3)
certifies to the Distributor that it projects to have annual plan purchases of
$200,000 or more. |_| Purchases by an OppenheimerFunds-sponsored Rollover IRA,
if the purchases are made: through a broker, dealer, bank or registered
investment adviser that has made special arrangements with the Distributor for
those purchases, or by a direct rollover of a distribution from a qualified
Retirement Plan if the administrator of that Plan has made special arrangements
with the Distributor for those purchases. |_| Purchases of Class A shares by
Retirement Plans that have any of the following record-keeping arrangements: (1)
The record keeping is performed by Merrill Lynch Pierce Fenner & Smith, Inc.
("Merrill Lynch") on a daily valuation basis for the Retirement Plan. On the
date the plan sponsor signs the record-keeping service agreement with Merrill
Lynch, the Plan must have $3 million or more of its assets invested in (a)
mutual funds, other than those advised or managed by Merrill Lynch Asset
Management, L.P. ("MLAM"), that are made available under a Service Agreement
between Merrill Lynch and the mutual fund's principal underwriter or
distributor, and (b) funds advised or managed by MLAM (the funds described in
(a) and (b) are referred to as "Applicable Investments"). (2) The record keeping
for the Retirement Plan is performed on a daily valuation basis by a record
keeper whose services are provided under a contract or arrangement between the
Retirement Plan and Merrill Lynch. On the date the plan sponsor signs the record
keeping service agreement with Merrill Lynch, the Plan must have $3 million or
more of its assets (excluding assets invested in money market funds) invested in
Applicable Investments. (3) The record keeping for a Retirement Plan is handled
under a service agreement with Merrill Lynch and on the date the plan sponsor
signs that agreement, the Plan has 500 or more eligible employees (as determined
by the Merrill Lynch plan conversion manager). |_| Purchases by a Retirement
Plan whose record keeper had a cost-allocation agreement with the Transfer Agent
on or before May 1, 1999.
-------------------------------------------------------------------------------
II. Waivers of Class A Sales Charges of Oppenheimer Funds
-------------------------------------------------------------------------------
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain
Purchasers.
Class A shares purchased by the following investors are not subject to any Class
A sales charges (and no concessions are paid by the Distributor on such
purchases): |_| The Manager or its affiliates. |_| Present or former officers,
directors, trustees and employees (and their
"immediate families") of the Fund, the Manager and its affiliates, and
retirement plans established by them for their employees. The term
"immediate family" refers to one's spouse, children, grandchildren,
grandparents, parents, parents-in-law, brothers and sisters, sons- and
daughters-in-law, a sibling's spouse, a spouse's siblings, aunts,
uncles, nieces and nephews; relatives by virtue of a remarriage
(step-children, step-parents, etc.) are included.
|_| Registered management investment companies, or separate accounts of
insurance companies having an agreement with the Manager or the
Distributor for that purpose.
|_| Dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees.
|_| Employees and registered representatives (and their spouses) of dealers
or brokers described above or financial institutions that have entered
into sales arrangements with such dealers or brokers (and which are
identified as such to the Distributor) or with the Distributor. The
purchaser must certify to the Distributor at the time of purchase that
the purchase is for the purchaser's own account (or for the benefit of
such employee's spouse or minor children).
|_| Dealers, brokers, banks or registered investment advisors that have
entered into an agreement with the Distributor providing specifically
for the use of shares of the Fund in particular investment products made
available to their clients. Those clients may be charged a transaction
fee by their dealer, broker, bank or advisor for the purchase or sale of
Fund shares.
|_| Investment advisors and financial planners who have entered into an
agreement for this purpose with the Distributor and who charge an
advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
|_| "Rabbi trusts" that buy shares for their own accounts, if the purchases
are made through a broker or agent or other financial intermediary that
has made special arrangements with the Distributor for those purchases.
|_| Clients of investment advisors or financial planners (that have entered
into an agreement for this purpose with the Distributor) who buy
shares for their own accounts may also purchase shares without sales
charge but only if their accounts are linked to a master account of
their investment advisor or financial planner on the books and records
of the broker, agent or financial intermediary with which the
Distributor has made such special arrangements . Each of these
investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares.
|_| Directors, trustees, officers or full-time employees of OpCap Advisors
or its affiliates, their relatives or any trust, pension, profit sharing
or other benefit plan which beneficially owns shares for those persons.
|_| Accounts for which Oppenheimer Capital (or its successor) is the
investment advisor (the Distributor must be advised of this arrangement)
and persons who are directors or trustees of the company or trust which
is the beneficial owner of such accounts.
|_| A unit investment trust that has entered into an appropriate agreement
with the Distributor.
|_| Dealers, brokers, banks, or registered investment advisers that have
entered into an agreement with the Distributor to sell shares to defined
contribution employee retirement plans for which the dealer, broker or
investment adviser provides administration services.
|_| Retirement Plans and deferred compensation plans and trusts used to fund
those plans (including, for example, plans qualified or created under
sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in
each case if those purchases are made through a broker, agent or other
financial intermediary that has made special arrangements with the
Distributor for those purchases.
|_| A TRAC-2000 401(k) plan (sponsored by the former Quest for Value
Advisors) whose Class B or Class C shares of a Former Quest for Value
Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November 24,
1995.
|_| A qualified Retirement Plan that had agreed with the former Quest for
Value Advisors to purchase shares of any of the Former Quest for Value
Funds at net asset value, with such shares to be held through DCXchange,
a sub-transfer agency mutual fund clearinghouse, if that arrangement was
consummated and share purchases commenced by December 31, 1996.
B. Waivers of Initial and Contingent Deferred Sales Charges in Certain
Transactions.
Class A shares issued or purchased in the following transactions are not subject
to sales charges (and no concessions are paid by the Distributor on such
purchases): |_| Shares issued in plans of reorganization, such as mergers, asset
acquisitions and exchange offers, to which the Fund is a party.
|_| Shares purchased by the reinvestment of dividends or other distributions
reinvested from the Fund or other Oppenheimer funds (other than
Oppenheimer Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor.
|_| Shares purchased through a broker-dealer that has entered into a special
agreement with the Distributor to allow the broker's customers to
purchase and pay for shares of Oppenheimer funds using the proceeds of
shares redeemed in the prior 30 days from a mutual fund (other than a
fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid.
This waiver also applies to shares purchased by exchange of shares of
Oppenheimer Money Market Fund, Inc. that were purchased and paid for
in this manner. This waiver must be requested when the purchase order
is placed for shares of the Fund, and the Distributor may require
evidence of qualification for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of any
Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by a participant
in a Retirement Plan for which the Manager or an affiliate acts as
sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain
Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would
otherwise be subject to the contingent deferred sales charge are redeemed in the
following cases: |_| To make Automatic Withdrawal Plan payments that are limited
annually to
no more than 12% of the account value measured at the time the Plan is
established, adjusted annually.
|_| Involuntary redemptions of shares by operation of law or involuntary
redemptions of small accounts (please refer to "Shareholder Account
Rules and Policies," in the applicable fund Prospectus).
|_| For distributions from Retirement Plans, deferred compensation plans or
other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue
Code) of the participant or beneficiary. The death or disability must
occur after the participant's account was established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact. (4) Hardship
withdrawals, as defined in the plan.4
(5) Under a Qualified Domestic Relations Order, as defined in the
Internal Revenue Code, or, in the case of an IRA, a divorce or
separation agreement described in Section 71(b) of the Internal
Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue
Code.
(7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries. (9) Separation from service.5
(10)Participant-directed redemptions to purchase shares of a mutual fund
(other than a fund managed by the Manager or a subsidiary of the
Manager) if the plan has made special arrangements with the Distributor.
(11) Plan termination or "in-service distributions," if the redemption
proceeds are rolled over directly to an OppenheimerFunds-sponsored IRA.
|_| For distributions from Retirement Plans having 500 or more eligible
employees, except distributions due to termination of all of the
Oppenheimer funds as an investment option under the Plan.
|_| For distributions from 401(k) plans sponsored by broker-dealers that
have entered into a special agreement with the Distributor allowing this
waiver.
III. Waivers of Class B and Class C Sales Charges of Oppenheimer Funds
The Class B and Class C contingent deferred sales charges will not be applied to
shares purchased in certain types of transactions or redeemed in certain
circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases: |_| Shares redeemed involuntarily,
as described in "Shareholder Account
Rules and Policies," in the applicable Prospectus.
|_| Redemptions from accounts other than Retirement Plans following the
death or disability of the last surviving shareholder, including a
trustee of a grantor trust or revocable living trust for which the
trustee is also the sole beneficiary. The death or disability must have
occurred after the account was established, and for disability you must
provide evidence of a determination of disability by the Social Security
Administration.
|_| Distributions from accounts for which the broker-dealer of record has
entered into a special agreement with the Distributor allowing this
waiver.
|_| Redemptions of Class B shares held by Retirement Plans whose records are
maintained on a daily valuation basis by Merrill Lynch or an independent
record keeper under a contract with Merrill Lynch.
|_| Redemptions of Class C shares of Oppenheimer U.S. Government Trust from
accounts of clients of financial institutions that have entered into a
special arrangement with the Distributor for this purpose.
|_| Redemptions requested in writing by a Retirement Plan sponsor of Class C
shares of an Oppenheimer fund in amounts of $1 million or more held by
the Retirement Plan for more than one year, if the redemption proceeds
are invested in Class A shares of one or more Oppenheimer funds.
|_| Distributions from Retirement Plans or other employee benefit plans for
any of the following purposes:
(1) Following the death or disability (as defined in the Internal
Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was
established in an Oppenheimer fund.
(2) To return excess contributions made to a participant's account. (3) To
return contributions made due to a mistake of fact. (4) To make hardship
withdrawals, as defined in the plan.6 (5) To make distributions required under a
Qualified Domestic Relations
Order or, in the case of an IRA, a divorce or separation agreement
described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal
Revenue Code.
(7) To make "substantially equal periodic payments" as described in
Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.7 (9) On account of the
participant's separation from service.8 (10) Participant-directed redemptions to
purchase shares of a mutual fund
(other than a fund managed by the Manager or a subsidiary of the
Manager) offered as an investment option in a Retirement Plan if
the plan has made special arrangements with the Distributor.
(11) Distributions made on account of a plan termination or
"in-service" distributions," if the redemption proceeds are rolled
over directly to an OppenheimerFunds-sponsored IRA.
(12) Distributions from Retirement Plans having 500 or more eligible
employees, but excluding distributions made because of the Plan's
elimination as investment options under the Plan of all of the
Oppenheimer funds that had been offered.
(13) For distributions from a participant's account under an Automatic
Withdrawal Plan after the participant reaches age 59 1/2, as
long as the aggregate value of the distributions does not exceed
10% of the account's value annually (measured from the
establishment of the Automatic Withdrawal Plan).
|_|Redemptions of Class B shares (or Class C shares, effective August
1, 1999) under an Automatic Withdrawal Plan from an account other
than a Retirement Plan if the aggregate value of the redeemed shares
does not exceed 10% of the account's value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C
shares sold or issued in the following cases:
|_| Shares sold to the Manager or its affiliates.
|_| Shares sold to registered management investment companies or separate
accounts of insurance companies having an agreement with the Manager or
the Distributor for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is a party.
IV. Special Sales Charge Arrangements for Shareholders of Certain
Oppenheimer Funds Who Were Shareholders of Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A,
Class B and Class C shares described in the Prospectus or Statement of
Additional Information of the Oppenheimer funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds.
To be eligible, those persons must have been shareholders on November 24, 1995,
when OppenheimerFunds, Inc. became the investment advisor to those former Quest
for Value Funds. Those funds include:
<PAGE>
Oppenheimer Quest Value Fund, Oppenheimer Quest Small Cap
Inc. Value Fund
Oppenheimer Quest Balanced Oppenheimer Quest Global
Value Fund Value Fund
Oppenheimer Quest Opportunity
Value Fund
These arrangements also apply to shareholders of the following funds when
they merged (were reorganized) into various Oppenheimer funds on November 24,
1995:
Quest for Value U.S. Government Quest for Value New York
Income Fund Tax-Exempt Fund
Quest for Value Investment Quest for Value National
Quality Income Fund Tax-Exempt Fund
Quest for Value Global Income Fund Quest for Value California
Tax-Exempt Fund
All of the funds listed above are referred to in this Appendix as the
"Former Quest for Value Funds." The waivers of initial and contingent deferred
sales charges described in this Appendix apply to shares of an Oppenheimer fund
that are either: |_| acquired by such shareholder pursuant to an exchange of
shares of an
Oppenheimer fund that was one of the Former Quest for Value Funds or |_|
purchased by such shareholder by exchange of shares of another
Oppenheimer fund that were acquired pursuant to the merger of any of the
Former Quest for Value Funds into that other Oppenheimer fund on
November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
|X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest
for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial
sales charge rates for Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of securities. The rates in the
table apply if that Association purchased shares of any of the Former Quest for
Value Funds or received a proposal to purchase such shares from OCC Distributors
prior to November 24, 1995.
----------------------------------------------------------------------
Number of Initial Sales
Eligible Initial Sales Charge as a % Commission as %
Employees or Charge as a % of of Net Amount of Offering
Members Offering Price Invested Price
----------------------------------------------------------------------
----------------------------------------------------------------------
9 or Fewer 2.50% 2.56% 2.00%
----------------------------------------------------------------------
----------------------------------------------------------------------
At least 10 but 2.00% 2.04% 1.60%
not more than 49
----------------------------------------------------------------------
For purchases by Associations having 50 or more eligible employees or
members, there is no initial sales charge on purchases of Class A shares, but
those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the
sales charge rate in the table based on the number of members of an Association,
or the sales charge rate that applies under the Right of Accumulation described
in the applicable fund's Prospectus and Statement of Additional Information.
Individuals who qualify under this arrangement for reduced sales charge rates as
members of Associations also may purchase shares for their individual or
custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A
shares purchased by the following investors are not subject to any Class A
initial or contingent deferred sales charges:
|_| Shareholders who were shareholders of the AMA Family of Funds on
February 28, 1991 and who acquired shares of any of the Former Quest for
Value Funds by merger of a portfolio of the AMA Family of Funds.
|_| Shareholders who acquired shares of any Former Quest for Value Fund by
merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain
Transactions. The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not
permitted to receive a sales load or redemption fee imposed on a shareholder
with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In
the following cases, the contingent deferred sales charge will be waived for
redemptions of Class A, Class B or Class C shares of an Oppenheimer fund. The
shares must have been acquired by the merger of a Former Quest for Value Fund
into the fund or by exchange from an Oppenheimer fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been
purchased prior to March 6, 1995 in connection with: |_| withdrawals under an
automatic withdrawal plan holding only either Class
B or Class C shares if the annual withdrawal does not exceed 10% of the
initial value of the account, and
|_| liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum value of
such accounts.
|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995
but Prior to November 24, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C
shares of an Oppenheimer fund. The shares must have been acquired by the merger
of a Former Quest for Value Fund into the fund or by exchange from an
Oppenheimer fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or
after March 6, 1995, but prior to November 24, 1995: |_| redemptions following
the death or disability of the shareholder(s) (as
evidenced by a determination of total disability by the U.S. Social
Security Administration);
|_| withdrawals under an automatic withdrawal plan (but only for Class B or
Class C shares) where the annual withdrawals do not exceed 10% of the
initial value of the account; and
|_| liquidation of a shareholder's account if the aggregate net asset value
of shares held in the account is less than the required minimum account
value.
A shareholder's account will be credited with the amount of any contingent
deferred sales charge paid on the redemption of any Class A, Class B or Class C
shares of the Oppenheimer fund described in this section if the proceeds are
invested in the same Class of shares in that fund or another Oppenheimer fund
within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain Oppenheimer
Funds Who Were Shareholders of Connecticut Mutual Investment Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A
and Class B shares described in the respective Prospectus (or this Appendix) of
the following Oppenheimer funds (each is referred to as a "Fund" in this
section): o Oppenheimer U. S. Government Trust, o Oppenheimer Bond Fund, o
Oppenheimer Disciplined Value Fund and o Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were
shareholders of the following funds (referred to as the "Former Connecticut
Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return
Account
Connecticut Mutual Government CMIA LifeSpan Capital
Securities Account Appreciation Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
? Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund
and the other Former Connecticut Mutual Funds are entitled to continue to make
additional purchases of Class A shares at net asset value without a Class A
initial sales charge, but subject to the Class A contingent deferred sales
charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one
year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of
the shares sold, whichever is smaller (in such redemptions, any shares not
subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are: (1)
persons whose purchases of Class A shares of a Fund and other Former
Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a
result of direct purchases or purchases pursuant to the Fund's policies
on Combined Purchases or Rights of Accumulation, who still hold those
shares in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered
into prior to March 18, 1996, with the former general distributor of the
Former Connecticut Mutual Funds to purchase shares valued at $500,000 or
more over a 13-month period entitled those persons to purchase shares at
net asset value without being subject to the Class A initial sales
charge.
Any of the Class A shares of a Fund and the other Former Connecticut
Mutual Funds that were purchased at net asset value prior to March 18,
1996, remain subject to the prior Class A CDSC, or if any additional
shares are purchased by those shareholders at net asset value pursuant to
this arrangement they will be subject to the prior Class A CDSC.
? Class A Sales Charge Waivers. Additional Class A shares of a Fund may be
purchased without a sales charge, by a person who was in one (or more) of the
categories below and acquired Class A shares prior to March 18, 1996, and still
holds Class A shares: (1) any purchaser, provided the total initial amount
invested in the Fund or
any one or more of the Former Connecticut Mutual Funds totaled $500,000
or more, including investments made pursuant to the Combined Purchases,
Statement of Intention and Rights of Accumulation features available at
the time of the initial purchase and such investment is still held in
one or more of the Former Connecticut Mutual Funds or a Fund into which
such Fund merged;
(2) any participant in a qualified plan, provided that the total initial
amount invested by the plan in the Fund or any one or more of the Former
Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut
Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial
Services, L.L.C. ("CMFS"), the prior distributor of the Former
Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons
who are retirees from such group) engaged in a common business,
profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a
marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or
individuals, if such institution was directly compensated by the
individual(s) for recommending the purchase of the shares of the Fund or
any one or more of the Former Connecticut Mutual Funds, provided the
institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be
subject to the Class A CDSC of the Former Connecticut Mutual Funds described
above.
Additionally, Class A shares of a Fund may be purchased without a sales
charge by any holder of a variable annuity contract issued in New York State by
Connecticut Mutual Life Insurance Company through the Panorama Separate Account
which is beyond the applicable surrender charge period and which was used to
fund a qualified plan, if that holder exchanges the variable annuity contract
proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix,
above, the contingent deferred sales charge will be waived for redemptions of
Class A and Class B shares of a Fund and exchanges of Class A or Class B shares
of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund
provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by
exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund.
Additionally, the shares of such Former Connecticut Mutual Fund must have been
purchased prior to March 18, 1996: (1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of
the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or beneficiaries
from retirement plans qualified under Sections 401(a) or 403(b)(7)of the
Code, or from IRAs, deferred compensation plans created under Section
457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or
employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state,
county, or city, or any instrumentality, department, authority, or
agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or commission in connection with the purchase of
shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a
combination with another investment company by virtue of a merger,
acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or liquidate
the Fund;
(8) in connection with automatic redemptions of Class A shares and Class B
shares in certain retirement plan accounts pursuant to an Automatic
Withdrawal Plan but limited to no more than 12% of the original value
annually; or
(9) as involuntary redemptions of shares by operation of law, or under
procedures set forth in the Fund's Articles of Incorporation, or as
adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of Advance America
Funds, Inc.
Shareholders of Oppenheimer Municipal Bond Fund, Oppenheimer U.S. Government
Trust, Oppenheimer Strategic Income Fund and Oppenheimer Equity Income Fund who
acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those Oppenheimer
funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on
March 30, 1990, may purchase Class A shares of those four Oppenheimer funds at a
maximum sales charge rate of 4.50%.
-------------------------------------------------------------------------------
VII. Sales Charge Waivers on Purchases of Class M Shares of Oppenheimer
Convertible Securities Fund
-------------------------------------------------------------------------------
Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this
section) may sell Class M shares at net asset value without any initial sales
charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase
those shares at net asset value without sales charge:
|_| the Manager and its affiliates,
|_| present or former officers, directors, trustees and employees (and their
"immediate families" as defined in the Fund's Statement of Additional
Information) of the Fund, the Manager and its affiliates, and retirement
plans established by them or the prior investment advisor of the Fund
for their employees,
|_| registered management investment companies or separate accounts of
insurance companies that had an agreement with the Fund's prior
investment advisor or distributor for that purpose,
|_| dealers or brokers that have a sales agreement with the Distributor, if
they purchase shares for their own accounts or for retirement plans for
their employees,
|_| employees and registered representatives (and their spouses) of dealers
or brokers described in the preceding section or financial institutions
that have entered into sales arrangements with those dealers or brokers
(and whose identity is made known to the Distributor) or with the
Distributor, but only if the purchaser certifies to the Distributor at
the time of purchase that the purchaser meets these qualifications,
|_| dealers, brokers, or registered investment advisors that had entered
into an agreement with the Distributor or the prior distributor of the
Fund specifically providing for the use of Class M shares of the Fund in
specific investment products made available to their clients, and
|_| dealers, brokers or registered investment advisors that had entered into
an agreement with the Distributor or prior distributor of the Fund's
shares to sell shares to defined contribution employee retirement plans
for which the dealer, broker, or investment advisor provides
administrative services.
<PAGE>
-------------------------------------------------------------------------------
Oppenheimer Florida Municipal Fund
-------------------------------------------------------------------------------
Internet Web Site:
www.oppenheimerfunds.com
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian Bank
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Mayer, Brown & Platt
1675 Broadway
New York, New York 10019-5820
PX795.1100
--------
1 Ms. Macaskill and Mr. Griffiths are not Directors of Oppenheimer Money Market
Fund, Inc. Mr. Griffiths is also not a Trustee of Oppenheimer Discovery Fund. 2
In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Trustees" in this Statement of Additional Information refers to
those Trustees who are not "interested persons" of the Fund and the Trust and
who do not have any direct or indirect financial interest in the operation of
the distribution plan or any agreement under the plan.
3 However, that commission will not be paid on purchases of shares in amounts of
$1 million or more (including any right of accumulation) by a Retirement Plan
that pays for the purchase with the redemption proceeds of Class C shares of one
or more Oppenheimer funds held by the Plan for more than one year. 4 This
provision does not apply to IRAs. 5 This provision does not apply to 403(b)(7)
custodial plans if the participant is less than age 55, nor to IRAs. 6 This
provision does not apply to IRAs. 7 This provision does not apply to loans from
403(b)(7) custodial plans. 8 This provision does not apply to 403(b)(7)
custodial plans if the participant is less than age 55, nor to IRAs.
