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Xxxxxxxxxxx California Municipal Fund
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0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, XX 00000
0-000-000-0000
Statement of Additional Information dated November 28, 2001
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 28, 2001. It should be read together with the Prospectus, which may be
obtained by writing to the Fund's Transfer Agent, OppenheimerFunds Services, at X.X. Xxx 0000, Xxxxxx, Xxxxxxxx 00000 or by calling
the Transfer Agent at the toll-free number shown above or by downloading it from the OppenheimerFunds Internet web site at
xxx.xxxxxxxxxxxxxxxx.xxx.
Contents Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.............................................2
The Fund's Investment Policies.............................................................................2
Municipal Securities.......................................................................................2
Other Investment Techniques and Strategies................................................................11
Investment Restrictions...................................................................................22
How the Fund is Managed..........................................................................................25
Organization and History..................................................................................25
Trustees and Officers of the Fund.........................................................................26
The Manager ..............................................................................................31
Brokerage Policies of the Fund...................................................................................33
Distribution and Service Plans...................................................................................35
Performance of the Fund..........................................................................................38
About Your Account
How To Buy Shares................................................................................................44
How To Sell Shares...............................................................................................51
How to Exchange Shares...........................................................................................56
Dividends, Capital Gains and Taxes...............................................................................59
Additional Information About the Fund............................................................................61
Financial Information About the Fund
Independent Auditors' Report.....................................................................................62
Financial Statements ............................................................................................63
Appendix A: Municipal Bond Ratings..............................................................................A-1
Appendix B: Industry Classifications............................................................................B-1
Appendix C: Special Sales Charge Arrangements and Waivers.......................................................C-1
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ABOUT THE FUND
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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., (the "Manager") will select for the Fund. Additional
explanations are also provided about the strategies the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The Fund does not make investments with the objective of seeking capital growth, since that would
generally be inconsistent with its goal of seeking tax-exempt income. However, the value of the securities held by the Fund may be
affected by changes in general interest rates. Because the current value of debt securities varies inversely with changes in
prevailing interest rates, if interest rates increased after a security was purchased, that security would normally decline in
value. Conversely, should interest rates decrease after a security was purchased, normally its value would rise.
However, those fluctuations in value will not generally result in realized gains or losses to the Fund unless the Fund sells
the security prior to maturity. A debt security held to maturity is redeemable by its issuer at full principal value plus accrued
interest. The Fund does not usually intend to dispose of securities prior to their maturity, but may do so for liquidity, or because
of other factors affecting the issuer that cause the Manager to sell the particular security. In that case, the Fund could experience
a capital gain or loss on the sale.
There are variations in the credit quality of municipal securities, both within a particular rating classification and
between classifications. These variations depend on numerous factors. The yields of municipal securities depend on a number of
factors, including general conditions in the municipal securities market, the size of a particular offering, the maturity of the
obligation and rating (if any) of the issue. These factors are discussed in greater detail below.
Municipal Securities. The types of municipal securities in which the Fund may invest are described in the Prospectus under "About
the Fund's Investments." Municipal securities are generally classified as general obligation bonds, revenue bonds and notes. A
discussion of the general characteristics of these principal types of municipal securities follows below.
|X| Municipal Bonds. We have classified longer term municipal securities as "municipal bonds." The principal
classifications of long-term municipal bonds are "general obligation" and "revenue" (including "industrial development") bonds. They
may have fixed, variable or floating rates of interest, as described below.
Some bonds may be "callable," allowing the issuer to redeem them before their maturity date. To protect bondholders,
callable bonds may be issued with provisions that prevent them from being called for a period of time. Typically, that is 5 to 10
years from the issuance date. When interest rates decline, if the call protection on a bond has expired, it is more likely that the
issuer may call the bond. If that occurs, the Fund might have to reinvest the proceeds of the called bond in bonds that pay a lower
rate of return.
|_| General Obligation Bonds. The basic security behind general obligation bonds is the issuer's pledge of its full
faith and credit and taxing, if any, power for the repayment of principal and the payment of interest. Issuers of general obligation
bonds include states, counties, cities, towns, and regional districts. The proceeds of these obligations are used to fund a wide
range of public projects, including construction or improvement of schools, highways and roads, and water and sewer systems. The
rate of taxes that can be levied for the payment of debt service on these bonds may be limited or unlimited. Additionally, there may
be limits as to the rate or amount of special assessments that can be levied to meet these obligations.
|_| Revenue Bonds. The principal security for a revenue bond is generally the net revenues derived from a
particular facility, group of facilities, or, in some cases, the proceeds of a special excise tax or other specific revenue source.
Revenue bonds are issued to finance a wide variety of capital projects. Examples include electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and universities; and hospitals.
Although the principal security for these types of bonds may vary from bond to bond, many provide additional
security in the form of a debt service reserve fund that may be used to make principal and interest payments on the issuer's
obligations. Housing finance authorities have a wide range of security, including partially or fully insured mortgages, rent
subsidized and/or collateralized mortgages, and/or the net revenues from housing or other public projects. Some authorities provide
further security in the form of a state's ability (without obligation) to make up deficiencies in the debt service reserve fund.
|_| Industrial Development Bonds. Industrial development bonds are considered municipal bonds if the interest paid
is exempt from federal income tax. They are issued by or on behalf of public authorities to raise money to finance various privately
operated facilities for business and manufacturing, housing, sports, and pollution control. These bonds may also be used to finance
public facilities such as airports, mass transit systems, ports, and parking. The payment of the principal and interest on such
bonds is dependent solely on the ability of the facility's user to meet its financial obligations and the pledge, if any, of real and
personal property financed by the bond as security for those payments.
|_| Xxxxx-Xxxx Bonds. These are bonds issued under the California Xxxxx-Xxxx Community Facilities Act. They are
used to finance infrastructure projects, such as roads or sewage treatment plants. In most cases they are secured by real estate
taxes levied on property located in the same community as the project. This type of financing was created in response to statutory
limits on real property taxes that were enacted in California. The bonds do not constitute an obligation of a municipal government.
Timely payment of principal and interest depends on the ability of the developer of the project or other property owners to pay their
real estate taxes. Therefore these bonds are subject to risks of nonpayment as a result of a general economic decline or decline in
the real estate market, as well as the credit risk that of the developer.
|_| Private Activity Municipal Securities. The Tax Reform Act of 1986 (the "Tax Reform Act") reorganized, as well
as amended, the rules governing tax exemption for interest on certain types of municipal securities. The Tax Reform Act generally
did not change the tax treatment of bonds issued in order to finance governmental operations. Thus, interest on general obligation
bonds issued by or on behalf of state or local governments, the proceeds of which are used to finance the operations of such
governments, continues to be tax-exempt. However, the Tax Reform Act limited the use of tax-exempt bonds for non-governmental
(private) purposes. More stringent restrictions were placed on the use of proceeds of such bonds. Interest on certain private
activity bonds is taxable under the revised rules. There is an exception for "qualified" tax-exempt private activity bonds, for
example, exempt facility bonds including certain industrial development bonds, qualified mortgage bonds, qualified Section 501(c)(3)
bonds, and qualified student loan bonds.
In addition, limitations as to the amount of private activity bonds which each state may issue were revised downward by the
Tax Reform Act, which will reduce the supply of such bonds. The value of the Fund's portfolio could be affected if there is a
reduction in the availability of such bonds.
Interest on certain private activity bonds issued after August 7, 1986, which continues to be tax-exempt, will be treated as
a tax preference item subject to the 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.
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 year are
generally known as municipal notes. Municipal notes generally are used to provide for short-term working capital needs. Some of the
types of municipal notes the Fund can invest in are described below.
|_| Tax Anticipation Notes. These are issued to finance working capital needs of municipalities. Generally, they
are issued in anticipation of various seasonal tax revenue, such as income, sales, use or other business taxes, and are payable from
these specific future taxes.
|_| Revenue Anticipation Notes. These are notes issued in expectation of receipt of other types of revenue, such
as federal revenues available under federal revenue-sharing programs.
|_| Bond Anticipation Notes. Bond anticipation notes are issued to provide interim financing until long-term
financing can be arranged. The long-term bonds that are issued typically also provide the money for the repayment of the notes.
|_| Construction Loan Notes. These are sold to provide project construction financing until permanent financing
can be secured. After successful completion and acceptance of the project, it may receive permanent financing through public
agencies, such as the Federal Housing Administration.
|_| Tax-Exempt Commercial Paper. This type of short-term obligation (usually having a maturity of 270 days or less
is issued by a municipality to meet current working capital needs.
|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.
While the Fund holds such securities, the Manager will also evaluate the likelihood of a continuing market for these
securities and their credit quality.
Municipal leases have special risk considerations. Although lease obligations do not constitute general obligations of the
municipality for which the municipality's taxing power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in
future years unless money is appropriated for that purpose on a yearly basis. While the obligation might be secured by the lease, it
might be difficult to dispose of that property in case of a default.
Projects financed with certificates of participation generally are not subject to state constitutional debt limitations or
other statutory requirements that may apply to other municipal securities. Payments by the public entity on the obligation
underlying the certificates are derived from available revenue sources. That revenue might be diverted to the funding of other
municipal service projects. Payments of interest and/or principal with respect to the certificates are not guaranteed and do not
constitute an obligation of a state or any of its political subdivisions.
In addition to the risk of "non-appropriation," municipal lease securities do not have as highly liquid a market as
conventional municipal bonds. Municipal leases, like other municipal debt obligations, are subject to the risk of non-payment of
interest or repayment of principal by the issuer. The ability of issuers of municipal leases to make timely lease payments may be
adversely affected in general economic downturns and as relative governmental cost burdens are reallocated among federal, state and
local governmental units. A default in payment of income would result in a reduction of income to the Fund. It could also result in
a reduction in the value of the municipal lease and that, as well as a default in repayment of principal, could result in a decrease
in the net asset value of the Fund.
|X| Ratings of Municipal Securities. Ratings by ratings organizations such as Xxxxx'x Investors Service, Standard & Poor's
Corporation and Fitch IBCA, Inc. represent the respective rating agency's opinions of the credit quality of the municipal securities
they undertake to rate. However, their ratings are general opinions and are not guarantees of quality. Municipal securities that have
the same maturity, coupon and rating may have different yields, while other municipal securities that have the same maturity and
coupon but different ratings may have the same yield.
Lower grade securities may have a higher yield than securities rated in the higher rating categories. In addition to having
a greater risk of default than higher-grade, securities, there may be less of a market for these securities. As a result they may be
harder to sell at an acceptable price. The additional risks mean that the Fund may not receive the anticipated level of income from
these securities, and the Fund's net asset value may be affected by declines in the value of lower-grade securities. However,
because the added risk of lower quality securities might not be consistent with the Fund's policy of preservation of capital, the
Fund limits its investments in lower quality securities.
Subsequent to its purchase by the Fund, a municipal security may cease to be rated or its rating may be reduced below the
minimum required for purchase by the Fund. Neither event requires the Fund to sell the security, but the Manager will consider such
events in determining whether the Fund should continue to hold the security. To the extent that ratings given by Moody's, Standard &
Poor's, or Fitch change as a result of changes in those rating organizations or their rating systems, the Fund will attempt to use
comparable ratings as standards for investments in accordance with the Fund's investment policies.
The Fund may buy municipal securities that are "pre-refunded." The issuer's obligation to repay the principal value of the
security is generally collateralized with U.S. Government securities placed in an escrow account. This causes the pre-refunded
security to have essentially the same risks of default as a AAA-rated security.
A list of the rating categories of Xxxxx'x, S&P and Fitch for municipal securities is contained in Appendix A to this
Statement of Additional Information. Because the Fund may purchase securities that are unrated by nationally recognized rating
organizations, the Manager will make its own assessment of the credit quality of unrated issues the Fund buys. The Manager will use
criteria similar to those used by the rating agencies, and assigning a rating category to a security that is comparable to what the
Manager believes a rating agency would assign to that security. However, the Manager's rating does not constitute a guarantee of the
quality of a particular issue.
Special Risks of Investing Primarily in California Municipal Securities. Because the Fund focuses its investments primarily on
California municipal securities, the value of its portfolio investments will be highly sensitive to events affecting the fiscal
stability of the state of California and its municipalities, authorities and other instrumentalities that issue securities. There
have been a number of political developments, voter initiatives, state constitutional amendments and legislation in California in
recent years that may affect the ability of the state government and municipal governments to pay interest and repay principal on the
securities they have issued. In addition, in recent years, the state of California has derived a significant portion of its revenues
from personal income and sales taxes. Because the amount collected from these taxes is particularly sensitive to economic
conditions, the State's revenues have been volatile.
It is not possible to predict the future impact of the legislation and economic considerations described below on the
long-term ability of the state of California or California municipal issuers to pay interest or repay principal on their
obligations. In part that is because of possible inconsistencies in the terms of the various laws and Propositions and the
applicability of other statutes to these issues. The budgets of California counties and local governments may be significantly
affected by state budget decisions beyond their control. The information below about these conditions is only a brief summary, based
upon information the Fund has drawn from sources that it believes are reliable.
Changes to the State Constitution. Changes to the state constitution in recent years have raised general concerns about
the ability of the state and municipal governments in California to obtain sufficient revenues to pay their bond obligations. In
1978, California voters approved Proposition 13, an amendment to the state constitution. The Proposition added a new section to the
constitution that limits ad valorem taxes on real property and restricts the ability of local taxing entities to increase real
property taxes. However, legislation enacted after Proposition 13 provided help to California municipal issuers to raise revenue to
pay their bond obligations. During the severe recession California experienced from 1991 to 1993, the state legislature eliminated
significant components of its aid to local governments. The state has since increased aid to local governments and reduced certain
mandates for local services. Whether legislation will be enacted in the future to either increase or reduce the redistribution of
state revenues to local governments, or to make them less dependent on state budget decisions, cannot be predicted. Even if
legislation increasing such redistribution is passed, it cannot be predicted whether in every instance it will provide sufficient
revenue for local municipal issuers to pay their bond obligations.
Another amendment to the state constitution may also have an adverse impact on state and municipal bond obligations. That
amendment restricts the state government from spending amounts in excess of appropriation limits imposed on each state and local
government entity. If revenues exceed the appropriation limit, one-half of those revenues must be returned, in the form of a
revision in the tax rates or fee schedules.
Voter Initiatives. California voters have approved a number of initiatives that affect the ability of the state and
municipalities to finance their bond obligations. In 1988, California voters approved Proposition 98, which requires a minimum level
of funding for public schools and community colleges.
In 1996, California voters approved Proposition 218. It requires that all taxes levied by local governments for general
purposes be approved by a simple majority of the popular vote, and that taxes levied by local governments for special purposes must
be approved by a two-thirds majority vote. Proposition 218 also limits the authority of local governments to impose property-related
assessments, fees and charges. It requires that such assessments be limited to the special benefit conferred and prohibits their use
for general governmental services.
Effect of other State Laws on Bond Obligations. Some of the tax-exempt securities that the Fund can invest in may be
obligations payable solely from the revenues of a specific institution or secured by specific properties. These are subject to
provisions of California law that could adversely affect the holders of such obligations. For example, the revenues of California
health care institutions may be adversely affected by state laws, and California law limits the remedies of a creditor secured by a
mortgage or deed of trust on real property. Debt obligations payable solely from revenues of health care institutions may also be
insured by the state but no guarantee exists that adequate reserve funds will be appropriated by the state legislature for such
purpose.
The Effect of General Economic Conditions in the state. The California economy and general financial condition
affect the ability of the state and local government to raise and redistribute revenues to assist issuers of municipal securities to
make timely payments on their obligations. California is the most populous state in the nation with a total population estimated at
34 million. California has a diverse economy, with major employment in the agriculture, manufacturing, high technology, services,
trade, entertainment and construction sectors. After experiencing strong growth throughout much of the 1980s, from 1990-1993 the
state suffered through a severe recession, the worst since the 1930's, heavily influenced by large cutbacks in defense/aerospace
industries, military base closures and a major drop in real estate construction. The recession reduced state revenues while its
health and welfare costs were increasing. Consequently, the state had a lengthy period of budget imbalance. During the recession, the
state legislature eliminated significant components of its aid to local government.
With the end of the recession, the state's financial condition has improved, with a combination of better than expected
revenues, slowdown in growth of social welfare programs, and continued spending restraint. The accumulated budget deficit from the
recession years has been eliminated and no deficit borrowing has occurred at the end of the last five fiscal years. The state has
also increased aid to local governments and reduced certain mandates for local services.
In mid-2000, wholesale electricity prices in California began to rise, swiftly and dramatically. Retail electricity rates
permitted to be charged by California's investor-owned utilities ("IOU') had previously been frozen by California law. The resulting
shortfall between revenues and costs adversely affected the creditworthiness of the IOUs and their ability to purchase electricity.
In the face of those difficulties and serious shortages of electricity, the Governor proclaimed a state of emergency to exist in
California and directed the Department of Water Resources ("DWR") to enter into contracts and arrangements for the purchase and sale
of electric power using advances from the state's General Fund, as necessary to assist in mitigating the effects of the emergency.
The DWR's power supply program is designed to cover the shortfall between the amount of electricity required by retail electric
customers of California's IOUs and the amount of electricity produced by the IOUs and purchased by the IOUs under existing contracts.
Between January 17, 2001 and October 15, 2001, DWR committed approximately $11.3 billion under the power supply program. DWR
has announced plans to issue approximately $12.5 billion in revenue bonds to purchase electricity, which would be repaid over time by
ratepayers. Neither the faith and credit nor the taxing power of the state will be pledged to pay the revenue bonds. The timing of
the DWR bond sales is dependent on action by the California Public Utilities Commission and other factors, including potential legal
challenges. Although this crisis has moderated in the past few months, the State Department of Finance believes that short-and
long-term business investment and location decisions may be adversely affected by the energy crisis.
Although California's growth continues to outpace the nation, the early months of 2001 revealed a significant moderation in
the state's economic growth. The May 2001-02 Revision published by a Legislative Analyst's Office disclosed a reversal of the recent
General Fund financial trend as a result of the slowdown in economic growth in the state starting in the first quarter of 2001 and
most particularly the steep drop in market levels since early 2000.
Certain of the state's significant industries, such as high technology, are sensitive to economic disruptions in their
export markets and the state's rate of economic growth, therefore, could be adversely affected by any such disruption. A significant
downturn in U.S. stock market prices could adversely affect California's economy by reducing household spending and business
investment, particularly in the important high technology sector. Moreover, a large and increasing share of the state's General Fund
revenue in the form of income and capital gains taxes is directly related to, and would be adversely affected by a significant
downturn in the performance of, the stock markets.
In addition, it is impossible to predict the time, magnitude or location of a major earthquake or its effect on the
California economy. In January 1994, a major earthquake struck the Los Angeles area, causing significant damage in a four county
area. The possibility exists that another such earthquake could create a major dislocation of the California economy and
significantly affect state and local government budgets.
On July 26, 2001, the Governor signed the 2001 Budget Act enacting the state's fiscal year 2001-02 budget. The spending plan
projects General Fund revenues of $75.1 billion, a drop of $2.9 billion from revised 2000-01 estimates. The 2001 Budget Act includes
General Fund expenditures of $78.8 billion, a reduction of $1.3 billion from the prior year, which could be accomplished without
serious program cuts because such a large part of the 2000 Budget Act was comprised of one-time expenditures. The 2001 Budget Act
also includes Special Fund expenditures of $21.3 billion and Bond Fund expenditures of $3.2 billion. The Governor held back $500
million as a set aside for litigation costs and vetoed almost $500 million in General Fund expenditures from the Budget passed by the
legislature.
The state issued approximately $5.7 billion of revenue anticipation notes on October 4, 2001 as part of its cash management
program. The Department of Finance estimated in the 2001 Budget Act that the June 30, 2001 Special Fund for Economic Uncertainties
("SFEU") balance, the budget reserve, will be approximately $6.3 billion, although this reserve has been virtually entirely used to
provide advances to support the DWR power purchase program. The 2001 Budget Act uses more than half of the budget surplus as of June
30, 2001, but has a projected balance in the SFEU at June 30, 2002 of $2.6 billion. The 2001 Budget Act assumes the $6.1 billion
advanced by the General Fund to the Department of Water Resources for power purchases will be repaid with interest.
Since the enactment of the 2001 Budget Act, the Governor has signed into law several spending bills or tax credits totaling
an estimated $110 million for the General Fund for 2001-02, which would in the absence of offsetting expenditure reductions reduce
the budgeted reserve in the SFEU of $2.6 billion. In preparing the 2002-03 Proposed Budget, the Governor has informed all State
agencies (other than public safety activities and other mandatory expenditures) to prepare 15% reduction proposals.
The terrorist attacks of September 11, 2001 have resulted in increased uncertainty regarding the economic outlook of the
State. Past experience suggests that shocks to American society of far lesser severity have resulted in a temporary loss in consumer
and business confidence and a reduction in the rate of economic growth. With the U.S. economy already on the edge of recession before
the attacks, a downturn in the economy in now a distinct possibility, with a corresponding reduction in state General Fund revenues
which has already started to appear before September 11, 2001. It is not possible at this time to project how much the state's
economy may be further affected as a result of the attacks. The most recent economic report form the Department of Finance, issued in
October 2001, excludes any impact from the September 11 attacks.
During the recession the state experienced reductions in the overall credit ratings assigned to its General Obligation bonds
by several major rating agencies. In July 1994, the ratings of those bonds were downgraded from Aa to A1 by Xxxxx'x, from A+ to A by
Standard & Poor's and from AA to A by Fitch, the international rating agency. The state's improved economy and budget, however, have
resulted in several upgrades in its general obligation bond ratings. Worsening economic conditions, in combination with the energy
crises, have resulted in downgrades in calendar 2001. As of November 7, 2001, the state's general obligation bonds were rated Aa3 by
Xxxxx'x, A+ by Standard & Poor's, and AA by Fitch. It is not presently possible to determine whether, or the extent to which,
Xxxxx'x S&P or Fitch will change such ratings in the future. It should be noted that the creditworthiness of obligations issued by
local California issuers may be unrelated to the creditworthiness of obligations issued by the state, and there is no obligation on
the part of the state to make payment on such local obligations in the event of default.
Financial Problems of Local Governments. It is not possible to predict the future impact of the voter initiatives.
State constitutional amendments, legislation or economic considerations described above, or of such initiatives, amendments or
legislation that may be enacted in the future, on the long-term ability of California municipal issuers to pay interest or repay
principal on their obligations. There is no assurance that any California issuer will make full or timely payments of principal or
interest or remain solvent. For example, in December 1994, Orange County, California, together with its pooled investment funds,
which included investment funds from other local governments, filed for bankruptcy. The County has since emerged from bankruptcy.
Los Angeles County, the nation's largest county, in the recent past has also experienced financial difficulty and its financial
condition will continue to be affected by the large number of County residents who are dependent on government services and by a
structural deficit in its health department. Moreover, California's improved economy has caused Los Angeles County, and other local
governments, to come under increased pressure from public employee unions for improved compensation and retirement benefits.
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.
|X| Floating Rate and Variable Rate Obligations. Variable rate demand obligations have a demand feature that allows the
Fund to tender the obligation to the issuer or a third party prior to its maturity. The tender may be at par value plus accrued
interest, according to the terms of the obligations.
The interest rate on a floating rate demand note is based on a stated prevailing market rate, such as a bank's prime rate,
the 91-day U.S. Treasury Xxxx rate, or some other standard, and is adjusted automatically each time such rate is adjusted. The
interest rate on a variable rate demand note is also based on a stated prevailing market rate but is adjusted automatically at
specified intervals of not less than one year. Generally, the changes in the interest rate on such securities reduce the fluctuation
in their market value. As interest rates decrease or increase, the potential for capital appreciation or depreciation is less than
that for fixed-rate obligations of the same maturity. The Manager may determine that an unrated floating rate or variable rate demand
obligation meets the Fund's quality standards by reason of being backed by a letter of credit or guarantee issued by a bank that
meets those quality standards.
Floating rate and variable rate demand notes that have a stated maturity in excess of one year may have features that permit
the holder to recover the principal amount of the underlying security at specified intervals not exceeding one year and upon no more
than 30 days' notice. The issuer of that type of note normally has a corresponding right in its discretion, after a given period, to
prepay the outstanding principal amount of the note plus accrued interest. Generally the issuer must provide a specified number of
days' notice to the holder.
|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" basis. "When-issued" or "delayed-delivery" refers to securities whose terms
and indenture are available and for which a market exists, but which are not available for immediate delivery.
When such transactions are negotiated the price (which is generally expressed in yield terms) is fixed at the time the
commitment is made. Delivery and payment for the securities take place at a later date. Normally the settlement date is within six
months of the purchase of municipal bonds and notes. However, the Fund may, from time to time, purchase municipal securities having
a settlement date more than six months and possibly as long as two years or more after the trade date. The securities are subject to
change in value from market fluctuation during the settlement period. The value at delivery may be less than the purchase price. For
example, changes in interest rates in a direction other than that expected by the Manager before settlement will affect the value of
such securities and may cause loss to the Fund.
The Fund will engage in when-issued transactions in order to secure what is considered to be an advantageous price and yield
at the time of entering into the obligation. When the Fund engages in when-issued or delayed-delivery transactions, it relies on the
buyer or seller, as the case may be, to complete the transaction. Their failure to do so may cause the Fund to lose the opportunity
to obtain the security at a price and yield it considers advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it does so for the purpose of acquiring or selling
securities consistent with its investment objective and policies for its portfolio or for delivery pursuant to options contracts it
has entered into, and not for the purposes of investment leverage. Although the Fund will enter into when-issued or delayed-delivery
purchase transactions to acquire securities, the Fund may dispose of a commitment prior to settlement. If the Fund chooses to
dispose of the right to acquire a when-issued security prior to its acquisition or to dispose of its right to deliver or receive
against a forward commitment, it may incur a gain or loss.
At the time the Fund makes a commitment to purchase or sell a security on a when-issued or forward commitment basis, it
records the transaction on its books and reflects the value of the security purchased. In a sale transaction, it records the
proceeds to be received, in determining its net asset value. The Fund will identify on its books liquid securities 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 to five
days of the purchase. Repurchase agreements having a maturity beyond seven days are subject to the Fund's limits on holding illiquid
investments. There is no limit on the amount of the Fund's net assets that may be subject to repurchase agreements of seven days or
less.
Repurchase agreements, considered "loans" under the Investment Company Act of 1940 (the "Investment Company Act"), are
collateralized by the underlying security. The Fund's repurchase agreements require that at all times while the repurchase agreement
is in effect, the collateral's value must equal or exceed the repurchase price to fully collateralize the repayment obligation.
Additionally, the Manager will impose creditworthiness requirements to confirm that the vendor is financially sound and will
continuously monitor the collateral's value. However, if the vendor fails to pay the resale price on the delivery date, the Fund may
incur costs in disposing of the collateral and may experience losses if there is any delay in its ability to do so. The Manager will
monitor the vendor's creditworthiness to confirm that the vendor is financially sound and will continuously monitor the collateral's
value.
|X| Illiquid Securities. The Fund has percentage limitations that apply to purchases of illiquid securities, as stated in
the Prospectus. As a matter of fundamental policy, the Fund cannot purchase any securities that are subject to restrictions on
resale.
|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 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 may:
|_| sell interest rate futures or municipal bond index futures,
|_| buy puts on such futures or securities, or
|_| write covered calls on securities, broadly-based municipal bond indices, interest rate futures or municipal bond index
futures. Covered calls may also be written on debt securities to attempt to increase the Fund's income, but that income
would not be tax-exempt. Therefore it is unlikely that the Fund would write covered calls for that purpose.
The Fund may also use hedging to establish a position in the debt securities market as a temporary substitute for purchasing
individual debt securities. In that case the Fund will normally seek to purchase the securities, and then terminate that hedging
position. For this type of hedging, the Fund may:
|_| buy interest rate futures or municipal bond index futures, or
|_| buy calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is permitted to use them in the Manager's discretion,
as described below. The Fund's strategy of hedging with futures and options on futures will be incidental to the Fund's investment
activities in the underlying cash market. The particular hedging instruments the Fund can use are described below. The Fund may
employ new hedging instruments and strategies when they are developed, if those investment methods are consistent with the Fund's
investment objective and are permissible under applicable regulations governing the Fund.
|_| Futures. The Fund may buy and sell futures contracts relating to debt securities (these are called "interest rate
futures") and municipal bond indices (these are referred to as "municipal bond index futures").
An interest rate future obligates the seller to deliver (and the purchaser to take) cash or a specific type of debt security
to settle the futures transaction. Either party could also enter into an offsetting contract to close out the futures position.
A "municipal bond index" assigns relative values to the municipal bonds in the index, and is used as the basis for trading
long-term municipal bond futures contracts. Municipal bond index futures are similar to interest rate futures except that settlement
is made only in cash. The obligation under the contract may also be satisfied by entering into an offsetting contract. The
strategies which the Fund employs in using municipal bond index futures are similar to those with regard to interest rate futures.
Upon entering into a futures transaction, the Fund will be required to deposit an initial margin payment in cash or U.S.
Government securities with the futures commission merchant (the "futures broker"). Initial margin payments will be deposited with
the Fund's custodian bank in an account registered in the futures broker's name. However, the futures broker can gain access to that
account only under certain specified conditions. As the future is marked to market (that is, its value on the Fund's books is
changed) to reflect changes in its market value, subsequent margin payments, called variation margin, will be paid to or by the
futures broker daily.
At any time prior to the expiration of the future, the Fund may elect to close out its position by taking an opposite
position at which time a final determination of variation margin is made and additional cash is required to be paid by or released to
the Fund. Any gain or loss is then realized by the Fund on the future for tax purposes. Although Interest Rate Futures by their
terms call for settlement by the delivery of debt securities, in most cases the obligation is fulfilled without such delivery by
entering into an offsetting transaction. All futures transactions are effected through a clearing house associated with the exchange
on which the contracts are traded.
The Fund may concurrently buy and sell futures contracts in a strategy anticipating that the future the Fund purchased will
perform better than the future the Fund sold. For example, the Fund might buy municipal bond futures and concurrently sell U.S.
Treasury Bond futures (a type of interest rate future). The Fund would benefit if municipal bonds outperform U.S. Treasury Bonds on
a duration-adjusted basis.
Duration is a volatility measure that refers to the expected percentage change in the value of a bond resulting from a
change in general interest rates (measured by each 1% change in the rates on U.S. Treasury securities). For example, if a bond has
an effective duration of three years, a 1% increase in general interest rates would be expected to cause the value of the bond to
decline about 3%. There are risks that this type of futures strategy will not be successful. U.S. Treasury bonds might perform
better on a duration-adjusted basis than municipal bonds, and the assumptions about duration that were used might be incorrect (in
this case, the duration of municipal bonds relative to U.S. Treasury Bonds might have been greater than anticipated).
|_| Put and Call Options. The Fund may buy and sell certain kinds of put options (puts) and call options (calls). These
strategies are described below.
|_| Writing Covered Call Options. The Fund may write (that is, sell) call options. The Fund's call writing is subject to a
number of restrictions:
(1) After the Fund writes a call, not more than 25% of the Fund's total assets may be subject to calls.
(2) Calls the Fund sells must be listed on a securities or commodities exchange or quoted on NASDAQ, the automated quotation
system of The Nasdaq Stock Market, Inc. or traded in the over-the-counter market.
(3) Each call the Fund writes must be "covered" while it is outstanding. That means the Fund must own the investment on which
the call was written.
(4) The Fund may write calls on futures contracts whether or not it owns them.
When the Fund writes a call on a security, it receives cash (a premium).The Fund agrees to sell the underlying investment to
a purchaser of a corresponding call on the same security during the call period at a fixed exercise price regardless of market price
changes during the call period. The call period is usually not more than nine months. The exercise price may differ from the market
price of the underlying security. The Fund has retained the risk of loss that the price of the underlying security may decline during
the call period. That risk may be offset to some extent by the premium the Fund receives. If the value of the investment does not
rise above the call price, it is likely that the call will lapse without being exercised. In that case the Fund would keep the cash
premium and the investment.
The Fund's custodian bank, or a securities depository acting for the custodian bank, will act as the Fund's escrow agent
through the facilities of the Options Clearing Corporation ("OCC"), as to the investments on which the Fund has written calls traded
on exchanges, or as to other acceptable escrow securities. In that way, no margin will be required for such transactions. OCC will
release the securities on the expiration of the calls or upon the Fund's entering into a closing purchase transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter into an arrangement with a primary U.S. Government
securities dealer which will establish a formula price at which the Fund will have the absolute right to repurchase that OTC option.
The formula price would generally be based on a multiple of the premium received for the option, plus the amount by which the option
is exercisable below the market price of the underlying security (that is, the option is "in-the-money"). When the Fund writes an OTC
option, it will treat as illiquid (for purposes of its restriction on illiquid securities) the xxxx-to-market value of any OTC option
held by it, unless the option is subject to a buy-back agreement by the executing broker. The Securities and Exchange Commission is
evaluating whether OTC options should be considered liquid securities. The procedure described above could be affected by the outcome
of that evaluation.
To terminate its obligation on a call it has written, the Fund may purchase a corresponding call in a "closing purchase
transaction." The Fund will then realize a profit or loss, depending upon whether the net of the amount of the option transaction
costs and the premium received on the call the Fund wrote was more or less than the price of the call the Fund purchased to close out
the transaction. A profit may also be realized if the call lapses unexercised, because the Fund retains the underlying investment
and the premium received. Any such profits are considered short-term capital gains for federal tax purposes, as are premiums on
lapsed calls. When distributed by the Fund they are taxable as ordinary income.
The Fund may also write calls on futures contracts without owning the futures contract or securities deliverable under the
contract. To do so, at the time the call is written, the Fund must cover the call by segregating in escrow an equivalent dollar
value of liquid assets. The Fund will segregate additional liquid assets if the value of the escrowed assets drops below 100% of the
current value of the future. Because of this escrow requirement, in no circumstances would the Fund's receipt of an exercise notice
as to that future put the Fund in a "short" futures position.
|_| Purchasing Calls and Puts. The Fund may buy calls only on securities, broadly-based municipal bond indices, municipal
bond index futures and interest rate futures. It may also buy calls to close out a call it has written, as discussed above. Calls the
Fund buys must be listed on a securities or commodities exchange, or quoted on NASDAQ, or traded in the over-the-counter market. A
call or put option may not be purchased if the purchase would cause the value of all the Fund's put and call options to exceed 5% of
its total assets.
When the Fund purchases a call (other than in a closing purchase transaction), it pays a premium. For calls on securities
that the Fund buys, it has the right to buy the underlying investment from a seller of a corresponding call on the same investment
during the call period at a fixed exercise price. The Fund benefits only if (1) the call is sold at a profit or (2) the call is
exercised when the market price of the underlying investment is above the sum of the exercise price plus the transaction costs and
premium paid for the call. If the call is not either exercised or sold (whether or not at a profit), it will become worthless at its
expiration date. In that case the Fund will lose its premium payment and the right to purchase the underlying investment.
Calls on municipal bond indices, interest rate futures and municipal bond index futures are settled in cash rather than by
delivering the underlying investment. Gain or loss depends on changes in the securities included in the index in question (and thus
on price movements in the debt securities market generally) rather than on changes in price of the individual futures contract.
The Fund may buy only those puts that relate to securities that the Fund owns, broadly-based municipal bond indices,
municipal bond index futures or interest rate futures (whether or not the Fund owns the futures). The Fund may not sell puts other
than puts it has previously purchased.
When the Fund purchases a put, it pays a premium. The Fund then has the right to sell the underlying investment to a seller
of a corresponding put on the same investment during the put period at a fixed exercise price. Puts on municipal bond indices are
settled in cash. Buying a put on a debt security, interest rate future or municipal bond index future the Fund owns enables it to
protect itself during the put period against a decline in the value of the underlying investment below the exercise price. If the
market price of the underlying investment is equal to or above the exercise price and as a result the put is not exercised or resold,
the put will become worthless at its expiration date. In that case the Fund will lose its premium payment and the right to sell the
underlying investment. A put may be sold prior to expiration (whether or not at a profit).
|_| Risks of Hedging with Options and Futures. The use of hedging instruments requires special skills and knowledge of
investment techniques that are different than what is required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly, hedging strategies may reduce the Fund's returns.
The Fund's option activities may affect its portfolio turnover rate and brokerage commissions. The exercise of calls
written by the Fund may cause the Fund to sell related portfolio securities, thus increasing its turnover rate. The exercise by the
Fund of puts on securities will cause the sale of underlying investments, increasing portfolio turnover. Although the decision
whether to exercise a put it holds is within the Fund's control, holding a put might cause the Fund to sell the related investments
for reasons that would not exist in the absence of the put.
The Fund may pay a brokerage commission each time it buys a call or put, sells a call, or buys or sells an underlying
investment in connection with the exercise of a call or put. Such commissions may be higher on a relative basis than the commissions
for direct purchases or sales of the underlying investments. Premiums paid for options are small in relation to the market value of
the underlying investments. Consequently, put and call options offer large amounts of leverage. The leverage offered by trading in
options could result in the Fund's net asset value being more sensitive to changes in the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that has increased in value, the Fund will be required
to sell the investment at the call price. It will not be able to realize any profit if the investment has increased in value above
the call price.
There is a risk in using short hedging by selling interest rate futures and municipal bond index futures or purchasing puts
on municipal bond indices or futures to attempt to protect against declines in the value of the Fund's securities. The risk is that
the prices of such futures or the applicable index will correlate imperfectly with the behavior of the cash (that is, market) prices
of the Fund's securities. It is possible for example, that while the Fund has used hedging instruments in a short hedge, the market
may advance and the value of debt securities held in the Fund's portfolio may decline. If that occurred, the Fund would lose money
on the hedging instruments and also experience a decline in value of its debt securities. However, while this could occur over a
brief period or to a very small degree, over time the value of a diversified portfolio of debt securities will tend to move in the
same direction as the indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the Fund's portfolio diverges from the securities included
in the applicable index. To compensate for the imperfect correlation of movements in the price of debt securities being hedged and
movements in the price of the hedging instruments, the Fund may use hedging instruments in a greater dollar amount than the dollar
amount of debt securities being hedged. It might do so if the historical volatility of the prices of the debt securities being hedged
is greater than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are subject to distortions due to differences in the
natures of those markets. All participants in the futures markets are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close out futures contracts through offsetting transactions
which could distort the normal relationship between the cash and futures markets. From the point of view of speculators, the deposit
requirements in the futures markets are less onerous than margin requirements in the securities markets. Therefore, increased
participation by speculators in the futures markets may cause temporary price distortions.
The Fund may use hedging instruments to establish a position in the municipal securities markets as a temporary substitute
for the purchase of individual securities (long hedging). It is possible that the market may decline. If the Fund then concludes not
to invest in such securities because of concerns that there may be further market decline or for other reasons, the Fund will realize
a loss on the hedging instruments that is not offset by a reduction in the purchase price of the securities.
An option position may be closed out only on a market that provides secondary trading for options of the same series. There
is no assurance that a liquid secondary market will exist for a particular option. If the Fund could not effect a closing purchase
transaction due to a lack of a market, it would have to hold the callable investment until the call lapsed or was exercised.
|_| Interest Rate Swap Transactions. In an interest rate swap, the Fund and another party exchange their right to receive
or their obligation to pay interest on a security. For example, they may swap a right to receive floating rate payments for fixed
rate payments. The Fund enters into swaps only on securities it owns. The Fund may not enter into swaps with respect to more than
25% of its total assets. Also, the Fund will segregate liquid assets (such as cash or U.S. Government securities) to cover any
amounts it could owe under swaps that exceed the amounts it is entitled to receive, and it will adjust that amount daily, as needed.
Income from interest rate swaps may be taxable.
Swap agreements entail both interest rate risk and credit risk. There is a risk that, based on movements of interest rates
in the future, the payments made by the Fund under a swap agreement will have been greater than those received by it. Credit risk
arises from the possibility that the counterparty will default. If the counterparty to an interest rate swap defaults, the Fund's
loss will consist of the net amount of contractual interest payments that the Fund has not yet received. The Manager will monitor
the creditworthiness of counterparties to the Fund's interest rate swap transactions on an ongoing basis.
The Fund will enter into swap transactions with appropriate counterparties pursuant to master netting agreements. A master
netting agreement provides that all swaps done between the Fund and that counterparty under the master agreement shall be regarded as
parts of an integral agreement. If on any date amounts are payable under one or more swap transactions, the net amount payable on
that date shall be paid. In addition, the master netting agreement may provide that if one party defaults generally or on one swap,
the counterparty may terminate the swaps with that party. Under master netting agreements, if there is a default resulting in a loss
to one party, that party's damages are calculated by reference to the average cost of a replacement swap with respect to each swap.
The gains and losses on all swaps are then netted, and the result is the counterparty's gain or loss on termination. The termination
of all swaps and the netting of gains and losses on termination is generally referred to as "aggregation."
|_| Regulatory Aspects of Hedging Instruments. When using futures and options on futures, the Fund is required to operate
within certain guidelines and restrictions established by the Commodity Futures Trading Commission (the "CFTC"). In particular, the
Fund is exempted from registration with the CFTC as a "commodity pool operator" if the Fund complies with the requirements of Rule
4.5 adopted by the CFTC. That Rule does not limit the percentage of the Fund's assets that may be used for futures margin and
related options premiums for a bona fide hedging position. However, under the Rule the Fund must limit its aggregate initial futures
margin and related options premiums to no more than 5% of the Fund's net assets for hedging strategies that are not considered bona
fide hedging strategies under the Rule. Under the Rule, the Fund also must use short futures and options on futures positions solely
for bona fide hedging purposes within the meaning and intent of the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established by the option exchanges. The exchanges limit the
maximum number of options that may be written or held by a single investor or group of investors acting in concert. Those limits
apply regardless of whether the options were written or purchased on the same or different exchanges, or are held in one or more
accounts or through one or more different exchanges or through one or more brokers. Thus, the number of options that the Fund may
write or hold may be affected by options written or held by other entities, including other investment companies having the same
adviser as the Fund (or an adviser that is an affiliate of the Fund's adviser). The exchanges also impose position limits on futures
transactions. An exchange may order the liquidation of positions found to be in violation of those limits and may impose certain
other sanctions.
Under the Investment Company Act, when the Fund purchases an interest rate future or municipal bond index future, it must
maintain cash or readily marketable short-term debt instruments in an amount equal to the market value of the investments underlying
the future, less the margin deposit applicable to it. The account must be a segregated account or accounts held by its custodian
bank.
|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.
Portfolio Turnover. A change in the securities held by the Fund from buying and selling investments is known as "portfolio
turnover." Short-term trading increases the rate of portfolio turnover and could increase the Fund's transaction costs. However,
the Fund ordinarily incurs little or no brokerage expense because most of the Fund's portfolio transactions are principal trades that
do not require payment of brokerage commissions.
The Fund ordinarily does not trade securities to achieve short-term capital gains, because they would not be tax-exempt
income. To a limited degree, the Fund may engage in short-term trading to attempt to take advantage of short-term market
variations. It may also do so to dispose of a portfolio security prior to its maturity. That might be done if, on the basis of a
revised credit evaluation of the issuer or other considerations, the Fund believes such disposition advisable or it needs to generate
cash to satisfy requests to redeem Fund shares. In those cases, the Fund may realize a capital gain or loss on its investments. The
Fund's annual portfolio turnover rate normally is not expected to exceed 100%.
|X| Taxable Investments. While the Fund can invest up to 20% of its total assets in investments that generate income subject
to income taxes, it does not anticipate investing substantial amounts of its assets in taxable investments under normal market
conditions or as part of its normal trading strategies and policies. To the extent it invests in taxable securities, the Fund would
not be able to meet its objective of providing tax exempt income to its shareholders. Taxable investments include, for example,
hedging instruments, repurchase agreements, and the types of securities the Fund 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.
o Does the Fund Have Additional Fundamental Policies? The following investment restrictions are fundamental policies of the
Fund:
|_| The Fund cannot invest in securities or other investments other than municipal securities, the temporary investments
described in its Prospectus, repurchase agreements, covered calls, private activity municipal securities and hedging instruments
described in "About the Fund" in the Prospectus or this Statement of Additional Information.
|_| The Fund cannot make loans. However, repurchase agreements and the purchase of debt securities in accordance with the
Fund's other investment policies and restrictions are permitted. The Fund may also lend its portfolio securities as described in
"Loans of Portfolio Securities."
|_| The Fund cannot borrow money in excess of 10% of the value of its total assets. It cannot buy any additional investments
when borrowings exceed 5% of its assets. The Fund may borrow only from banks as a temporary measure for extraordinary or emergency
purposes, and not for the purpose of leveraging its investments.
|_| The Fund cannot pledge, mortgage or otherwise encumber, transfer or assign its assets to secure a debt. However, the use
of escrow or other collateral arrangements in connection with hedging instruments is permitted.
|_| The Fund cannot concentrate its investments to the extent of 25% of its total assets in any industry. However, there is
no limitation as to the Fund's investments in municipal securities in general or in California municipal securities, or in
obligations issued by the U.S. Government and its agencies or instrumentalities.
|_| The Fund cannot invest in real estate. This restriction shall not prevent the Fund from investing in municipal
securities or other permitted securities that are secured by real estate or interests in real estate.
|_| The Fund cannot purchase securities other than hedging instruments on margin. However, the Fund may obtain such
short-term credits that may be necessary for the clearance of purchases and sales of securities.
|_| The Fund cannot sell securities short.
|_| The Fund cannot underwrite securities or invest in securities that are subject to restrictions on resale.
|_| The Fund cannot invest in or hold securities of any issuer if officers and Trustees of the Fund or the Manager
individually beneficially own more than 1/2 of 1% of the securities of that issuer and together own more than 5% of the securities of
that issuer.
|_| The Fund cannot invest in securities of any other investment company, except in connection with a merger with another
investment company.
|_| The Fund cannot buy or sell futures contracts other than interest rate futures and municipal bond index futures.
The Fund currently has an operating policy (which is not a fundamental policy but will not be changed without the approval
of a shareholder vote) that prohibits the Fund from issuing senior securities. However, the policy does not prohibit certain
activities that are permitted by the Fund's other policies, including borrowing money for emergency purposes as permitted by its
other investment policies and applicable regulations, entering into delayed-delivery and when-issued arrangements for portfolio
securities transactions, and entering into contracts to buy or sell derivatives, hedging instruments, options, futures and the
related margin, collateral or escrow arrangements permitted under its other investment policies.
Unless the Prospectus or Statement of Additional Information states that a percentage restriction applies on an ongoing
basis, it applies only at the time the Fund makes an investment. In that case the Fund need not sell securities to meet the
percentage limits if the value of the investment increases in proportion to the size of the Fund.
Non-Diversification of the Fund's Investments. The Fund is "non-diversified" as defined in the Investment Company Act. Funds that
are diversified have restrictions against investing too much of their assets in the securities of any one "issuer." That means that
the Fund can invest more of its assets in the securities of a single issuer than a fund that is diversified.
Being non-diversified poses additional investment risks, because if the Fund invests more of its assets in fewer issuers,
the value of its shares is subject to greater fluctuations from adverse conditions affecting any one of those issuers. However, the
Fund does limit its investments in the securities of any one issuer to qualify for tax purposes as a "regulated investment company"
under the Internal Revenue Code. By qualifying, it does not have to pay federal income taxes if more than 90% of its earnings are
distributed to shareholders. To qualify, the Fund must meet a number of conditions. First, not more than 25% of the market value of
the Fund's total assets may be invested in the securities of a single issuer. Second, with respect to 50% of the market value of its
total assets, (1) no more than 5% of the market value of its total assets may be invested in the securities of a single issuer, and
(2) the Fund must not own more than 10% of the outstanding voting securities of a single issuer.
The identification of the issuer of a municipal security depends on the terms and conditions of the security. When the
assets and revenues of an agency, authority, instrumentality or other political subdivision are separate from those of the government
creating it and the security is backed only by the assets and revenues of the subdivision, agency, authority or instrumentality, the
latter would be deemed to be the sole issuer. Similarly, if an industrial development bond is backed only by the assets and revenues
of the non-governmental user, then that user would be deemed to be the sole issuer. However, if in either case the creating
government or some other entity guarantees a security, the guarantee would be considered a separate security and would be treated as
an issue of such government or other entity.
Applying the Restriction Against Concentration. To implement its policy not to concentrate its investments, the Fund has adopted the
industry classifications set forth in Appendix B to this Statement of Additional Information. Those industry classifications are not
a fundamental policy.
In implementing the Fund's policy not to concentrate its investments, the Manager will consider a non-governmental user of
facilities financed by industrial development bonds as being in a particular industry. That is done even though the bonds are
municipal securities, as to which the Fund has no concentration limitation. Although this application of the concentration
restriction is not a fundamental policy of the Fund, it will not be changed without shareholder approval.
How the Fund Is Managed
Organization and History. The Fund is an open-end, diversified management investment company with an unlimited number of authorized
shares of beneficial interest. The Fund was organized as a Massachusetts business trust in July 1988.
The Fund is governed by a Board of Trustees, which is responsible for protecting the interests of shareholders under
Massachusetts law. The Trustees meet periodically throughout the year to oversee the Fund's activities, review its performance, and
review the actions of the Manager. Although the Fund will not normally hold annual meetings of its shareholders, it may hold
shareholder meetings from time to time on important matters, and shareholders have the right to call a meeting to remove a Trustee or
to take other action described in the Fund's Declaration of Trust.
|_| Classes of Shares. The Board of Trustees has the power, without shareholder approval, to divide unissued shares of the
Fund into two or more classes. The Board has done so, and the Fund currently has three classes of shares, Class A, Class B and Class
C. All classes invest in the same investment portfolio.
ohas its own dividends and distributions,
opays certain expenses which may be different for the different classes,
omay have a different net asset value,
omay have separate voting rights on matters in which the interests of one class are different from the interests of another
class, and
ovotes as a class on matters that affect that class alone.
|_| Meetings of Shareholders. As a Massachusetts business trust, the Fund is not required to hold, and does not plan to
hold, regular annual meetings of shareholders. The Fund will hold meetings when required to do so by the Investment Company Act or
other applicable law. It will also do so when a shareholder meeting is called by the Trustees or upon proper request of the
shareholders.
Shareholders have the right, upon the declaration in writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to vote on the removal of a Trustee upon the written request of
the record holders of 10% of its outstanding shares. If the Trustees receive a request from at least 10 shareholders stating that
they wish to communicate with other shareholders to request a meeting to remove a Trustee, the Trustees will then either make the
Fund's shareholder list available to the applicants or mail their communication to all other shareholders at the applicants' expense.
The shareholders making the request must have been shareholders for at least six months and must hold shares of the Fund valued at
$25,000 or more or constituting at least 1% of the Fund's outstanding shares, whichever is less. The Trustees may also take other
action as permitted by the Investment Company Act.
|_| Shareholder and Trustee Liability. The Fund's Declaration of Trust contains an express disclaimer of shareholder or
Trustee liability for the Fund's obligations. It also provides for indemnification and reimbursement of expenses out of the Fund's
property for any shareholder held personally liable for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any act or obligation of the Fund and shall satisfy any
judgment on that claim. Massachusetts law permits a shareholder of a business trust (such as the Fund) to be held personally liable
as a "partner" under certain circumstances. However, the risk that a Fund shareholder will incur financial loss from being held
liable as a "partner" of the Fund is limited to the relatively remote circumstances in which the Fund would be unable to meet its
obligations.
The Fund's contractual arrangements state that any person doing business with the Fund (and each shareholder of the Fund)
agrees under its Declaration of Trust to look solely to the assets of the Fund for satisfaction of any claim or demand that may arise
out of any dealings with the Fund. Additionally, the Trustees shall have no personal liability to any such person, to the extent
permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their principal occupations and business affiliations and
occupations during the past five years are listed below. Trustees denoted with an asterisk (*) below are deemed to be "interested
persons" of the Fund under the Investment Company Act. All of the Trustees are Trustees or Directors of the following New York-based
Xxxxxxxxxxx funds:1
Xxxxxxxxxxx California Municipal Fund Xxxxxxxxxxx Money Market Fund, Inc.
Xxxxxxxxxxx Capital Appreciation Fund Xxxxxxxxxxx Multiple Strategies Fund
Xxxxxxxxxxx Capital Preservation Fund Xxxxxxxxxxx Multi-Sector Income Trust
Xxxxxxxxxxx Concentrated Growth Fund Xxxxxxxxxxx Multi-State Municipal Trust
Xxxxxxxxxxx Developing Markets Fund Xxxxxxxxxxx Municipal Bond Fund
Xxxxxxxxxxx Discovery Fund Xxxxxxxxxxx New York Municipal Fund
Xxxxxxxxxxx Emerging Growth Fund Xxxxxxxxxxx Rochester National Municipals
Xxxxxxxxxxx Emerging Technologies Fund Xxxxxxxxxxx Series Fund, Inc.
Xxxxxxxxxxx Enterprise Fund Xxxxxxxxxxx Special Value Fund
Xxxxxxxxxxx Europe Fund Xxxxxxxxxxx U.S. Government Trust
Xxxxxxxxxxx Global Fund Xxxxxxxxxxx Trinity Core Fund
Xxxxxxxxxxx Global Growth & Income Fund Xxxxxxxxxxx Trinity Large Cap Growth Fund
Xxxxxxxxxxx Gold & Special Minerals Fund Xxxxxxxxxxx Trinity Value Fund
Xxxxxxxxxxx Growth Fund
Xxxxxxxxxxx International Growth Fund
Xxxxxxxxxxx International Small Company Fund
Messrs. Spiro, Murphy, Wixted, Zack, Molleur, Bishop, Farrar, and Xx. Xxxx and Xxxx respectively hold the same offices with
the other New York-based Xxxxxxxxxxx funds as with the Fund. As of November 5, 2001, 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 Xx. Xxxxxx is a trustee of that plan.
Xxxx Xxxx, Chairman of the Board of Trustees, Age: 76
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, XX 00000
General Partner of Odyssey Partners, L.P. (investment partnership) (since 1982) and Chairman of Avatar Holdings, Inc. (real estate
development).
Xxxxxx X. Xxxxx, Trustee, Age: 68
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, XX 00000
A Trustee or Director of other Xxxxxxxxxxx funds. Formerly he held the following positions: Vice Chairman of the Manager,
OppenheimerFunds, Inc. (October 1995 - December 1997); Executive Vice President of the Manager (December 1977 - October 1995);
Executive Vice President and a director (April 1986 - October 1995) of HarbourView Asset Management Corporation, an investment
advisor subsidiary of the Manager.
Xxxxxxx X. Xxxxxxxxx, Trustee, Age: 63
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, XX 00000
The Director of the Institute for Advanced Study, Princeton, N.J. (since 1991) and a member of the National Academy of Sciences
(since 1979); formerly a director of Bankers Trust Corporation (1994 through June, 1999), Xxxxxxx and Professor of Mathematics at
Duke University (1983 - 1991), a director of Research Triangle Institute, Raleigh, N.C. (1983 - 1991), and a Professor of Mathematics
at Harvard University (1972 - 1983).
Xxxxxxxx Xxxxxxxx, Trustee, Age: 78
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, XX 00000
Professor Emeritus of Marketing, Xxxxx Graduate School of Business Administration, New York University.
Xxxx X. Xxxxxx*, President and Trustee; Age: 52.
000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000
Chairman and Chief Executive Officer and director (since July 2001) and President (since August 2000) of the Manager; President and a
trustee of other Xxxxxxxxxxx funds; President and a director (since July 2001) of Xxxxxxxxxxx Acquisition Corp., the Manager's parent
holding company; President, Chief Executive Officer and a director (since July 2001) of OFI Private Investments, Inc., an investment
adviser subsidiary of the Manager; Chairman and a director (since July 2001) of Shareholder Services, Inc. and of Shareholder
Financial Services, Inc., transfer agent subsidiaries of the Manager; President and a director (since July 2001) of Xxxxxxxxxxx
Partnership Holdings, Inc., a holding company subsidiary of the Manager; a director of HarbourView Asset Management Corporation and
of Xxxxxxxxxxx Real Asset Management, Inc. (since July 2001), investment adviser subsidiaries of the Manager; President and a
director (since July 2001) of OppenheimerFunds Legacy Program, a charitable trust program established by the Manager; Chief Operating
Officer (August 2000 - July 2001) of the Manager; Executive Vice President of MassMutual Financial Group (from 1995 to 1997);
Executive Vice President and Chief Operating Officer of Xxxxx X. Xxxxxx & Company (from 1995 to 1997), an investment advisor; Chief
Operating Officer of Concert Capital Management, Inc. (from 1993 to 1996), an investment advisor.
Xxxxxxxxx X. Xxxxxxxx, Trustee, Age: 72
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, XX 00000
Author and architectural historian; a trustee of the Xxxxx 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.
Xxxxxxx X. Xxxxxxx, Trustee, Age: 74
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, XX 00000
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.
Xxxxxx X. Xxxxx, Trustee, Age: 71
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, XX 00000
Chairman of Municipal Assistance Corporation for the City of New York; Senior Fellow of Xxxxxx Xxxx Economics Institute, Bard
College; a director of RBAsset (real estate manager); a director of OffitBank; Trustee, Financial Accounting Foundation (FASB and
GASB); formerly New York State Comptroller and trustee, New York State and Local Retirement Fund.
Xxxxxxx X. Xxxxxxxx, Xx., Trustee, Age: 69
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, XX 00000
Chairman of The Directorship Group, Inc. (corporate governance consulting and executive recruiting); a director of Professional Staff
Limited (a U.K. temporary staffing company); a life trustee of International House (non-profit educational organization), and a
trustee of the Greenwich Historical Society.
Xxxxxx X. Xxxxx, Vice Chairman and Trustee, Age: 75
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, XX 00000
A Trustee of other Xxxxxxxxxxx Funds. Formerly he held the following positions: Chairman Emeritus (August 1991 - August 1999),
Chairman (November 1987 - January 1991) and a director (January 1969 - August 1999) of the Manager; President and Director of the
Distributor (July 1978 - January 1992).
Xxxxxxx X. Xxxxxxx, Trustee, Age: 69
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, XX 00000
Of Counsel, Xxxxx & Xxxxxxx (a law firm); a director of Zurich Financial Services (financial services), Zurich Allied AG and Allied
Zurich p.l.c. (insurance investment management); Caterpillar, Inc. (machinery), ConAgra, Inc. (food and agricultural products),
Farmers Insurance Company (insurance), FMC Corp. (chemicals and machinery) and Texas Instruments, Inc. (electronics); formerly (in
descending chronological order), Counsellor to the President (Xxxx) for Domestic Policy, Chairman of the Republican National
Committee, Secretary of the U.S. Department of Agriculture, U.S. Trade Representative.
Xxxxx X. Xxxxxx, Vice President and Portfolio Manager, Age: 51
000 Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000
Senior Vice President, Senior Investment Officer and Director of the Fixed Income Department of the Manager (since February 1996) and
Senior Vice President of HarbourView Asset Management Corporation (since May 1999); before joining the Manager in February 1996, he
was had been Vice-President and portfolio manager with Prudential Investment Corporation since November 1990.
Merrell Hora, Vice President and Portfolio Manager, Age: 33.
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, XX 00000.
Assistant Vice President of the Manager (since July 1998); Portfolio Manager of the Manager
since August 2000, Senior Quantitative Analyst for the Manager's Fixed Income Department's Quantitative Analysis Team from July 1998
until 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 was a teaching assistant, instructor and research assistant at the University of
Minnesota from which he obtained his Ph.D. in Economics.
Xxxxxx X. Xxxxxx, Assistant Treasurer, Age: 42
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
Vice President of the Manager/Mutual Fund Accounting (since May 1996); an officer of other Xxxxxxxxxxx funds; formerly an Assistant
Vice President of the Manager/Mutual Fund Accounting (April 1994 - May 1996), and a Fund Controller for the Manager.
Xxxxx X. Xxxxxx, Assistant Treasurer, Age: 36
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant Treasurer of Xxxxxxxxxxx Millennium Funds plc (since
October 1997); an officer of other Xxxxxxxxxxx Funds; formerly an Assistant Vice President of the Manager/Mutual Fund Accounting
(April 1994 - May 1996), and a Fund Controller for the Manager.
Xxxxx X. Xxxxxx, Treasurer, Age: 42
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
Senior Vice President and Treasurer (since April 1999) of the Manager; Treasurer of HarbourView Asset Management Corporation,
Shareholder Services, Inc., Shareholder Financial Services, Inc. and Xxxxxxxxxxx Partnership Holdings, Inc. (since April 1999);
Assistant Treasurer of Xxxxxxxxxxx Acquisition Corp. (since April 1999); Assistant Secretary of Centennial Asset Management
Corporation (since April 1999); formerly Principal and Chief Operating Officer, Bankers Trust Company - Mutual Fund Services Division
(March 1995 - March 1999); Vice President and Chief Financial Officer of CS First Boston Investment Management Corp. (September 1991
- March 1995); and Vice President and Accounting Manager, Xxxxxxx Xxxxx Asset Management (November 1987 - September 1991).
Xxxxxx X. Xxxx, Secretary, Age: 53.
000 Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000
Acting General Counsel (since November 1, 2001), Senior Vice President (since May 1985) of the Manager; Assistant Secretary of
Shareholder Services, Inc. (since May 1985), Shareholder Financial Services, Inc. (since November 1989); OppenheimerFunds
International Ltd. and Xxxxxxxxxxx Millennium Funds plc (since October 1997); formerly Associate General Counsel (May 1981 - October
2001); an officer of other Xxxxxxxxxxx funds.
|X| Remuneration of Trustees. The officers of the Fund and one Trustee of the Fund (Xx. Xxxxxx) 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, 2001. The compensation from all of the New York-based
Xxxxxxxxxxx funds (including the Fund) was paid to the trustees for their service as a director, trustee or member of a committee of
the boards of those funds during the calendar year 2000.
------------------------------- ---------------------------- ----------------------------- ---------------------------------
Trustee/ Director Name Aggregate Compensation Retirement Total Compensation
And other Positions From Fund 1 Benefits Accrued as Part from all New York based
of Fund Expenses* Xxxxxxxxxxx Funds
(29 Funds)2
------------------------------- ---------------------------- ----------------------------- ---------------------------------
------------------------------- ---------------------------- ----------------------------- ---------------------------------
Xxxx Xxxx $13,339 $0 $171,950
Chairman
------------------------------- ---------------------------- ----------------------------- ---------------------------------
------------------------------- ---------------------------- ----------------------------- ---------------------------------
Xxxxxx X. Galli3 $5,513 $0 $191,134
Study Committee Member
------------------------------- ---------------------------- ----------------------------- ---------------------------------
------------------------------- ---------------------------- ----------------------------- ---------------------------------
Xxxxxxx Griffiths4 $5,513 $0 $59,529
------------------------------- ---------------------------- ----------------------------- ---------------------------------
------------------------------- ---------------------------- ----------------------------- ---------------------------------
Xxxxxxxx Xxxxxxxx
Study Committee Chairman, $11,530 $0 $148,639
Audit Committee Member
------------------------------- ---------------------------- ----------------------------- ---------------------------------
------------------------------- ---------------------------- ----------------------------- ---------------------------------
Xxxxxxxxx X. Xxxxxxxx
Study Committee $8,124 $0 $104,695
Member
------------------------------- ---------------------------- ----------------------------- ---------------------------------
------------------------------- ---------------------------- ----------------------------- ---------------------------------
Xxxxxxx X. Xxxxxxx $7,452 $0 $96,034
Audit Committee Member
------------------------------- ---------------------------- ----------------------------- ---------------------------------
------------------------------- ---------------------------- ----------------------------- ---------------------------------
Xxxxxx X. Xxxxx
Proxy Committee Chairman, $4,925 $0 $94,995
Audit Committee Member
------------------------------- ---------------------------- ----------------------------- ---------------------------------
------------------------------- ---------------------------- ----------------------------- ---------------------------------
Xxxxxxx X. Xxxxxxxx, Xx.
Proxy Committee $7,368 $0 $71,069
Member
------------------------------- ---------------------------- ----------------------------- ---------------------------------
------------------------------- ---------------------------- ----------------------------- ---------------------------------
Xxxxxx Xxxxx $8,124 $0 $63,435
------------------------------- ---------------------------- ----------------------------- ---------------------------------
------------------------------- ---------------------------- ----------------------------- ---------------------------------
Xxxxxxx X. Xxxxxxx $4,467 $0 $71,069
Proxy Committee
Member5
------------------------------- ---------------------------- ----------------------------- ---------------------------------
1 Aggregate compensation includes fees, deferred compensation, if any, and retirement plan benefits accrued for a
Trustee/Director.
2 For the 2000 calendar year.
3 Total Compensation for the 2000 calendar year includes compensation received for serving as trustee or director of eleven
other Xxxxxxxxxxx Funds.
4 Includes $5,513 deferred under Deferred Compensation Plan described below.
5 Includes $1,117 deferred under Deferred Compensation Plan described below.
* Trustee retirement accruals are negative $61,656 for the year. Aggregate Compensation from the Fund does not include this
amount.
|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 years of service in which the highest compensation
was received. A Trustee must serve as trustee for any of the New York-based Xxxxxxxxxxx funds for at least 15 years to be eligible
for the maximum payment. Each Trustee's retirement benefits will depend on the amount of the Trustee's future compensation and length
of service.
|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 Xxxxxxxxxxx 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 November 5, 2001, 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:
Xxxxxxx Xxxxx Xxxxxx Xxxxxx & Xxxxx, Inc., for the Sole Benefit of its Customers, Attn: Fund Admin./#97BH8, 0000 Xxxx Xxxx Xxxxx
Xxxx, Xxxxx 0, Xxxxxxxxxxxx, Xxxxxxx 00000-0000, which owned 736,901.304 Class B shared (5.70% of the Class B shares then still
outstanding), for the benefit of its customers.
Xxxxxxx Xxxxx Xxxxxx Xxxxxx & Xxxxx, Inc. for the Sole Benefit of its Customers, Attn: Fund Admin./#97HU7, 0000 Xxxx Xxxx Xxxxx Xxxx,
Xxxxx 0, Xxxxxxxxxxxx, Xxxxxxx 00000-0000, which owned 245,386.888 Class C shares, (11.89% of the Class C shares then still
outstanding), for the benefit of its customers.
The Manager. The Manager is wholly-owned by Xxxxxxxxxxx Acquisition Corp., a holding company controlled by Massachusetts Mutual Life
Insurance Company. The Manager and the Fund have a Code of Ethics. It is designed to detect and prevent improper personal trading by
certain employees, including portfolio managers, that would compete with or take advantage of the Fund's portfolio transactions.
Compliance with the Code of Ethics is carefully monitored and strictly enforced by the Manager.
The portfolio managers of the Fund are principally responsible for the day-to-day management of the Fund's investment
portfolio. Other members of the Manager's fixed-income portfolio department, particularly security analysts, traders and other
portfolio managers have broad experience with fixed-income securities. They provide the Fund's portfolio managers with research and
support in managing the Fund's investments.
|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 0.000.000.0000. The Code of Ehtics can also be viewed as part of the
Fund's registration statement on the SEC's XXXXX database at the SEC's Internet web site at XXXX://XXX.XXX.XXX. Copies may be
------------------
obtained, after paying a duplication fee, by electronic request at the following E-mail address: XXXXXXXXXX@XXX.XXX. 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. That agreement requires the Manager, at its expense, to provide the Fund with adequate office space,
facilities and equipment. It also requires the Manager to provide and supervise the activities of all administrative and clerical
personnel required to provide effective corporate administration for the Fund. Those responsibilities include the compilation and
maintenance of records with respect to the Fund's operations, the preparation and filing of specified reports, and the composition of
proxy materials and registration statements for continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory agreement are paid by the Fund. The investment advisory
agreement lists examples of expenses paid by the Fund. The major categories relate to interest, taxes, fees to disinterested
Trustees, legal and audit expenses, custodian and transfer agent expenses, share issuance costs, certain printing and registration
costs, brokerage commissions, and non-recurring expenses, including litigation cost. The management fees paid by the Fund to the
Manager are calculated at the rates described in the Prospectus, which are applied to the assets of the Fund as a whole. The fees are
allocated to each class of shares based upon the relative proportion of the Fund's net assets represented by that class. The
management fees paid by the Fund to the Manager during its last three fiscal years are listed below. Effective January 1, 2000, the
Manager has voluntarily undertaken to limit its management fees to a maximum annual rate of 0.55% of average annual net assets for
each class of shares, which waiver aggregated $18,696 (0.0039%) in management fee expenses for the fiscal year ended July 31, 2001.
This voluntary waiver can be withdrawn by the Manager at any time.
---------------------- --------------------------------------------------------
Fiscal Year Ended Management Fee Paid to
7/31 OppenheimerFunds, Inc.
---------------------- --------------------------------------------------------
---------------------- --------------------------------------------------------
1999 $2,540,982
---------------------- --------------------------------------------------------
---------------------- --------------------------------------------------------
2000 $2,310,800(1)
---------------------- --------------------------------------------------------
---------------------- --------------------------------------------------------
2001 $2,660,807(2)
---------------------- --------------------------------------------------------
-------------------------------------------------------------------------
1. Does not include waiver of $31,818.
2. Does not include waiver of $18,696.
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 good faith errors or omissions the Fund sustains for any investment, adoption of
any investment policy, or the purchase, sale or retention of any security.
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. When possible, the Manager tries to combine concurrent orders to purchase or sell the same security by more than one of the
accounts managed by the Manager or its affiliates. The transactions under those combined orders are averaged as to price and
allocated in accordance with the purchase or sale orders actually placed for each account.
The investment advisory agreement permits the Manager to allocate brokerage for research services. The research services
provided by a particular broker may be useful only to one or more of the advisory accounts of the Manager and its affiliates.
Investment research received by the Manager for the commissions paid by those other accounts may be useful both to the Fund and one
or more of the Manager's other accounts. Investment research services may be supplied to the Manager by a third party at the
instance of a broker through which trades are placed. Investment research services include information and analyses on particular
companies and industries as well as market or economic trends and portfolio strategy, market quotations for portfolio evaluations,
information systems, computer hardware and similar products and services. If a research service also assists the Manager in a
non-research capacity (such as bookkeeping or other administrative functions), then only the percentage or component that provides
assistance to the Manager in the investment decision-making process may be paid in commission dollars.
The Board of Trustees has permitted the Manager to use concessions on fixed-price offerings to obtain research, in the same
manner as is permitted for agency transactions. The Board has also permitted the Manager to use stated commissions on secondary
fixed-income agency trades to obtain research if the broker represents to the Manager that: (i) the trade is not from or for the
broker's own inventory, (ii) the trade was executed by the broker on an agency basis at the stated commission, and (iii) the trade is
not a riskless principal transaction.
The research services provided by brokers broaden the scope and supplement the research activities of the Manager. That
research provides additional views and comparisons for consideration and helps the Manager to obtain market information for the
valuation of securities that are either held in the Fund's portfolio or are being considered for purchase. The Manager provides
information to the Board of the Fund about the commissions paid to brokers furnishing research services, together with the Manager's
representation that the amount of such commissions was reasonably related to the value or benefit of such services.
Other funds advised by the Manager have investment objectives and policies similar to those of the Fund. Those other funds
may purchase or sell the same securities as the Fund at the same time as the Fund, which could affect the supply and price of the
securities. If two or more of funds advised by the Manager purchase the same security on the same day from the same dealer, the
Manager may average the price of the transactions and allocate the average among the funds.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the Distributor, whose primary address is X.X. Xxx 0000,
Xxxxxx, XX 00000, acts as the Fund's principal underwriter in the continuous public offering of the Fund's Class A, Class B and
Class C shares. The Distributor bears the expenses normally attributable to sales, including advertising and the cost of printing and
mailing Prospectuses, other than those furnished to existing shareholders. The Distributor is not obligated to sell a specific
number of shares. Expenses normally attributable to sales are borne by the Distributor. They exclude payments under the Distribution
and Service Plans but include advertising and the cost of printing and mailing prospectuses (other than those furnished to existing
shareholders).
The sales charge and concessions paid to, or retained by, the Distributor from the sale of shares during the Fund's three
most recent fiscal years, and the contingent deferred sales charges retained by the Distributor on the redemption of shares for the
most recent fiscal year are shown in the tables below:
------------- ------------------ ------------------- -------------------- ------------------- -------------------
Aggregate Class A Front-End Concessions on Concessions on Concessions on
Fiscal Year Front-End Sales Sales Charges Class A Shares Class B Shares Class C Shares
Ended 7/31: Charges on Class Retained by Advanced by Advanced by Advanced by
A Shares Distributor2 Distributor1 Distributor1 Distributor1
------------- ------------------ ------------------- -------------------- ------------------- -------------------
------------- ------------------ ------------------- -------------------- ------------------- -------------------
1999 $924,929 $154,753 $188,991 $1,254,294 $84,556
------------- ------------------ ------------------- -------------------- ------------------- -------------------
------------- ------------------ ------------------- -------------------- ------------------- -------------------
2000 $423,400 $90,950 $28,185 $415,444 $28,818
------------- ------------------ ------------------- -------------------- ------------------- -------------------
------------- ------------------ ------------------- -------------------- ------------------- -------------------
2001 $614,244 $126,239 $21,272 $624,812 $64,953
------------- ------------------ ------------------- -------------------- ------------------- -------------------
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. Because Class B shares convert to Class A shares 72 months after
purchase, the "life-of-class" return for Class B uses Class A performance for the period after conversion.
2. Includes amounts retained by a broker-dealer that is an affiliate or a parent of the distributor.
------------------------------- ---------------------------- ---------------------------- ----------------------------
Class A Contingent Class B Contingent Class C Contingent
Fiscal Year Deferred Sales Deferred Sales Deferred Sales
Ended 7/31: Charges Retained by Charges Retained by Charges Retained by
Distributor Distributor Distributor
------------------------------- ---------------------------- ---------------------------- ----------------------------
------------------------------- ---------------------------- ---------------------------- ----------------------------
2001 $9,256 $287,397 $8,860
------------------------------- ---------------------------- ---------------------------- ----------------------------
For additional information about distribution of the Fund's shares, including fees and expenses, please refer to
"Distribution and Service Plans."
Distribution and Service Plans. The Fund has adopted a Service Plan for its Class A shares and Distribution and Service Plans for
its Class B and Class C shares under Rule 12b-1 of the Investment Company Act. Under those plans, the Fund makes payments to the
Distributor in connection with the distribution and/or servicing of the shares of the particular class.
Each plan has been approved by a vote of the Board of Trustees of the Fund, including a majority of the Independent
Trustees, cast in person at a meeting called for the purpose of voting on that plan. The Manager cast the vote to approve the Class
C plan as the sole initial holder of Class C shares.
Under the plans the Manager and the Distributor may make payments to affiliates and, in their sole discretion, from time to
time may use their own resources to make payments to brokers, dealers or other financial institutions for distribution and
administrative services they perform at no cost to the Fund. The Manager may use profits from the advisory fee it receives from the
Fund. The Distributor and the Manager may, in their sole discretion, increase or decrease the amount of payments they make to plan
recipients from their own resources.
Unless a plan is terminated as described below, the plan continues in effect from year to year, but only if the Fund's Board
of Trustees and its Independent Trustees specifically vote annually to approve its continuance. Approval must be by a vote cast in
person at a meeting called for the purpose of voting on continuing the plan. A plan may be terminated at any time by the vote of a
majority of the Independent Trustees or by the vote of the holders of a "majority" (as defined in the Investment Company Act) of the
outstanding shares of that class.
The Board and the Independent Trustees must approve all material amendments to a plan. An amendment to increase materially
the amount of payments to be made under the plan must be approved by shareholders of the class affected by the amendment. Because
Class B shares automatically convert into Class A shares after six years, the Fund must obtain the approval of both Class A and Class
B shareholders for an amendment to the Class A plan that would materially increase the amount to be paid under that plan. That
approval must be by a "majority" (as defined in the Investment Company Act) of the shares of each class, voting separately by Class.
While the plans are in effect, the Treasurer of the Fund shall provide separate written reports on the plans to the Fund's
Board of Trustees at least quarterly for its review. The reports shall detail the amount of all payments made under a plan and the
purpose for which the payments were made. Those reports are subject to the review and approval of the Independent Trustees in the
exercise of their fiduciary duty.
Each plan states that while it is in effect, the selection or replacement and nomination of those Trustees of the Fund who
are not "interested persons" of the Fund is committed to the discretion of the Independent Trustees. This provision does not prevent
the involvement of others in the selection and nomination process as long as the final decision as to selection or nomination is
approved by a majority of the Independent Trustees.
Under the plans, no payment will be made to any recipient in any quarter in which the aggregate net asset value of all Fund
shares held by the recipient for itself and its customers does not exceed a minimum amount, if any, that may be set from time to time
by a majority of the Fund's Independent Trustees. Initially, the Board of Trustees has set the fees at the maximum rate allowed
under the plans and has set no minimum asset amount needed to qualify for payments.
|_| Class A Service Plan. Under the Class A service plan, the Distributor currently uses the fees it receives from the
Fund to pay brokers, dealers and other financial institutions (they are referred to as "recipients") for personal services and
account maintenance services they provide for their customers who hold Class A shares. The services include, among others, answering
customer inquiries about the Fund, assisting in establishing and maintaining accounts in the Fund, making the Fund's investment plans
available and providing other services at the request of the Fund or the Distributor. The Distributor makes payments to plan
recipients quarterly at an annual rate not to exceed 0.25% of the average annual net assets of Class A shares held in accounts of the
service providers or their customers.
For the fiscal year ended July 31, 2001, payments under the Plan for Class A shares totaled $844,784, all of which was paid
by the Distributor to recipients. That included $29,165 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 Class
B and Class C plans permit the Distributor to retain both the asset-based sales charges and the service fee on shares or to pay
recipients the service fee on a quarterly basis, without payment in advance.
The Distributor presently intends to pay recipients the service fee on Class B and Class C shares in advance for the first
year the shares are outstanding. After the first year shares are outstanding, the Distributor makes payments quarterly on those
shares. The advance payment is based on the net asset value of shares sold. Shares purchased by exchange do not qualify for an
advance service fee payment. If Class B or Class C shares are redeemed during the first year after their purchase, the recipient of
the service fees on those shares will be obligated to repay the Distributor a pro rata portion of the advance payment made on those
shares.
The Distributor retains the asset-based sales charge on Class B shares. The Distributor retains the asset-based sales
charge on Class C shares during the first year the shares are outstanding. It pays the asset-based sales charge as an ongoing
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.
|_| may not be able to adequately compensate dealers that sell Class B and Class C shares without receiving payment under the
plans and therefore may not be able to offer such Classes for sale absent the plans,
|_| receives payment under the plans consistent with the service fees and asset-based sales charges paid by other
non-proprietary funds that charge 12b-1 fees,
|_| may use the payments under the plan to include the Fund in various third-party distribution programs that may increase sales
of Fund shares,
|_| may experience increased difficulty selling the Fund's shares if payments under the plan are discontinued because most
competitor funds have plans that pay dealers for rendering distribution services as much or more than the amounts
currently being paid by the Fund, and
|_| may not be able to continue providing, at the same or at a lesser cost, the same quality distribution sales efforts and
services, or to obtain such services from brokers and dealers, if the plan payments were to be discontinued.
When Class B and Class C shares are sold without the designation of a broker-dealer, the Distributor is automatically
designated as the broker-dealer of record. In those cases, the Distributor retains the service fee and asset-based sales charge paid
on Class B and Class C shares.
The Distributor's actual expenses in selling Class B and Class C shares may be more that the payments it receives from the
contingent deferred sales charges collected on redeemed shares and from the Fund under the plans. If either the Class B or Class C
plan is terminated by the Fund, the Board of Trustees may allow the Fund to continue payments of the asset-based sales charge to the
Distributor for distributing shares before the plan was terminated. The Class B and Class C plans allow for the carry-forward of
distribution expenses, to be recovered from asset based sales charges in subsequent fiscal periods.
----------------------------------------------------------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor in the Fiscal Year Ended 7/31/01
----------------------------------------------------------------------------------------------------------------------------------
------------------- ---------------------- ------------------------- ------------------------------- -----------------------------
Class Distributor's Unreimbursed
Distributor's Aggregate Expenses as % of Net Assets
Total Payments Under Amount Retained by Unreimbursed Expenses Under of Class
Plan Distributor Plan
------------------- ---------------------- ------------------------- ------------------------------- -----------------------------
------------------- ---------------------- ------------------------- ------------------------------- -----------------------------
Class B Plan $1,258,468 $981,848 $4,084,207 2.97%
------------------- ---------------------- ------------------------- ------------------------------- -----------------------------
------------------- ---------------------- ------------------------- ------------------------------- -----------------------------
Class C Plan $144,599 $29,723 $258,340 1.43%
------------------- ---------------------- ------------------------- ------------------------------- -----------------------------
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 0.000.000.0000 or by visiting the OppenheimerFunds Internet
web site at xxxx://xxx.xxxxxxxxxxxxxxxx.xxx.
The Fund's illustrations of its performance data in advertisements must comply with rules of the Securities and Exchange
Commission. Those rules describe the types of performance data that may be used and how it is to be calculated. In general, any
advertisement by the Fund of its performance data must include the average annual total returns for the advertised class of shares of
the Fund. Those returns must be shown for the 1, 5 and 10-year periods (or the life of the class, if less) ending as of the most
recently ended calendar quarter prior to the publication of the advertisement (or its submission for publication). Certain types of
yields may also be shown, provided that they are accompanied by standardized average annual total returns.
Use of standardized performance calculations enables an investor to compare the Fund's performance to the performance of
other funds for the same periods. However, a number of factors should be considered before using the Fund's performance information
as a basis for comparison with other investments:
|_| Yields and total returns measure the performance of a hypothetical account in the Fund over various periods and do not
show the performance of each shareholder's account. Your account's performance will vary from the model performance data if your
dividends are received in cash, or you buy or sell shares during the period, or you bought your shares at a different time and price
than the shares used in the model.
|_| The Fund's performance returns do not reflect the effect of taxes or distributions.
|_| An investment in the Fund is not insured by the FDIC or any other government agency.
|_| The principal value of the Fund's shares, and its yields and total returns are not guaranteed and normally will
fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or less than their original cost.
|_| Yields and total returns for any given past period represent historical performance information and are not, and should
not be considered, a prediction of future yields or returns.
The performance of each class of shares is shown separately, because the performance of each class of shares will usually be
different. That is because of the different kinds of expenses each class bears. The yields and total returns of each class of shares
of the Fund are affected by market conditions, the quality of the Fund's investments, the maturity of those investments, the types of
investments the Fund holds, and its operating expenses that are allocated to the particular class.
|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.
|X| Standardized Yield. The "standardized yield" (sometimes referred to just as "yield") is shown for a class of shares for
a stated 30-day period. It is not based on actual distributions paid by the Fund to shareholders in the 30-day period, but is a
hypothetical yield based upon the net investment income from the Fund's portfolio investments for that period. It may therefore
differ from the "dividend yield" for the same class of shares, described below.
Standardized yield is calculated using the following formula set forth in rules adopted by the Securities and Exchange
Commission, designed to assure uniformity in the way that all funds calculate their yields:
STANDARDIZE YIELD = 2 (A-B +1) -1
--------
CD
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense assumptions).
c = the average daily number of shares of that class outstanding during the 30-day period that were entitled to receive
dividends.
d = the maximum offering price per share of that class on the last day of the period, adjusted for undistributed net
investment income.
The standardized yield for a particular 30-day period may differ from the yield for other periods. The SEC formula assumes
that the standardized yield for a 30-day period occurs at a constant rate for a six-month period and is annualized at the end of the
six-month period. Additionally, because each class of shares is subject to different expenses, it is likely that the standardized
yields of the Fund's classes of shares will differ for any 30-day period.
|X| Dividend Yield. The Fund may quote a "dividend yield" for each class of its shares. Dividend yield is based on the
dividends paid on a class of shares during the actual dividend period. To calculate dividend yield, the dividends of a class declared
during a stated period are added together, and the sum is multiplied by 12 (to annualize the yield) and divided by the maximum
offering price on the last day of the dividend period. The formula is shown below:
Dividend Yield = Distribution Paid / No. of Days in the Period x No. of Days in the Calendar Year
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.
|X| Tax-Equivalent Yield. The "tax-equivalent yield" of a class of shares is the equivalent yield that would have to be
earned on a taxable investment to achieve the after-tax results represented by the Fund's tax-equivalent yield. It adjusts the Fund's
standardized yield, as calculated above, by a stated federal tax rate. Using different tax rates to show different tax equivalent
yields shows investors in different tax brackets the tax equivalent yield of the Fund based on their own tax bracket.
The tax-equivalent yield is based on a 30-day period, and is computed by dividing the tax-exempt portion of the Fund's
current yield (as calculated above) by one minus a stated income tax rate. The result is added to the portion (if any) of the Fund's
current yield that is not tax-exempt.
The tax-equivalent yield may be used to compare the tax effects of income derived from the Fund with income from taxable
investments at the tax rates stated. Your tax bracket is determined by your federal and state taxable income (the net amount subject
to federal and state income tax after deductions and exemptions). The tax-equivalent yield table assumes that the investor is taxed
at the highest bracket, regardless of whether a switch to non-taxable investments would cause a lower bracket to apply.
----------------------------------------------------------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 7/31/01
----------------------------------------------------------------------------------------------------------------------
------------------ --------------------------------- -------------------------------- --------------------------------
Standardized Yield Dividend Yield Tax-Equivalent Yield (45.22%
Combined Federal/California
Tax Bracket)
Class of Shares
------------------ --------------------------------- -------------------------------- --------------------------------
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Without Sales After Sales Without Sales After Sales Without Sales After Sales
Charge (NAV) Charge (MOP) Charge (NAV) Charge (MOP) Charge (NAV) Charge (MOP)
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Class A 4.60% 4.38% 5.12% 4.87% 8.39% 7.99%
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Class B 3.84% N/A 4.37% N/A 7.01% N/A
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Class C 3.84% N/A 4.38% N/A 7.01% N/A
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
|X| Total Return Information. There are different types of "total returns" to measure the Fund's performance. Total return
is the change in value of a hypothetical investment in the Fund over a given period, assuming that all dividends and capital gains
distributions are reinvested in additional shares and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each class are separately measured. The cumulative total
return measures the change in value over the entire period (for example, ten years). An average annual total return shows the average
rate of return for each year in a period that would produce the cumulative total return over the entire period. However, average
annual total returns do not show actual year-by-year performance. The Fund uses standardized calculations for its total returns as
prescribed by the SEC. The methodology is discussed below.
Standard Dividend
-------- --------
----------------------- ---------------------- -------------------- ------------------
4.60% 4.38% 5.12% 4.87%
----------------------- ---------------------- -------------------- ------------------
----------------------- ---------------------- -------------------- ------------------
3.84% N/A 4.37% N/A
----------------------- ---------------------- -------------------- ------------------
----------------------- ---------------------- -------------------- ------------------
3.84% N/A 4.38% N/A
----------------------- ---------------------- -------------------- ------------------
In calculating total returns for Class A shares, the current maximum sales charge of 4.75% (as a percentage of the offering
price) is deducted from the initial investment ("P") (unless the return is shown without sales charge, as described below). For
Class B shares, payment of the applicable contingent deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and fourth years, 2.0% in the fifth year, 1.0% in the
sixth year and none thereafter. For Class C shares, the 1% contingent deferred sales charge is deducted for returns for the 1-year
period.
|_| Average Annual Total Return. The "average annual total return" of each class is an average annual compounded rate of
return for each year in a specified number of years. It is the rate of return based on the change in value of a hypothetical initial
investment of $1,000 ("P" in the formula below) held for a number of years ("n") to achieve an Ending Redeemable Value ("ERV" in the
formula) of that investment, according to the following formula:
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 7/31/01
----------------------------------------------------------------------------------------------------------------------
-------------- ------------------------- -----------------------------------------------------------------------------
Cumulative Total Average Annual Total Returns
Returns (10 years or
life of class)
Class of
Shares
-------------- ------------------------- -----------------------------------------------------------------------------
-------------- ------------------------- ------------------------- ------------------------- -------------------------
5-Year 10-Year
1-Year (or life of class) (or life of class)
-------------- ------------------------- ------------------------- ------------------------- -------------------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class A1 78.05% 86.93% 3.99% 9.17% 4.58% 5.60% 5.94% 6.46%
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class B2 47.56% 47.56% 3.46% 8.46% 4.49% 4.83% 4.83% 4.83%
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class C3 29.91% 29.91% 7.48% 8.48% 4.81% 4.81% 4.66% 4.66%
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1. Inception of Class A: 11/03/88
2. Inception of Class B: 05/03/93
3. Inception of Class C: 11/01/95
Other Performance Comparisons. The Fund compares its performance annually to that of an appropriate broadly based market index in
its Annual Report to shareholders. You can obtain that information by contacting the Transfer Agent at the addresses or telephone
numbers shown on the cover of this Statement of Additional Information. The Fund may also compare its performance to that of other
investments, including other mutual funds, or use rankings of its performance by independent ranking entities. Examples of these
performance comparisons are set forth below.
|_| Lipper Rankings. From time to time the Fund may publish the ranking of the performance of its Class A, Class B or
Class C shares by Lipper Inc. ("Lipper"). Lipper is a widely recognized independent mutual fund monitoring service. Lipper monitors
the performance of regulated investment companies, including the Fund, and ranks their performance for various periods in categories
based on investment styles. The performance of the Fund is ranked by Lipper against all other bond funds, other than money market
funds, and all general municipal bond funds. The Lipper performance rankings are based on total returns that include the reinvestment
of capital gain distributions and income dividends but do not take sales charges or taxes into consideration. Lipper also publishes
"peer-group" indices of the performance of all mutual funds in a category that it monitors and averages of the performance of the
funds in particular categories.
|_| Morningstar Ratings and Rankings. From time to time the Fund may publish the ranking and/or star rating of the
performance of its classes of shares by Morningstar, Inc., an independent mutual fund monitoring service. Morningstar rates and
ranks mutual funds in broad investment categories: domestic stock funds, international stock funds, taxable bond funds and municipal
bond funds. The Fund is included in the municipal bond category.
Morningstar proprietary star ratings reflect historical risk-adjusted total investment return. Investment return measures a
fund's (or class's) one-, three-, five- and ten-year average annual total returns (depending on the inception of the fund or class)
in excess of 90-day U.S. Treasury xxxx returns after considering the fund's sales charges and expenses. Risk measured a fund's (or
class's) performance below 90-day U.S. Treasury xxxx returns. Risk and investment return are combined to produce star ratings
reflecting performance relative to the other funds in a fund's category. Five stars is the "highest" ranking (top 10% of funds in a
category), four stars is "above average" (next 22.5%), three stars is "average" (next 35%), two stars is "below average" (next 22.5%)
and one star is "lowest" (bottom 10%). The current star rating is the fund's (or class's) overall rating, which is the fund's 3-year
rating, or its combined 3- and 5-year ranking (weighted 60%/40% respectively), or its combined 3-, 5-, and 10-year ranking (weighted
40%, 30% and 30%, respectively), depending on the inception date of the fund (or class). Rankings are subject to change monthly.
The Fund may also compare its total return ranking to that of other funds in its Morningstar category, in addition to its
star ratings. Those total return ranking are percentages from one percent to one hundred percent and are not risk adjusted. For
example, if a fund is in the 94th percentile, that means that 94% of the funds in the same category performed better than it did.
|_| Performance Rankings and Comparisons by Other Entities and Publications. From time to time the Fund may include in its
advertisements and sales literature performance information about the Fund cited in newspapers and other periodicals such as The New
York Times, the Wall Street Journal, Xxxxxx'x, 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 Xxxxxxxxxxx funds, other than performance rankings of the Xxxxxxxxxxx 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 C contains
more information about the special sales charge arrangements offered by the Fund, and the circumstances in which sales charges may be
reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must be at least $25. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the Automated Clearing House ("ACH") transfer to buy the shares.
Dividends will begin to accrue on shares purchased with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York Stock Exchange. The Exchange normally closes at 4:00
P.M., but may close earlier on certain days. If Federal Funds are received on a business day after the close of the Exchange, the
shares will be purchased and dividends will begin to accrue on the next regular business day. The proceeds of ACH transfers are
normally received by the Fund 3 days after the transfers are initiated. The Distributor and the Fund are not responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of sales efforts and reduction in expenses realized by the Distributor,
dealers and brokers making such sales. No sales charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates that apply to larger purchases of Class A shares,
you and your spouse can add together:
|_| Class A and Class B shares you purchase for your individual accounts (including IRA's and 403(b) plans), or for your
joint accounts, or for trust or custodial accounts on behalf of your children who are minors, and
|_| current purchases of Class A and Class B shares of the Fund and other Xxxxxxxxxxx funds to reduce the sales charge
rate that applies to current purchases of Class A shares, and
|_| Class A and Class B shares of Xxxxxxxxxxx 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 Xxxxxxxxxxx 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 Xxxxxxxxxxx Funds. The Xxxxxxxxxxx funds are those mutual funds for which the Distributor acts as the distributor
or the sub-distributor and currently include the following:
Xxxxxxxxxxx Bond Fund Xxxxxxxxxxx Limited-Term Government Fund
Xxxxxxxxxxx California Municipal Fund Xxxxxxxxxxx Main Street Growth & Income Fund
Xxxxxxxxxxx Capital Appreciation Fund Xxxxxxxxxxx Main Street Opportunity Fund
Xxxxxxxxxxx Capital Preservation Fund Xxxxxxxxxxx Main Street Small Cap Fund
Xxxxxxxxxxx Capital Income Fund Xxxxxxxxxxx MidCap Fund
Xxxxxxxxxxx Champion Income Fund Xxxxxxxxxxx Multiple Strategies Fund
Xxxxxxxxxxx Concentrated Growth Fund Xxxxxxxxxxx Municipal Bond Fund
Xxxxxxxxxxx Convertible Securities Fund Xxxxxxxxxxx New York Municipal Fund
Xxxxxxxxxxx Developing Markets Fund Xxxxxxxxxxx New Jersey Municipal Fund
Xxxxxxxxxxx Disciplined Allocation Fund Xxxxxxxxxxx Pennsylvania Municipal Fund
Xxxxxxxxxxx Disciplined Value Fund Xxxxxxxxxxx Quest Balanced Value Fund
Xxxxxxxxxxx Discovery Fund Xxxxxxxxxxx Quest Capital Value Fund, Inc.
Xxxxxxxxxxx Emerging Growth Fund Xxxxxxxxxxx Quest Global Value Fund, Inc.
Xxxxxxxxxxx Emerging Technologies Fund Xxxxxxxxxxx Quest Opportunity Value Fund
Xxxxxxxxxxx Enterprise Fund Xxxxxxxxxxx Quest Value Fund, Inc.
Xxxxxxxxxxx Europe Fund Xxxxxxxxxxx Rochester National Municipals
Xxxxxxxxxxx Global Fund Xxxxxxxxxxx Real Asset Fund
Xxxxxxxxxxx Global Growth & Income Fund Xxxxxxxxxxx Senior Floating Rate Fund
Xxxxxxxxxxx Gold & Special Minerals Fund Xxxxxxxxxxx Strategic Income Fund
Xxxxxxxxxxx Growth Fund Xxxxxxxxxxx Small Cap Value Fund
Xxxxxxxxxxx High Yield Fund Xxxxxxxxxxx Special Value Fund
Xxxxxxxxxxx Intermediate Municipal Fund Xxxxxxxxxxx Total Return Fund, Inc.
Xxxxxxxxxxx International Bond Fund Xxxxxxxxxxx Trinity Core Fund
Xxxxxxxxxxx International Growth Fund Xxxxxxxxxxx Trinity Large Cap Growth Fund
Xxxxxxxxxxx International Small Company Fund Xxxxxxxxxxx Trinity Value Fund
Xxxxxxxxxxx U.S. Government Trust
Xxxxxxxxxxx Value Fund
Limited-Term New York Municipal Fund
Rochester Fund Municipals
OSM1 - Gartmore Millennium Growth Fund II
And the following money market funds: OSM1 - Xxxxxxxx Growth Fund
OSM1 - Mercury Advisors S&P 500 Index
Centennial America Fund, L. P. OSM1 - Mercury Advisors Focus Growth Fund
Centennial California Tax Exempt Trust OSM1 - QM Active Balanced Fund
Centennial Government Trust OSM1 - Salomon Brothers Capital Fund
Centennial Money Market Trust
Centennial New York Tax Exempt Trust
Centennial Tax Exempt Trust
Xxxxxxxxxxx Cash Reserves
Xxxxxxxxxxx Money Market Fund, Inc.
1"OSM" stands for Xxxxxxxxxxx Select Managers.
There is an initial sales charge on the purchase of Class A shares of each of the Xxxxxxxxxxx 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
Xxxxxxxxxxx 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 Xxxxxxxxxxx funds) during a 13-month period (the "Letter of Intent period"). At the
investor's request, this may include purchases made up to 90 days prior to the date of the Letter. The Letter states the investor's
intention to make the aggregate amount of purchases of shares which, when added to the investor's holdings of shares of those funds,
will equal or exceed the amount specified in the Letter. Purchases made by reinvestment of dividends or distributions of capital
gains and purchases made at net asset value without sales charge do not count toward satisfying the amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares purchased under the Letter to obtain the reduced sales
charge rate on purchases of Class A shares of the Fund (and other Xxxxxxxxxxx funds) that applies under the Right of Accumulation to
current purchases of Class A shares. Each purchase of Class A shares under the Letter will be made at the public offering price
(including the sales charge) that applies to a single lump-sum purchase of shares in the amount intended to be purchased under the
Letter.
In submitting a Letter, the investor makes no commitment to purchase shares. However, if the investor's purchases of shares
within the Letter of Intent period, when added to the value (at offering price) of the investor's holdings of shares on the last day
of that period, do not equal or exceed the intended purchase amount, the investor agrees to pay the additional amount of sales charge
applicable to such purchases. That amount is described in "Terms of Escrow," below (those terms may be amended by the Distributor
from time to time). The investor agrees that shares equal in value to 5% of the intended purchase amount will be held in escrow by
the Transfer Agent subject to the Terms of Escrow. Also, the investor agrees to be bound by the terms of the Prospectus, this
Statement of Additional Information and the Application used for a Letter of Intent. If those terms are amended, as they may be from
time to time by the Fund, the investor agrees to be bounded by the amended terms and that those amendments will apply automatically
to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do not equal or exceed the intended purchase amount,
the commissions previously paid to the dealer of record for the account and the amount of sales charge retained by the Distributor
will be adjusted to the rates applicable to actual total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for the next sales charge rate reduction set forth in the
Prospectus, the sales charges paid will be adjusted to the lower rate. That adjustment will be made only if and when the dealer
returns to the Distributor the excess of the amount of commissions allowed or paid to the dealer over the amount of commissions that
apply to the actual amount of purchases. The excess commissions returned to the Distributor will
be used to purchase additional shares for the investor's account at the net asset value per share in effect on the date of such
purchase, promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter, shares redeemed by the investor prior to the termination
of the Letter of Intent period will be deducted. It is the responsibility of the dealer of record and/or the investor to advise the
Distributor about the Letter in placing any purchase orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
|_| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made pursuant to a Letter, shares of the Fund equal in
value up to 5% of the intended purchase amount specified in the Letter shall be held in escrow by the Transfer Agent. For example,
if the intended purchase amount is $50,000, the escrow shall be shares valued in the amount of $2,500 (computed at the public
offering price adjusted for a $50,000 purchase). Any dividends and capital gains distributions on the escrowed shares will be
credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed within the thirteen-month Letter of Intent period,
the escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total purchases pursuant to the Letter are less than
the intended purchase amount specified in the Letter, the investor must remit to the Distributor an amount equal to the difference
between the dollar amount of sales charges actually paid and the amount of sales charges which would have been paid if the total
amount purchased had been made at a single time. That sales charge adjustment will apply to any shares redeemed prior to the
completion of the Letter. If the difference in sales charges is not paid within twenty days after a request from the Distributor or
the dealer, the Distributor will, within sixty days of the expiration of the Letter, redeem the number of escrowed shares necessary
to realize such difference in sales charges. Full and fractional shares remaining after such redemption will be released from
escrow. If a request is received to redeem escrowed shares prior to the payment of such additional sales charge, the sales charge
will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and appoints the Transfer Agent as attorney-in-fact to
surrender for redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of which may be counted toward completion of a Letter)
include:
(a) Class A shares sold with a front-end sales charge or subject to a Class A contingent deferred sales charge,
(b) Class B shares of other Xxxxxxxxxxx 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 Xxxxxxxxxxx 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 Xxxxxxxxxxx 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 Xxxxxxxxxxx Cash Reserves to use their fund account to make
monthly automatic purchases of shares of up to four other Xxxxxxxxxxx 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 10 days) after receipt of your instructions to
implement them. The Fund reserves the right to amend, suspend, or discontinue offering Asset Builder plans at any time without prior
notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's shares (for example, when a purchase check is
returned to the Fund unpaid) causes a loss to be incurred when the net asset value of the Fund's shares on the cancellation date is
less than on the purchase date. That loss is equal to the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that loss. If the investor fails to compensate the Fund for
the loss, the Distributor will do so. The Fund may reimburse the Distributor for that amount by redeeming shares from any account
registered in that investor's name, or the Fund or the Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in the same portfolio of investments of the Fund.
However, each class has different shareholder privileges and features. The net income attributable to Class B or Class C shares and
the dividends payable on Class B or Class C shares will be reduced by incremental expenses borne solely by that class. Those
expenses include the asset-based sales charges to which Class B and Class C are subject.
The availability of three classes of shares permits an investor to choose the method of purchasing shares that is more
appropriate for the investor. That may depend on the amount of the purchase, the length of time the investor expects to hold shares,
and other relevant circumstances. Class A shares in general are sold subject to an initial sales charge. While Class B and Class C
shares have no initial sales charge, the purpose of the deferred sales charge and asset-based sales charge on Class B and Class C
shares is the same as that of the initial sales charge on Class A shares to compensate the Distributor and brokers, dealers and
financial institutions that sell shares of the Fund. A salesperson who is entitled to receive compensation for selling Fund shares
may receive different levels of compensation for selling to one class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or more for Class B shares or $1 million or more for
Class C shares on behalf of a single investor (not including dealer "street name" or omnibus accounts). That is because generally it
will be more advantageous for that investor to purchase Class A shares of the Fund.
|_| Class B Conversion. Under current interpretations of applicable federal income tax law by the Internal Revenue
Service, the conversion of Class B shares to Class A shares after six years is not treated as a taxable event for the shareholder.
If those laws or the IRS interpretation of those laws should change, the automatic conversion feature may be suspended. In that
event, no further conversions of Class B shares would occur while that suspension remained in effect. Although Class B shares could
then be exchanged for Class A shares on the basis of relative net asset value of the two classes, without the imposition of a sales
charge or fee, such exchange could constitute a taxable event for the holder, and absent such exchange, Class B shares might continue
to be subject to the asset-based sales charge for longer than six years.
|_| Allocation of Expenses. The Fund pays expenses related to its daily operations, such as custodian fees, trustees'
fees, transfer agency fees, legal fees and auditing costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce the net asset value of shares, and therefore are indirectly borne by
shareholders through their investment.
The methodology for calculating the net asset value, dividends and distributions of the Fund's share classes recognizes two
types of expenses. General expenses that do not pertain specifically to any one class are allocated pro rata to the shares of all
classes. The allocation is based on the percentage of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general expenses include management fees, legal, bookkeeping and
audit fees, printing and mailing costs of shareholder reports, Prospectuses, Statements of Additional Information and other materials
for current shareholders, fees to unaffiliated Trustees, custodian expenses, share issuance costs, organization and start-up costs,
interest, taxes and brokerage commissions, and non-recurring expenses, such as litigation costs.
Other expenses that are directly attributable to a particular class are allocated equally to each outstanding share within
that class. Examples of such expenses include distribution and service plan (12b-1) fees, transfer and shareholder servicing agent
fees and expenses, share registration fees and shareholder meeting expenses (to the extent that such expenses pertain only to a
specific class).
Determination of Net Asset Values Per Share. The net asset values per share of each class of shares of the Fund are determined as of
the close of business of The New York Stock Exchange on each day that the Exchange is open. It is done by dividing the value of the
Fund's net assets attributable to that class by the number of shares of that class that are outstanding. The Exchange normally
closes at 4:00 P.M., New York time, but may close earlier on some other days (for example, in case of weather emergencies or on days
falling before a U.S. holiday). The Exchange's most recent annual announcement (which is subject to change) states that it will
close on New Year's Day, Xxxxxx Xxxxxx Xxxx, Xx. 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 60 days are valued based on the mean between the
"bid" and "asked" prices determined by a portfolio pricing service approved by the Fund's Board of Trustees or obtained by the
Manager from two active market makers in the security on the basis of reasonable inquiry.
|_| The following securities are valued at the mean between the "bid" and "asked" prices determined by a pricing service
approved by the Fund's Board of Trustees or obtained by the Manager from two active market makers in the security on the basis of
reasonable inquiry:
(1) debt instruments that have a maturity of more than 397 days when issued,
(2) debt instruments that had a maturity of 397 days or less when issued and have a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or less when issued and which have a remaining maturity of
60 days or less.
|_| The following securities are valued at cost, adjusted for amortization of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a maturity of less than 397 days when issued that have
a remaining maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining maturity of 397 days or less.
|_| Securities not having readily-available market quotations are valued at fair value determined under the Board's
procedures.
If the Manager is unable to locate two market makers willing to give quotes, a security may be priced at the mean between
the "bid" and "asked" prices provided by a single active market maker (which in certain cases may be the "bid" price if no "asked"
price is available).
In the case of municipal securities, when last sale information is not generally available, the Manager may use pricing
services approved by the Board of Trustees. The pricing service may use "matrix" comparisons to the prices for comparable instruments
on the basis of quality, yield, maturity. Other special factors may be involved (such as the tax-exempt status of the interest paid
by municipal securities). The Manager will monitor the accuracy of the pricing services. That monitoring may include comparing
prices used for portfolio valuation to actual sales prices of selected securities.
Puts, calls, interest rate futures and municipal bond index futures are valued at the last sale price on the principal
exchange on which they are traded or on NASDAQ, as applicable, as determined by a pricing service approved by the Board of Trustees
or by the Manager. If there were no sales that day, they shall be valued at the last sale price on the preceding trading day if it
is within the spread of the closing "bid" and "asked" prices on the principal exchange or on NASDAQ on the valuation date. If not,
the value shall be the closing bid price on the principal exchange or on NASDAQ on the valuation date. If the put, call or future is
not traded on an exchange or on NASDAQ, it shall be valued by the mean between "bid" and "asked" prices obtained by the Manager from
two active market makers. In certain cases that may be at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium received is included in the Fund's Statement of Assets and
Liabilities as an asset. An equivalent credit is included in the liability section. The credit is adjusted ("marked-to-market") to
reflect the current market value of the option. In determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or put written by the Fund expires, the Fund has a gain
in the amount of the premium. If the Fund enters into a closing purchase transaction, it will have a gain or loss, depending on
whether the premium received was more or less than the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by the amount of premium paid by the Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming shares set forth in the Prospectus.
Checkwriting. When a check is presented to the Fund's bank for clearance, the bank will ask the Fund to redeem a sufficient number
of full and fractional shares in the shareholder's account to cover the amount of the check. This enables the shareholder to
continue to receive dividends on those shares until the check is presented to the Fund. Checks may not be presented for payment at
the offices of the bank listed on the check or at the Fund's custodian bank. That limitation does not affect the use of checks for
the payment of bills or to obtain cash at other banks. The Fund reserves the right to amend, suspend or discontinue offering
checkwriting privileges at any time. The Fund will provide you notice whenever it is required to do so by applicable law.
In choosing to take advantage of the Checkwriting privilege by signing the Account Application or by completing a
Checkwriting card, each individual who signs:
(1) for individual accounts, represents that they are the registered owner(s) of the shares of the Fund in that account;
(2) for accounts for corporations, partnerships, trusts and other entities, represents that they are an officer, general
partner, trustee or other fiduciary or agent, as applicable, duly authorized to act on behalf of such registered
owner(s);
(3) authorizes the Fund, its Transfer Agent and any bank through which the Fund's drafts (checks) are payable to pay all checks
drawn on the Fund account of such person(s) and to redeem a sufficient amount of shares from that account to cover
payment of each check;
(4) specifically acknowledges that if they choose to permit checks to be honored if there is a single signature on checks drawn
against joint accounts, or accounts for corporations, partnerships, trusts or other entities, the signature of any one
signatory on a check will be sufficient to authorize payment of that check and redemption from the account, even if that
account is registered in the names of more than one person or more than one authorized signature appears on the
Checkwriting card or the Application, as applicable;
(5) understands that the Checkwriting privilege may be terminated or amended at any time by the Fund and/or the Fund's bank; and
(6) acknowledges and agrees that neither the Fund nor its bank shall incur any liability for that amendment or termination of
checkwriting privileges or for redeeming shares to pay checks reasonably believed by them to be genuine, or for
returning or not paying checks that have not been accepted for any reason.
Reinvestment Privilege. Within six months of a redemption, a shareholder may reinvest all or part of the redemption proceeds of :
|_| Class A shares that you purchased subject to an initial sales charge or Class A shares on which a contingent deferred
sales charge was paid, or
|_| Class B shares that were subject to the Class B contingent deferred sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares of the Fund or any of the other Xxxxxxxxxxx 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 Xxxxxxxxxxx funds within 90 days
of payment of the sales charge, the shareholder's basis in the shares of the Fund that were redeemed may not include the amount of
the sales charge paid. That would reduce the loss or increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for redemption is ordinarily made in cash. However,
under certain circumstances, the Board of Trustees of the Fund may determine that it would be detrimental to the best interests of
the remaining shareholders of the Fund to make payment of a redemption order wholly or partly in cash. In that case, the Fund may
pay the redemption proceeds in whole or in part by a distribution "in kind" of liquid securities from the portfolio of the Fund, in
lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the Fund is obligated
to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any 90-day period for any one
shareholder. If shares are redeemed in kind, the redeeming shareholder might incur brokerage or other costs in selling the
securities for cash. The Fund will value securities used to pay redemptions in kind using the same method the Fund uses to value its
portfolio securities described above under "Determination of Net Asset Values Per Share." That valuation will be made as of the time
the redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of those shares is less than $200 or such lesser amount as the Board may fix. The Board of
Trustees will not cause the involuntary redemption of shares in an account if the aggregate net asset value of such shares has fallen
below the stated minimum solely as a result of market fluctuations. If the Board exercises this right, it may also fix the
requirements for any notice to be given to the shareholders in question (not less than 30 days). The Board may alternatively set
requirements for the shareholder to increase the investment, or set other terms and conditions so that the shares would not be
involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an event that triggers the payment of sales charges.
Therefore, shares are not subject to the payment of a contingent deferred sales charge of any class at the time of transfer to the
name of another person or entity. It does not matter whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When shares subject to a contingent deferred sales charge
are transferred, the transferred shares will remain subject to the contingent deferred sales charge. It will be calculated as if the
transferee shareholder had acquired the transferred shares in the same manner and at the same time as the transferring shareholder.
If less than all shares held in an account are transferred, and some but not all shares in the account would be subject to a
contingent deferred sales charge if redeemed at the time of transfer, the priorities described in the Prospectus under "How to Buy
Shares" for the imposition of the Class B or Class C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The Distributor is the Fund's agent to repurchase its shares
from authorized dealers or brokers on behalf of their customers. Shareholders should contact their broker or dealer to arrange this
type of redemption. The repurchase price per share will be the net asset value next computed after the Distributor receives an order
placed by the dealer or broker. However, if the Distributor receives a repurchase order from a dealer or broker after the close of
The New York Stock Exchange on a regular business day, it will be processed at that day's net asset value if the order was received
by the dealer or broker from its customers prior to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but may
do so earlier on some days. Additionally, the order must have been transmitted to and received by the Distributor prior to its close
of business that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure, payment will be made within three business days
after the shares have been redeemed upon the Distributor's receipt of the required redemption documents in proper form. The
signature(s) of the registered owners on the redemption documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund valued at $5,000 or more can authorize the Transfer
Agent to redeem shares (having a value of at least $50) automatically on a monthly, quarterly, semi-annual or annual basis under an
Automatic Withdrawal Plan. Shares will be redeemed three business days prior to the date requested by the shareholder for receipt of
the payment. Automatic withdrawals of up to $1,500 per month may be requested by telephone if payments are to be made by check
payable to all shareholders of record. Payments must also be sent to the address of record for the account and the address must not
have been changed within the prior 30 days. Required minimum distributions from OppenheimerFunds-sponsored retirement plans may not
be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink privileges (see "How To Buy Shares") may arrange to
have Automatic Withdrawal Plan payments transferred to the bank account designated on the Account Application or by
signature-guaranteed instructions sent to the Transfer Agent. Shares are normally redeemed pursuant to an Automatic Withdrawal Plan
three business days before the payment transmittal date you select in the Account Application. If a contingent deferred sales charge
applies to the redemption, the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The Fund reserves the right to amend, suspend or
discontinue offering these plans at any time without prior notice. Because of the sales charge assessed on Class A share purchases,
shareholders should not make regular additional Class A share purchases while participating in an Automatic Withdrawal Plan. Class B
and Class C shareholders should not establish automatic withdrawal plans, because of the potential imposition of the contingent
deferred sales charge on such withdrawals (except where the contingent deferred sales charge is waived as described in Appendix C to
this Statement of Additional Information.
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 Xxxxxxxxxxx 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 Xxxxxxxxxxx funds having more than one class of shares may be
exchanged only for shares of the same class of other Xxxxxxxxxxx funds. Shares of Xxxxxxxxxxx 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 0.000.000.0000.
o All of the Xxxxxxxxxxx funds currently offer Class A, B and C shares except Xxxxxxxxxxx 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.
x Xxxxxxxxxxx Main Street California Municipal Fund currently offers only Class A and Class B shares.
o Class B, Class C, and Class N shares of Xxxxxxxxxxx Cash Reserves are generally available only by exchange from the same
class of shares of other Xxxxxxxxxxx funds or through OppenheimerFunds-sponsored 401(k) plans.
o Only certain Xxxxxxxxxxx funds currently offer Class Y shares. Class Y shares of Xxxxxxxxxxx Real Asset Fund may not be
exchanged for shares of any other fund.
o Only certain Xxxxxxxxxxx funds currently offer Class N shares, which are only offered to retirement plans as described in
the Prospectus. Class N shares can be exchanged only for Class N shares of other Xxxxxxxxxxx funds.
o Class M shares of Xxxxxxxxxxx Convertible Securities Fund may be exchanged only for Class A shares of other Xxxxxxxxxxx
funds. They may not be acquired by exchange of shares of any class of any other Xxxxxxxxxxx funds except Class A shares of
Xxxxxxxxxxx Money Market Fund or Xxxxxxxxxxx Cash Reserves acquired by exchange of Class M shares.
o Class A shares of Xxxxxxxxxxx Senior Floating Rate Fund are not available by exchange of shares of Xxxxxxxxxxx Money Market
Fund or Class A shares of Xxxxxxxxxxx Cash Reserves. If any Class A shares of another Xxxxxxxxxxx fund that are exchanged for
Class A shares of Xxxxxxxxxxx Senior Floating Rate Fund are subject to the Class A contingent deferred sales charge of the other
Xxxxxxxxxxx fund at the time of exchange, the holding period for that Class A contingent deferred sales charge will carry over to
the Class A shares of Xxxxxxxxxxx Senior Floating Rate Fund acquired in the exchange. The Class A shares of Xxxxxxxxxxx Senior
Floating Rate Fund acquired in that exchange will be subject to the Class A Early Withdrawal Charge of Xxxxxxxxxxx Senior
Floating Rate Fund if they are repurchased before the expiration of the holding period.
o Class X shares of Limited Term New York Municipal Fund can be exchanged only for Class B shares of other Xxxxxxxxxxx funds
and no exchanges may be made to Class X shares.
o Shares of Xxxxxxxxxxx Capital Preservation Fund may not be exchanged for shares of Xxxxxxxxxxx Money Market Fund, Inc.,
Xxxxxxxxxxx Cash Reserves or Xxxxxxxxxxx Limited-Term Government Fund. Only participants in certain retirement plans may
purchase shares of Xxxxxxxxxxx Capital Preservation Fund, and only those participants may exchange shares of other Xxxxxxxxxxx
funds for shares of Xxxxxxxxxxx Capital Preservation Fund.
o Class A, Class B, Class C and Class Y shares of Xxxxxxxxxxx Select Managers Mercury Advisors S&P Index Fund and Xxxxxxxxxxx
Select Managers QM Active Balanced Fund are only available to retirement plans and are available only by exchange from the same
class of shares of other Xxxxxxxxxxx funds held by retirement plans.
Class A shares of Xxxxxxxxxxx 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 Xxxxxxxxxxx funds
offered with a sales charge upon payment of the sales charge. They may also be used to purchase shares of Xxxxxxxxxxx funds subject
to an early withdrawal charge or contingent deferred sales charge.
Shares of Xxxxxxxxxxx Money Market Fund, Inc. purchased with the redemption proceeds of shares of other mutual funds (other
than funds managed by the Manager or its subsidiaries) redeemed within the 30 days prior to that purchase may subsequently be
exchanged for shares of other Xxxxxxxxxxx funds without being subject to an initial sales charge or contingent deferred sales charge.
To qualify for that privilege, the investor or the investor's dealer must notify the Distributor of eligibility for this privilege at
the time the shares of Xxxxxxxxxxx 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 Xxxxxxxxxxx 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 Xxxxxxxxxxx funds.
The Fund may amend, suspend or terminate the exchange privilege at the time. Although the Fund may impose these changes at
any time, it will provide you with notice of those changes whenever it is required to do so by applicable law. It may be required to
provide 60 days notice prior to materially amending or terminating the exchange privilege. That 60 day notice is not required in
extraordinary circumstances.
|_| How Exchanges Affect Contingent Deferred Sales Charges. No contingent deferred sales charge is imposed on exchanges of
shares of any class purchased subject to a contingent deferred sales charge. However, when Class A shares acquired by exchange of
Class A shares of other Xxxxxxxxxxx funds purchased subject to a Class A contingent deferred sales charge are redeemed within 18
months of the end of the calendar month of the initial purchase of the exchanged Class A shares, the Class A contingent deferred
sales charge is imposed on the redeemed shares. The Class B contingent deferred sales charge is imposed on Class B shares acquired by
exchange if they are redeemed within 6 years of the initial purchase of the exchanged Class B shares. The Class C contingent
deferred sales charge is imposed on Class C shares acquired by exchange if they are redeemed within 12 months of the initial purchase
of the exchanged Class C shares.
When Class B or Class C shares are redeemed to effect an exchange, the priorities described in "How To Buy Shares" in the
Prospectus for the imposition of the Class B or the Class C contingent deferred sales charge will be followed in determining the
order in which the shares are exchanged. Before exchanging shares, shareholders should take into account how the exchange may affect
any contingent deferred sales charge that might be imposed in the subsequent redemption of remaining shares. Shareholders owning
shares of more than one Class must specify whether they intend to exchange Class A, Class B or Class C shares.
|_| Limits on Multiple Exchange Orders. The Fund reserves the right to reject telephone or written exchange requests
submitted in bulk by anyone on behalf of more than one account. The Fund may accept requests for exchanges of up to 50 accounts per
day from representatives of authorized dealers that qualify for this privilege.
|_| Telephone Exchange Requests. When exchanging shares by telephone, a shareholder must have an existing account in the
fund to which the exchange is to be made. Otherwise, the investors must obtain a Prospectus of that fund before the exchange request
may be submitted. 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 Xxxxxxxxxxx Senior Floating Rate Fund. If all telephone lines are busy (which might occur, for example, during
periods of substantial market fluctuations), shareholders might not be able to request exchanges by telephone and would have to
submit written exchange requests.
|_| Processing Exchange Requests. Shares to be exchanged are redeemed on the regular business day the Transfer Agent
receives an exchange request in proper form (the "Redemption Date"). Normally, shares of the fund to be acquired are purchased on
the Redemption Date, but such purchases may be delayed by either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund reserves the right, in its discretion, to refuse any
exchange request that may disadvantage it. For example, if the receipt of multiple exchange requests from a dealer might require the
disposition of portfolio securities at a time or at a price that might be disadvantageous to the Fund, the Fund may refuse the
request.
In connection with any exchange request, the number of shares exchanged may be less than the number requested if the
exchange or the number requested would include shares subject to a restriction cited in the Prospectus or this Statement of
Additional Information, or would include shares covered by a share certificate that is not tendered with the request. In those
cases, only the shares available for exchange without restriction will be exchanged.
The different Xxxxxxxxxxx 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. The Transfer Agent acts as dividend-paying agent for the Fund. Dividends will be payable on shares
held of record at the time of the previous determination of net asset value, or as otherwise described in "How to Buy Shares." Daily
dividends will not be declared or paid on newly purchased shares until such time as Federal Funds (funds credited to a member bank's
account at the Federal Reserve Bank) are available from the purchase payment for such shares. Normally, purchase checks received
from investors are converted to Federal Funds on the next business day. Shares purchased through dealers or brokers normally are
paid for by the third business day following the placement of the purchase order.
Shares redeemed through the regular redemption procedure will be paid dividends through and including the day on which the
redemption request is received by the Transfer Agent in proper form. Dividends will be declared on shares repurchased by a dealer or
broker for three business days following the trade date (that is, up to and including the day prior to settlement of the repurchase).
If all shares in an account are redeemed, all dividends accrued on shares of the same class in the account will be paid together with
the redemption proceeds.
The Fund's practice of attempting to pay dividends on Class A shares at a constant level requires the Manager to monitor the
Fund's portfolio and, if necessary, to select higher-yielding securities when it is deemed appropriate to seek income at the level
needed to meet the target. Those securities must be within the Fund's investment parameters, however. The Fund expects to pay
dividends at a targeted level from its net investment income and other distributable income without any impact on the net asset
values per share.
Dividends, distributions and the proceeds of the redemption of Fund shares represented by checks returned to the Transfer
Agent by the Postal Service as undeliverable will be invested in shares of Xxxxxxxxxxx Money Market Fund, Inc. Reinvestment will be
made as promptly as possible after the return of such checks to the Transfer Agent, to enable the investor to earn a return on
otherwise idle funds. Unclaimed accounts may be subject to state escheatment laws, and the Fund and the Transfer Agent will not be
liable to shareholders or their representatives for compliance with those laws in good faith.
The amount of a distribution paid on a class of shares may vary from time to time depending on market conditions, the
composition of the Fund's portfolio, and expenses borne by the Fund or borne separately by a class. Dividends are calculated in the
same manner, at the same time and on the same day for shares of each class. However, dividends on Class B and Class C shares are
expected to be lower than dividends on Class A shares. That is due to the effect of the asset-based sales charge on Class B and Class
C shares. Those dividends will also differ in amount as a consequence of any difference in net asset value among Class A, Class B and
Class C shares.
Tax Status of the Fund's Dividends and Distributions. The Fund intends to qualify under the Internal Revenue Code during each fiscal
year to pay "exempt-interest dividends" to its shareholders. Exempt-interest dividends that are derived from net investment income
earned by the Fund on municipal securities will be excludable from gross income of shareholders for federal income tax purposes.
Net investment income includes the allocation of amounts of income from the municipal securities in the Fund's portfolio
that are free from federal income taxes. This allocation will be made by the use of one designated percentage applied uniformly to
all income dividends paid during the Fund's tax year. That designation will normally be made following the end of each fiscal year
as to income dividends paid in the prior year. The percentage of income designated as tax-exempt may substantially differ from the
percentage of the fund's income that was tax-exempt for a given period.
A portion of the exempt-interest dividends paid by the Fund may be an item of tax preference for shareholders subject to the
alternative minimum tax. The amount of any dividends attributable to tax preference items for purposes of the alternative minimum
tax will be identified when tax information is distributed by the Fund.
A shareholder receiving a dividend from income earned by the Fund from one or more of the following sources treats the
dividend as a receipt of either ordinary income or long-term capital gain in the computation of gross income, regardless of whether
the dividend is reinvested:
(1) certain taxable temporary investments (such as certificates of deposit, repurchase agreements, commercial paper and
obligations of the U.S. Government, its agencies and instrumentalities);
(2) income from securities loans;
(3) income or gains from options or futures; or
(4) an excess of net short-term capital gain over net long-term capital loss from the Fund.
The Fund's dividends will not be eligible for the dividends-received deduction for corporations. Shareholders receiving
Social Security benefits should be aware that exempt-interest dividends are a factor in determining whether such benefits are subject
to federal income tax. Losses realized by shareholders on the redemption of Fund shares within six months of purchase (which period
may be shortened by regulation) will be disallowed for federal income tax purposes to the extent of exempt-interest dividends
received on such shares.
If the Fund qualifies as a "regulated investment company" under the Internal Revenue Code, it will not be liable for federal
income taxes on amounts paid by it as dividends and distributions. That qualification enables the Fund to "pass through" its income
and realized capital gains to shareholders without having to pay tax on them. The Fund qualified as a regulated investment company in
its last fiscal year and intends to qualify in future years, but reserves the right not to qualify. The Internal Revenue Code
contains a number of complex tests to determine whether the Fund qualifies. The Fund might not meet those tests in a particular
year. If it does not qualify, the Fund will be treated for tax purposes as an ordinary corporation and will receive no tax deduction
for payments of dividends and distributions made to shareholders.
In any year in which the Fund qualifies as a regulated investment company under the Internal Revenue Code, the Fund will
also be exempt from California corporate income and franchise taxes. It will also be qualified under California law to pay exempt
interest dividends that will be exempt from California personal income tax. That exemption applies to the extent that the Fund's
distributions are attributable to interest on California municipal securities and qualifying obligations of the United States
government, if at least 50% of the Fund's assets are invested in such obligations at the close of each quarter in its tax year.
Distributions from the Fund attributable to income from sources other than California municipal securities and U.S. government
obligations will generally be subject to California income tax as ordinary income.
Distributions by the Fund from investment income and long- and short-term capital gains will generally not be excludable
from taxable income in determining California corporate franchise tax or income tax for corporate shareholders of the Fund.
Additionally, certain distributions paid to corporate shareholders of the Fund may be includable in income subject to the California
alternative minimum tax.
Under the Internal Revenue Code, by December 31 each year the Fund must distribute 98% of its taxable investment income
earned from January 1 through December 31 of that year and 98% of its capital gains realized in the period from November 1 of the
prior year through October 31 of the current year. If it does not, the Fund must pay an excise tax on the amounts not distributed.
It is presently anticipated that the Fund will meet those requirements. However, the Fund's Board of Trustees and the Manager might
determine in a particular year that it would be in the best interest of shareholders not to make distributions at the required levels
and to pay the excise tax on the undistributed amounts. That would reduce the amount of income or capital gains available for
distribution to shareholders.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to reinvest all dividends and/or capital gains
distributions in shares of the same class of any of the other Xxxxxxxxxxx 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 Xxxxxxxxxxx funds may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Transfer Agent., OppenheimerFunds Services, the Fund's Transfer Agent, is a division of the Manager. It is responsible for
maintaining the Fund's shareholder registry and shareholder accounting records, and for paying dividends and distributions to
shareholders. It also handles shareholder servicing and administrative functions. It serves as the Transfer Agent for an annual per
account fee. It also acts as shareholder servicing agent for the other Xxxxxxxxxxx funds. Shareholders should direct inquiries about
their accounts to the Transfer Agent at the address and toll-free numbers shown on the back cover.
The Custodian. Citibank, N.A. is the custodian bank of the Fund's assets. The custodian bank's responsibilities include
safeguarding and controlling the Fund's portfolio securities, and handling the delivery of such securities to and from the Fund. It
will be the practice of the Fund to deal with the custodian bank in a manner uninfluenced by any banking relationship the custodian
may have with the Manager and its affiliates. The Fund's cash balances with the custodian in excess of $100,000 are not protected by
Federal Deposit Insurance. Those uninsured balances may at times be substantial.
Independent Auditors. KPMG LLP are the independent auditors of the Fund. They audit the Fund's financial statements and perform
other related audit services. They also act as auditors for certain other funds advised by the Manager and its affiliates.
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
================================================================================
The Board of Trustees and Shareholders of
Xxxxxxxxxxx California Municipal Fund:
We have audited the accompanying statement of assets and liabilities of
Xxxxxxxxxxx California Municipal Fund, including the statement of investments,
as of July 31, 2001, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. 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, 2001, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. 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
Xxxxxxxxxxx California Municipal Fund as of July 31, 2001, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
------------------
KPMG LLP
Denver, Colorado
August 21, 2001
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS July 31, 2001
--------------------------------------------------------------------------------
Ratings:
Xxxxx'x/
S&P/Fitch Principal Market Value
(Unaudited) Amount See Note 1
=============================================================================================================
Municipal Bonds and Notes--98.3%
-------------------------------------------------------------------------------------------------------------
California--92.2%
ABC CA USD CAP GOUN, FGIC Insured,
Zero Coupon, 5.61%, 8/1/25/1/ Aaa/AAA/AAA $ 3,050,000 $ 830,393
-------------------------------------------------------------------------------------------------------------
Anaheim, CA XXXX TXAL RB, MBIA Insured,
Inverse Floater, 9.97%, 12/28/18/2/ Aaa/AAA 4,000,000 5,020,000
-------------------------------------------------------------------------------------------------------------
Benicia, CA USD CAP GOUN, Series B,
MBIA Insured, Zero Coupon, 5.90%, 8/1/23/1/ Aaa/AAA/AAA 6,500,000 1,980,810
-------------------------------------------------------------------------------------------------------------
Benicia, CA USD CAP GOUN, Series B,
MBIA Insured, Zero Coupon, 5.92%, 8/1/25/1/ Aaa/AAA/AAA 3,600,000 975,564
-------------------------------------------------------------------------------------------------------------
Berkeley, CA HF RRB, Xxxx Xxxxx Medical Center,
Prerefunded, Series A, 6.50%, 12/1/11 A2/A+ 5,365,000 5,708,038
-------------------------------------------------------------------------------------------------------------
CA CDAU MH RB, Village Riviera Hills,
Series E, 5.45%, 2/1/25 NR/AAA 985,000 1,006,118
-------------------------------------------------------------------------------------------------------------
CA Educational FA RRB, Los Angeles
College Chiropractic, 5.60%, 11/1/17 Baa2/NR 1,000,000 1,004,290
-------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
CAP RB, Sr. Lien, Escrowed to Maturity,
Series A, Zero Coupon, 6.12%, 1/1/23/1/ Aaa/AAA/BBB 10,000,000 3,258,400
-------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
CAP RB, Sr. Lien, Escrowed to Maturity,
Series A, Zero Coupon, 5.99%, 1/1/28/1/ Aaa/AAA/BBB 12,060,000 2,978,217
-------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
CAP RRB, Zero Coupon, 5.98%, 1/15/21/1/ Baa3/BBB-/BBB 12,500,000 3,872,250
-------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
CAP RRB, Zero Coupon, 6.28%, 1/15/22/1/ Baa3/BBB-/BBB 13,000,000 3,784,300
-------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
CAP RRB, Zero Coupon, 6.40%, 1/15/30/1/ Baa3/BBB-/BBB 16,650,000 2,846,151
-------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
RRB, Sr. Lien, Prerefunded, Series A, 6.50%, 1/1/32 Aaa/AAA/BBB 6,000,000 6,911,280
-------------------------------------------------------------------------------------------------------------
CA Foothill/Eastern Corridor Agency Toll Road
RRB, 5.75%, 1/15/40 Baa3/BBB-/BBB 1,000,000 1,006,610
-------------------------------------------------------------------------------------------------------------
CA GOUN, 5.75%, 3/1/30 Aa3/A+/AA 4,150,000 4,366,754
-------------------------------------------------------------------------------------------------------------
CA HFA RB, 10.114%, 2/1/25/3/,/4/ NR/NR 7,140,000 7,621,664
-------------------------------------------------------------------------------------------------------------
CA HFA RB, Series E-1, 6.45%, 2/1/12 Aa2/AA- 750,000 776,955
-------------------------------------------------------------------------------------------------------------
CA HFA SFM Purchase RB, Series A-2, 6.45%, 8/1/25 Aaa/AAA 1,875,000 1,944,300
-------------------------------------------------------------------------------------------------------------
CA HFA SFM RB, Series 83, Inverse Floater,
10.035%, 8/1/25/2/ NR/AAA 2,900,000 3,114,397
-------------------------------------------------------------------------------------------------------------
CA Infrastructure &ED Bank RB, American Center
for Wine, Food & Arts, 5.55%, 12/1/12 NR/A/A 1,710,000 1,800,801
-------------------------------------------------------------------------------------------------------------
CA PCFAU RB, Pacific Gas & Electric Co. Project,
Series B, 6.35%, 6/1/09 B3/CCC 3,000,000 2,679,090
-------------------------------------------------------------------------------------------------------------
CA XXXXX XXX XXX, Xxxxx Xxxx. Recycling Center,
Escrowed to Maturity, Series A, 6.75%, 7/1/11 Aaa/NR 500,000 575,360
12 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
Ratings:
Xxxxx'x/
S&P/Fitch Principal Market Value
(Unaudited) Amount See Note 1
-------------------------------------------------------------------------------------------------------------
California Continued
CA PWBL RB, State Prison Department of
Corrections, Series E, FSA Insured, 5.50%, 6/1/15 Aaa/AAA/AAA $ 5,000,000 $ 5,507,700
-------------------------------------------------------------------------------------------------------------
CA PWBL RRB, Various University of CA Projects,
Series A, 5.50%, 6/1/14 Aa2/AA-/A+ 1,500,000 1,644,165
-------------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB, Mtg.-Backed
Securities Program, Series B, 7.75%, 9/1/26 NR/AAA 690,000 742,468
-------------------------------------------------------------------------------------------------------------
CA Rural Home Mtg. FAU SFM RB, Mtg.-Backed
Securities Program, Series D, Cl. 5, 6.70%, 5/1/29 NR/AAA 1,890,000 2,106,726
-------------------------------------------------------------------------------------------------------------
CA SCDAU COP, 7.25%, 11/1/29 NR/NR 7,000,000 7,339,360
-------------------------------------------------------------------------------------------------------------
CA SCDAU COP, Xxxxxxx Schools, 6.90%, 9/1/23 NR/NR 2,000,000 2,104,500
-------------------------------------------------------------------------------------------------------------
CA SCDAU RB, Turning Point Project, 6.50%, 11/1/31 NR/NR 4,000,000 4,037,960
-------------------------------------------------------------------------------------------------------------
CA SCDAU Revenue REF COP, Cedars-Sinai Medical
Center, Inverse Floater, 7.981%, 11/1/15/2/ A1/NR 7,800,000 8,034,000
-------------------------------------------------------------------------------------------------------------
CA SCDAU SPF RB, United Airlines-Los Angeles
International Airport, 6.25%, 10/1/35/5/ Ba1/NR 3,000,000 2,997,570
-------------------------------------------------------------------------------------------------------------
Campbell, CA RA TXAL RB, Central Xxxxxxxx
Redevelopment Project, Series B, 6.60%, 10/1/32 Baa3/BBB- 2,355,000 2,511,184
-------------------------------------------------------------------------------------------------------------
Campbell, CA REF COP, Civic Center Project,
Prerefunded, 6.75%, 10/1/17 A2/NR 1,130,000 1,160,227
-------------------------------------------------------------------------------------------------------------
Capistrano, CA USD CFD No. 92-1 SPTX Bonds,
Prerefunded, 7.10%, 9/1/21 NR/NR 3,250,000 3,857,880
-------------------------------------------------------------------------------------------------------------
Capistrano, CA USD CFD No. 98-2 SPTX Bonds,
Ladera Project, 5.70%, 9/1/20 NR/NR 5,000,000 4,976,150
-------------------------------------------------------------------------------------------------------------
Cerritos, CA XXXX XX, Los Coyotes
Redevelopment Project, 6.50%, 11/1/23 Aaa/AAA/AAA 3,000,000 3,661,920
-------------------------------------------------------------------------------------------------------------
Chino Basin, CA Regional FAU RB, Inland Empire
Utility Agency Sewer Project, MBIA Insured,
5.75%, 11/1/19 Aaa/AAA/AAA 1,000,000 1,072,140
-------------------------------------------------------------------------------------------------------------
Chino Basin, CA Regional FAU RB, Inland Empire
Utility Agency Sewer Project, MBIA Insured,
5.75%, 11/1/22 Aaa/AAA/AAA 500,000 535,680
-------------------------------------------------------------------------------------------------------------
Clovis, CA USD CAP GOB, Series D, FGIC Insured,
Zero Coupon, 5.60%, 8/1/10/1/ Aaa/AAA 2,000,000 1,372,800
-------------------------------------------------------------------------------------------------------------
Colton, CA XXXX TXAL RRB, Redevelopment
Projects, Series B, 5.875%, 8/1/27 NR/NR 3,700,000 3,743,808
-------------------------------------------------------------------------------------------------------------
Commerce, CA Community Development
Commission TXAL REF Bonds, Redevelopment
Project Xx. 0, Xxx. Xxxx, Xxxxxx X, 5.75%, 8/1/10 NR/NR 815,000 870,118
-------------------------------------------------------------------------------------------------------------
Commerce, CA Community Development
Commission TXAL REF Bonds, Redevelopment
Project Xx. 0, Xxx. Xxxx, Xxxxxx X, 6%, 8/1/21 NR/NR 2,800,000 2,847,068
-------------------------------------------------------------------------------------------------------------
Commerce, CA Joint Powers FAU Lease RB,
Community Center, Series A, 6.25%, 10/1/22 Baa2/NR 1,410,000 1,467,161
-------------------------------------------------------------------------------------------------------------
Compton, CA REF COP, Civic Center & Capital
Improvements, Series A, 5.50%, 9/1/15 NR/BBB+ 3,000,000 3,043,800
13 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS Continued
--------------------------------------------------------------------------------
Ratings:
Xxxxx'x/
S&P/Fitch Principal Market Value
(Unaudited) Amount See Note 1
-------------------------------------------------------------------------------------------------------------
California Continued
Contra Costa Cnty., CA CFD No. 91-1 SPTX
REF Bonds, 5.58%, 8/1/16 NR/NR $ 3,075,000 $ 3,078,229
-------------------------------------------------------------------------------------------------------------
Corona, CA SFM RB, Sub. Lien, Series B, 6.30%, 11/1/28 A2/NR 800,000 820,464
-------------------------------------------------------------------------------------------------------------
Davis, CA PFFAU Local Agency RRB, Xxxx Ranch Area,
Series A, 6.60%, 9/1/25 NR/NR 3,445,000 3,596,477
-------------------------------------------------------------------------------------------------------------
Duarte, CA COP, City of Hope National Medical
Center, 6.25%, 4/1/23 Baa2/AAA 4,500,000 4,844,115
-------------------------------------------------------------------------------------------------------------
East Palo Alto, CA RA TXAL RB, 6.625%, 10/1/29 NR/NR 3,280,000 3,509,239
-------------------------------------------------------------------------------------------------------------
Encinitas, CA CFD No. 1 SPTX Bonds, Series A,
5.875%, 9/1/20 NR/NR 3,500,000 3,506,090
-------------------------------------------------------------------------------------------------------------
Escondido, CA Union High SDI CAP GOB,
Escrowed to Maturity, MBIA Insured, Zero Coupon,
5.97%, 11/1/19/1/ Aaa/AAA 7,500,000 2,910,300
-------------------------------------------------------------------------------------------------------------
Escondido, CA Union High SDI CAP GOB,
MBIA Insured, Zero Coupon, 6.20%, 11/1/18/1/ Aaa/AAA 6,000,000 2,468,700
-------------------------------------------------------------------------------------------------------------
Folsom, CA CFD No. 10 SPTX Bonds, 6.875%, 9/1/19 NR/NR 8,500,000 9,193,515
-------------------------------------------------------------------------------------------------------------
Fontana, CA RA TXAL GORB, Jurupa Hills
Redevelopment Project, Prerefunded, Series A,
7.10%, 10/1/23 NR/BBB+ 1,960,000 2,097,866
-------------------------------------------------------------------------------------------------------------
Fontana, CA RA TXAL REF Bonds, Jurupa Hills
Redevelopment Project, Series A, 5.50%, 10/1/27 NR/BBB+ 3,400,000 3,352,400
-------------------------------------------------------------------------------------------------------------
Fresno, CA XXX XX RB, Central Valley Coalition
Projects, Series A, 5.50%, 7/1/30 Aaa/AAA/AAA 1,500,000 1,565,760
-------------------------------------------------------------------------------------------------------------
Fresno, CA USD GOUN, Series A, MBIA Insured,
6.40%, 8/1/16 Aaa/AAA/AAA 1,000,000 1,171,910
-------------------------------------------------------------------------------------------------------------
Glendale, CA EU RB, MBIA Insured, 5.90%, 2/1/25 Aaa/AAA/AAA 7,455,000 8,085,246
-------------------------------------------------------------------------------------------------------------
Golden West Schools FAU CAP RRB, Series A,
MBIA Insured, Zero Coupon, 6.14%, 2/1/20/1/ Aaa/AAA/AAA 2,480,000 924,594
-------------------------------------------------------------------------------------------------------------
Golden West Schools FAU CAP RRB, Series A,
MBIA Insured, Zero Coupon, 6.14%, 8/1/20/1/ Aaa/AAA/AAA 2,000,000 726,020
-------------------------------------------------------------------------------------------------------------
Huntington Park, CA XXXX Lease RRB, Wastewater
System Project, Series A, 6.20%, 10/1/25 NR/NR 3,000,000 3,101,520
-------------------------------------------------------------------------------------------------------------
Industry, CA Improvement Xxxx Xxx 0000
Assessment District No. 91-1 SPAST Bonds,
Prerefunded, 7.65% 9/2/21 NR/NR 1,750,000 1,851,500
-------------------------------------------------------------------------------------------------------------
Irvine, CA Improvement Xxxx Xxx 0000 Assessment
District No. 00-18 SPAST Bonds, 5.75%, 9/2/22 NR/NR 1,250,000 1,246,150
-------------------------------------------------------------------------------------------------------------
Irvine, CA Improvement Xxxx Xxx 0000 Assessment
District No. 00-18 SPAST Bonds, 5.85%, 9/2/26 NR/NR 1,250,000 1,242,275
-------------------------------------------------------------------------------------------------------------
Irvine, CA Improvement Xxxx Xxx 0000 Assessment
District No. 97-17 GOLB, 5.80%, 9/2/18 NR/NR 1,000,000 1,002,890
-------------------------------------------------------------------------------------------------------------
Irvine, CA Improvement Xxxx Xxx 0000 Assessment
District No. 97-17 GOLB, 5.90%, 9/2/23 NR/NR 1,000,000 1,001,970
-------------------------------------------------------------------------------------------------------------
Lake Elsinore, CA School FAU RRB, Horsethief Canyon,
5.35%, 9/1/10 NR/NR 2,000,000 2,066,880
14 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
Ratings:
Xxxxx'x/
S&P/Fitch Principal Market Value
(Unaudited) Amount See Note 1
-------------------------------------------------------------------------------------------------------------
California Continued
Lake Elsinore, CA School FAU SPTX RRB, Horsethief
Canyon, 5.625%, 9/1/16 NR/NR $ 8,010,000 $ 8,103,236
-------------------------------------------------------------------------------------------------------------
Las Virgenes, CA USD CAP Bonds, Series A, MBIA
Insured, Zero Coupon, 4.95%, 11/1/12/1/ Aaa/AAA/AAA 2,095,000 1,249,772
-------------------------------------------------------------------------------------------------------------
Las Virgenes, CA USD GOUN, Election of 1997,
Series C, FGIC Insured, Zero Coupon, 5.42%,
11/1/21/1/ Aaa/AAA/AAA 1,255,000 425,357
-------------------------------------------------------------------------------------------------------------
Lincoln, CA Improvement Xxxx Xxx 0000 XXXX
XX, 6.20%, 9/2/25 NR/NR 3,370,000 3,421,494
-------------------------------------------------------------------------------------------------------------
Long Beach, CA Harbor RRB, Series A,
FGIC Insured, 6%, 5/15/10 Aaa/AAA/AAA 500,000 565,340
-------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney
Parking Project, AMBAC Insured, Zero
Coupon, 5.94%, 3/1/12/1/ Aaa/AAA/AAA 750,000 458,467
-------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney
Parking Project, AMBAC Insured, Zero
Coupon, 6.13%, 9/1/14/1/ Aaa/AAA/AAA 6,860,000 3,597,453
-------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney
Parking Project, AMBAC Insured, Zero
Coupon, 6.30%, 9/1/16/1/ Aaa/AAA/AAA 1,495,000 686,698
-------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney
Parking Project, Zero Coupon, 6.92%, 9/1/10/1/ A2/A/A 5,960,000 3,916,972
-------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney
Parking Project, Zero Coupon, 6.95%, 9/1/11/1/ A2/A/A 5,240,000 3,249,586
-------------------------------------------------------------------------------------------------------------
Los Angeles Cnty., CA CAP COP, Disney
Parking Project, Zero Coupon, 7.03%, 9/1/13/1/ A2/A/A 4,500,000 2,424,285
-------------------------------------------------------------------------------------------------------------
Los Angeles, CA Harbor Department RB,
Series B, 5.375%, 11/1/23 Aa3/AA/AA 5,000,000 5,035,050
-------------------------------------------------------------------------------------------------------------
Los Angeles, CA USD GOUN, FGIC Insured,
7%, 7/1/15/3/,/4/ NR/AAA 2,500,000 2,884,450
-------------------------------------------------------------------------------------------------------------
Los Angeles, CA USD GOUN, FGIC Insured,
7%, 7/1/16/3/,/4/ NR/AAA 2,500,000 2,884,450
-------------------------------------------------------------------------------------------------------------
Los Angeles, CA USD GOUN, FGIC Insured,
7%, 7/1/17/3/,/4/ NR/AAA 1,500,000 1,730,670
-------------------------------------------------------------------------------------------------------------
Los Angeles, CA USD GOUN, Series A,
FGIC Insured, 6%, 7/1/15 Aaa/AAA/AAA 1,000,000 1,153,290
-------------------------------------------------------------------------------------------------------------
Modesto, CA Irrigation District FAU RRB,
Series A, MBIA Insured, 6%, 10/1/15 Aaa/AAA 5,000,000 5,417,800
-------------------------------------------------------------------------------------------------------------
Mountain View Los Altos, CA Union High SDI RB,
Series B, 6.50%, 5/1/17 Aa2/AA+ 2,000,000 2,297,420
-------------------------------------------------------------------------------------------------------------
Norco, CA CDD No. 97-1 SPTX Bonds, 7.10%, 10/1/30 NR/NR 1,320,000 1,419,739
-------------------------------------------------------------------------------------------------------------
Oakland, CA RA TXAL REF Bonds, MBIA Insured,
5.95%, 9/1/19/4/ Aaa/AAA 8,600,000 8,950,278
-------------------------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No. 1 SPTX Bonds,
Ladera Ranch, Series A, 6.25%, 8/15/30 NR/NR 2,000,000 2,049,600
-------------------------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No. 88-1 SPTX Bonds,
Aliso Viejo, Prerefunded, Series A, 7.10%, 8/15/05 NR/AAA 1,440,000 1,534,579
15 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS Continued
--------------------------------------------------------------------------------
Ratings:
Xxxxx'x/
S&P/Fitch Principal Market Value
(Unaudited) Amount See Note 1
-------------------------------------------------------------------------------------------------------------
California Continued
Orange Cnty., CA CFD No. 88-1 SPTX Bonds,
Aliso Viejo, Prerefunded, Series A, 7.35%,
8/15/18 NR/AAA $ 7,000,000 $ 7,476,070
-------------------------------------------------------------------------------------------------------------
Orange Cnty., CA CFD No. 99-1 SPTX Bonds,
Series A, 6.70%, 8/15/29 NR/NR 2,250,000 2,418,525
-------------------------------------------------------------------------------------------------------------
Orange Cnty., CA Improvement Xxxx Xxx 0000
Assessment District No. 88-1 SPAST GOB,
6.25%, 9/2/18 NR/NR 2,130,000 2,184,017
-------------------------------------------------------------------------------------------------------------
Oxnard, CA USD GOUN, Series E, FGIC
Insured, 5.90%, 8/1/26 Aaa/AAA/AAA 2,540,000 2,677,973
-------------------------------------------------------------------------------------------------------------
Oxnard, CA USD GOUN, Series E, FGIC
Insured, 5.90%, 8/1/30 Aaa/AAA/AAA 2,180,000 2,292,575
-------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Bonds, Los Medanos
Community Development Project,
AMBAC Insured, 5.75%, 8/1/16 Aaa/AAA/AAA 720,000 782,129
-------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Bonds, Los Medanos
Community Development Project,
AMBAC Insured, 5.80%, 8/1/17 Aaa/AAA/AAA 1,525,000 1,654,152
-------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Bonds, Los Medanos
Community Development Project,
AMBAC Insured, 5.85%, 8/1/18 Aaa/AAA/AAA 1,615,000 1,752,598
-------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Bonds, Los Medanos
Community Development Project,
AMBAC Insured, Zero Coupon, 6.10%, 8/1/20/1/ Aaa/AAA/AAA 5,150,000 1,855,751
-------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL Bonds, Los Medanos
Community Development Project,
AMBAC Insured, Zero Coupon, 5.92%, 8/1/28/1/ Aaa/AAA/AAA 5,000,000 1,132,900
-------------------------------------------------------------------------------------------------------------
Pittsburg, CA RA TXAL REF Bonds, Los
Medanos Community Development Project,
Sub. Lien, 6.20%, 8/1/19 NR/BBB 3,500,000 3,644,235
-------------------------------------------------------------------------------------------------------------
Placentia, CA XXXX SPTX Bonds, Jr. Lien,
Series B, 6.60%, 9/1/15 NR/NR 1,600,000 1,636,800
-------------------------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series A, 7.60%, 5/1/23 Aaa/AAA 7,000,000 9,012,570
-------------------------------------------------------------------------------------------------------------
Pomona, CA SFM RRB, Escrowed to Maturity,
Series B, 7.50%, 8/1/23 Aaa/AAA 500,000 642,580
-------------------------------------------------------------------------------------------------------------
Pomona, CA USD GORB, Series A, MBIA
Insured, 6.15%, 8/1/15 Aaa/AAA 2,500,000 2,853,450
-------------------------------------------------------------------------------------------------------------
Pomona, CA USD REF GOUN, Series A,
MBIA Insured, 6.45%, 8/1/22 Aaa/AAA/AAA 1,000,000 1,210,050
-------------------------------------------------------------------------------------------------------------
Port Oakland, CA POAU RB, Series G,
MBIA Insured, 5.375%, 11/1/25 Aaa/AAA/AAA 10,650,000 10,811,348
-------------------------------------------------------------------------------------------------------------
Port Oakland, CA RB, Series 666A, 8.175%,
11/1/15/3/,/4/ NR/NR 2,500,000 2,859,700
-------------------------------------------------------------------------------------------------------------
Port Oakland, CA RB, Series 666B, 8.425%,
11/1/16/3/,/4/ NR/NR 2,500,000 2,859,275
-------------------------------------------------------------------------------------------------------------
Redding, CA Electric System Revenue COP,
FGIC Insured, Inverse Floater, 8.549%,
6/1/19/2/ Aaa/AAA/AAA 5,150,000 5,529,813
16 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
Ratings:
Xxxxx'x/
S&P/Fitch Principal Market Value
(Unaudited) Amount See Note 1
-----------------------------------------------------------------------------------------------------------
California Continued
Redding, CA Electric System Revenue COP,
MBIA Insured, Inverse Floater, 10.232%,
7/8/22/2/ Aaa/AAA $ 3,000,000 $ 3,817,500
-------------------------------------------------------------------------------------------------------------
Richmond, CA Improvement Xxxx Xxx 0000
Reassessment District No. 855 SPAST REF
Bonds, 6.60%, 9/2/19 NR/NR 1,200,000 1,236,816
-------------------------------------------------------------------------------------------------------------
Richmond, CA Wastewater RB, FGIC Insured,
5.80%, 8/1/16 Aaa/AAA/AAA 765,000 835,151
-------------------------------------------------------------------------------------------------------------
Richmond, CA Wastewater RB, FGIC Insured,
5.80%, 8/1/18 Aaa/AAA/AAA 3,315,000 3,590,907
-------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA XXXX REF COP, 5.75%,
5/15/19 NR/BBB- 2,100,000 2,085,930
-------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA XXXX TXAL RRB,
Redevelopment Projects, Series A, 5.625%,
10/1/3/3/ Baa2/BBB- 3,850,000 3,834,908
-------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA REF COP, Air Force
Village West, Inc., Prerefunded, Series A,
8.125%, 6/15/12 NR/NR 3,000,000 3,193,620
-------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA REF COP, Air Force
Village West, Inc., Series A, 8.125%,
6/15/20 NR/NR 3,000,000 3,197,160
-------------------------------------------------------------------------------------------------------------
Riverside Cnty., CA SFM RB, Escrowed to
Maturity, Series A, 7.80%, 5/1/21 Aaa/AAA 5,285,000 7,075,505
-------------------------------------------------------------------------------------------------------------
Rocklin, CA USD CFD No. 1 SPTX CAP Bonds,
AMBAC Insured, Zero Coupon, 5.44%, 9/1/21/1/ Aaa/NR/AAA 2,890,000 980,577
-------------------------------------------------------------------------------------------------------------
Roseville, CA SPTX RB, Woodcreek West
Community Facility No. 1 Project, 5.875%,
9/1/08 NR/NR 1,235,000 1,315,016
-------------------------------------------------------------------------------------------------------------
Roseville, CA SPTX RB, Woodcreek West
Community Facility No. 1 Project, 6.50%,
9/1/15 NR/NR 1,500,000 1,609,425
-------------------------------------------------------------------------------------------------------------
Roseville, CA SPTX RB, Woodcreek West
Community Facility No. 1 Project, 6.70%,
9/1/25 NR/NR 1,750,000 1,867,618
-------------------------------------------------------------------------------------------------------------
Sacramento Cnty., CA Sanitation District
FAU RRB, Series A, 6%, 12/1/15 Aa3/AA/AA 1,000,000 1,117,790
-------------------------------------------------------------------------------------------------------------
Sacramento Cnty., CA SFM RB, Escrowed to
Maturity, 8%, 7/1/16/6/ Aaa/AAA 12,810,000 17,050,110
-------------------------------------------------------------------------------------------------------------
Sacramento, CA Cogeneration Authority RB,
Procter & Xxxxxx Project, 6.50%, 7/1/14 NR/AAA 5,000,000 5,734,000
-------------------------------------------------------------------------------------------------------------
Sacramento, CA MUD Electric RRB, FGIC
Insured, Inverse Floater, 9.832%, 8/15/18/2/ Aaa/AAA/AAA 7,000,000 7,638,750
-------------------------------------------------------------------------------------------------------------
Sacramento, CA PAU Cogeneration Project RB,
MBIA-IBC Insured, 6%, 7/1/22 Aaa/AAA/AAA 6,800,000 7,276,476
-------------------------------------------------------------------------------------------------------------
Sacramento, CA USD GOUN, Series A,
5.875%, 7/1/21 Aa3/NR/AA 1,500,000 1,634,535
-------------------------------------------------------------------------------------------------------------
Sacramento, CA USD GOUN, Series A,
5.875%, 7/1/23 Aa3/NR/AA 1,000,000 1,088,300
-------------------------------------------------------------------------------------------------------------
Salinas Valley, CA Solid Waste Authority RB,
5.80%, 8/1/27 Baa3/BBB 1,665,000 1,669,029
-------------------------------------------------------------------------------------------------------------
San Bernardino Cnty., CA COP, Medical Center
Financing Project, MBIA Insured, 5.50%, 8/1/17 Aaa/AAA 5,250,000 5,752,845
17 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS Continued
--------------------------------------------------------------------------------
Ratings:
Xxxxx'x/
S&P/Fitch Principal Market Value
(Unaudited) Amount See Note 1
-------------------------------------------------------------------------------------------------------------
California Continued
San Diego Cnty., CA COP, MBIA Insured,
Inverse Floater, 10.251%, 11/18/19/2/ Aaa/AAA/AA- $ 2,000,000 $ 2,067,500
-------------------------------------------------------------------------------------------------------------
San Diego Cnty., CA Water Authority
Revenue COP, Prerefunded, Series 00-X, XXXX
Insured, Inverse Floater, 9.42%, 4/8/21/2/ Aaa/AAA 4,000,000 5,015,000
-------------------------------------------------------------------------------------------------------------
San Francisco, CA Bay Area Rapid Transit
District Sales Tax RRB, AMBAC Insured, 5%,
7/1/26 Aaa/AAA/AAA 3,975,000 3,916,369
-------------------------------------------------------------------------------------------------------------
San Francisco, CA Bay Area Rapid Transit
District Sales Tax RRB, AMBAC Insured, 6.75%,
7/1/11 Aaa/AAA/AAA 1,000,000 1,209,110
-------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Second Series Issue
13-B, MBIA Insured, 8%, 5/1/07 Aaa/AAA 1,140,000 1,351,082
-------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. International
Airport Commission RB, Second Series Issue
14-A, MBIA Insured, 8%, 5/1/07 Aaa/AAA 1,290,000 1,528,856
-------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. RA Lease
RB, CAP, Xxxxxx X. Xxxxxxx Project, Zero Coupon,
5.36%, 7/1/10/1/ A1/AA-/A+ 4,500,000 3,027,420
-------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. RA RB, CFD
No. 6, Mission Bay South, Series A, 6.125%,
8/1/31 NR/NR 1,500,000 1,512,270
-------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. RA RB, CFD
No. 6, Mission Bay South, Series B, 6.125%,
8/1/31 NR/NR 1,500,000 1,512,270
-------------------------------------------------------------------------------------------------------------
San Francisco, CA City &Cnty. Redevelopment
FAU TXAL CAP REF Bonds, Redevelopment
Projects, Series C, Zero Coupon, 5.89%,
8/1/12/1/ Aaa/AAA/AAA 1,750,000 1,053,763
-------------------------------------------------------------------------------------------------------------
San Francisco, CA City &Cnty. Redevelopment
FAU TXAL CAP REF Bonds, Redevelopment
Projects, Series C, Zero Coupon, 5.99%,
8/1/13/1/ Aaa/AAA/AAA 750,000 421,755
-------------------------------------------------------------------------------------------------------------
San Francisco, CA City & Cnty. Redevelopment
FAU TXAL CAP REF Bonds, Redevelopment
Projects, Series C, Zero Coupon, 5.81%,
8/1/14/1/ Aaa/AAA/AAA 1,425,000 754,181
-------------------------------------------------------------------------------------------------------------
San Xxxxxxx Hills, CA Transportation
Corridor Agency Xxxx Xxxx XX, Xx. Xxxx, 0%,
1/1/33 Baa3/NR 8,000,000 7,201,360
-------------------------------------------------------------------------------------------------------------
San Xxxxxxx Hills, CA Transportation
Corridor Agency Toll Road RB, Sr. Lien,
Escrowed to Maturity, Zero Coupon, 5.94%,
1/1/23/1/ Aaa/AAA/AAA 21,250,000 6,924,100
-------------------------------------------------------------------------------------------------------------
San Xxxxxxx Hills, CA Transportation
Corridor Agency Toll Road RB, Sr. Lien,
Prerefunded, 6.75%, 1/1/32 Aaa/AAA/AAA 10,500,000 11,291,280
-------------------------------------------------------------------------------------------------------------
San Jose, CA Airport RB, Series A, FGIC
Insured, 5%, 3/1/31/7/ Aaa/AAA/AAA 3,000,000 2,943,060
-------------------------------------------------------------------------------------------------------------
Santa Ana, CA FAU RRB, Inner-City
Commuter, Series C, 5.60%, 9/1/19 NR/BBB 3,060,000 3,055,349
-------------------------------------------------------------------------------------------------------------
Santa Ana, CA FAU RRB, Mainplace Project,
Series D, 5.50%, 9/1/15 NR/NR 1,000,000 1,001,010
18 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
Ratings:
Xxxxx'x/
S&P/Fitch Principal Market Value
(Unaudited) Amount See Note 1
-------------------------------------------------------------------------------------------------------------
California Continued
Santa Ana, CA FAU RRB, Mainplace Project,
Series D, 5.60%, 9/1/19 NR/NR $ 1,000,000 $ 1,009,830
-------------------------------------------------------------------------------------------------------------
Santa Ana, CA USD GOUN, FGIC Insured,
5.70%, 8/1/22 Aaa/AAA/AAA 2,560,000 2,739,405
-------------------------------------------------------------------------------------------------------------
Santa Xxxxx Cnty., CA Mountain View SDI
GOUN, Series B, FSA Insured, 6.125%, 7/1/25 Aaa/AAA/AAA 1,065,000 1,181,905
-------------------------------------------------------------------------------------------------------------
Santa Cruz, CA Xxxx Xxxx SDI GOUN, Series B,
FGIC Insured, 6%, 8/1/29 Aaa/AAA/AAA 1,000,000 1,099,300
-------------------------------------------------------------------------------------------------------------
Santaluz, CA CFD Xx. 0 XXXX Xxxxx,
Xxxxxxxxxxx Xxxx Xx. 0, 6.375%, 9/1/30 NR/NR 5,000,000 5,089,000
-------------------------------------------------------------------------------------------------------------
South Orange Cnty., CA XXXX SPTX RB, Foothill
Area, Series C, FGIC Insured, 8%, 8/15/08 Aaa/AAA/AAA 1,500,000 1,889,565
-------------------------------------------------------------------------------------------------------------
Southern CA Xxxxxxxxxxxx Xxxxx Xxxxxxxx XXX,
Xxxxxxx Floater, 7.267%, 10/30/20/2/ Aa2/AA 4,500,000 4,719,375
-------------------------------------------------------------------------------------------------------------
Southern CA PPAU Transmission Project RB,
Inverse Floater, 8.471%, 7/1/12/2/,/5/ Aa/NR 4,000,000 4,320,000
-------------------------------------------------------------------------------------------------------------
Stockton, CA CFD Xx. 00-0 XXXX XXX, Xxxxxxxxx
Xxxxxxx, 6.20%, 8/1/15 NR/NR 3,750,000 3,916,650
-------------------------------------------------------------------------------------------------------------
Tejon Ranch, CA PFFAU CFD No. 1 SPTX Bonds,
Series A, 7.20%, 9/1/30 NR/NR 3,000,000 3,091,260
-------------------------------------------------------------------------------------------------------------
Tustin, CA USD CFD No. 88-1 SPTX RB, Prerefunded,
Series B, 6.375%, 9/1/21 NR/NR 3,500,000 4,076,975
-------------------------------------------------------------------------------------------------------------
Tustin, CA USD CFD No. 97-1 SPTX RB,
6.375%, 9/1/35 NR/NR 2,000,000 2,063,100
-------------------------------------------------------------------------------------------------------------
Ukiah, CA USD CAP GOUN, FGIC Insured,
Zero Coupon, 5.54%, 8/1/19/1/ Aaa/AAA/AAA 2,270,000 872,225
-------------------------------------------------------------------------------------------------------------
University of CA Regents RB, Multiple Purpose
Projects, Prerefunded, Series A, 6.875%, 9/1/16 NR/AAA 1,950,000 2,077,335
-------------------------------------------------------------------------------------------------------------
West Covina, CA COP, Queen of the Valley
Hospital, Prerefunded, 6.50%, 8/15/19 A2/NR 1,120,000 1,259,608
---------------
500,595,970
-------------------------------------------------------------------------------------------------------------
U.S. Possessions--6.1%
Guam PAU RB, Prerefunded, Series A, 6.625%, 10/1/14 NR/AAA 2,000,000 2,260,600
-------------------------------------------------------------------------------------------------------------
PR Childrens Trust Fund Asset Backed RB, 6%, 7/1/26 Aa3/A/A+ 3,000,000 3,181,440
-------------------------------------------------------------------------------------------------------------
PR CMWLTH Aqueduct&Sewer Authority RRB,
MBIA-IBC Insured, 6.25%, 7/1/13 Aaa/AAA 1,000,000 1,182,870
-------------------------------------------------------------------------------------------------------------
PR CMWLTH GOUN, Escrowed to Maturity,
MBIA Insured, Inverse Floater, 8.384%, 7/1/08/2/,/5/ Aaa/AAA 5,000,000 5,318,750
-------------------------------------------------------------------------------------------------------------
PR HFA SFM RB, Affordable Housing Mtg. Portfolio I,
6.25%, 4/1/29 Aaa/AAA 2,295,000 2,394,626
-------------------------------------------------------------------------------------------------------------
PR Industrial, Tourist, Educational, Medical &
Environmental Control Facilities RB, Cogen
Facilities AES Puerto Rico Project, 6.625%, 6/1/26 Baa2/NR/BBB 5,510,000 5,992,896
19 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS Continued
--------------------------------------------------------------------------------
Ratings:
Xxxxx'x/
S&P/Fitch Principal Market Value
(Unaudited) Amount See Note 1
-------------------------------------------------------------------------------------------------------------
U.S. Possessions Continued
PR Industrial, Tourist, Educational, Medical &
Environmental Control Facilities RB, Mennonite
General Hospital Project, Series A, 6.50%, 7/1/12 NR/BBB- $ 2,880,000 $ 2,846,621
-------------------------------------------------------------------------------------------------------------
Virgin Islands XXXX XX, Series A, 6.375%, 10/1/19 NR/BBB- 4,515,000 4,877,555
-------------------------------------------------------------------------------------------------------------
Virgin Islands XXXX XX, Xxx Xxxx, Xxxxxx X, 0%, 10/1/22 NR/NR 5,150,000 5,146,447
----------------
33,201,805
----------------
Total Municipal Bonds and Notes (Cost $495,856,748) 533,797,775
=============================================================================================================
Short-Term Tax-Exempt Obligations--0.8%
CA PCFAU SWD RR RB, Shell Martinez Refining,
Series A, 2.60%, 8/1/01/4/ 1,300,000 1,300,000
-------------------------------------------------------------------------------------------------------------
Irvine Ranch, CA Water District COP, CAP
Improvement Project, 2.60%, 8/1/01/4/ 1,000,000 1,000,000
-------------------------------------------------------------------------------------------------------------
Rancho Mirage, CA Join Xxxxxx XX COP, Eisenhower
Medical Center, Series B, MBIA Insured, 2.55%, 8/1/01/4/ 2,000,000 2,000,000
----------------
Total Short-Term Tax-Exempt Obligations (Cost $4,300,000) 4,300,000
-------------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $500,156,748) 99.1% 538,097,775
-------------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.9 4,701,831
-------------------------------------
Net Assets 100.0% $ 542,799,606
=====================================
Footnotes to Statement of Investments
To simplify the listings of securities, abbreviations are used per the table
below:
CAP Capital Appreciation PCFAU Pollution Control Finance Authority
CDAU Communities Development Authority XXXX Public Finance Authority
CDD Community Development District PFFAU Public Facilities Finance Authority
CFD Community Facilities District POAU Port Authority
CMWLTH Commonwealth PPAU Public Power Authority
COP Certificates of Participation PWBL Public Works Board Lease
ED Economic Development RA Redevelopment Agency
EU Electric Utilities RB Revenue Bonds
FA Facilities Authority REF Refunding
FAU Finance Authority RR Resource Recovery
GOB General Obligation Bonds RRB Revenue Refunding Bonds
GOLB General Obligation Limited Bonds SCDAU Statewide Communities Development Authority
GORB General Obligation Refunding Bonds SDI School District
GOUN General Obligation Unlimited Nts. SFM Single Family Mtg.
HAU Housing Authority SPAST Special Assessment
HF Health Facilities SPF Special Facilities
HFA Housing Finance Agency SPTX Special Tax
MH Multifamily Housing SWD Solid Waste Disposal
MUD Municipal Utility District TXAL Tax Allocation
PAU Power Authority USD Unified School District
20 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
Footnotes to Statement of Investments Continued
1. Zero coupon bond reflects the effective yield on the date of purchase.
2. Represents the current interest rate for a variable rate bond known as an
"inverse floater". See Note 1 of Notes to Financial Statements.
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 $20,840,209 or 3.84% of the Fund's net
assets as of July 31, 2001.
4. Represents the current interest rate for a variable rate security.
5. Identifies issues considered to be illiquid--See Note 6 of Notes to Financial
Statements.
6. Securities with an aggregate market value of $1,996,500 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
7. When-issued security to be delivered and settled after July 31, 2001.
As of July 31, 2001, securities subject to the alternative minimum tax amount to
$74,509,360 or 13.73% 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 Tax $ 79,393,216 14.8%
Special Assessment 76,273,924 14.2
Single Family Housing 53,302,365 9.9
General Obligation 51,671,109 9.6
Electric Utilities 50,655,281 9.4
Highways/Railways 50,073,948 9.3
Municipal Leases 44,161,149 8.2
Marine/Aviation Facilities 32,517,041 6.0
Hospital/Healthcare 24,692,382 4.6
Water Utilities 17,335,045 3.2
Sales Tax Revenue 15,149,480 2.8
Not-for-Profit Organization 9,140,161 1.7
Adult Living Facilities 8,476,710 1.6
Education 7,793,074 1.5
Sewer Utilities 7,151,668 1.3
Pollution Control 3,979,090 0.7
Higher Education 3,081,625 0.6
Resource Recovery 2,244,389 0.4
Multifamily Housing 1,006,118 0.2
------------------------------
Total $ 538,097,775 100.0%
==============================
See accompanying Notes to Financial Statements.
21 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES July 31, 2001
--------------------------------------------------------------------------------
===================================================================================================
Assets
Investments, at value (cost $500,156,748)--see accompanying statement $ 538,097,775
---------------------------------------------------------------------------------------------------
Cash 590,875
---------------------------------------------------------------------------------------------------
Receivables and other assets:
Interest 7,791,728
Shares of beneficial interest sold 1,504,859
Daily variation on futures contracts 2,656
Other 7,743
-------------------
Total assets 547,995,636
===================================================================================================
Liabilities
Payables and other liabilities:
Investments purchased on a when-issued basis 2,918,670
Dividends 1,381,697
Shares of beneficial interest redeemed 588,872
Trustees' compensation 149,915
Distribution and service plan fees 112,066
Shareholder reports 22,257
Transfer and shareholder servicing agent fees 2,211
Other 20,342
-------------------
Total liabilities 5,196,030
===================================================================================================
Net Assets $ 542,799,606
===================================================================================================
Composition of Net Assets
Paid-in capital $ 530,936,309
---------------------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment income (1,096,906)
---------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investment transactions (24,983,480)
---------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments 37,943,683
--------------------
Net Assets $ 542,799,606
====================
===================================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redempton price per share (based on net assets of
$387,387,516 and 36,921,802 shares of beneficial interest outstanding) $10.49
Maximum offering price per share (net asset value plus sales charge of
4.75% of offering price) $11.01
---------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net
assets of $137,306,782 and 13,080,051 shares of beneficial interest
outstanding) $10.50
---------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net
assets of $18,105,308 and 1,728,053 shares of beneficial interest
outstanding) $10.48
See accompanying Notes to Financial Statements.
22 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Year Ended July 31, 2001
--------------------------------------------------------------------------------
================================================================================
Investment Income
Interest $ 28,857,115
================================================================================
Expenses
Management fees 2,660,807
--------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 844,784
Class B 1,258,468
Class C 144,599
--------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 180,934
--------------------------------------------------------------------------------
Shareholder reports 56,726
--------------------------------------------------------------------------------
Custodian fees and expenses 37,678
--------------------------------------------------------------------------------
Trustees' compensation 14,700
--------------------------------------------------------------------------------
Other 99,113
-------------
Total expenses 5,297,809
Less reduction to excess expenses (18,696)
Less reduction to custodian expenses (21,754)
-------------
Net expenses 5,257,359
================================================================================
Net Investment Income 23,599,756
================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 353,409
Closing of futures contracts (727,664)
-------------
Net realized gain (loss) (374,255)
--------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation)
on investments 23,394,405
-------------
Net realized and unrealized gain (loss) 23,020,150
================================================================================
Net Increase in Net Assets Resulting from Operations $ 46,619,906
=============
See accompanying Notes to Financial Statements.
23 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
Year Ended July 31, 2001 2000
================================================================================
Operations
Net investment income (loss) $ 23,599,756 $ 20,969,130
--------------------------------------------------------------------------------
Net realized gain (loss) (374,255) (23,960,825)
--------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 23,394,405 2,384,079
---------------------------
Net increase (decrease) in net assets resulting from 46,619,906 (607,616)
operations
================================================================================
Dividends and/or Distributions to Shareholders
Dividends from net investment income:
Class A (17,599,604) (15,078,776)
Class B (5,463,506) (5,199,438)
Class C (628,592) (660,538)
================================================================================
Beneficial Interest Transactions
Net increase (decrease) in net assets resulting
from beneficial interest transactions:
Class A 100,609,085 (31,305,891)
Class B 25,967,255 (21,177,899)
Class C 4,749,300 (3,413,724)
================================================================================
Net Assets
Total increase (decrease) 154,253,844 (77,443,882)
--------------------------------------------------------------------------------
Beginning of period 388,545,762 465,989,644
---------------------------
End of period [including undistributed
(overdistributed) net investment income of
$(1,096,906) and $(1,058,494), respectively] $542,799,606 $388,545,762
===========================
See accompanying Notes to Financial Statements.
24 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Class A Year Ended July 31, 2001 2000 1999 1998
1997
===============================================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 10.11 $ 10.57 $ 10.92 $ 10.94 $ 10.39
---------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .53 .53 .53 .54 .58
Net realized and unrealized gain (loss) .38 (.46) (.35) .06 .54
-------------------------------------------------------------------
Total income (loss) from
investment operations .91 .07 .18 .60 1.12
---------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income (.53) (.53) (.53) (.54) (.57)
Distributions from net realized gain -- -- -- (.08) --
-------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.53) (.53) (.53) (.62) (.57)
---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.49 $ 10.11 $ 10.57 $ 10.92 $ 10.94
===================================================================
===============================================================================================================
Total Return, at Net Asset Value/1/ 9.17% 0.86% 1.59% 5.66% 11.11%
===============================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 387,388 $ 270,494 $ 316,363 $ 300,717 $ 298,162
---------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 344,808 $ 283,025 $ 314,094 $ 297,372 $ 289,439
---------------------------------------------------------------------------------------------------------------
Ratios to average net assets:/2/
Net investment income 5.08% 5.34% 4.79% 4.91% 5.49%
Expenses 0.88% 0.91% 0.91% 0.92%3 0.94%3
Expenses, net of reduction to excess
and custodian expenses 0.87% N/A N/A N/A N/A
---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 48% 35% 31% 31%
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Sales
charges are not reflected in the total returns. Total returns are not annualized
for periods of less than one full year.
2. Annualized for periods of less than one full year.
3. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
25 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS Continued
--------------------------------------------------------------------------------
Class B Year Ended July 31, 2001 2000 1999 1998
1997
======================================================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 10.11 $ 10.57 $ 10.92 $ 10.94 $ 10.39
----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45 .45 .45 .46 .49
Net realized and unrealized gain (loss) .39 (.45) (.35) .06 .55
-----------------------------------------------------------------------
Total income (loss) from
investment operations .84 -- .10 .52 1.04
----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.45) (.46) (.45) (.46)
(.49)
Distributions from net realized gain -- -- -- (.08) --
-----------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.45) (.46) (.45) (.54)
(.49)
----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.50 $ 10.11 $ 10.57 $ 10.92 $ 10.94
=======================================================================
======================================================================================================================
Total Return, at Net Asset Value/1/ 8.46% 0.10% 0.82% 4.86%
10.27%
======================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 137,307 $ 105,393 $ 132,763 $ 115,444 $ 82,474
----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 126,060 $ 113,936 $ 129,538 $ 99,266 $ 65,192
----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:/2/
Net investment income 4.33% 4.57% 4.03% 4.21%
4.70%
Expenses 1.63% 1.67% 1.67% 1.67%/3/
1.70%/3/
Expenses, net of reduction to excess and
custodian expenses 1.62% N/A N/A N/A N/A
----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 48% 35% 31%
31%
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Sales
charges are not reflected in the total xxxxxxx.Xxxxx returns are not annualized
for periods of less than one full year.
2. Annualized for periods of less than one full year.
3. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
26 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
Class C Year Ended July 31, 2001 2000 1999 1998 1997
===================================================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 10.09 $ 10.55 $ 10.91 $ 10.93 $
10.38
-------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45 .45 .45 .46
.49
Net realized and unrealized gain (loss) .39 (.45) (.36) .06
.55
-----------------------------------------------------------------
Total income (loss) from investment operations .84 -- .09 .52
1.04
-------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.45) (.46) (.45) (.46)
(.49)
Distributions from net realized gain -- -- -- (.08)
--
-----------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.45) (.46) (.45) (.54)
(.49)
-------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.48 $ 10.09 $ 10.55 $ 10.91 $
10.93
=================================================================
===================================================================================================================
Total Return, at Net Asset Value/1/ 8.48% 0.10% 0.73% 4.87%
10.26%
===================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 18,105 $ 12,659 $ 16,864 $ 11,340 $
5,969
-------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 14,489 $ 14,424 $ 14,672 $ 8,614 $
3,869
-------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:/2/
Net investment income 4.32% 4.58% 4.03% 4.24%
4.66%
Expenses 1.63% 1.67% 1.67% 1.66%/3/
1.70%/3/
Expenses, net of reduction to excess and
custodian expenses 1.62% N/A N/A N/A
N/A
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 20% 48% 35% 31%
31%
1. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Sales
charges are not reflected in the total returns. Total returns are not annualized
for periods of less than one full year.
2. Annualized for periods of less than one full year.
3. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
27 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies
Xxxxxxxxxxx California Municipal Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company. The Fund's investment objective is to seek as
high a level of current interest income exempt from federal and California
income taxes for individual investors as is consistent with preservation of
capital. The Fund's investment advisor is OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B and Class C shares. Class A shares are
sold at their offering price, which is normally net asset value plus 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 or Forward Commitment 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 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, 2001, the Fund had entered into net outstanding when-issued or forward
commitments of $2,918,670.
28 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
Inverse Floating Rate Securities The Fund invests in inverse floating rate
securities that pay interest at a rate that varies inversely with short-term
interest rates. Certain of these securities may be leveraged, whereby the
interest rate varies inversely at a multiple of the change in short-term rates.
As interest rates rise, inverse floaters produce less current income. The price
of such securities is more volatile than comparable fixed rate securities. The
Fund intends to invest no more than 20% of its total assets in inverse floaters.
Inverse floaters amount to $54,595,085 as of July 31, 2001. Including the effect
of leverage, inverse floaters represent 9.96% of the Fund's total assets as of
July 31, 2001.
--------------------------------------------------------------------------------
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, 2001, the Fund had available for federal income tax purposes
unused capital loss carryovers as follows:
Expiring
----------------------
2006 $ 649,809
2008 4,150,343
2008/1/ 1,001,388
2008/1/ 3,309,355
2009 19,418,684
-----------
Total $28,529,579
===========
1. The capital loss carryover was acquired in connection with the Xxxxxxxxxxx
Main Street(R) California Municipal Fund merger.
--------------------------------------------------------------------------------
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, 2001, the Fund's projected benefit obligations were decreased by
$61,656 and payments of $7,802 were made to retired trustees, resulting in an
accumulated liability of $92,529 as of July 31, 2001.
29 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies Continued
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 Xxxxxxxxxxx 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
their 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, 2001, amounts have been reclassified to reflect a decrease
in overdistributed net investment income of $53,534. Paid-in capital was
decreased by the same amount. Net assets of the Fund were unaffected by the
reclassifications.
--------------------------------------------------------------------------------
Investment Income Interest income, which includes accretion of discount and
amortization of premium, is accrued as earned.
There are certain risks arising from geographic concentration in any state.
Certain revenue or tax related events in a state may impair the ability of
certain issuers of municipal securities to pay principal and interest on their
obligations.
--------------------------------------------------------------------------------
Security Transactions Security transactions are accounted for as of trade date.
Gains and losses on securities sold are determined on the basis of identified
cost.
--------------------------------------------------------------------------------
Other The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
30 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
================================================================================
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:
Year Ended July 31, 2001 Year Ended July 31, 2000
Shares Amount Shares Amount
----------------------------------------------------------------------------------------------------
Class A
Sold 4,974,826 $ 47,077,485 4,527,527 $ 45,309,638
Dividends and/or
distributions reinvested 916,212 9,522,552 875,091 8,748,882
Acquisition--Note 8 9,572,831 99,078,796 -- --
Redeemed (5,302,401) (55,069,748) (8,583,487) (85,364,411)
-------------------------------------------------------------
Net increase (decrease) 10,161,468 $ 100,609,085 (3,180,869) $ (31,305,891)
=============================================================
----------------------------------------------------------------------------------------------------
Class B
Sold 2,227,132 $ 21,577,462 1,474,529 $ 14,751,467
Dividends and/or
distributions reinvested 307,359 3,194,846 315,237 3,154,286
Acquisition--Note 8 2,673,404 27,696,468 -- --
Redeemed (2,550,931) (26,501,521) (3,927,010) (39,083,652)
-------------------------------------------------------------
Net increase (decresse) 2,656,964 $ 25,967,255 (2,137,244) $ (21,177,899)
=============================================================
---------------------------------------------------------------------------------------------------
Class C
Sold 731,737 $ 7,413,463 312,789 $ 3,130,309
Dividends and/or
distributions reinvested 34,114 353,544 40,776 407,068
Redeemed (291,949) (3,017,707) (697,604) (6,951,101)
-------------------------------------------------------------
Net increase (decrease) 473,902 $ 4,749,300 (344,039) $ (3,413,724)
=============================================================
================================================================================
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, 2001, were $100,925,498
and $104,112,785, respectively.
As of July 31, 2001, unrealized appreciation (depreciation) based on cost of
securities for federal income tax purposes of $500,904,862 was:
Gross unrealized appreciation $ 38,492,661
Gross unrealized depreciation (1,299,748)
--------------
Net unrealized appreciation (depreciation) $ 37,192,913
==============
31 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
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 over $1 billion.
Effective January 1, 2000, the Manager has voluntarily undertaken to limit its
management fees to a maximum annual rate of 0.55% of average annual net assets
for each class of shares. The Manager can withdraw that waiver at any time. The
Fund's management fee for the year ended July 31, 2001, was an annualized rate
of 0.55%.
--------------------------------------------------------------------------------
Transfer Agent Fees OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS an agreed upon per account fee.
--------------------------------------------------------------------------------
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.
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/
-----------------------------------------------------------------------------------------------------
July 31, 2001 $614,244 $126,239 $21,272 $624,812 $64,953
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B and Class C shares from its own
resources at the time of sale.
Class A Class B Class C
Contingent Deferred Contingent Deferred Contingent Deferred
Sales Charges Sales Charges Sales Charges
Year Ended Retained by Distributor Retained by Distributor Retained by Distributor
---------------------------------------------------------------------------------------------
July 31, 2001 $9,256 $287,397 $8,860
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 0.25% of average annual net assets of Class A
shares purchased. The Distributor makes payments to plan recipients quarterly at
an annual rate not to exceed 0.25% of the average annual net assets consisting
of Class A shares of the Fund. For the year ended July 31, 2001, payments under
the Class A plan totaled $844,784, all of which were paid by the
32 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
Distributor to recipients, and included $29,165 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 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, 2001, were
as follows:
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
-------------------------------------------------------------------------------------------
Class B Plan $1,258,468 $981,848 $4,084,207 2.97%
Class C Plan 144,599 29,723 258,340 1.43
================================================================================
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 market changes as it may
be more efficient or cost effective than actually buying fixed income
securities.
33 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
================================================================================
5. Futures Contracts Continued
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily xxxx to market for variation margin. Realized gains
and losses are reported on the Statement of Operations as closing and expiration
of futures contracts.
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, 2001, the Fund had outstanding futures contracts as follows:
Unrealized
Expiration Number of Valuation as of Appreciation
Contract Description Date Contracts July 31, 2001 (Depreciation)
----------------------------------------------------------------------------------------------
Contracts to Purchase
U.S. Long Bond 9/19/01 17 $1,768,531 $2,656
================================================================================
6. Illiquid Securities
As of July 31, 2001, 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,
2001, was $12,636,320, which represents 2.33% of the Fund's net assets.
================================================================================
7. 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 Xxxxxxxxxxx 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 or at July 31,
2001.
34 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
================================================================================
8. Acquisition of Xxxxxxxxxxx Main Street(R)California Municipal Fund
On December 8, 2000, the Fund acquired all of the net assets of Xxxxxxxxxxx Main
Street California Municipal Fund, pursuant to an Agreement and Plan of
Reorganization approved by the Xxxxxxxxxxx Main Street California Municipal Fund
shareholders on February 29, 2000. The Fund issued (at an exchange ratio of
1.190268 for Class A and 1.187776 for Class B of the Fund to one share of
Xxxxxxxxxxx California Municipal Fund) 9,572,831 and 2,673,404, shares of
beneficial interest for Class A and Class B, respectively, valued at $99,078,796
and $27,696,468 in exchange for the net assets, resulting in combined Class A
net assets of $378,820,970, Class B net assets of $134,878,021 and Class C net
assets of $14,079,666 on December 8, 2000. The net assets acquired included net
unrealized appreciation of $6,378,401 and unused capital loss carryover of
$6,785,477 potential utilization subject to tax limitation. The exchange
qualified as a tax-free reorganization for federal income tax purposes.
35 XXXXXXXXXXX CALIFORNIA MUNICIPAL FUND
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.
Xxxxx'x 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 risk "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.
Xxxxx'x 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 Xxxxx'x
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.
& 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 by a 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.
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.
Appendix B
---------------------------------------------------------------------------------------------------------------------------------------
Industry Classifications
---------------------------------------------------------------------------------------------------------------------------------------
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads& Truckers
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Long Distance
Electrical Equipment Telephone - Utility
Electronics Textile, Apparel& Home Furnishings
Energy Services Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
--------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of Class A shares2 of the Xxxxxxxxxxx funds or the contingent
deferred sales charge that may apply to Class A, Class B or Class C shares may be waived.3 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 Xxxxxxxxxxx municipal funds,
because shares of those funds are not available for purchase by or on behalf of retirement plans. Other waivers apply only to
shareholders of certain funds.
For the purposes of some of the waivers described below and in the Prospectus and Statement of Additional Information of the
applicable Xxxxxxxxxxx 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 plans4
4) Group Retirement Plans5
5) 403(b)(7) custodial plan accounts
6) Individual Retirement Accounts ("IRAs"), including traditional IRAs, Xxxx 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
Xxxxxxxxxxx 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.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
---------------------------------------------------------------------------------------------------------------------------------------
Purchases of Class A Shares of Xxxxxxxxxxx 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 Xxxxxxxxxxx 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 (24 months in
the case of Xxxxxxxxxxx Rochester National Municipals and Rochester Fund Municipals) of the beginning 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."6 This
waiver provision applies to:
|_| Purchases of Class A shares aggregating $1 million or more.
|_| Purchases of Class A shares by a Retirement Plan that was permitted to purchase such shares at net asset value but subject
to a contingent deferred sales charge prior to March 1, 2001. That included plans (other than XXX or 403(b)(7) Custodial
Plans) that: 1) bought shares costing $500,000 or more, 2) had at the time of purchase 100 or more eligible employees or
total plan assets of $500,000 or more, or 3) certified to the Distributor that it projects to have annual plan purchases
of $200,000 or more.
|_| Purchases by an OppenheimerFunds-sponsored Rollover XXX, if the purchases are made:
1) through a broker, dealer, bank or registered investment adviser that has made special arrangements with the
Distributor for those purchases, or
2) by a direct rollover of a distribution from a qualified Retirement Plan if the administrator of that Plan has made
special arrangements with the Distributor for those purchases.
|_| Purchases of Class A shares by Retirement Plans that have any of the following record-keeping arrangements:
1) The record keeping is performed by Xxxxxxx Xxxxx Xxxxxx Xxxxxx &Smith, Inc. ("Xxxxxxx Xxxxx") on a daily valuation
basis for the Retirement Plan. On the date the plan sponsor signs the record-keeping service agreement with Xxxxxxx
Xxxxx, the Plan must have $3 million or more of its assets invested in (a) mutual funds, other than those advised or
managed by Xxxxxxx Xxxxx Investment Management, L.P. ("MLIM"), that are made available under a Service Agreement
between Xxxxxxx Xxxxx and the mutual fund's principal underwriter or distributor, and (b) funds advised or managed
by MLIM (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 Xxxxxxx Xxxxx. On the date the plan
sponsor signs the record keeping service agreement with Xxxxxxx Xxxxx, 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 Xxxxxxx Xxxxx and on the date the
plan sponsor signs that agreement, the Plan has 500 or more eligible employees (as determined by the Xxxxxxx Xxxxx
plan conversion manager).
|_| Purchases by a Retirement Plan whose record keeper had a cost-allocation agreement with the Transfer Agent on or before
March 1, 2001.
II.
Waivers of Class A Sales Charges of Xxxxxxxxxxx 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 Xxxxxxxxxxx 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 Xxxxxxxxxxx funds
(other than Xxxxxxxxxxx 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 Xxxxxxxxxxx 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 Xxxxxxxxxxx Money Market Fund, Inc. that were purchased and paid for in this manner. This waiver
must be requested when the purchase order is placed for shares of the Fund, and the Distributor may require evidence of
qualification for this waiver.
|_| Shares purchased with the proceeds of maturing principal units of any Qualified Unit Investment Liquid Trust Series.
|_| Shares purchased by the reinvestment of loan repayments by a participant in a Retirement Plan for which the Manager or an
affiliate acts as sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would otherwise be subject to the contingent deferred
sales charge are redeemed in the following cases:
|_| To make Automatic Withdrawal Plan payments that are limited annually to no more than 12% of the account value adjusted
annually.
|_| Involuntary redemptions of shares by operation of law or involuntary redemptions of small accounts (please refer to
"Shareholder Account Rules and Policies," in the applicable fund Prospectus).
|_| For distributions from Retirement Plans, deferred compensation plans or other employee benefit plans for any of the
following purposes:
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.7
5) Under a Qualified Domestic Relations Order, as defined in the Internal Revenue Code, or, in the case of an XXX, 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.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) 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 XXX.
|_| For distributions from 401(k) plans sponsored by broker-dealers that have entered into a special agreement with the
Distributor allowing this waiver.
|_| For distributions from retirement plans that have $10 million or more in plan assets and that have entered into a special
agreement with the Distributor.
|_| For distributions from retirement plans which are part of a retirement plan product or platform offered by certain banks,
broker-dealers, financial advisors, insurance companies or record keepers which have entered into a special agreement
with the Distributor.
III. Waivers of Class B, Class C and Class N Sales Charges of Xxxxxxxxxxx Funds
---------------------------------------------------------------------------------------------------------------------------------------
The Class B, Class C and Class N 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, Class C and Class N 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 Xxxxxxx
Xxxxx or an independent record keeper under a contract with Xxxxxxx Xxxxx.
|_| Redemptions of Class C shares of Xxxxxxxxxxx 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 Xxxxxxxxxxx fund in amounts of
$500,000 or more and made more than 12 months after the Retirement Plan's first purchase of Class C shares, if the
redemption proceeds are invested in Class N shares of one or more Xxxxxxxxxxx funds.
|_| Distributions9 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 Xxxxxxxxxxx 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.10
5) To make distributions required under a Qualified Domestic Relations Order or, in the case of an XXX, 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.11
9) On account of the participant's separation from service.12
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 XXX.
12) For distributions from a participant's account under an Automatic Withdrawal Plan after the participant reaches age
59 1/2, as long as the aggregate value of the distributions does not exceed 10% of the account's value, adjusted
annually.
13) Redemptions of Class B shares under an Automatic Withdrawal Plan for an account other than a Retirement Plan, if the
aggregate value of the redeemed shares does not exceed 10% of the account's value, adjusted annually.
14) For distributions from 401(k) plans sponsored by broker-dealers that have entered into a special arrangement with
the Distributor allowing this waiver.
|_| Redemptions of Class B shares or Class C shares under an Automatic Withdrawal Plan from an account other than a Retirement
Plan if the aggregate value of the redeemed shares does not exceed 10% of the account's value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C shares sold or issued in the following cases:
|_| Shares sold to the Manager or its affiliates.
|_| Shares sold to registered management investment companies or separate accounts of insurance companies having an agreement
with the Manager or the Distributor for that purpose.
|_| Shares issued in plans of reorganization to which the Fund is a party.
|_| Shares sold to present or former officers, directors, trustees or employees (and their "immediate families" as defined above
in Section I.A.) of the Fund, the Manager and its affiliates and retirement plans established by them for their
employees.
IV. Special Sales Charge Arrangements for Shareholders of Certain Xxxxxxxxxxx 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 Xxxxxxxxxxx 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:
Xxxxxxxxxxx Quest Value Fund, Inc. Xxxxxxxxxxx Small Cap Value Fund
Xxxxxxxxxxx Quest Balanced Value Fund Xxxxxxxxxxx Quest Global Value Fund, Inc.
Xxxxxxxxxxx Quest Opportunity Value Fund
These arrangements also apply to shareholders of the following funds when they merged (were reorganized) into various
Xxxxxxxxxxx funds on November 24, 1995:
Quest for Value U.S. Government Income Fund Quest for Value New York Tax-Exempt Fund
Quest for Value Investment Quality Income Fund Quest for Value National 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 Xxxxxxxxxxx fund that are either:
|_| acquired by such shareholder pursuant to an exchange of shares of an Xxxxxxxxxxx fund that was one of the Former Quest for
Value Funds, or
|_| purchased by such shareholder by exchange of shares of another Xxxxxxxxxxx fund that were acquired pursuant to the merger of
any of the Former Quest for Value Funds into that other Xxxxxxxxxxx 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 Eligible Employees Initial Sales Charge as a Initial Sales Charge as a % of Concession as % of
or Members % of Offering Price Net Amount Invested Offering Price
-------------------------------- ---------------------------- --------------------------------- ---------------------
-------------------------------- ---------------------------- --------------------------------- ---------------------
9 or Fewer 2.50% 2.56% 2.00%
-------------------------------- ---------------------------- --------------------------------- ---------------------
-------------------------------- ---------------------------- --------------------------------- ---------------------
At least 10 but not more than 2.00% 2.04% 1.60%
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:
o 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.
o 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 Xxxxxxxxxxx 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 Xxxxxxxxxxx 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:
o withdrawals under an automatic withdrawal plan holding only either Class B or Class C shares if the annual withdrawal does
not exceed 10% of the initial value of the account value, adjusted annually, and
o 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 Xxxxxxxxxxx
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
Xxxxxxxxxxx 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:
o 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);
o withdrawals under an automatic withdrawal plan (but only for Class B or Class C shares) where the annual withdrawals do not
exceed 10% of the initial value of the account value; adjusted annually, and
o 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 Xxxxxxxxxxx fund described in this section if the proceeds are invested in the same
Class of shares in that fund or another Xxxxxxxxxxx fund within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain Xxxxxxxxxxx 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 Xxxxxxxxxxx funds (each is referred to as a "Fund" in this section):
Xxxxxxxxxxx U. S. Government Trust,
Xxxxxxxxxxx Bond Fund,
Xxxxxxxxxxx Value Fund and
Xxxxxxxxxxx Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were shareholders of the following funds (referred to as the "Former
Connecticut Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the investment adviser to the Former Connecticut
Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return Account
Connecticut Mutual Government Securities Account CMIA LifeSpan Capital 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.
|X| Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund and the other Former Connecticut Mutual Funds are
entitled to continue to make additional purchases of Class A shares at net asset value without a Class A initial sales charge, but
subject to the Class A contingent deferred sales charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC"). Under
the prior Class A CDSC, if any of those shares are redeemed within one year of purchase, they will be assessed a 1% contingent
deferred sales charge on an amount equal to the current market value or the original purchase price of the shares sold, whichever is
smaller (in such redemptions, any shares not subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are:
1) persons whose purchases of Class A shares of a Fund and other Former Connecticut Mutual Funds were $500,000 prior to
March 18, 1996, as a result of direct purchases or purchases pursuant to the Fund's policies on Combined Purchases
or Rights of Accumulation, who still hold those shares in that Fund or other Former Connecticut Mutual Funds, and
2) persons whose intended purchases under a Statement of Intention entered into prior to March 18, 1996, with the
former general distributor of the Former Connecticut Mutual Funds to purchase shares valued at $500,000 or more over
a 13-month period entitled those persons to purchase shares at net asset value without being subject to the Class A
initial sales charge
Any of the Class A shares of a Fund and the other Former Connecticut Mutual Funds that were purchased at net asset value
prior to March 18, 1996, remain subject to the prior Class A CDSC, or if any additional shares are purchased by those shareholders at
net asset value pursuant to this arrangement they will be subject to the prior Class A CDSC.
|X| Class A Sales Charge Waivers. Additional Class A shares of a Fund may be purchased without a sales charge, by a person who
was in one (or more) of the categories below and acquired Class A shares prior to March 18, 1996, and still holds Class A shares:
1) 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 Xxxxxxxxxxx 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 concession 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 Xxxxxxxxxxx Municipal Bond Fund, Xxxxxxxxxxx U.S. Government Trust, Xxxxxxxxxxx Strategic Income Fund and Xxxxxxxxxxx
Capital 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 Xxxxxxxxxxx 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 Xxxxxxxxxxx funds at a maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of Xxxxxxxxxxx Convertible Securities Fund
---------------------------------------------------------------------------------------------------------------------------------------
Xxxxxxxxxxx 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.
|-|
---------------------------------------------------------------------------------------------------------------------------------------
Xxxxxxxxxxx California Municipal Fund
---------------------------------------------------------------------------------------------------------------------------------------
Internet Web Site:
XXX.XXXXXXXXXXXXXXXX.XXX
------------------------
Investment Adviser
OppenheimerFunds, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Distributor
OppenheimerFunds Distributor, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Transfer Agent
OppenheimerFunds Services
X.X. Xxx 0000
Xxxxxx, Xxxxxxxx 00000
0-000-000-0000
Custodian Bank
Citibank, N.A.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Independent Auditors
KPMG LLP
000 Xxxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Legal Counsel
Xxxxx, Xxxxx & Xxxxx
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
1234
PX790.1101
1 Messrs. Xxxxxx and Xxxxxxxxx are not Directors of Xxxxxxxxxxx Money Market Fund, Inc. Xx. Xxxxxx is not a Trustee of Xxxxxxxxxxx
California Municipal Fund.
*
2 Certain waivers also apply to Class M shares of Xxxxxxxxxxx Convertible Securities Fund.
3 In the case of Xxxxxxxxxxx Senior Floating Rate Fund, a continuously-offered closed-end fund, references to contingent deferred
sales charges mean the Fund's Early Withdrawal Charges and references to "redemptions" mean "repurchases" of shares.
4 An "employee benefit plan" means any plan or arrangement, whether or not it is "qualified" under the Internal Revenue Code, under
which Class N shares of an Xxxxxxxxxxx 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.
5 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 shares of an Xxxxxxxxxxx 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 shares of an Xxxxxxxxxxx fund or funds through a single
investment dealer, broker or other financial institution that has made special arrangements with the Distributor.
6 However, that concession 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
Xxxxxxxxxxx funds held by the Plan for more than one year.
7 This provision does not apply to IRAs.
8 This provision does not apply to 403(b)(7) custodial plans if the participant is less than age 55, nor to IRAs.
9 The distribution must be requested prior to Plan termination or the elimination of the Xxxxxxxxxxx funds as an investment option
under the Plan.
10 This provision does not apply to IRAs.
11 This provision does not apply to loans from 403(b)(7) custodial plans.
12 This provision does not apply to 403(b)(7) custodial plans if the participant is less than age 55, nor to IRAs.
