Oppenheimer

California Municipal Fund

NYSE Ticker Symbols
Class A OPCAX
Class B OCABX
Class C OCACX
November 27, 2009

Statement of Additional Information
This document contains additional information about the Fund and supplements information in the Prospectus dated November 27, 2009.

This Statement of Additional Information is not a prospectus.  It should be read together with the prospectus, which may be obtained by writing to the Fund's transfer agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217, or by calling the transfer agent at the toll-free number shown below, or by downloading it from the OppenheimerFunds Internet website at www.oppenheimerfunds.com.

Oppenheimer California Municipal Fund

6803 South Tucson Way, Centennial, Colorado 80112-3924
1.800.CALL OPP (225.5677)



Table of contents

ABOUT THE FUND

Additional Information About the Fund's Investment Policies and Risks

3

The Fund's Main Investment Policies

3

Other Investments and Investment Strategies

9

Investment Restrictions

18

Disclosure of Portfolio Holdings

20

How the Fund is Managed

25

Organization and History

25

Board of Trustees and Oversight Committees

25

Trustees and Officers of the Fund

27

The Manager

40

Brokerage Policies of the Fund

43

Distribution and Service Arrangements

45

Payments to Fund Intermediaries

49

Performance of the Fund

52

ABOUT YOUR ACCOUNT

About Your Account

57

How to Buy Shares

58

How to Sell Shares

61

How to Exchange Shares

63

Distributions and Taxes

65

Additional Information About the Fund

70

Appendix A: Special Sales Charge Arrangements and Waivers

APPENDIX B: Special Considerations Relating to State Municipal Obligations and U.S. Territories, Commonwealths and Possessions

APPENDIX C: Municipal Bond Ratings Definitions

FINANCIAL INFORMATION ABOUT THE FUND

Report of Independent Registered Public Accounting Firm

71

Financial Statements

79


Inside Front Cover

To Summary Prospectus

Additional Information About the Fund's Investment Policies and Risks

The investment objective, the principal investment policies and the main risks of the Fund are described in the prospectus. This Statement of Additional Information ("SAI") contains supplemental information about those policies and risks and the types of securities in which the Fund can invest. Additional information is also provided about the strategies that the Fund may use to try to achieve its investment objective.

The composition of the Fund's portfolio and the techniques and strategies that the Fund uses in selecting portfolio securities may vary over time. The Fund is not required to use all of the investment techniques and strategies described below in seeking its investment objective. It may use some of the investment techniques and strategies only at some times or it may not use them at all.

The Fund's municipal securities that are held to maturity are redeemable by the security's issuer at full principal value plus accrued interest. The values of those securities held by the Fund, however, may be affected by changes in general interest rates and other factors prior to their maturity. 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 will normally decline in value. Conversely, should interest rates decrease after a security was purchased, normally its value would rise.

Those fluctuations in value will not generally result in realized gains or losses to the Fund unless the Fund sells the security prior to the security's maturity. The Fund may dispose of securities prior to their maturity for investment purposes. In that case, the Fund could realize a capital gain or loss on the sale.

There are variations in the credit quality of municipal securities, both within a particular rating category and between categories. 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.

Unless the prospectus or SAI states that an investment percentage restriction applies on an ongoing basis, it applies only at the time the Fund makes an investment (except for borrowing and investments in illiquid securities). This means the Fund does not have to buy or sell securities solely to meet percentage limits if those limits were not met because the value of the investment changed in proportion to the size of the Fund.

The Fund's Main Investment Policies

In selecting securities for the Fund's portfolio, the Manager evaluates the merits of particular securities primarily through the exercise of its own investment analysis. For example, with respect to inflation-indexed government bonds, that process may include, among other things, evaluation of the government's economic and monetary policy, the country's economic condition, and current inflation and interest rates.

Municipal Securities. The types of municipal securities in which the Fund may invest and the Fund's principal investment strategies are described in the prospectus under "Principle Investment Strategies" and "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.

Under normal market conditions, and as a fundamental policy, the Fund invests at least 80% of its net assets (plus borrowings for investment purposes) in securities the income from which, in the opinion of counsel to the issuer of each security, is exempt from both federal and the Fund's state individual income tax, which may include securities of issuers located outside of the Fund's state such as U.S. territories, commonwealths and possessions.

Municipal Bonds. Long-term municipal securities which have a maturity of more than one year (when issued) are classified as "municipal bonds." The principal classifications of long-term municipal bonds are "general obligation" bonds and "revenue" bonds (including "private activity" bonds). They may have fixed, variable or floating rates of interest or may be "zero-coupon" bonds, 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. In turn that could reduce the Fund's yield.

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, such as a state's or local government's proportionate share of the tobacco Master Settlement Agreement ("MSA") (as described in the section titled "Tobacco Related Bonds"). 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 revenue 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.

     In California, these special tax or special assessment bonds also are referred to as Mello-Roos Bonds. The bonds are issued under the California Mello-Roos Community Facilities Act to finance the building of roads, sewage treatment plants and other projects designed to improve the infrastructure of a community. Mello-Roos bonds are primarily secured by real estate taxes levied on property located in the community. The timely payment of principal and interest on the bonds depends on the property owner's continuing ability to pay the real estate taxes. Various factors could negatively affect this ability including a declining economy or real estate market in California.

Private Activity Bonds. The Tax Reform Act of 1986 amended and reorganized, the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), including the rules governing tax-exemption for interest on certain types of municipal securities known as "private activity bonds" (or, "industrial development bonds" as they were referred to under pre-1986 law). The proceeds from private activity bonds are used to finance various non-governmental privately owned and/or operated facilities. Under the Internal Revenue Code, interest on private activity bonds is excludable from gross income for federal income tax purposes if (i) the financed activities fall into one of seven categories of "qualified private activity bonds," consisting of mortgage bonds, veterans mortgage bonds, small issue bonds, student loan bonds, redevelopment bonds, exempt facility bonds and 501(c)(3) bonds, and (ii) certain tests are met. The types of facilities that may be financed with exempt facility bonds include airports, docks and wharves, water furnishing facilities, sewage facilities, solid waste disposal facilities, qualified residential rental projects, hazardous waste facilities and high speed intercity rail facilities. The types of facilities that may be financed with 501(c)(3) bonds include hospitals and educational facilities that are owned by 501(c)(3) organizations.

Whether a municipal security is a private activity bond (the interest on which is taxable unless it is a qualified private activity bond) depends on whether (i) more than a certain percentage (generally 10%) of (a) the proceeds of the security are used in a trade or business carried on by a non-governmental person and (b) the payment of principal or interest on the security is directly or indirectly derived from such private use, or is secured by privately used property or payments in respect of such property, or (ii) more than the lesser of 5% of the issue or $5 million is used to make or finance loans to non-governmental persons.

Moreover, a private activity bond of certain types 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 financed by the bond, or a "related person" of such a substantial user. Generally a "substantial user" is a non-exempt person who regularly uses part of a facility in a trade or business.

Thus, certain municipal securities could lose their tax-exempt status retroactively if the issuer or user fails to meet certain continuing requirements, for the entire period during which the securities are outstanding, as to the use and operation of the bond-financed facilities and the use and expenditure of the proceeds of such securities. The Fund makes no independent investigation into the use of such facilities or the expenditure of such proceeds. If the Fund should hold a bond that loses its tax-exempt status retroactively, there might be an adjustment to the tax-exempt income previously distributed to shareholders.

The payment of the principal and interest on such qualified private activity bonds is dependant solely on the ability of the facility's user to meet its financial obligations, generally from the revenues derived from the operation of the financed facility, and the pledge, if any, of real and personal property financed by the bond as security for those payments.

Limitations on the amount of private activity bonds that each state may issue may reduce the supply of such bonds. The value of the Fund's portfolio could be affected by these limitations if they reduce the availability of such bonds.

Interest on certain qualified private activity bonds that is tax-exempt may nonetheless be treated as a tax preference item subject to the alternative minimum tax to which certain taxpayers are subject. If such qualified private activity bonds are held by the Fund, a proportionate share of the exempt-interest dividends paid by the Fund would constitute an item of tax preference to such shareholders.

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 Funds 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.

Auction Rate Securities. Auction rate securities are municipal debt instruments with long-term nominal maturities for which the interest rate is reset at specific shorter frequencies (typically every 7-35 days) through a "dutch" auction process. A dutch auction is a competitive bidding process used to determine rates on each auction date. In a dutch auction, a broker-dealer submits bids, on behalf of current and prospective investors, to the auction agent. The winning bid rate is the rate at which the auction "clears", meaning the lowest possible interest rate at which all the securities can be sold at par. This "clearing rate" is paid on the entire issue for the upcoming period and includes current holders of the auction rate securities. Investors who bid a minimum rate above the clearing rate receive no securities, while those whose minimum bid rates were at or below the clearing rate receive the clearing rate for the next period.

While the auction rate process is designed to permit the holder to sell the auction rate securities in an auction at par value at specified intervals, there is the risk that an auction will fail due to insufficient demand for the securities. Auction rate securities may be subject to changes in interest rates, including decreased interest rates. Failed auctions may impair the liquidity of auction rate securities.

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. The Manager may determine that certain municipal leases are liquid under specific guidelines that require the Manager to evaluate:

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.

Municipal leases may also be subject to "abatement risk." The leases underlying certain municipal lease obligations may state that lease payments are subject to partial or full abatement. That abatement might occur, for example, if material damage to or destruction of the leased property interferes with the lessee's use of the property. However, in some cases that risk might be reduced by insurance covering the leased property, or by the use of credit enhancements such as letters of credit to back lease payments, or perhaps by the lessee's maintenance of reserve monies for lease payments.

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.

TOBACCO RELATED BONDS. The Fund may invest in two types of tobacco related bonds: (i) tobacco settlement revenue bonds, for which payments of interest and principal are made solely from a state's interest in the MSA described below, and (ii) tobacco bonds subject to a state's appropriation pledge, for which payments may come from both the MSA revenue and the applicable state's appropriation pledge.

Tobacco Settlement Revenue Bonds. The Fund may invest up to 25% of its total assets in tobacco settlement revenue bonds. Tobacco settlement revenue bonds are secured by an issuing state's proportionate share in the MSA. The MSA is an agreement reached out of court in November 1998 between 46 states and six other U.S. jurisdictions (including Puerto Rico and Guam) and the four largest (now three) U.S. tobacco manufacturers (Philip Morris, RJ Reynolds, Brown & Williamson (merged with RJ Reynolds in 2004), and Lorillard). Subsequently, a number of smaller tobacco manufacturers signed on to the MSA. The MSA provides for payments annually by the manufacturers to the states and jurisdictions in perpetuity, in exchange for releasing all claims against the manufacturers and a pledge of no further litigation. The MSA established a base payment schedule and a formula for adjusting payments each year. Tobacco manufacturers pay into a master escrow trust based on their market share and each state receives a fixed percentage of the payment as set forth in the MSA.

A number of states have securitized the future flow of those payments by selling bonds pursuant to indentures, some through distinct governmental entities created for such purpose. The bonds are backed by the future revenue flow that is used for principal and interest payments on the bonds. Annual payments on the bonds, and thus the risk to the Fund, are highly dependent on the receipt of future settlement payments by the state or its governmental entity, as well as other factors. The actual amount of future settlement payments is dependent on many factors including, but not limited to, annual domestic cigarette shipments, cigarette consumption, inflation and the financial capability of participating tobacco companies. As a result, payments made by tobacco manufacturers could be reduced if the decrease in tobacco consumption is significantly greater than the forecasted decline.

On June 22, 2009, President Obama signed into law the "Family Smoking Prevention and Tobacco Control Act" which extends the authority of the U.S. Food and Drug Administration to encompass the regulation of tobacco products. Among other things, the legislation authorizes the FDA to adopt product standards for tobacco products, restrict advertising of tobacco products, and impose stricter warning labels. FDA regulation of tobacco products could result in greater decreases in tobacco consumption than originally forecasted.  On August 31, 2009, a number of tobacco manufacturers filed suit in federal court in Kentucky alleging that certain of the provisions of the FDA Tobacco Act restricting the advertising and marketing of tobacco products are inconsistent with the freedom of speech guarantees of the First Amendment of the United States Constitution. The suit does not challenge Congress' decision to give the FDA regulatory authority over tobacco products or the vast majority of the provisions of the law.

Because tobacco settlement bonds are backed by payments from the tobacco manufacturers, and generally not by the credit of the state or local government issuing the bonds, their creditworthiness depends on the ability of tobacco manufacturers to meet their obligations. A market share loss by the MSA companies to non-MSA participating tobacco manufacturers could also cause a downward adjustment in the payment amounts. A participating manufacturer filing for bankruptcy also could cause delays or reductions in bond payments, which could affect the Fund's net asset value.

The MSA and tobacco manufacturers have been and continue to be subject to various legal claims. An adverse outcome to any litigation matters relating to the MSA or affecting tobacco manufacturers could adversely affect the payment streams associated with the MSA or cause delays or reductions in bond payments by tobacco manufacturers. The MSA itself has been subject to legal challenges and has, to date, withstood those challenges.

Tobacco Bonds Subject to Appropriation (STA) Bonds. In addition to the tobacco settlement bonds discussed above, the Fund also may invest in tobacco related bonds that are subject to a state's appropriation pledge ("STA Tobacco Bonds"). STA Tobacco Bonds rely on both the revenue source from the MSA and a state appropriation pledge.

These STA Tobacco Bonds are part of a larger category of municipal bonds that are subject to state appropriation. Although specific provisions may vary among states, "subject to appropriation bonds" (also referred to as "appropriation debt") are typically payable from two distinct sources: (i) a dedicated revenue source such as a municipal enterprise, a special tax or, in the case of tobacco bonds, the MSA funds, and (ii) the issuer's general funds. Appropriation debt differs from a state's general obligation debt in that general obligation debt is backed by the state's full faith, credit and taxing power, while appropriation debt requires the state to pass a specific periodic appropriation to pay interest and/or principal on the bonds as the payments come due. The appropriation is usually made annually. While STA Tobacco Bonds offer an enhanced credit support feature, that feature is generally not an unconditional guarantee of payment by a state and states generally do not pledge the full faith, credit or taxing power of the state. The Funds consider the STA Tobacco Bonds to be "municipal securities" for purposes of their concentration policies.

Litigation Challenging the MSA. The participating manufacturers and states in the MSA are subject to several pending lawsuits challenging the MSA and/or related state legislation or statutes adopted by the states to implement the MSA (referred to herein as the "MSA-related legislation"). One or more of the lawsuits, allege, among other things, that the MSA and/or the states' MSA-related legislation are void or unenforceable under the Commerce Clause and certain other provisions of the U.S. Constitution, the federal antitrust laws, federal civil rights laws, state constitutions, consumer protection laws and unfair competition laws.

To date, challenges to the MSA or the states' MSA-related legislation have not been ultimately successful, although several such challenges have survived initial appellate review of motions to dismiss or have proceeded to a stage of litigation where the ultimate outcome may be determined by, among other things, findings of fact based on extrinsic evidence as to the operation and impact of the MSA and the states' MSA-related legislation.

New York state officials are defendants in a lawsuit pending in the United States District Court for the Southern District of New York in which cigarette importers allege that the MSA and/or related legislation violates federal antitrust laws and the Commerce Clause of the United States Constitution. In a separate proceeding pending in the same court, plaintiffs assert the same theories against not only New York officials but also the Attorneys General for thirty other states. The United States Court of Appeals for the Second Circuit has held that the allegations in both actions, if proven, establish a basis for relief on antitrust and Commerce Clause grounds and that the trial courts in New York have personal jurisdiction sufficient to enjoin other states' officials from enforcing their MSA-related legislation. On remand in those two actions, one trial court has granted summary judgment for the New York officials and lifted a preliminary injunction against New York officials' enforcement against plaintiffs of the state's "allocable share" amendment to the MSA's Model Escrow Statute; the other trial court has held that plaintiffs are unlikely to succeed on the merits. The former decision is on appeal to the United States Court of Appeals for the Second Circuit.

In another action, the United States Court of Appeals for the Fifth Circuit reversed a trial court's dismissal of challenges to MSA-related legislation in Louisiana under the First and Fourteenth Amendments to the United States Constitution. On remand in that case, and in another case filed against the Louisiana Attorney General, trial courts have granted summary judgment for the Louisiana Attorney General. One of those decisions is on appeal to the United States Court of Appeals for the Fifth Circuit. The deadline to appeal the other decision has not yet expired.

The United States Courts of Appeals for the Sixth, Eighth, Ninth and Tenth Circuits have affirmed dismissals or grants of summary judgment in favor of state officials in four other cases asserting antitrust and constitutional challenges to the allocable share amendment legislation in those states.

Another proceeding has been initiated before an international arbitration tribunal under the provisions of the North American Free Trade Agreement. A hearing on the merits that was scheduled for June 2009 has been continued.

The MSA and states' MSA-related legislation may also continue to be challenged in the future. A determination that the MSA or states' MSA-related legislation is void or unenforceable would have a material adverse effect on the payments made by the participating manufacturers under the MSA.

Litigation Seeking Monetary Relief from Tobacco Industry Participants. The tobacco industry has been the target of litigation for many years. Both individual and class action lawsuits have been brought by or on behalf of smokers alleging that smoking has been injurious to their health, and by non-smokers alleging harm from environmental tobacco smoke, also known as "secondhand smoke." Plaintiffs seek various forms of relief, including compensatory and punitive damages aggregating billions of dollars, treble/multiple damages and other statutory damages and penalties, creation of medical monitoring and smoking cessation funds, disgorgement of profits, legal fees, and injunctive and equitable relief.

The MSA does not release participating manufacturers from liability in either individual or class action cases. Healthcare cost recovery cases have also been brought by governmental and non-governmental healthcare providers seeking, among other things, reimbursement for healthcare expenditures incurred in connection with the treatment of medical conditions allegedly caused by smoking. The participating manufacturers are also exposed to liability in these cases, because the MSA only settled healthcare cost recovery claims of the participating states. Litigation has also been brought against certain participating manufacturers and their affiliates in foreign countries.

The ultimate outcome of any pending or future lawsuit is uncertain. Verdicts of substantial magnitude that are enforceable as to one or more participating manufacturers, if they occur, could encourage commencement of additional litigation, or could negatively affect perceptions of potential triers of fact with respect to the tobacco industry, possibly to the detriment of pending litigation. An unfavorable outcome or settlement or one or more adverse judgments could result in a decision by the affected participating manufacturers to substantially increase cigarette prices, thereby reducing cigarette consumption beyond the forecasts under the MSA. In addition, the financial condition of any or all of the participating manufacturer defendants could be materially and adversely affected by the ultimate outcome of pending litigation, including bonding and litigation costs or a verdict or verdicts awarding substantial compensatory or punitive damages. Depending upon the magnitude of any such negative financial impact (and irrespective of whether the participating manufacturer is thereby rendered insolvent), an adverse outcome in one or more of the lawsuits could substantially impair the affected participating manufacturer's ability to make payments under the MSA.

Credit Ratings of Municipal Securities. Ratings by ratings organizations such as Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Ratings Services ("S&P"), and Fitch, Inc. ("Fitch") represent the respective rating agency's opinions of the credit quality of the municipal securities they undertake to rate. However, their ratings are general opinions and are not guarantees of quality. Municipal securities that have the same maturity, coupon and rating may have different yields, while other municipal securities that have the same maturity and coupon but different ratings may have the same yield.

Below investment-grade securities (also referred to as "junk bonds") 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.

After the Fund buys a municipal security, the security may cease to be rated or its rating may be reduced. Neither event requires the Fund to sell the security, but the Manager will consider such events in determining whether the Fund should continue to hold the security. To the extent that ratings given by Moody's, S&P, or Fitch change as a result of changes in those rating organizations or their rating systems, the Fund will attempt to use comparable ratings as standards for investments in accordance with the Fund's investment policies.

The Fund may buy municipal securities that are "pre-refunded." The issuer's obligation to repay the principal value of the security is generally collateralized with U.S. government securities placed in an escrow account. This causes the pre-refunded security to have essentially the same risks of default as a AAA-rated security.

A list of the rating categories of Moody's, S&P and Fitch for municipal securities is contained in Appendix C to this SAI. 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 those unrated issues. The Manager will use criteria similar to those used by the rating agencies and assign a rating category to a security that is comparable to what the Manager believes a rating agency would assign to that security. However, the Manager's rating does not constitute a guarantee of the quality of a particular issue.

In evaluating the credit quality of a particular security, whether it is rated or unrated, the Manager will normally take into consideration a number of factors. Among them are the financial resources of the issuer, or the underlying source of funds for debt service on a security, the issuer's sensitivity to economic conditions and trends, any operating history of the facility financed by the obligation and the degree of community support for it, the capabilities of the issuer's management and regulatory factors affecting the issuer and particular facility.

Special Risks of Below-Investment Grade Securities. The Fund may invest in municipal securities rated below investment grade up to the limits described in the prospectus. 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.

While securities rated "Baa" by Moody's or "BBB" by S&P are investment grade, they may be subject to special risks and have some speculative characteristics.

U.S. Territories, Commonwealths and Possessions. The Fund also invests in municipal securities issued by certain territories, commonwealths and possessions of the United States that pay interest that is exempt (in the opinion of the issuer's legal counsel when the security is issued) from federal income tax and the Fund's state personal income tax. Therefore, the Fund's investments could be affected by the fiscal stability of, for example, Puerto Rico, the Virgin Islands, Guam, or the Northern Mariana Islands. Additionally, the Fund's investments could be affected by economic, legislative, regulatory or political developments affecting issuers in those territories, commonwealths or possessions. A discussion of the special considerations relating to the Fund's municipal obligations and other factors or economic conditions in those territories, commonwealths or possessions is provided in Appendix B to this SAI.

A discussion of the special considerations relating to the Fund's state municipal obligations and other factors or economic conditions in those territories, commonwealths or possessions is provided in Appendix B to this SAI.

Other Investments and Investment Strategies

The Fund may also use the following types of investments and investment strategies.

Floating Rate and Variable Rate Obligations. Floating or variable rate obligations may 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 market rate, such as the percentage of LIBOR, the SIFMA Municipal Swap index or a bank's prime rate and is adjusted automatically each time such rate is adjusted. The interest rate on a variable rate demand note is also based on a specified market rate but is adjusted automatically at specified intervals of not less than one year. Generally, the changes in the interest rates 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. Floating rate or variable rate obligations that do not provide for the recovery of principal and interest within seven days are subject to the Fund's limitations on investments in illiquid securities.

Inverse Floaters. The Fund invests in "inverse floaters" which are derivative instruments that pay interest at rates that move in the opposite direction of yields on short term securities. As short term interest rates rise, the interest rate on inverse floaters falls and they produce less current income. As short term interest rates fall, the interest rates on the inverse floaters increase and they pay more current income. Their market value can be more volatile than that of a conventional fixed rate security having similar credit quality, redemption provisions and maturity. The Fund can expose up to 20% of its total assets to the effects of leverage from its investments in inverse floaters.

An inverse floater is typically created by a trust that divides a municipal security into two securities: a short term tax free floating rate security (sometimes referred to as a "tender option bond") and a long-term tax-exempt floating rate security (referred to as a residual certificate" or "inverse floater") that pays interest at rates that move in the opposite direction of the yield on the short term floating rate security. The purchaser of a "tender option bond" has the right to tender the security periodically for repayment of the principal value. As short-term interest rates rise, inverse floaters produce less current income (and, in extreme cases, may pay no income) and as short-term interest rates fall, inverse floaters produce more current income.

To facilitate the creation of inverse floaters, the Fund may purchase a municipal security and subsequently transfer it to a broker-dealer (the sponsor), which deposits the municipal security in a trust. The trust issues the residual certificates and short-term floating rate securities. The trust documents enable the Fund to withdraw the underlying bond to unwind or "collapse" the trust (upon tendering the residual certificate and paying the value of the short-term bonds and certain other costs). The Fund may also purchase inverse floaters created by municipal issuers directly or by other parties that have deposited municipal bonds into a sponsored trust.

The Fund may also purchase inverse floaters created when another party transfers a municipal security to a trust. The trust then issues short term floating rate notes to third parties and sells the inverse floater to the Fund. Under some circumstances, the Manager might acquire both portions of that type of offering, to reduce the effect of the volatility of the individual securities. This provides the Manager with a flexible portfolio management tool to vary the degree of investment leverage efficiently under different market conditions.

Additionally, the Fund may be able to purchase inverse floaters created by municipal issuers directly. To provide investment leverage, a municipal issuer might issue two variable rate obligations instead of a single long term, fixed rate security. For example, the interest rate on one obligation reflecting short term interest rates and the interest rate on the other instrument, the inverse floater, reflecting the approximate rate the issuer would have paid on a fixed rate security, multiplied by a factor of two, minus the rate paid on the short term instrument.

Inverse floaters may offer relatively high current income, reflecting the spread between long term and short term tax-exempt interest rates. As long as the municipal yield curve remains positively sloped, and short term rates remain low relative to long term rates, owners of inverse floaters will have the opportunity to earn interest at above market rates. If the yield curve flattens and shifts upward, an inverse floater will lose value more quickly than a conventional long term security having similar credit quality, redemption provisions and maturity.

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. 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.

The Fund may enter into a "shortfall and forbearance" agreement with the sponsor of an inverse floater held by the Fund. Under such an agreement, on liquidation of the trust, the Fund would be committed to pay the trust the difference between the liquidation value of the underlying security on which the inverse floater is based and the principal amount payable to the holders of the short-term floating rate security that is based on the same underlying security. The Fund would not be required to make such a payment under the standard terms of a more typical inverse floater. Although entering into a "shortfall and forbearance" agreement would expose the Fund to the risk that it may be required to make the payment described above, the Fund may receive higher interest payments than under a typical inverse floater.

An investment in inverse floaters may involve greater risk than an investment in a fixed rate municipal security. All inverse floaters entail some degree of leverage. The interest rate on inverse floaters varies inversely at a pre-set multiple of the change in short term rates. An inverse floater that has a higher multiple, and therefore more leverage, will be more volatile with respect to both price and income than an inverse floater with a lower degree of leverage or than the underlying security.

Because of the accounting treatment for inverse floaters created by the Fund's transfer of a municipal bond to a trust, the Fund's financial statements will reflect these transactions as "secured borrowings," which affects the Fund's expense ratios, statements of income and assets and liabilities and causes the Fund's Statement of Investments to include the underlying municipal bond.

Percentage of LIBOR Notes (PLNs). The Fund may invest in Percentage of LIBOR Notes ("PLNs") which are variable rate municipal securities based on the London Interbank Offered Rate ("LIBOR"), a widely used benchmark for short-term interest rates and used by banks for interbank loans with other banks. The PLN typically pays interest based on a percentage of a LIBOR rate for a specified time plus an established yield premium. Due to their variable rate features, PLNs will generally pay higher levels of income in a rising interest rate environment and lower levels of income as interest rates decline. In times of substantial market volatility, however, the PLNs may not perform as anticipated. The value of a PLN also may decline due to other factors, such as changes in credit quality of the underlying bond.

The Fund also may invest in PLNs that are created when a broker-dealer/sponsor deposits a municipal bond into a trust created by the sponsor. The trust issues a percentage of LIBOR floating rate certificate (i.e., the PLN) to the Fund and a residual interest certificate to third parties who receive the remaining interest on the bond after payment of the interest distribution to the PLN holder and other fees.

Because the market for PLNs is relatively new and still developing, the Fund's ability to engage in transactions using such instruments may be limited. There is no assurance that a liquid secondary market will exist for any particular PLN or at any particular time, and so the Fund may not be able to close a position in a PLN when it is advantageous to do so.

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. No income begins to accrue to the Fund on a when-issued security until the Fund receives the security at settlement of the trade. 

The Fund will engage in when-issued transactions in order to secure what is considered to be an advantageous price and yield at the time of entering into the obligation. When the Fund engages in when-issued or delayed-delivery transactions, it relies on the buyer or seller, as the case may be, to complete the transaction. Their failure to do so may cause the Fund to lose the opportunity to obtain the security at a price and yield it considers advantageous. 

When the Fund engages in when-issued and delayed-delivery transactions, it does so for the purpose of acquiring or selling securities consistent with its investment objective and policies for its portfolio or for delivery pursuant to options contracts it has entered into, and not for the purposes of investment leverage. Although the Fund will enter into when-issued or delayed-delivery purchase transactions to acquire securities, the Fund may dispose of a commitment prior to settlement. If the Fund chooses to dispose of the right to acquire a when-issued security prior to its acquisition or to dispose of its right to deliver or receive against a forward commitment, it may incur a gain or loss. 

At the time the Fund makes a commitment to purchase or sell a security on a when-issued or forward commitment basis, it records the transaction on its books and reflects the value of the security purchased. In a sale transaction, it records the proceeds to be received, in determining its net asset value. In a purchase transaction the Fund will identify on its books liquid securities of any type with a value at least equal to the 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.

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 be required to 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.

Puts and Standby Commitments. The Fund may acquire "stand-by commitments" or "puts" with respect to municipal securities to enhance portfolio liquidity and to try to reduce the average effective portfolio maturity. These arrangements give the Fund the right to sell the securities at a set price on demand to the issuing broker-dealer or bank. However, securities having this feature may have a relatively lower interest rate.

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.

Repurchase Agreements. The Fund may engage in reverse repurchase agreements. Repurchase agreements may be acquired for temporary defensive purposes, to maintain liquidity to meet anticipated share redemptions, pending the investment of the proceeds from sales of shares, or pending the settlement of portfolio securities transactions. In a repurchase transaction, the purchaser buys 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 as primary dealers in government securities. Vendors must meet credit requirements set by the Manager from time to time.

The majority of repurchase transactions run from day to day and delivery pursuant to the resale typically occurs within one to five days of the purchase. Repurchase agreements that have a maturity beyond seven days are subject to limits on illiquid investments. There is no limit on the amount of assets that may be subject to repurchase agreements having maturities of seven days or less. 

Repurchase agreements are considered "loans" under the Investment Company Act and are collateralized by the underlying security. Repurchase agreements require that at all times while the repurchase agreement is in effect, the value of the collateral must equal or exceed the repurchase price to fully collateralize the repayment obligation. However, if the vendor fails to pay the repurchase price on the delivery date, there may be costs incurred in disposing of the collateral and losses if there is a delay in the 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.

Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (the "SEC"), the Fund(s), along with the affiliated entities managed by the Manager, may transfer uninvested cash balances into one or more joint repurchase agreement accounts. These balances are invested in one or more repurchase agreements secured by U.S. Government securities. Securities that are pledged as collateral for repurchase agreements are held by a custodian bank until the agreements mature. Each joint repurchase arrangement requires that the market value of the collateral be sufficient to cover payments of interest and principal; however, in the event of default by the other party to the agreement, retention or sale of the collateral may be subject to legal proceedings.

Reverse Repurchase Agreements. The Fund may engage in reverse repurchase agreements.  A reverse repurchase agreement is the sale of an underlying debt obligation and the simultaneous agreement to repurchase it at an agreed-upon price and date. These transactions involve the risk that the market value of the securities sold by under a reverse repurchase agreement could decline below the cost of the obligation to repurchase them. The Fund will identify liquid assets on its books to cover its obligations under reverse repurchase agreements, including interest, until payment is made to the seller. These agreements are considered borrowings and are subject to the asset coverage requirement under policies on borrowing.

Illiquid and Restricted Securities. Generally, an illiquid asset is an asset that cannot be sold or disposed of in the ordinary course of business within seven days at approximately the price at which it has been valued. Under the policies and procedures established by the Board, the Manager determines the liquidity of portfolio investments. The Manager monitors holdings of illiquid and restricted securities on an ongoing basis to determine whether to sell any holdings to maintain adequate liquidity. Among the types of illiquid securities are repurchase agreements maturing in more than seven days.

Restricted securities acquired through private placements have contractual restrictions on their public resale that might limit the ability to value or to dispose of the securities and might lower the price that could be realized on a sale. To sell a restricted security that is not registered under applicable securities laws, the securities might need to be registered. The expense of registering restricted securities may be negotiated with the issuer at the time of purchase. If the securities must be registered in order to be sold, a significant period may elapse between the time the decision is made to sell the security and the time the security is registered. There is a risk of downward price fluctuation during that period.

Limitations that apply to purchases of restricted securities do not limit purchases of restricted securities that are eligible for sale to qualified institutional buyers under Rule 144A of the Securities Act of 1933, if those securities have been determined to be liquid by the Manager under Board-approved guidelines. Those guidelines take into account the trading activity for the securities and the availability of reliable pricing information, among other factors. If there is a lack of trading interest in a particular Rule 144A security, holdings of that security may be considered to be illiquid.

Loans of Portfolio Securities. Securities lending pursuant to a Securities Lending Agency Agreement (the "Securities Lending Agreement") with Goldman Sachs Bank USA, doing business as Goldman Sachs Agency Lending ("Goldman Sachs"), may be used to attempt to increase income. Loans of portfolio securities are subject to the restrictions stated in the Prospectus and must comply with all applicable regulations and with the Fund's Securities Lending Procedures adopted by the Board. The terms of any loans must also meet applicable tests under the Internal Revenue Code.

There are certain risks in connection with securities lending, including possible delays in receiving additional collateral to secure a loan, or a delay or expenses in recovery of the loaned securities. Goldman Sachs has agreed, in general, to guarantee the obligations of borrowers to return loaned securities and to be responsible for certain expenses relating to securities lending. Under the Securities Lending Agreement, the Fund's securities lending procedures and applicable regulatory requirements (which are subject to change), the Fund must receive collateral from the borrower consisting of cash, bank letters of credit or securities of the U.S. Government (or its agencies or instrumentalities). On each business day, the amount of collateral that the Fund has received must at least equal the value of the loaned securities. If the Fund receives cash collateral from the borrower, the Fund may invest that cash in certain high quality, short-term investments, including money market funds advised by the Manager, as specified in its securities lending procedures. The Fund will be responsible for the risks associated with the investment of cash collateral, including the risk that the Fund may lose money on the investment or may fail to earn sufficient income to meet its obligations to the borrower.

The terms of the loans must permit the Fund to recall loaned securities on five business days' notice and the Fund will seek to recall loaned securities in time to vote on any matters that the Manager determines would have a material effect on the Fund's investment. The Securities Lending Agreement may be terminated by either Goldman Sachs or the Fund on 30 days' written notice.

Loans of portfolio securities are limited to not more than 25% of the value of the Fund's net assets.

Liquidity Facility. The Fund can participate in a program offered by ReFlow, LLC ("ReFlow") which provides additional liquidity to help the Fund meet shareholder redemptions without having to liquidate portfolio securities or borrow money, each of which imposes certain costs on the Fund. ReFlow is designed to provide an alternative source of funding to help meet shareholder redemptions while minimizing the Fund's costs and cash flow disruptions (compared to selling portfolio securities or other liquidity facilities such as a line of credit) and allowing the Fund to remain more fully invested. ReFlow provides this liquidity by being prepared to purchase Fund shares, at the Fund's closing net asset value, equal to the amount of the Fund's net redemptions on any given day. On subsequent days when the Fund experiences net subscriptions, ReFlow redeems its holdings at the Fund's net asset value on that day. When the Fund participates in the ReFlow program, it pays ReFlow a fee at a rate determined by a daily auction with other participating mutual funds in the ReFlow program. There is no assurance that ReFlow will have sufficient funds available to meet the Fund's liquidity needs on a particular day and ReFlow is prohibited from acquiring more than 3% of the outstanding shares of the Fund.

Other Derivative Investments. 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 Funds 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.

Hedging. The Fund may use hedging to attempt to protect against declines in the market value of its portfolio, to permit the Funds 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 Funds may:

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 Funds may:

The Funds are not obligated to use hedging instruments, even though they are 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 Funds can use are described below. The Funds 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.

No money is paid by or received by the Fund on the purchase or sale of a futures contract. Upon entering into a futures transaction, the Fund will be required to deposit an initial margin payment in cash or U.S. government securities with the futures commission merchant (the "futures broker"). Initial margin payments will be deposited with the Fund's custodian 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.  Put options (sometimes referred to as "puts") give the holder the right to sell an asset for an agreed-upon price. Call options (sometimes referred to as "calls") give the holder the right to buy an asset at an agreed-upon price.

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. 

When the Fund writes a call on an index, it receives cash (a premium). If the buyer of the call exercises it, the Fund will pay an amount of cash equal to the difference between the closing price of the call and the exercise price, multiplied by the specified multiple that determines the total value of the call for each point of difference. If the value of the underlying investment does not rise above the call price, it is likely that the call will lapse without being exercised. In that case the Fund would keep the cash premium. 

The Fund's custodian 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 mark-to-market value of any OTC option held by it, unless the option is subject to a buy-back agreement by the executing broker. 

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 Funds they are taxable as ordinary income.

Writing Uncovered Call Options on Futures Contracts. The Funds 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 Puts and Calls. 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 exercised nor 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 it owns, broadly-based municipal bond indices, municipal bond index futures or interest rate futures (whether or not the Fund owns the futures). 

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 those required for normal portfolio management. These risks of using options and futures include the following:

Selection Risk.  If the Manager uses an option at the wrong time or judges market conditions incorrectly, or if the prices of its options positions are not correlated with its other investments, a hedging strategy may reduce returns or cause losses. If a covered call option is sold on an investment that increases in value, if the call is exercised, no gain will be realized on the increase in the investment's value above the call price. A put option on a security that does not decline in value will cost the amount of the purchase price and without providing any benefit if it cannot be resold.

Liquidity Risk. Losses might also be realized if a position could not be closed out because of illiquidity in the market for an option. An option position may be closed out only on a market that provides secondary trading for options of the same series, and there is no assurance that a liquid secondary market will exist for any particular option.

Leverage Risk. Premiums paid for options are small compared to the market value of the underlying investments. Consequently, options may involve large amounts of leverage, which could result in the Fund's net asset value being more sensitive to changes in the value of the underlying investments.

Correlation Risk. If the Fund sells futures or purchases puts on broadly-based indices or futures to attempt to protect against declines in the value of its portfolio securities, it may be subject to the risk that the prices of the futures or the applicable index will not correlate with the prices of those portfolio securities. For example, the market or the index might rise but the value of the hedged portfolio securities might decline. In that case, the Fund would lose money on the hedging instruments and also experience a decline in the value of the portfolio securities. Over time, however, the value of a diversified portfolio of securities will tend to move in the same direction as the indices upon which related hedging instruments are based.

The risk of imperfect correlation increases as the composition of the portfolio diverges from the securities included in the applicable index. To compensate for the imperfect correlation of movements in the price of the portfolio securities being hedged and movements in the price of the hedging instruments, the Fund might use a greater dollar amount of hedging instruments than the dollar amount of portfolio securities being hedged, particularly if the historical price volatility of the portfolio securities being hedged is more than the historical volatility of the applicable index.

Transaction Costs. Option activities might also affect portfolio turnover rates and brokerage commissions. The portfolio turnover rate might increase if the Fund is required to sell portfolio securities that are subject to call options it has sold or if it exercises put options it has bought. Although the decision to exercise a put it holds is within the Fund's control, holding a put might create an additional reason to purchase a security. There may also be a brokerage commission on each purchase or sale of a put or call option. Those commissions may be higher on a relative basis than the commissions for direct purchases or sales of the underlying investments. A brokerage commission may also be paid for each purchase or sale of an underlying investment in connection with the exercise of a put or call.

Interest Rate Swap Transactions. The Fund can enter into interest rate swap agreements. In an interest rate swap, the Fund and another party exchange their rights to receive interest payments on a security. For example, they might swap the right to receive floating rate payments for the right to receive fixed rate payments.

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 be greater than the payments it receives. Credit risk is the risk that the counterparty might default. If the counterparty defaults, they may lose the net amount of contractual interest payments that the Fund has not yet received. The Manager will monitor the creditworthiness of counterparties to the Fund's interest rate swap transactions on an ongoing basis.

The Fund can enter into swap transactions with certain counterparties pursuant to master netting agreements. A master netting agreement provides that all swaps done between the Fund and that counterparty shall be regarded as parts of an integral agreement. On any date, amounts payable in the same currency to or from the Fund in respect to one or more swap transactions will be combined and the Fund will receive or be obligated to pay the net amount.

The master netting agreement may also provide that if a counterparty defaults on one swap, the Fund can terminate all of the swaps with that counterparty. The gains and losses on all swaps are 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 are generally referred to as "aggregation."

The Fund may not enter into swaps with respect to more than 25% of its total assets.

Regulatory Aspects of Derivatives and Hedging Instruments. The Commodity Futures Trading Commission has eliminated limitations on futures trading by certain regulated entities, including registered investment companies. Consequently, registered investment companies may engage in unlimited futures transactions and options thereon by claiming an exclusion from regulation as a commodity pool operator under the Commodity Exchange Act.

Options transactions 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 purchased, sold or held through one or more different exchanges or are held in one or more accounts or through one or more brokers. Thus, the number of options that can be sold by an investment company advised by the Manager may be affected by options written or held by other investment companies advised by the Manager or affiliated entities. 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 SEC staff interpretations regarding applicable provisions of the Investment Company Act, when a registered investment company purchases a future, it must identify cash or other liquid assets at its custodian bank in an amount equal to the purchase price of the future, less the margin deposit applicable to it.

Temporary Defensive and Interim Investments. The securities the Fund may invest in for temporary defensive purposes include the following:

The Fund also might hold these types of securities pending the investment of proceeds from the sale of portfolio securities or to meet anticipated redemptions of Fund shares. The income from some of the temporary defensive or interim investments may not be tax-exempt. Therefore, when making those investments, the Fund might not achieve its objective.

Taxable Investments. While the Fund can invest up to 20% of its net assets (plus borrowings for investment purposes) 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. Taxable investments include, for example, hedging instruments, repurchase agreements, and many of the types of securities the Fund would buy for temporary defensive purposes.

At times, in connection with the restructuring of a municipal bond issuer either outside of bankruptcy court in a negotiated workout or in the context of bankruptcy proceedings, the Fund may determine or be required to accept equity or taxable debt securities, or the underlying collateral (which may include real estate) from the issuer in exchange for all or a portion of the Fund's holdings in the municipal security. Although the Manager will attempt to sell those assets as soon as reasonably practicable in most cases, depending upon, among other things, the Manager's valuation of the potential value of such assets in relation to the price that could be obtained by the Fund at any given time upon sale thereof, the Fund may determine to hold such securities in its portfolio for limited period of time in order to liquidate the assets in a manner that maximizes their value to the Fund.

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 such gains would not be tax-exempt income. To a limited degree, the Fund may engage in active and frequent 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 Manager believes such disposition is 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%. The Financial Highlights table at the end of the Prospectus shows the Fund's portfolio turnover rates during the past five fiscal years.

Investment Restrictions

Fundamental Policies. The Fund has adopted policies and restrictions to govern its investments. Under the Investment Company Act, fundamental policies are those policies that that can be changed only by the vote of a "majority" of the Fund's outstanding voting securities, which is defined as the vote of the holders of the lesser of:

The Fund's investment objective is a fundamental policy. Other policies described in the Prospectus or this SAI 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 SAI, as appropriate.  The Fund's most significant investment policies are described in the Prospectus.

Other Fundamental Investment Restrictions. The following investment restrictions are fundamental policies of the Fund.

Unless the Prospectus or this SAI states that a percentage restriction applies on an ongoing basis, it applies only at the time the Fund makes an investment. That means the Fund is not required to sell securities to meet the percentage limits if the value of the investment increases in proportion to the size of the Fund. Percentage limits on borrowing and investments in illiquid securities apply on an ongoing basis.

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. If it qualifies, the Fund 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 (other than Government securities and securities of other regulated investment companies), two or more issuers that are engaged in the same or related trades or businesses and are controlled by the Fund, or one or more qualified publicly traded partnerships (i.e., publicly-traded partnerships that are treated as partnerships for tax purposes and derive at least 90% of their income from certain passive sources). 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. In implementing the Fund's policy not to concentrate its investments, the Manager will consider a non-governmental user of facilities financed by private activity 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. The Manager categorizes tobacco industry related municipal bonds as either tobacco settlement revenue bonds or tobacco bonds that are subject to appropriation ("STA Bonds"). For purposes of the Funds' industry concentration policies, STA Bonds are considered to be "municipal" bonds, as distinguished from "tobacco" bonds. As municipal bonds, STA Bonds are not within any industry and are not subject to the Funds' industry concentration policies.

Other types of municipal securities that are not considered a part of any "industry" under the Fund's industry concentration policy include: general obligation, general appropriation, municipal leases, special assessment and special tax bonds. Although these types of municipal securities may be related to certain industries, because they are issued by governments or their political subdivisions rather than non-governmental users, these types of municipal securities are not considered a part of an industry for purposes of the Fund's industry concentration policy.

Therefore, the Fund may invest more than 25% of its total assets in these types of municipal securities, which may finance similar types of projects or from which the interest is paid from revenues of similar types of projects. "Similar types of projects" are projects that are related in such a way that economic, business or political developments tend to have the same impact on each similar project. For example, a change that affects one project, such as proposed legislation on the financing of the project, a shortage of the materials needed for the project, or a declining economic need for the project, would likely affect all similar projects, thereby increasing market risk. Thus, market changes that affect a security issued in connection with one project also would affect securities issued in connection with similar types of projects.

For purposes of the Fund's policy not to concentrate its investments as described above, the Fund has adopted classifications of industries and groups of related industries. These classifications are not fundamental polices.

Non-Fundamental Restrictions. The Fund has the following additional operating policies that are not "fundamental" and can be changed by the Board without shareholder approval.

Disclosure of Portfolio Holdings

While recognizing the importance of providing Fund shareholders with information about their Fund's investments and providing portfolio information to a variety of third parties to assist with the management, distribution and administrative processes, the need for transparency must be balanced against the risk that third parties who gain access to the Fund's portfolio holdings information could attempt to use that information to trade ahead of or against the Fund, which could negatively affect the prices the Fund is able to obtain in portfolio transactions or the availability of the securities that a portfolio manager is trading on the Fund's behalf.

The Fund, the Manager, the Distributor and the Transfer Agent have therefore adopted policies and procedures regarding the dissemination of information about the Fund's portfolio holdings by employees, officers and directors or trustees of the Fund, the Manager, the Distributor and the Transfer Agent. These policies are designed to assure that non-public information about the Fund's portfolio securities holdings is distributed only for a legitimate business purpose, and is done in a manner that (a) conforms to applicable laws and regulations and (b) is designed to prevent that information from being used in a way that could negatively affect the Fund's investment program or enable third parties to use that information in a manner that is harmful to the Fund. It is a violation of the Code of Ethics for any covered person to release holdings in contravention of the portfolio holdings disclosure policies and procedures adopted by the Fund.

Portfolio Holdings Disclosure Policies. The Fund, the Manager, the Distributor and the Transfer Agent and their affiliates and subsidiaries, employees, officers, and directors or trustees, shall neither solicit nor accept any compensation or other consideration (including any agreement to maintain assets in the Fund or in other investment companies or accounts managed by the Manager or any affiliated person of the Manager) in connection with the disclosure of the Fund's non-public portfolio holdings. The receipt of investment advisory fees or other fees and compensation paid to the Manager and its subsidiaries pursuant to agreements approved by the Fund's Board shall not be deemed to be "compensation" or "consideration" for these purposes. Until publicly disclosed, the Fund's portfolio holdings are proprietary, confidential business information. After they are publicly disclosed, the Fund's portfolio holdings may be released in any appropriate manner.

The Fund's complete portfolio holdings positions may be released to the following categories of individuals or entities on an ongoing basis, provided that such individual or entity either (1) has signed an agreement to keep such information confidential and not trade on the basis of such information, or (2) as a member of the Fund's Board, or as an employee, officer or director of the Manager, the Distributor, or the Transfer Agent, or of their legal counsel, is subject to fiduciary obligations (a) not to disclose such information except in compliance with the Fund's policies and procedures and (b) not to trade for his or her personal account on the basis of such information:

Month-end lists of the Fund's complete portfolio holdings may be disclosed for legitimate business reasons, no sooner than 30 days after the relevant month end, pursuant to special requests and under limited circumstances discussed below, provided that:

Portfolio holdings information of the Fund may be provided, under limited circumstances, to brokers or dealers with whom the Fund trades and entities that provide investment coverage or analytical information regarding the Fund's portfolio, provided that there is a legitimate investment reason for providing the information to the broker, dealer or other entity. Month-end portfolio holdings information may, under this procedure, be provided to vendors providing research information or analytics to the Fund, with at least a 15-day delay after the month end, but in certain cases may be provided to a broker or analytical vendor with a 1- 2 day lag to facilitate the provision of requested investment information to the Manager to facilitate a particular trade or portfolio manager's investment process for the Fund. Any third party receiving such information must first sign the Manager's portfolio holdings non-disclosure agreement as a pre-condition to receiving this information.

Portfolio holdings information (which may include information on individual securities positions or multiple securities) may be provided to the entities listed below (1) by portfolio traders employed by the Manager in connection with portfolio trading, and (2) by the members of the Manager's Security Valuation Group and Accounting Departments in connection with portfolio pricing or other portfolio evaluation purposes:

Portfolio holdings information (which may include information on the Fund's entire portfolio or individual securities therein) may be provided by senior officers of the Manager or attorneys on the legal staff of the Manager, Distributor, or Transfer Agent, in the following circumstances:

Portfolio managers and analysts may, subject to the Manager's policies on communications with the press and other media, discuss portfolio information in interviews with members of the media, or in due diligence or similar meetings with clients or prospective purchasers of Fund shares or their financial representatives.

The Fund's shareholders may, under unusual circumstances (such as a lack of liquidity in the Fund's portfolio to meet redemptions), receive redemption proceeds of their Fund shares paid as pro rata shares of securities held in the Fund's portfolio. In such circumstances, disclosure of the Fund's portfolio holdings may be made to such shareholders.

Any permitted release of otherwise non-public portfolio holdings information must be in accordance with the then-current policy on approved methods for communicating confidential information.

The Chief Compliance Officer (the "CCO") of the Fund and the Manager, Distributor, and Transfer Agent shall oversee the compliance by the Manager, Distributor, Transfer Agent, and their personnel with these policies and procedures. The CCO reports to the Fund's Board any material violation of these policies and procedures during the previous calendar quarter and makes recommendations to the Board as to any amendments that the CCO believes are necessary and desirable to carry out or improve these policies and procedures.

The Manager and the Fund have entered into ongoing arrangements to make available information about the Fund's portfolio holdings. One or more of the Oppenheimer funds may currently disclose portfolio holdings information based on ongoing arrangements to the following parties:

Advisor Asset Management Fox-Pitt, Kelton, Inc. Needham & Company
Alforma Capital Markets Fraser Mackenzie Neue Zurcher Bank
Altrushare Friedman, Billings, Ramsey Nomura Securities International, Inc.
Altus Investment Management FTN Equity Capital Markets Corporation Numis Securities Inc.
American Technology Research Garp Research & Securities Oddo Securities
Auerbach Grayson & Company George K. Baum & Company Omgeo LLC
Banc of America Securities GMP Securities L.P. Oppenheimer & Co., Inc.
Barclays Capital Goldman Sachs & Company Pacific Crest
Barnard Jacobs Mellet Good Morning Securities Paradigm Capital
BB&T Capital Markets Goodbody Stockbrokers Petercam/JPP Eurosecurities
Belle Haven Investments, Inc. Handelsbanken Markets Securities Piper Jaffray Company
Beltone Financial Helvea Inc. Prager Sealy & Company
Bergen Capital Hewitt R. Seelaus & Co., Inc.
Bloomberg HJ Sims & Co., Inc. Ramirez & Company
BMO Capital Markets Howard Weil Raymond James & Associates, Inc.
BNP Paribas HSBC Securities RBC Capital Markets
Brean Murray Carret & Company Hyundai Securities America, Inc. RBC Dain Rauscher
Brown Brothers Harriman & Company ICICI Securities Inc. Redburn Partners
Buckingham Research Group Interactive Data Renaissance Capital
Cabrera Capital Intermonte RiskMetrics Group
Callan Associates Investec Robert W. Baird & Company
Cambridge Associates Janco Partners Rocaton
Canaccord Adams, Inc. Janney Montgomery Scott LLC Rogers Casey
Caris & Company Jefferies & Company Roosevelt & Cross
Carnegie Jennings Capital Inc. Royal Bank of Scotland
Cazenove Jesup & Lamont Securities Russell/Mellon
Cheuvreux JMP Securities RV Kuhns
Citigroup Johnson Rice & Company Sal Oppenheim
Cleveland Research Company JPMorgan Chase Salman Partners
CLSA Kaupthing Securities Inc. Samsung Securities
Cogent Keefe, Bruyette & Woods, Inc. Sandler Morris Harris Group
Collins Stewart Keijser Securities N.V. Sandler O'Neill & Partners
Commerzbank Kempen & Co. USA Inc. Sanford C. Bernstein & Company, LLC
Contrarian Capital Management, LLC Kepler Capital Markets Santander Securities
Cormark Securities KeyBanc Capital Markets Scotia Capital
Cowen & Company KPMG LLP Seattle-Northwest Securities
Craig-Hallum Capital Group LLC Kotak Mahindra Inc. Sidoti & Company LLC
Credit Suisse Lazard Capital Siebert Brandford Shank & Company
Crews & Associates LCG Associates Simmons & Company
D.A. Davidson & Company Lebenthal & Company Societe Generale
Daewoo Securities Company, Ltd. Leerink Swann Standard & Poor's
Dahlman Rose & Company Lipper Sterne Agee
Daiwa Securities Loop Capital Markets Stifel, Nicolaus & Company
Davy Macquarie Securities Stone & Youngberg
DeMarche MainFirst Bank AG SunGard
DEPFA First Albany Corporation MassMutual Suntrust Robinson Humphrey
Desjardins Securities Mediobanca Securities USA LLC SWS Group, Inc.
Deutsche Bank Merrill Lynch & Company, Inc. Thomas Weisel Partners
Dougherty and Company LLC Merrion Stockbrokers Ltd. ThomsonReuters LLC
Dowling Partners Mesirow Financial Troika Dialog
Dresdner Kleinwort MF Global Securities UBS
Duncan Williams Mirae Asset Securities UOB Kay Hian (U.S.) Inc.
Dundee Securities Mitsubishi Financial Securities Vining & Sparks
DZ Financial Markets Mizuho Securities USA Vontobel Securities Ltd.
Edelweiss Securities Ltd. ML Stern Wachovia Securities Corporation
Emmet & Co., Inc. Morgan Keegan Watson Wyatt
Empirical Research Morgan Stanley Wedbush Morgan Securities
Enam Securities Morningstar Weeden & Company
Enskilda Securities Motil Oswal Securities West LB
Evaluation Associates MSCI Barra WH Mell & Associates
Exane M&T Securities William Blair & Company
FactSet Research Systems Multi-Bank Securities Wilshire
FBR Capital Markets & Co. Murphy & Durieu Winchester Capital Partners, LLC
Fidelity Capital Markets National Bank Financial Ziegler Capital Markets Group
First Miami Securities Natixis Bleichroeder Inc.

Organization and History

Organization and History. The Fund is an open-end, non-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.

Classes of Shares. The Fund's Board of Trustees (the "Board") is authorized, without shareholder approval, to:

The Fund currently has three classes of shares: Class A, Class B, and Class C. All classes invest in the same investment portfolio. Each class of shares:

Each share of each class:

Board of Trustees and Oversight Committees

The Fund is governed by a Board of Trustees, which is responsible for protecting the interests of shareholders under Massachusetts law. The Board meets periodically throughout the year to oversee the Fund's activities, review its performance, and review the actions of the Manager. The Board has an Audit Committee, a Regulatory & Oversight Committee and a Governance Committee. The Audit Committee and Regulatory & Oversight Committee are comprised solely of Trustees who are not "interested persons" under the Investment Company Act (the "Independent Trustees").

During the Fund's fiscal year ended July 31, 2009, the Audit Committee held 5 meetings, the Regulatory & Oversight Committee held 5 meetings and the Governance Committee held 4 meetings.

The members of the Audit Committee are David K. Downes (Chairman), Phillip A. Griffiths, Mary F. Miller, Joseph M. Wikler and Peter I. Wold. The Audit Committee furnishes the Board with recommendations regarding the selection of the Fund's independent registered public accounting firm (also referred to as the "independent Auditors"). Other main functions of the Audit Committee outlined in the Audit Committee Charter, include, but are not limited to: (i) reviewing the scope and results of financial statement audits and the audit fees charged; (ii) reviewing reports from the Fund's independent Auditors regarding the Fund's internal accounting procedures and controls; (iii) reviewing reports from the Manager's Internal Audit Department; (iv) maintaining a separate line of communication between the Fund's independent Auditors and the Independent Trustees; (v) reviewing the independence of the Fund's independent Auditors; and (vi) pre-approving the provision of any audit or non-audit services by the Fund's independent Auditors, including tax services, that are not prohibited by the Sarbanes-Oxley Act, to the Fund, the Manager and certain affiliates of the Manager.

The members of the Regulatory & Oversight Committee are Matthew P. Fink (Chairman), David K. Downes, Phillip A. Griffiths, Joel W. Motley, Mary Ann Tynan and Joseph M. Wikler. The Regulatory & Oversight Committee evaluates and reports to the Board on the Fund's contractual arrangements, including the Investment Advisory and Distribution Agreements, transfer agency and shareholder service agreements and custodian agreements as well as the policies and procedures adopted by the Fund to comply with the Investment Company Act and other applicable law, among other duties as set forth in the Regulatory & Oversight Committee's Charter.

The members of the Governance Committee are Joel W. Motley (Chairman), Matthew P. Fink, Mary F. Miller, Russell S. Reynolds, Jr., Mary Ann Tynan and Peter I. Wold. The Governance Committee reviews the Fund's governance guidelines, the adequacy of the Fund's Codes of Ethics, and develops qualification criteria for Board members consistent with the Fund's governance guidelines, provides the Board with recommendations for voting portfolio securities held by the Fund, and monitors the Fund's proxy voting, among other duties set forth in the Governance Committee's Charter.

The Governance Committee's functions also include the nomination of Directors/Trustees, including Independent Directors/Trustees, for election to the Board. The full Board elects new Directors/Trustees except for those instances when a shareholder vote is required.

The Governance Committee will consider nominees recommended by Independent Directors/Trustees or recommended by any other Board members including Board members affiliated with the Fund's Manager. The Governance Committee may consider the advice and recommendation of the Manager and its affiliates in selecting nominees, but need not do so. Upon Board approval, the Governance Committee may retain an executive search firm to assist in screening potential candidates and may also use the services of legal, financial, or other external counsel that it deems necessary or desirable in the screening process. To date, the Governance Committee has been able to identify from its own resources an ample number of qualified candidates. However, under the current policy of the Board, if the Board determines that a vacancy exists or is likely to exist, the Governance Committee will include candidates recommended by the Fund's shareholders in its consideration of nominees.

Shareholders wishing to submit a nominee for election to the Board may do so by mailing their submission to the offices of OppenheimerFunds, Inc., Two World Financial Center, 225 Liberty Street, 11th Floor, New York, New York 10281-1008, to the attention of the Board of Directors/Trustees of the applicable Fund, c/o the Secretary of the Fund. Submissions should, at a minimum, be accompanied by the following: (1) the name, address, and business, educational, and/or other pertinent background of the person being recommended; (2) a statement concerning whether the person is an "interested person" as defined in the Investment Company Act; (3) any other information that the Fund would be required to include in a proxy statement concerning the person if he or she was nominated; and (4) the name and address of the person submitting the recommendation and, if that person is a shareholder, the period for which that person held Fund shares. Shareholders should note that a person who owns securities issued by Massachusetts Mutual Life Insurance Company (the parent company of the Manager) would be deemed an "interested person" under the Investment Company Act. In addition, certain other relationships with Massachusetts Mutual Life Insurance Company or its subsidiaries, with registered broker-dealers, or with the Funds' outside legal counsel may cause a person to be deemed an "interested person."

The Governance Committee has not established specific qualifications that it believes must be met by a nominee. In evaluating nominees, the Governance Committee considers, among other things, an individual's background, skills, and experience; whether the individual is an "interested person" as defined in the Investment Company Act; and whether the individual would be deemed an "audit committee financial expert" within the meaning of applicable SEC rules. The Governance Committee also considers whether the individual's background, skills, and experience will complement the background, skills, and experience of other Trustees and will contribute to the Board. There is no difference in the manner in which the Governance Committee evaluates a nominee based on whether the nominee is recommended by a shareholder. Candidates are expected to provide a mix of attributes, experience, perspective and skills necessary to effectively advance the interests of shareholders.

Shareholder and Trustee Liability. The Fund's Declaration of Trust contains an express disclaimer of shareholder and 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. 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. Although Massachusetts law permits a shareholder of a business trust (such as the Fund) to be held personally liable as a "partner" under certain circumstances, the risk 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.

Trustees and Officers of the Fund

Except for Messrs. Murphy and Reynolds, each of the Trustees is an Independent Trustee. All of the Trustees are also Trustees of the following Oppenheimer funds (referred to as "Board I Funds"):

Limited Term New York Municipal Fund Oppenheimer Quest International Value Fund
Oppenheimer Absolute Return Fund Oppenheimer Real Estate Fund
Oppenheimer AMT-Free Municipals Oppenheimer Rising Dividends Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer Rochester Arizona Municipal Fund
Oppenheimer Balanced Fund Oppenheimer Rochester Maryland Municipal Fund
Oppenheimer Baring SMA International Fund Oppenheimer Rochester Massachusetts Municipal Fund
Oppenheimer California Municipal Fund Oppenheimer Rochester Michigan Municipal Fund
Oppenheimer Capital Appreciation Fund Oppenheimer Rochester Minnesota Municipal Fund
Oppenheimer Developing Markets Fund Oppenheimer Rochester North Carolina Municipal Fund
Oppenheimer Discovery Fund Oppenheimer Rochester Ohio Municipal Fund
Oppenheimer Emerging Growth Fund Oppenheimer Rochester Virginia Municipal Fund
Oppenheimer Equity Income Fund, Inc. Oppenheimer Select Value Fund
Oppenheimer Global Fund Oppenheimer Series Fund, Inc.
Oppenheimer Global Opportunities Fund Oppenheimer Small- & Mid- Cap Value Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Transition 2010 Fund
Oppenheimer Institutional Money Market Fund Oppenheimer Transition 2015 Fund
Oppenheimer International Diversified Fund Oppenheimer Transition 2020 Fund
Oppenheimer International Growth Fund Oppenheimer Transition 2025 Fund
Oppenheimer International Small Company Fund Oppenheimer Transition 2030 Fund
Oppenheimer Limited Term California Municipal Fund Oppenheimer Transition 2040 Fund
Oppenheimer Limited Term Municipal Fund Oppenheimer Transition 2050 Fund
Oppenheimer Master International Value Fund, LLC Oppenheimer Value Fund
Oppenheimer Money Market Fund, Inc. OFI Tremont Core Strategies Hedge Fund
Oppenheimer Multi-State Municipal Trust Oppenheimer U.S. Government Trust
Oppenheimer Portfolio Series Rochester Fund Municipals
Oppenheimer Quest Balanced Fund
Oppenheimer Quest Opportunity Value Fund

Messrs. Loughran, Cottier, Willis, DeMitry, Camarella, Stein, Murphy, Keffer, Petersen, Vandehey, Wixted, Zack, Legg and Edwards and Mss. Bloomberg, Ives, Ruffle and Bullington, who are officers of the Fund, hold the same offices with one or more of the other Board I Funds.

Present or former officers, directors, trustees and employees (and their immediate family members) of the Fund, the Manager and its affiliates, and retirement plans established by them for their employees are permitted to purchase Class A shares of the Fund and the other Oppenheimer funds at net asset value without sales charge. The sales charge on Class A shares is waived for that group because of the reduced sales efforts realized by the Distributor. Present or former officers, directors, trustees and employees (and their eligible family members) of the Fund, the Manager and its affiliates, its parent company and the subsidiaries of its parent company, and retirement plans established for the benefit of such individuals, are also permitted to purchase Class Y shares of the Oppenheimer funds that offer Class Y shares.

As of November 6, 2009, the Trustees and officers of the Fund, as a group, owned less than 1% of any class of shares of the Fund beneficially or of record. The foregoing statement does not reflect ownership of shares held of record by an employee benefit plan for employees of the Manager, other than the shares beneficially owned under that plan by the officers of the Fund. In addition, none of the Independent Trustees (nor any of their immediate family members) owns securities of either the Manager or the Distributor or of any entity directly or indirectly controlling, controlled by or under common control with the Manager or the Distributor.

The foregoing statement does not reflect ownership of shares held of record by an employee benefit plan for employees of the Manager, other than the shares beneficially owned under that plan by the officers of the Fund. In addition, none of the Independent Trustees (nor any of their immediate family members) owns securities of either the Manager or the Distributor or of any entity directly or indirectly controlling, controlled by or under common control with the Manager or the Distributor.

Biographical Information. The Trustees and officers, their positions with the Fund, length of service in such position(s) and principal occupations and business affiliations during at least the past five years are listed in the charts below. The charts also include information about each Trustee's beneficial share ownership in the Fund and in all of the registered investment companies that the Trustee oversees in the Oppenheimer family of funds ("Supervised Funds"). The address of each Trustee in the chart below is 6803 S. Tucson Way, Centennial, Colorado 80112-3924. Each Trustee serves for an indefinite term, or until his or her resignation, retirement, death or removal.

 

Each Independent Trustee has served the Fund in the following capacities from the following dates:
Position(s) Length of Service
Brian F. Wruble Board Chairman Since 2007
Trustee Since 2005
David K. Downes Trustee Since 2007
Matthew P. Fink Trustee Since 2005
Phillip A. Griffiths Trustee Since 1999
Mary F. Miller Trustee Since 2004
Joel W. Motley Trustee Since 2002
Mary Ann Tynan Trustee Since 2008
Joseph M. Wikler Trustee Since 2005
Peter I. Wold Trustee Since 2005

 

Independent Trustees
Name, Age, Position(s) Principal Occupation(s) During the Past 5 Years; Other Trusteeship/Directorships Held Portfolios Overseen in Fund Complex
Brian F. Wruble (66) Chairman of the Board, Trustee Chairman (since August 2007) and Trustee (since August 1991) of the Board of Trustees of The Jackson Laboratory (non-profit); Director of Special Value Opportunities Fund, LLC (registered investment company) (affiliate of the Manager's parent company) (since September 2004); Member of Zurich Financial Investment Management Advisory Council (insurance) (since 2004); Treasurer and Trustee of the Institute for Advanced Study (non-profit educational institute) (since May 1992); General Partner of Odyssey Partners, L.P. (hedge fund) (September 1995-December 2007); Special Limited Partner of Odyssey Investment Partners, LLC (private equity investment) (January 1999-September 2004). 60
David K. Downes (69) Trustee Independent Chairman GSK Employee Benefit Trust (since April 2006); Trustee of Employee Trusts (since January 2006); Chief Executive Officer and Board Member of Community Capital Management (investment management company) (since January 2004); President of The Community Reinvestment Act Qualified Investment Fund (investment management company) (since 2004); Director of Internet Capital Group (information technology company) (since October 2003); Director of Correctnet (January 2006-2007); Independent Chairman of the Board of Trustees of Quaker Investment Trust (registered investment company) (2004-2007); Chief Operating Officer and Chief Financial Officer of Lincoln National Investment Companies, Inc. (subsidiary of Lincoln National Corporation, a publicly traded company) and Delaware Investments U.S., Inc. (investment management subsidiary of Lincoln National Corporation) (1993-2003); President, Chief Executive Officer and Trustee of Delaware Investment Family of Funds (1993-2003); President and Board Member of Lincoln National Convertible Securities Funds, Inc. and the Lincoln National Income Funds, TDC (1993-2003); Chairman and Chief Executive Officer of Retirement Financial Services, Inc. (registered transfer agent and investment adviser and subsidiary of Delaware Investments U.S., Inc.) (1993-2003); President and Chief Executive Officer of Delaware Service Company, Inc. (1995-2003); Chief Administrative Officer, Chief Financial Officer, Vice Chairman and Director of Equitable Capital Management Corporation (investment subsidiary of Equitable Life Assurance Society) (1985-1992); Corporate Controller of Merrill Lynch Company (financial services holding company) (1977-1985); held the following positions at the Colonial Penn Group, Inc. (insurance company): Corporate Budget Director (1974-1977), Assistant Treasurer (1972-1974) and Director of Corporate Taxes (1969-1972); held the following positions at Price Waterhouse Company (financial services firm): Tax Manager (1967-1969), Tax Senior (1965-1967) and Staff Accountant (1963-1965); United States Marine Corps (1957-1959). 60
Matthew P. Fink (68) Trustee Trustee of the Committee for Economic Development (policy research foundation) (since 2005); Director of ICI Education Foundation (education foundation) (October 1991-August 2006); President of the Investment Company Institute (trade association) (October 1991-June 2004); Director of ICI Mutual Insurance Company (insurance company) (October 1991-June 2004). 60
Phillip A. Griffiths (70) Trustee Fellow of the Carnegie Corporation (since 2007); Distinguished Presidential Fellow for International Affairs (since 2002) and Member (since 1979) of the National Academy of Sciences; Council on Foreign Relations (since 2002); Director of GSI Lumonics Inc. (precision technology products company) (since 2001); Senior Advisor of The Andrew W. Mellon Foundation (since 2001); Chair of Science Initiative Group (since 1999); Member of the American Philosophical Society (since 1996); Trustee of Woodward Academy (since 1983); Foreign Associate of Third World Academy of Sciences; Director of the Institute for Advanced Study (1991-2004); Director of Bankers Trust New York Corporation (1994-1999); Provost at Duke University (1983-1991). 60
Mary F. Miller (66) Trustee Trustee of International House (not-for-profit) (since June 2007); Trustee of the American Symphony Orchestra (not-for-profit) (since October 1998); and Senior Vice President and General Auditor of American Express Company (financial services company) (July 1998-February 2003). 60
Joel W. Motley (57) Trustee Managing Director of Public Capital Advisors, LLC (privately-held financial advisor) (since January 2006); Managing Director of Carmona Motley, Inc. (privately-held financial advisor) (since January 2002); Director of Columbia Equity Financial Corp. (privately-held financial advisor) (2002-2007); Managing Director of Carmona Motley Hoffman Inc. (privately-held financial advisor) (January 1998-December 2001); Member of the Finance and Budget Committee of the Council on Foreign Relations, Member of the Investment Committee of the Episcopal Church of America, Member of the Investment Committee and Board of Human Rights Watch and Member of the Investment Committee of Historic Hudson Valley. 60
Mary Ann Tynan (63) Trustee Vice Chair of Board of Trustees of Brigham and Women's/Faulkner Hospitals (non-profit hospital) (since 2000); Chair of Board of Directors of Faulkner Hospital (non-profit hospital) (since 1990); Member of Audit and Compliance Committee of Partners Health Care System (non-profit) (since 2004); Board of Trustees of Middlesex School (educational institution) (since 1994); Board of Directors of Idealswork, Inc. (financial services provider) (since 2003); Partner, Senior Vice President and Director of Regulatory Affairs of Wellington Management Company, LLP (global investment manager) (1976-2002); Vice President and Corporate Secretary, John Hancock Advisers, Inc. (mutual fund investment adviser) (1970-1976). 60
Joseph M. Wikler (67) Trustee Director of C-TASC (bio-statistics services) (since 2007); Director of the following medical device companies: Medintec (since 1992) and Cathco (since 1996); Member of the Investment Committee of the Associated Jewish Charities of Baltimore (since 1994); Director of Lakes Environmental Association (environmental protection organization) (1996-2008); Director of Fortis/Hartford mutual funds (1994-December 2001). 60
Peter I. Wold (61) Trustee Director and Chairman of Wyoming Enhanced Oil Recovery Institute Commission (enhanced oil recovery study) (since 2004); President of Wold Oil Properties, Inc. (oil and gas exploration and production company) (since 1994); Vice President of American Talc Company, Inc. (talc mining and milling) (since 1999); Managing Member of Hole-in-the-Wall Ranch (cattle ranching) (since 1979); Director and Chairman of the Denver Branch of the Federal Reserve Bank of Kansas City (1993-1999); and Director of PacifiCorp. (electric utility) (1995-1999). 60

Mr. Reynolds has been a Trustee of the Fund since 1989.

The address of Mr. Reynolds is 6803 S. Tucson Way, Centennial, Colorado 80112-3924. Mr. Reynolds serves for an indefinite term, or until his resignation, retirement, death or removal. Mr. Reynolds is an "Interested Trustee" because of a potential consulting relationship between RSR Partners, which Mr. Reynolds may be deemed to control, and the Manager.

 

Interested Trustee
Name, Age, Position(s) Principal Occupation(s) During the Past 5 Years; Other Trusteeships/Directorships Held Portfolios Overseen in Fund Complex
Russell S. Reynolds, Jr. (77) Trustee Chairman of RSR Partners (formerly "The Directorship Search Group, Inc.") (corporate governance consulting and executive recruiting) (since 1993); Retired CEO of Russell Reynolds Associates (executive recruiting) (October 1969-March 1993); Life Trustee of International House (non-profit educational organization); Former Trustee of The Historical Society of the Town of Greenwich; Former Director of Greenwich Hospital Association. 60

Mr. Murphy has served as a Trustee of the Fund since 2001.

Both as a Trustee and as an officer, he serves for an indefinite term, or until his resignation, retirement, death or removal. Mr. Murphy is an "Interested Trustee" because he is affiliated with the Manager by virtue of his positions as an officer and director of the Manager, and as a shareholder of its parent company. The address of Mr. Murphy is Two World Financial Center, 225 Liberty Street, 11th Floor, New York, New York 10281-1008.

 

Interested Trustee and Officer
Name, Age, Position(s) Principal Occupation(s) During the Past 5 Years; Other Trusteeships/Directorships Held Portfolios Overseen in Fund Complex
John V. Murphy (60) Trustee, President and Principal Executive Officer Chairman and Director of the Manager (since June 2001); Chief Executive Officer of the Manager (June 2001-December 2008); President of the Manager (September 2000-February 2007); President and director or trustee of other Oppenheimer funds; President and Director of Oppenheimer Acquisition Corp. ("OAC") (the Manager's parent holding company) and of Oppenheimer Partnership Holdings, Inc. (holding company subsidiary of the Manager) (since July 2001); Director of OppenheimerFunds Distributor, Inc. (subsidiary of the Manager) (November 2001-December 2006); Chairman and Director of Shareholder Services, Inc. and of Shareholder Financial Services, Inc. (transfer agent subsidiaries of the Manager) (since July 2001); President and Director of OppenheimerFunds Legacy Program (charitable trust program established by the Manager) (since July 2001); Director of the following investment advisory subsidiaries of the Manager: OFI Institutional Asset Management, Inc., Centennial Asset Management Corporation and Trinity Investment Management Corporation (since November 2001), HarbourView Asset Management Corporation and OFI Private Investments, Inc. (since July 2001); President (since November 2001) and Director (since July 2001) of Oppenheimer Real Asset Management, Inc.; Executive Vice President of Massachusetts Mutual Life Insurance Company (OAC's parent company) (since February 1997); Director of DLB Acquisition Corporation (holding company parent of Babson Capital Management LLC) (since June 1995); Vice Chairman of the Investment Company Institute's Board of Governors (since October 2009); Chairman (October 2007-September 2009) and Member of the Investment Company Institute's Board of Governors (since October 2003). 98

The addresses of the officers in the chart below are as follows: for Messrs. Loughran, Camarella, Cottier, DeMitry, Willis, Stein, Zack, Keffer and Edwards and Mses. Bloomberg and Ruffle, Two World Financial Center, 225 Liberty Street, 11th Floor, New York, New York 10281-1008, for Messrs. Petersen, Vandehey, Legg and Wixted and Mses. Bullington and Ives, 6803 S. Tucson Way, Centennial, Colorado 80112-3924. Each officer serves for an annual term or until his or her resignation, retirement, death or removal.

 

Each of the officers has served the Fund in the following capacities from the following dates:
Position(s) Length of Service
Daniel G. Loughran Vice President (VP) and Senior Portfolio Manager (PM) Since 2005 (VP); 2002 (PM)
Scott C. Cottier Vice President and Senior Portfolio Manager Since 2005 (VP); 2002 (PM)
Troy E. Willis Vice President and Senior Portfolio Manager Since 2005 (VP); 2003 (PM)
Mark R. DeMitry Vice President and Senior Portfolio Manager Since 2009 (VP); 2006 (PM)
Michael L. Camarella Vice President and Associate Portfolio Manager Since 2009 (VP); 2008 (PM)
Richard A. Stein Vice President Since 2007
John V. Murphy President and Principal Executive Officer Since 2001
Mark S. Vandehey Vice President and Chief Compliance Officer Since 2004
Brian W. Wixted Treasurer and Principal Financial &
Accounting Officer
Since 2004
Tom Keffer Chief Business Officer Since 2009
Brian Peterson Assistant Treasurer Since 2004
Stephanie Bullington Assistant Treasurer Since 2008
Robert G. Zack Secretary Since 2001
Kathleen T. Ives Assistant Secretary Since 2001
Lisa I. Bloomberg Assistant Secretary Since 2004
Taylor V. Edwards Assistant Secretary Since 2008
Randy G. Legg Assistant Secretary Since 2008
Adrienne M. Ruffle Assistant Secretary Since 2008

 

Other Information about the Officers of the Fund
Name, Age, Position(s) Principal Occupation(s) During the Past 5 Years Portfolios Overseen in Fund Complex
Daniel G. Loughran (45), Vice President and Senior Portfolio Manager Senior Vice President of the Manager since July 2007; Vice President of the Manager since April 2001. Vice President of the Fund since October 2005. Team leader, a Senior Portfolio Manager, an officer and a trader for the Fund and other Oppenheimer funds. 18
Scott S. Cottier (38), Vice President and Senior Portfolio Manager Vice President and Senior Portfolio Manager of the Manager since 2002; Vice President of the Fund since October 2005. Portfolio Manager and trader at Victory Capital Management (1999-2002). Senior Portfolio Manager, an officer and trader for the Fund and other Oppenheimer funds. 18
Troy E. Willis (37), Vice President and Senior Portfolio Manager Vice President of the Manager since July 2009; Assistant Vice President of the Manager from July 2005 to June 2009; Senior Portfolio Manager with the Manager since 2006; Vice President of the Fund since October 2005. A corporate attorney for Southern Resource Group (1999-2003). Senior Portfolio Manager, an officer and a trader for the Fund and other Oppenheimer funds. 18
Mark R. DeMitry (33), Vice President and Senior Portfolio Manager Vice President and Senior Portfolio Manager of the Manager since July 2009; Associate Portfolio Manager (September 2006-June 2009); research analyst of the Manager (June 2003-September 2006); Research Analyst of the Manager (June 2003-August 2006); Credit Analyst of the Manager (July 2001-May 2003). Senior Portfolio Manager, an officer and a trader for the Fund and other Oppenheimer funds. 18
Michael L. Camarella (33), Vice President and Associate Portfolio Manager Assistant Vice President of the Manager since July 2009; Associate Portfolio Manager of the Manager since January 2008. He was a Research Analyst of the Manager (February 2006 - April 2008); Credit Analyst of the Manager (June 2003 - January 2006). An Associate Portfolio Manager, an officer and a trader for the Fund and other Oppenheimer funds. 18
Richard A. Stein (51), Vice President Director of the Rochester Credit Analysis team (since 2003) and a Vice President of the Manager (since 1997); head of Rochester's Credit Analysis team (since 1993). 18

 

Other Information about the Officers of the Fund
Name, Age, Position(s) Principal Occupation(s) During the Past 5 Years Portfolios Overseen in Fund Complex
Thomas W. Keffer (54) Chief Business Officer Senior Vice President of the Manager (since March 1997); Director of Investment Brand Management of the Manager (since November 1997); Senior Vice President of OppenheimerFunds Distributor, Inc. (since December 1997). 98
Mark S. Vandehey (59) Vice President and Chief Compliance Officer Senior Vice President and Chief Compliance Officer of the Manager (since March 2004); Chief Compliance Officer of OppenheimerFunds Distributor, Inc., Centennial Asset Management and Shareholder Services, Inc. (since March 2004); Vice President of OppenheimerFunds Distributor, Inc., Centennial Asset Management Corporation and Shareholder Services, Inc. (since June 1983). 98
Brian W. Wixted (50) Treasurer and Principal Financial & Accounting Officer Senior Vice President of the Manager (since March 1999); Treasurer of the Manager and the following: HarbourView Asset Management Corporation, Shareholder Financial Services, Inc., Shareholder Services, Inc., Oppenheimer Real Asset Management, Inc. and Oppenheimer Partnership Holdings, Inc. (March 1999-June 2008), OFI Private Investments, Inc. (March 2000-June 2008), OppenheimerFunds International Ltd. and OppenheimerFunds plc (since May 2000), OFI Institutional Asset Management, Inc. (since November 2000), and OppenheimerFunds Legacy Program (charitable trust program established by the Manager) (since June 2003); Treasurer and Chief Financial Officer of OFI Trust Company (trust company subsidiary of the Manager) (since May 2000); Assistant Treasurer of the following: OAC (March 1999-June 2008). 98
Brian Petersen (39) Assistant Treasurer Vice President of the Manager (since February 2007); Assistant Vice President of the Manager (August 2002-February 2007); Manager/Financial Product Accounting of the Manager (November 1998-July 2002). 98
Stephanie Bullington (32) Assistant Treasurer Assistant Vice President of the Manager (since October 2005); Assistant Vice President of ButterField Fund Services (Bermuda) Limited, part of The Bank of N.T. Butterfield Son Limited (Butterfield) (February 2004-June 2005). 98
Robert G. Zack (61) Secretary Executive Vice President (since January 2004) and General Counsel (since March 2002) of the Manager; General Counsel and Director of the Distributor (since December 2001); General Counsel of Centennial Asset Management Corporation (since December 2001); Senior Vice President and General Counsel of HarbourView Asset Management Corporation (since December 2001); Secretary and General Counsel of OAC (since November 2001); Assistant Secretary (since September 1997) and Director (since November 2001) of OppenheimerFunds International Ltd. and OppenheimerFunds plc; Vice President and Director of Oppenheimer Partnership Holdings, Inc. (since December 2002); Director of Oppenheimer Real Asset Management, Inc. (since November 2001); Senior Vice President, General Counsel and Director of Shareholder Financial Services, Inc. and Shareholder Services, Inc. (since December 2001); Senior Vice President, General Counsel and Director of OFI Private Investments, Inc. and OFI Trust Company (since November 2001); Vice President of OppenheimerFunds Legacy Program (since June 2003); Senior Vice President and General Counsel of OFI Institutional Asset Management, Inc. (since November 2001). 98
Kathleen T. Ives (44) Assistant Secretary Senior Vice President (since May 2009), Deputy General Counsel (since May 2008) and Assistant Secretary (since October 2003) of the Manager; Vice President (since 1999) and Assistant Secretary (since October 2003) of the Distributor; Assistant Secretary of Centennial Asset Management Corporation (since October 2003); Vice President and Assistant Secretary of Shareholder Services, Inc. (since 1999); Assistant Secretary of OppenheimerFunds Legacy Program and Shareholder Financial Services, Inc. (since December 2001); Vice President of the Manager (June 1998-May 2009); Senior Counsel of the Manager (October 2003-May 2008). 98
Lisa I. Bloomberg (41) Assistant Secretary Vice President (since 2004) and Deputy General Counsel (since May 2008); of the Manager; Associate Counsel of the Manager (May 2004-May 2008); First Vice President (April 2001-April 2004), Associate General Counsel (December 2000-April 2004) of UBS Financial Services, Inc. 98
Taylor V. Edwards (42) Assistant Secretary Vice President (since February 2007) and Associate Counsel (since May 2009) of the Manager; Assistant Vice President (January 2006-January 2007) and Assistant Counsel (January 2006-April 2009) of the Manager; Formerly an Associate at Dechert LLP (September 2000-December 2005). 98
Randy G. Legg (44) Assistant Secretary Vice President (since June 2005) and Associate Counsel (since January 2007) of the Manager; Assistant Vice President (February 2004-June 2005) and Assistant Counsel (February 2004-January 2007) of the Manager. 98
Adrienne M. Ruffle (32) Assistant Secretary Vice President (since February 2007) and Assistant Counsel (since February 2005) of the Manager; Assistant Vice President of the Manager (February 2005-February 2007); Associate (September 2002-February 2005) at Sidley Austin LLP. 98

Trustees Share Ownership. The chart below shows information about each Trustee's beneficial share ownership in the Fund and in all of the registered investment companies that the Trustee oversees in the Oppenheimer family of funds ("Supervised Funds").

 

As of December 31, 2008
Dollar Range of Shares Beneficially Owned in the Fund Aggregate Dollar Range of Shares Beneficially Owned in Supervised Funds
Independent Trustees
Brian Wruble None Over $100,000
David K. Downes None Over $100,000
Matthew P. Fink None Over $100,000
Phillip A. Griffiths None Over $100,000
Mary F. Miller None Over $100,000
Joel W. Motley None Over $100,000
Mary Ann Tynan None Over $100,000
Joseph M. Wikler None Over $100,000
Peter I. Wold None Over $100,000
Interested Trustee
John V. Murphy None Over $100,000
Russell S. Reynolds, Jr. None Over $100,000

Remuneration of the Officers and Trustees. The officers and the interested Trustees of the Fund, who are affiliated with the Manager, receive no salary or fee from the Fund. The Independent Trustees' and Mr. Reynolds total compensation from the Fund and fund complex represents compensation, including accrued retirement benefits, for serving as a Trustee and member of a committee (if applicable) of the Boards of the Fund and other funds in the OppenheimerFunds complex during the calendar year ended December 31, 2008.

 

Name and Other Fund Position(s) (as applicable) Aggregate Compensation From the Fund1 Retirement Benefits Accrued as Part of Fund Expenses Estimated Annual Benefits Upon Retirement2 Total Compensation From the Fund and Fund Complex
Fiscal Year Ended July 31, 2009 Fiscal Year Ended July 31, 2009 Year Ended December 31, 2008
Brian F. Wruble3 $4,8684 N/A $323,2965 $365,0006
Chairman of the Board
David Downes7 $3,894 N/A $176,3288 $335,0009
Audit Committee Chairman and Regulatory & Oversight Committee Member
Matthew P. Fink $3,894 N/A N/A $178,582
Regulatory & Oversight Committee Chairman and Governance Committee Member
Phillip A. Griffiths $4,35510 N/A N/A $204,625
Audit Committee Member and Regulatory & Oversight Committee Member
Mary F. Miller $3,63511 N/A N/A $168,000
Audit Committee Member and Governance Committee Member
Joel W. Motley $3,89412 N/A N/A $181,533
Governance Committee Chairman and Regulatory & Oversight Committee Member
Russell S. Reynolds, Jr. $3,425 N/A $77,288 $168,000
Governance Committee Member
Mary Ann Tynan13 $3,15614 N/A N/A $32,870
Regulatory & Oversight Committee Member and Governance Committee Member
Joseph M. Wikler $3,63515 N/A N/A $168,000
Audit Committee Member and Regulatory & Oversight Committee Member
Peter I. Wold $3,63516 N/A N/A $168,000
Audit Committee Member and Governance Committee Member

1. "Aggregate Compensation From the Fund" includes fees and amounts deferred under the "Compensation Deferral Plan" (described below), if any.
2. "Estimated Annual Benefits Upon Retirement" is based on a single life payment election with the assumption that a Trustee would retire at the age of 75 and would then have been eligible to receive retirement plan benefits with respect to certain Board I Funds. The Board I Funds' retirement plan was frozen effective December 31, 2006, and each plan participant who had not yet commenced receiving retirement benefits subsequently received previously accrued benefits based upon the distribution method elected by such participant.
3. Mr. Wruble became Chairman of the Board I Funds on December 31, 2006.
4. Includes $1,687 deferred by Mr. Wruble under the "Compensation Deferral Plan".
5. This amount represents the benefit that was paid to Mr. Wruble for serving as a director or trustee of certain funds before they became Board I Funds. Mr. Wruble has elected to receive a lump sum distributed to the Compensation Deferral Plan subsequent to the freezing of those funds' retirement plan.
6. Includes $140,000 paid to Mr. Wruble for serving as a director or trustee of certain funds before they became Board I Funds.
7. Mr. Downes was appointed as Trustee of the Board I Funds on August 1, 2007, which was subsequent to the freezing of the Board I retirement plan.
8. This amount represents the benefit that was paid to Mr. Downes for serving as a director or trustee of certain funds before they became Board I Funds. Mr. Downes has elected to receive a lump sum payment subsequent to the freezing of those funds' retirement plan.
9. Includes $155,000 paid to Mr. Downes for serving as a director or trustee of certain funds before they became Board I Funds.
10. Includes $4,044 deferred by Mr. Griffiths under the Compensation Deferral Plan.
11. Includes $549 deferred by Ms. Miller under the Compensation Deferral Plan.
12. Includes $257 deferred by Mr. Motley under the Compensation Deferral Plan.
13. Ms. Tynan was appointed as Trustee of the Board I Funds on October 1, 2008.
14. Includes $1,353 deferred by Ms. Tynan under the Compensation Deferral Plan
15. Includes $1,765 deferred by Mr. Wikler under the Compensation Deferral Plan.
16. Includes $2,395 deferred by Mr. Wold under the Compensation Deferral Plan.

Retirement Plan for Trustees. The Board I Funds adopted a retirement plan that provided for payments to retired Independent Trustees of 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 needed to serve as director or trustee for any of the Board I Funds for at least seven years to be eligible for retirement plan benefits and to serve for at least 15 years to be eligible for the maximum benefit. The Board discontinued the retirement plan with respect to new accruals as of December 31, 2006 (the "Freeze Date"). Each Trustee that continued to serve on the Board of any of the Board I Funds after the Freeze Date (each such Trustee a "Continuing Board Member") was able to elect to have his accrued benefit as of that date (i.e., an amount equivalent to the actuarial present value of his benefit under the retirement plan as of the Freeze Date) (i) paid at once or over time, (ii) rolled into the Compensation Deferral Plan described below, or (iii) in the case of Continuing Board Members having at least seven years of service as of the Freeze Date paid in the form of an annual benefit or joint and survivor annual benefit. The Board determined to freeze the retirement plan after considering a recent trend among corporate boards of directors to forego retirement plan payments in favor of current compensation.

Compensation Deferral Plan. The Board of Trustees has adopted a Compensation Deferral Plan for Independent Trustees that enables them to elect to defer receipt of all or a portion of the annual fees they are entitled to receive from certain Funds. Under the plan, the compensation deferred by a Trustee is periodically adjusted as though an equivalent amount had been invested in shares of one or more Oppenheimer funds selected by the Trustee. The amount paid to the Trustee under the plan will be determined based on the amount of compensation deferred and the performance of the selected funds.

Deferral of the Trustees' fees under the plan will not materially affect a Fund's assets, liabilities or net income per share. The plan will not obligate a 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 SEC, a 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 compensation account.

Major Shareholders. As of November 6, 2009 the only persons or entities who owned of record, or who were known by the Fund to own beneficially, 5% or more of any class of the Fund's outstanding shares were:

 

Name Address % Owned Share Class
Citigroup Global Mkts Inc., Attn Cindy Tempesta 333 West 34th Street, 7th Fl., New York, NY 10001-2483 8.43 A
Citigroup Global Mkts Inc., Attn Cindy Tempesta 333 West 34th Street, 7th Fl., New York, NY 10001-2483 14.43 B
MLPF&S, FBO Sole Bene Of Its Customers, Attn Fund Admn/#97BH8 4800 Deer Lake Dr. E, Fl. 3, Jacksonville, FL 32246-6484 12.13 B
MLPF&S, FBO Sole Bene Of Its Customers, Attn Fund Admn/#97HU7 4800 Deer Lake Dr. E, Fl. 3, Jacksonville, FL 32246-6484 17.51 C
Citigroup Global Mkts Inc., Attn Cindy Tempesta 333 West 34th Street, 7th Fl., New York, NY 10001-2483 10.02 C
Morgan Stanley & Co., Attn Mutual Funds Operations Harborside Financial Center, Plaza II, 3rd Floor, Jersey City, NJ 07311 6.27 C

The Manager

The Manager is wholly-owned by Oppenheimer Acquisition Corp., a holding company primarily owned by Massachusetts Mutual Life Insurance Company, a global, diversified insurance and financial services company.

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 portfolio managers and certain other employees ("covered persons") that could 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/or 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 SEC. It can be viewed as part of the Fund's registration statement on the SEC's EDGAR database at the SEC's website at www.sec.gov and can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C.

Portfolio Proxy Voting. The Fund has adopted Portfolio Proxy Voting Policies and Procedures, which include Proxy Voting Guidelines, under which the Fund votes proxies relating to securities held by the Fund ("portfolio proxies"). OppenheimerFunds, Inc. generally undertakes to vote portfolio proxies with a view to enhancing the value of the company's stock held by the Funds. The Fund has retained an independent, third party proxy voting agent to vote portfolio proxies in accordance with the Fund's Proxy Voting Guidelines and to maintain records of such portfolio proxy voting. The Portfolio Proxy Voting Policies and Procedures include provisions to address conflicts of interest that may arise between the Fund and the Manager or the Manager's affiliates or business relationships. Such a conflict of interest may arise, for example, where the Manager or an affiliate of the Manager manages or administers the assets of a pension plan or other investment account of the portfolio company soliciting the proxy or seeks to serve in that capacity. The Manager and its affiliates generally seek to avoid such material conflicts of interest by maintaining separate investment decision making processes to prevent the sharing of business objectives with respect to proposed or actual actions regarding portfolio proxy voting decisions. Additionally, the Manager employs the following procedures, as long as OFI determines that the course of action is consistent with the best interests of the Fund and its shareholders: (1) if the proposal that gives rise to the conflict is specifically addressed in the Proxy Voting Guidelines, the Manager will vote the portfolio proxy in accordance with the Proxy Voting Guidelines, provided that they do not provide discretion to the Manager on how to vote on the matter; (2) if such proposal is not specifically addressed in the Proxy Voting Guidelines or the Proxy Voting Guidelines provide discretion to the Manager on how to vote, the Manager will vote in accordance with the third-party proxy voting agent's general recommended guidelines on the proposal provided that the Manager has reasonably determined that there is no conflict of interest on the part of the proxy voting agent; and (3) if neither of the previous two procedures provides an appropriate voting recommendation, the Manager may retain an independent fiduciary to advise the Manager on how to vote the proposal or may abstain from voting. The Proxy Voting Guidelines' provisions with respect to certain routine and non-routine proxy proposals are summarized below:

The Fund is required to file Form N-PX, with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. The Fund's Form N-PX filing is available (i) without charge, upon request, by calling the Fund toll-free at 1.800.525.7048 and (ii) on the SEC's website at www.sec.gov.

The Investment Advisory Agreement. The Manager provides investment advisory and management services to the Fund under an investment advisory agreement between the Manager and the Fund. The Manager selects securities for the Fund's portfolio and handles its day-to-day business. The portfolio managers of the Fund are employed by the Manager and are principally responsible for the day-to-day management of the Fund's portfolio. Other members of the Manager's Equity Portfolio Department provide the portfolio managers with counsel and support in managing the Fund's portfolio.

The 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 administration for the Fund. Those responsibilities include the compilation and maintenance of records with respect to its operations, the preparation and filing of specified reports, and composition of proxy materials and registration statements for continuous public sale of shares of the Fund.

The Fund pays expenses not expressly assumed by the Manager under the advisory agreement. The advisory agreement lists examples of expenses paid by the Fund. The major categories relate to interest, taxes, brokerage commissions, fees to certain Trustees, legal and audit expenses, custodian and transfer agent expenses, share issuance costs, certain printing and registration costs and non-recurring expenses, including litigation costs. 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 were:

Fiscal Year ended 7/31 Management Fees Paid to OppenheimerFunds, Inc.
2007 $8,486,762
2008 $8,528,903
2009 $5,527,308

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 of its obligations and duties under the investment advisory agreement, the Manager is not liable for any loss the Fund sustains in connection with matters to which the agreement relates.

The agreement permits the Manager to act as investment adviser for any other person, firm or corporation and to use the name "Oppenheimer" in connection with other investment companies for which it may act as investment adviser or general distributor. If the Manager shall no longer act as investment adviser to the Fund, the Manager may withdraw the right of the Fund to use the name "Oppenheimer" as part of its name.

Pending Litigation. During 2009, a number of complaints have been filed in federal courts against the Manager, the Distributor, and certain mutual funds advised by the Manager and distributed by the Distributor - including the Fund.  The complaints naming the Fund as a defendant also name certain officers, trustees and former trustees of the Fund.  The plaintiffs seek class action status on behalf of purchasers of shares of the Fund during a particular time period.  The complaints against the Fund raise claims under federal securities laws alleging that, among other things, the disclosure documents of the Fund contained misrepresentations and omissions, that the Fund's investment policies were not followed, and that the Fund and the other defendants violated federal securities laws and regulations and certain state laws.  The plaintiffs seek unspecified damages, equitable relief and an award of attorneys' fees and litigation expenses.  The litigations involving certain other Oppenheimer funds are similar in nature.

A complaint has been brought in state court against the Manager, the Distributor and another subsidiary of the Manager (but not against the Fund), on behalf of the Oregon College Savings Plan Trust, and other complaints have been brought in state court against the Manager and that subsidiary (but not the Fund), on behalf of the New Mexico Education Plan Trust. All of these complaints allege breach of contract, breach of fiduciary duty, negligence and violation of state securities laws, and seek compensatory damages, equitable relief and an award of attorneys' fees and litigation expenses.

Other complaints have been filed in 2008 and 2009 in state and federal courts, by investors who made investments through an affiliate of the Manager, against the Manager and certain of its affiliates. Those complaints relate to the alleged investment fraud perpetrated by Bernard Madoff and his firm ("Madoff") and allege a variety of claims, including breach of fiduciary duty, fraud, negligent misrepresentation, unjust enrichment, and violation of federal and state securities laws and regulations, among others.  They seek unspecified damages, equitable relief and an award of attorneys' fees and litigation expenses.  None of the suits have named the Distributor, any of the Oppenheimer mutual funds or any of their independent Trustees or Directors.  None of the Oppenheimer funds invested in any funds or accounts managed by Madoff.

The Manager believes that the lawsuits described above are without legal merit and intends to defend them vigorously.  The Fund's Board of Trustees has also engaged counsel to defend the suits vigorously on behalf of the Fund, the Fund's Board and the Trustees named in those suits.  While it is premature to render any opinion as to the likelihood of an outcome in these lawsuits, or whether any costs that the Fund may bear in defending the suits might not be reimbursed by insurance or the Manager, the Manager believes that these suits should not have any material effect on the operations of the Fund and that the outcome of all of the suits together should not impair the ability of the Manager or the Distributor to perform their respective duties to the Fund.

Portfolio Managers. The Fund's portfolio is managed by a team of investment professionals, including, Daniel G. Loughran, Scott S. Cottier, Troy E. Willis, Mark R. DeMitry, Michael L. Camarella and Marcus V. Franz (each is referred to as a "Portfolio Manager" and collectively they are referred to as the "Portfolio Managers") who are responsible for the day-to-day management of the Fund's investments.

 

Portfolio Manager Registered Investment Companies Managed Total Assets in Registered Investment Companies Managed1 Other Pooled Investment Vehicles Managed Total Assets in Other Pooled Investment Vehicles Managed Other Accounts Managed Total Assets in Other Accounts Managed
Daniel G. Loughran 17 $23,172,536.070 N/A N/A N/A N/A
Scott S. Cottier 17 $23,172,536.070 N/A N/A N/A N/A
Troy E. Willis 17 $23,172,536.070 N/A N/A N/A N/A
Mark R. Demitry 17 $23,172,536.070 N/A N/A N/A N/A
Michael L. Camarella 17 $23,172,536.070 N/A N/A N/A N/A
Marcus V. Franz 17 $23,172,536.070 N/A N/A N/A N/A
1.

In millions.


As indicated above, the Portfolio Managers also manage other funds and accounts. At different times, the Fund's Portfolio Managers may manage other funds or accounts with investment objectives and strategies similar to those of the Fund, or they may manage funds or accounts with different investment objectives and strategies. At times, those responsibilities could potentially conflict with the interests of the Fund. That may occur whether the investment objectives and strategies of the other funds and accounts are the same as, or different from, the Fund's investment objectives and strategies. For example, the Portfolio Managers may need to allocate investment opportunities between the Fund and another fund or account having similar objectives or strategies, or they may need to execute transactions for another fund or account that could have a negative impact on the value of securities held by the Fund. Not all funds and accounts advised by the Manager have the same management fee. If the management fee structure of another fund or account is more advantageous to the Manager than the fee structure of the Fund, the Manager could have an incentive to favor the other fund or account. However, the Manager's compliance procedures and Code of Ethics recognize the Manager's obligation to treat all of its clients, including the Fund, fairly and equitably, and are designed to preclude the Portfolio Managers from favoring one client over another. It is possible, of course, that those compliance procedures and the Code of Ethics may not always be adequate to do so.

Compensation of the Portfolio Managers. The Fund's Portfolio Managers are employed and compensated by the Manager, not the Fund. Under the Manager's compensation program for its portfolio managers and portfolio analysts, Fund performance is the most important element of compensation with a portion of annual cash compensation based on relative investment performance results of the funds or accounts they manage, rather than on the financial success of the Manager. This is intended to align the portfolio managers and analysts' interests with the success of the funds and accounts and their shareholders. The Manager's compensation structure is designed to attract and retain highly qualified investment management professionals and to reward individual and team contributions toward creating shareholder value. As of November 30, 2008 the Portfolio Managers' compensation consisted of three elements: a base salary, an annual discretionary bonus and eligibility to participate in long-term awards of options and stock appreciation rights in regard to the common stock of the Manager's holding company parent, as well as restricted shares of such common stock. Senior portfolio managers may be eligible to participate in the Manager's deferred compensation plan.

The base pay component of each portfolio manager is reviewed regularly to ensure that it reflects the performance of the individual, is commensurate with the requirements of the particular portfolio, reflects any specific competence or specialty of the individual manager, and is competitive with other comparable positions. The annual discretionary bonus is determined by senior management of the Manager and is based on a number of factors, including a fund's pre-tax performance for periods of up to five years, measured against an appropriate Lipper benchmark selected by management. The majority (80%) is based on three and five year data, with longer periods weighted more heavily. Below median performance in all three periods' results in an extremely low, and in some cases no, performance based bonus. Other factors considered include management quality (such as style consistency, risk management, sector coverage, team leadership and coaching) and organizational development. The Portfolio Managers' compensation is not based on the total value of the Fund's portfolio assets, although the Fund's investment performance may increase those assets. The compensation structure is also intended to be internally equitable and serve to reduce potential conflicts of interest between the Fund and other funds and accounts managed by the Portfolio Managers.

The Lipper benchmark for the Portfolio Managers with respect to the Fund is Lipper - California Municipal Debt Funds. The compensation structure of the other funds and accounts managed by the Portfolio Managers are generally the same as the compensation structure of the Fund, described above.

 

Portfolio Manager Range of Shares Beneficially Owned in the Fund
Daniel G. Loughran None
Scott S. Cottier None
Troy E. Willis None
Mark R. DeMitry None
Michael L. Camarella None
Marcus V. Franz None

Brokerage Policies of the Fund

Brokerage Provisions of the Investment Advisory Agreement. One of the duties of the Manager under the investment advisory agreement is to arrange the portfolio transactions for the Fund. The advisory agreement contains provisions relating to the employment of broker-dealers for that purpose. The advisory agreement authorizes the Manager to employ broker-dealers, including "affiliated brokers," as that term is defined in the Investment Company Act, that the Manager thinks, in its best judgment based on all relevant factors, will implement the policy of the Fund to obtain the "best execution" of the Fund's portfolio transactions. "Best execution" means executing trades in a manner that the total cost or proceed is the most favorable under the circumstances. Some of the circumstances that may influence this decision are: cost (brokerage commission or dealer spread), size of order, difficulty of order, and the firm's ability to provide prompt and reliable execution.

The Manager need not seek competitive commission bidding. However, the Manager is expected to be aware of the current rates of eligible brokers and to minimize the commissions paid to the extent consistent with the interests and policies of the Fund as established by its Board. The Fund is not required to pay the lowest available commission. Under the investment advisory agreement, in choosing brokers to execute portfolio transactions for the Fund, the Manager may select brokers (other than affiliates) that provide both brokerage and research services to the Fund. The commissions paid to those brokers may be higher than another qualified broker would charge, if the Manager makes a good faith determination that the commission is fair and reasonable in relation to the services provided.

Brokerage Practices Followed by the Manager. The Manager allocates brokerage for the Fund subject to the provisions of the investment advisory agreement and other applicable rules and procedures described below.

The Manager's portfolio managers directly place trades and allocate brokerage based upon their judgment as to the execution capability of the broker or dealer. The Manager's executive officers supervise the allocation of brokerage. 

Most securities purchases made by the Fund are in principal transactions at net prices. (i.e., without commissions). 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.  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.  Therefore, the Fund generally does not incur substantial brokerage costs. On occasion, however, the Manager may determine that a better price or execution may be obtained by using the services of a broker on an agency basis. In that situation, the Fund would incur a brokerage commission.

Other funds advised by the Manager have investment policies similar to those of the Fund.  Those other funds may purchase or sell the same securities as the Fund at the same time as the Fund, which could affect the supply and price of the securities.  When possible, the Manager tries to combine concurrent orders to purchase or sell the same security by more than one of the funds managed by the Manager or its affiliates. The transactions under those combined orders are generally allocated on a pro rata basis based on the fund's respective net asset sizes and other factors, including the fund's cash flow requirements, investment policies and guidelines and capacity.

Rule 12b-1 under the Investment Company Act prohibits any fund from compensating a broker or dealer for promoting or selling the fund's shares by (1) directing to that broker or dealer any of the fund's portfolio transactions, or (2) directing any other remuneration to that broker or dealer, such as commissions, mark-ups, mark downs or other fees from the fund's portfolio transactions, that were effected by another broker or dealer (these latter arrangements are considered to be a type of "step-out" transaction). In other words, a fund and its investment adviser cannot use the fund's brokerage for the purpose of rewarding broker-dealers for selling a fund's shares.

However, the Rule permits funds to effect brokerage transactions through firms that also sell fund shares, provided that certain procedures are adopted to prevent a quid pro quo with respect to portfolio brokerage allocations. As permitted by the Rule, the Manager has adopted procedures (and the Fund's Board of Trustees has approved those procedures) that permit the Fund to execute portfolio securities transactions through brokers or dealers that also promote or sell shares of the Fund, subject to the "best execution" considerations discussed above. Those procedures are designed to prevent: (1) the Manager's personnel who effect the Fund's portfolio transactions from taking into account a broker's or dealer's promotion or sales of the Fund shares when allocating the Fund's portfolio transactions, and (2) the Fund, the Manager and the Distributor from entering into agreements or understandings under which the Manager directs or is expected to direct the Fund's brokerage directly, or through a "step-out" arrangement, to any broker or dealer in consideration of that broker's or dealer's promotion or sale of the Fund's shares or the shares of any of the other Oppenheimer funds.

The investment advisory agreement permits the Manager to allocate brokerage for research services. The research services provided by a particular broker may be useful both to the Fund and to one or more of the other accounts advised by the Manager or its affiliates. Investment research may be supplied to the Manager by a broker through which trades are placed or by a third party at the instance of the broker.

Investment research services include information and analysis on particular companies and industries as well as market or economic trends and portfolio strategy, market quotations for portfolio evaluations, analytical software 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.

Although the Manager currently does not do so, the Board of Trustees may permit 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 Board may also permit the Manager to use commissions on fixed-price offerings to obtain research in the same manner as is permitted for agency transactions.

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 about the commissions paid to brokers furnishing such services, together with the Manager's representation that the amount of such commissions was reasonably related to the value or benefit of such services.

During the fiscal years ended July 31, 2007, 2008 and 2009, the Fund paid the total brokerage commissions indicated in the chart below. During the fiscal year ended July 31, 2009, the Fund paid $0 in commissions to firms that provide brokerage and research services to the Fund with respect to $0 of aggregate portfolio transactions. All such transactions were on a "best execution" basis, as described above. The provision of research services was not necessarily a factor in the placement of all such transactions.

Fiscal Year ended 7/31 Total Brokerage Commissions Paid by the Fund*
2007 $0
2008 $0
2009 $0

* Amounts do not include spreads or commissions on principal transactions on a net trade basis.

Distribution and Service Arrangements

The Distributor. Under its General Distributor's Agreement with the Fund, the Distributor acts as the Fund's principal underwriter in the continuous public offering of the Fund's 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.

The sales charges and concessions paid to, or retained by, the Distributor from the sale of shares and the contingent deferred sales charges ("CDSCs") retained by the Distributor on the redemption of shares during the Fund's three most recent fiscal years are shown in the tables below.

Class A Sales Charges
Fiscal Year Ended 7/31 Aggregate Front-End Sales Charges on Class A Shares Class A Front-End Sales Charges Retained by Distributor1 Concessions on Class A Shares Advanced by Distributor2 Concessions on Class B Shares Advanced by Distributor2 Concessions on Class C Shares Advanced by Distributor2
2007 $9,802,497 $1,386,073 $1,428,124 $575,358 $2,242,628
2008 $3,823,517 $515,318 $729,988 $160,430 $737,097
2009 $1,877,437 $275,039 $263,197 $75,069 $347,242

1. Includes amounts retained by a broker-dealer that is an affiliate or a parent of the Distributor.

2. The Distributor advances concession payments to financial intermediaries 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.

 

Contingent Deferred Sales Charges
Fiscal Year Ended 7/31 Class A Contingent Deferred Sales Charges Retained by Distributor Class B Contingent Deferred Sales Charges Retained by Distributor Class C Contingent Deferred Sales Charges Retained by Distributor
2007 $123,030 $118,947 $163,736
2008 $372,341 $241,157 $467,946
2009 $119,249 $136,895 $72,072

Distribution and Service (12b-1) Plans. 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. Each plan has been approved by a vote of the Board, including a majority of the Independent Trustees, cast in person at a meeting called for the purpose of voting on that plan. The Independent Trustees are not "interested persons" of the Fund and do not have any direct or indirect financial interest in the operation of the distribution plan or any agreement under the plan, in accordance with Rule 12b-1 of the Investment Company Act.

Under the Plans, the Manager and the Distributor may make payments to affiliates. In their sole discretion, they may also from time to time make substantial payments from their own resources, which include the profits the Manager derives from the advisory fees it receives from the Fund, to compensate brokers, dealers, financial institutions and other intermediaries for providing distribution assistance and/or administrative services or that otherwise promote sales of the Fund's shares. These payments, some of which may be referred to as "revenue sharing," may relate to the Fund's inclusion on a financial intermediary's preferred list of funds offered to its clients.

A plan continues in effect from year to year only if the Fund's Board and its Independent Trustees vote annually to approve its continuance at an in person meeting called for that purpose. 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 the Class of shares to which it applies.

The Board and the Independent Trustees must approve all material amendments to a plan. An amendment to materially increase the amount of payments to be made under a plan must also be approved by shareholders of any affected class. Because Class B shares of the Fund automatically convert into Class A shares 72 months after purchase, the shareholders of both Class A and Class B, voting separately by class, must approve a proposed amendment to the Class A plan that would materially increase payments under that plan.

At least quarterly while the plans are in effect, the Treasurer of the Fund will provide the Board with separate written reports on the plans for its review. The reports will 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.

While each plan is in effect, the Independent Trustees of the Fund will select and nominate any other Independent Trustees. This does not prevent the involvement of others in the selection and nomination process as long as the final decision is made by a majority of the Independent Trustees.

No payment will be made to any recipient for any share class unless, during the applicable period, the aggregate net asset value of Fund shares of the class held by the recipient (for itself and its customers) exceeds a minimum amount that may be set by a majority of the Independent Trustees from time to time.

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 (referred to as "recipients") for personal and account maintenance services they provide for their customers who hold Class A shares. Those services may include answering customer inquiries about the Fund, assisting in establishing and maintaining Fund accounts, making the Fund's investment plans available and providing other services at the request of the Fund or the Distributor. The Class A service plan permits the Fund to reimburse the Distributor at an annual rate of up to 0.25% of the Class A average net assets. The Distributor makes payments to recipients periodically at an annual rate of not more than 0.25% of the Class A average net assets held in the accounts of the recipient or it customers.

The Distributor does not receive or retain the service fee for Class A share accounts for which the Distributor is listed as the broker-dealer of record. While the plan permits the Board to authorize payments to the Distributor to reimburse itself for those services, the Board has not yet done so, except with respect to shares purchased prior to March 1, 2007 by certain group retirement plans that were established prior to March 1, 2001 ("grandfathered retirement plans").

Prior to March 1, 2007, the Distributor paid the 0.25% first year service fee for grandfathered retirement plans in advance and retained the service fee paid by the Fund with respect to those shares for the first year. After those shares are held for a year, the Distributor pays the ongoing service fees to recipients on a periodic basis. If those shares were redeemed within the first year after their purchase, the recipient of the service fees on those shares was obligated to repay the Distributor a pro rata portion of the advance payment of the fees. If those shares were redeemed within 18 months, they were subject to a CDSC. For Class A shares purchased in grandfathered retirement plans on or after March 1, 2007, the Distributor does not make any payment in advance and does not retain the service fee for the first year and the shares are not subject to a CDSC.

For the fiscal year ended July 31, 2009 payments under the Class A service plan totaled $2,309,427, of which $0 was retained by the Distributor under the arrangement described above, regarding grandfathered retirement accounts, including $43,320 paid to an affiliate of the Distributor's parent company. Any unreimbursed expenses the Distributor incurs with respect to Class A shares in any fiscal year cannot 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, or other financial costs, or allocation of overhead.

Class B and Class C Distribution and Service Plans. Under the Class B and Class C Distribution and Service Plans (each a "Plan" and together the "Plans"), the Fund pays the asset-based sales charge (the "distribution fee") to the Distributor for its services in distributing Class B and Class C shares. The distribution fee allows investors to buy Class B and Class C shares without a front-end sales charge, while allowing the Distributor to compensate dealers that sell those shares. The Distributor may use the service fees it receives under the Plans to pay recipients for providing services similar to the services provided under the Class A service plan, described above.

Payments under the Plans are made in recognition that the Distributor:

Distribution fees on Class B shares are generally retained by the Distributor. If a dealer has a special agreement with the Distributor, the Distributor may pay the Class B distribution fees to recipients periodically in lieu of paying the sales concession in advance at the time of purchase. The Distributor retains the distribution fee on Class C shares during the first year and then pays it as an ongoing concession to recipients.

Service fees for the first year after Class B and Class C shares are purchased, are generally paid to recipients in advance. After the first year, the Distributor pays the service fees to recipients periodically. Under the Plans, the Distributor is permitted to retain the service fees or to pay recipients the service fee on a periodic basis, without payment in advance. If a recipient has a special agreement with the Distributor, the Distributor may pay the Class B service fees to recipients periodically in lieu of paying the first year fee in advance. If Class B and Class C shares are redeemed during the first year after their purchase, a recipient of service fees on those shares will be obligated to repay a pro rata portion of the advance payment to the Distributor. Shares purchased by exchange do not qualify for the advance service fee payment.

Class B and Class C shares may not be purchased by a new investor directly from the Distributor without the investor designating another registered broker-dealer. If a current investor no longer has another broker-dealer of record for an existing account, the Distributor is automatically designated as the broker-dealer of record, but solely for the purpose of acting as the investor's agent to purchase the shares. In those cases, the Distributor retains the distribution fees paid on Class B and Class C shares, but does not retain any service fees as to the assets represented by that account.

Each Plan provides for the Distributor to be compensated at a flat rate, whether the Distributor's distribution expenses for a period are more or less than the amounts paid by the Fund under the relevant Plan. During a calendar year, the Distributor's actual expenses in selling Class B and Class C shares may be more than the distribution fees paid to the Distributor under the Plans and the CDSC's collected on redeemed shares. Those excess expenses are carried over on the Distributor's books and may be recouped from distribution fees paid by the Fund in future years. However, the Distributor has voluntarily agreed to cap the amount that may be carried over from year to year and recouped for certain categories of expenses at 0.70% of annual gross sales of shares of the Fund. The capped expenses under the Plans are (i) expenses the Distributor has incurred that represent compensation and expenses of its sales personnel and (ii) other direct distribution costs it has incurred, such as sales literature, state registration fees, advertising and prospectuses used to offer Fund shares. If those categories of expenses exceed the capped amount, the Distributor would bear the excess costs. If a Plan were to be terminated by the Fund, the Fund's Board may allow the Fund to continue payments of the distribution fees to the Distributor for its services in distributing shares before the Plan was terminated.

The distribution and service fees under each Plan 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. The distribution and service fees increase the annual Class B and Class C expenses by 1.00% of net assets.

 

Distribution and Service Fees Paid to the Distributor for the Fiscal Year Ended 7/31/09
Class: Total Payments Under Plan Amount Retained by Distributor Amount Paid to Affiliate Distributor's Aggregate Unreimbursed Expenses Under Plan Distributor's Unreimbursed Expenses as % of Net Assets of Class
Class B Plan $255,296 $196,823 $606 $2,463,777 10.96%
Class C Plan $2,436,873 $485,431 $9,607 $6,162,217 2.54%

All payments under the Plans are subject to the limitations imposed by the Conduct Rules of FINRA on payments of distribution and service fees.

Payments to Fund Intermediaries

Financial intermediaries may receive various forms of compensation or reimbursement from the Fund in the form of distribution and service (12b-1) plan payments as described above. They may also receive payments or concessions from the Distributor, derived from sales charges paid by the financial intermediary's clients, also as described in this SAI. In addition, the Manager and the Distributor (including their affiliates) may make payments to financial intermediaries in connection with the intermediaries' offering and sales of Fund shares and shares of other Oppenheimer funds, or their provision of marketing or promotional support, transaction processing or administrative services. Among the financial intermediaries that may receive these payments are brokers or dealers who sell or hold shares of the Fund, banks (including bank trust departments), registered investment advisers, insurance companies, retirement plan or qualified tuition program administrators, third party administrators, recordkeepers or other institutions that have selling, servicing or similar arrangements with the Manager or the Distributor. The payments to intermediaries vary by the types of product sold, the features of the Fund share class and the role played by the intermediary.

 

Types of payments to financial intermediaries may include, without limitation, the following:

The Fund, or an investor buying or selling Fund shares may pay:

In addition, the Manager or Distributor may, at their discretion, make the following types of payments from their own respective resources, which may include profits the Manager derives from investment advisory fees paid by the Fund. These payments are often referred to as "revenue sharing" payments, and may include:

Although brokers or dealers that sell Fund shares may also act as a broker or dealer in connection with the purchase or sale of portfolio securities by the Fund or other Oppenheimer funds, the Manager does not consider a financial intermediary's sales of shares of the Fund or other Oppenheimer funds when choosing brokers or dealers to effect portfolio transactions for the Fund or other Oppenheimer funds.

Revenue sharing payments can pay for distribution-related or asset retention items including, without limitation:

These payments may provide an incentive to financial intermediaries to actively market or promote the sale of shares of the Fund or other Oppenheimer funds, or to support the marketing or promotional efforts of the Distributor in offering shares of the Fund or other Oppenheimer funds. In addition, some types of payments may provide a financial intermediary with an incentive to recommend the Fund or a particular share class. Financial intermediaries may earn profits on these payments, since the amount of the payments may exceed the cost of providing the services. Certain of these payments are subject to limitations under applicable law. Financial intermediaries may categorize and disclose these arrangements to their clients and to members of the public in a manner different from the disclosures in the Fund's Prospectus and this SAI. You should ask your financial intermediary for information about any payments it receives from the Fund, the Manager or the Distributor and any services it provides, as well as the fees and commissions it charges.

For the year ended December 31, 2008, the following financial intermediaries and/or their affiliates (which in some cases are broker-dealers) offered shares of the Oppenheimer funds and received revenue sharing or similar distribution-related payments from the Manager or the Distributor for marketing or program support:

1st Global Capital Company GE Life & Annuity Company National Planning Corporation
Advantage Capital Corporation Genworth Financial, Inc. Nationwide Investment Services, Inc.
Aegon USA GlenBrook Life and Annuity Company New England Securities, Inc.
Aetna Life Insurance & Annuity Company Great West Life Insurance Company New York Life Insurance & Annuity Company
AG Edwards & Sons, Inc. GWFS Equities, Inc. Oppenheimer & Company, Inc.
AIG Financial Advisors Hartford Life Insurance Company PFS Investments, Inc.
AIG Life Variable Annuity Company HD Vest Investment Services, Inc. Park Avenue Securities LLC
Allianz Life Insurance Company Hewitt Associates LLC Pershing LLC
Allmerica Financial Life Insurance & Annuity Company HSBC Securities USA, Inc. Phoenix Life Insurance Company
Allstate Life Insurance Company IFMG Securities, Inc. Plan Member Securities
American General Annuity Insurance Company ING Financial Advisers LLC Prime Capital Services, Inc.
American Enterprise Life Insurance Company ING Financial Advisers LLC Primevest Financial Services, Inc.
American Portfolios Financial Services, Inc. Invest Financial Corporation Protective Life Insurance Company
Ameritas Life Insurance Company Investment Centers of America Prudential Investment Management Services LLC
Ameriprise Financial Services, Inc. Jefferson Pilot Life Insurance Company Raymond James & Associates, Inc.
Annuity Investors Life Insurance Company Jefferson Pilot Securities Corporation Raymond James Financial Services, Inc.
Associated Securities Corporation John Hancock Life Insurance Company RBC Dain Rauscher Inc.
AXA Advisors LLC JP Morgan Securities, Inc. Riversource Life Insurance Company
AXA Equitable Life Insurance Company Kemper Investors Life Insurance Company Royal Alliance Associates, Inc.
Banc of America Investment Services Legend Equities Company Securities America, Inc.
CCO Investment Services Corporation Lincoln Benefit National Life Security Benefit Life Insurance Company
Cadaret Grant & Company, Inc. Lincoln Financial Advisors Corporation Signator Investments, Inc.
Charles Schwab & Company, Inc. Lincoln Investment Planning, Inc. SII Investments, Inc.
Chase Investment Services Corporation Linsco Private Ledger Financial Sorrento Pacific Financial LLC
Citigroup Global Markets Inc. Massachusetts Mutual Life Insurance Company State Farm VP Management Corporation
CitiStreet Advisors LLC Merrill Lynch Pierce Fenner & Smith Incorporated Sun Life Annuity Company Ltd.
Citizen's Bank of Rhode Island Merrill Lynch Insurance Group Sun Life Assurance Company of Canada
Columbus Life Insurance Company MetLife Investors Insurance Company Sun Life Insurance & Annuity Company of New York
Commonwealth Financial Network MetLife Investors Insurance Company - Security First Sun Life Insurance Company
Compass Group Investment Advisors MetLife Securities, Inc. Sun Trust Securities, Inc.
CUNA Brokerage Services, Inc. Minnesota Life Insurance Company Thrivent Financial Services, Inc.
CUNA Mutual Insurance Society MML Investor Services, Inc. UBS Financial Services, Inc.
CUSO Financial Services, LLP Mony Life Insurance Company Union Central Life Insurance Company
E*TRADE Clearing LLC Morgan Stanley & Company, Inc. Uvest
Edward D. Jones & Company Multi-Financial Securities Corporation Valic
Essex National Securities, Inc. Mutual Service Corporation Wachovia Securities, Inc.
Federal Kemper Life Assurance Company NFP Securities, Inc. Walnut Street Securities, Inc.
Financial Network NRP Financial, Inc. Waterstone Financial Group
Financial Services Corporation Nathan & Lewis Securities, Inc. Wells Fargo Investments
GE Financial Assurance National Planning Holdings, Inc. Wescom Financial Services

For the year ended December 31, 2008, the following firms (which in some cases are broker-dealers) received payments from the Manager or Distributor for administrative or other services provided (other than revenue sharing arrangements), as described above:

 

1st Global Capital Company Geller Group Northwest Plan Services, Inc.
AG Edwards & Sons, Inc. Great West Life Insurance Company NY Life Benefits
ACS HR Solutions H&R Block Financial Advisors, Inc. Oppenheimer & Co, Inc.
ADP Hartford Life Insurance Company Peoples Securities, Inc.
Administrative Management Group HD Vest Investment Services Pershing LLC
Aetna Life Insurance & Annuity Company Hewitt Associates LLC PFPC
Alliance Benefit Group HSBC Brokerage USA, Inc. Plan Administrators, Inc.
American Diversified Distributors ICMA - RC Services Plan Member Securities
American Funds Independent Plan Coordinators Primevest Financial Services, Inc.
American Stock & Transfer Ingham Group Princeton Retirement Services
American United Life Insurance Company Interactive Retirement Systems Principal Life Insurance Company
Ameriprise Financial Services, Inc. Intuition Prudential Investment Management Services LLC
Ameritrade, Inc. Invesmart PSMI Group, Inc.
Ascensus Invest Financial Corporation Quads Trust Company
AXA Equitable Life Insurance Company Janney Montgomery Scott, Inc. Raymond James & Associates, Inc.
Benefit Administration, Inc. JJB Hillard W. L. Lyons, Inc. Reliance Trust Company
Benefit Plans Administration John Hancock Life Insurance Company Reliastar Life Insurance Company
Benetech, Inc. JP Morgan Securities, Inc. Robert W. Baird & Company
Boston Financial Data Services July Business Services RSM McGladrey
Ceridian Kaufman & Goble Scott & Stringfellow, Inc.
Charles Schwab & Company, Inc. Legend Equities Company Scottrade, Inc.
Citigroup Global Markets Inc. Lehman Brothers, Inc. SII Investments, Inc.
CitiStreet Liberty Funds Distributor, Inc. Southwest Securities, Inc.
City National Investments Lincoln Investment Planning, Inc. Standard Insurance Company
Clark Consulting Lincoln National Life Insurance Company Stanley, Hunt, Dupree & Rhine
Columbia Management Linsco Private Ledger Financial Stanton Group, Inc.
CPI Qualified Plan Consultants, Inc. Marshall & Ilsley Trust Company, Inc. Sterne Agee & Leach, Inc.
DA Davidson & Company Massachusetts Mutual Life Insurance Company Stifel Nicolaus & Company, Inc.
Daily Access. Com, Inc. Matrix Settlement & Clearance Services Sun Trust Securities, Inc.
Davenport & Company, LLC Mercer HR Services Symetra Financial Corporation
David Lerner Associates, Inc. Merrill Lynch Pierce Fenner & Smith Incorporated T. Rowe Price
Digital Retirement Solutions, Inc. Mesirow Financial, Inc. The 401k Company
Diversified Investment Advisors Inc. MetLife Securities, Inc. The Retirement Plan Company, LLC
DR, Inc. MFS Investment Management Transamerica Retirement Services
Dyatech, LLC Mid Atlantic Capital Company TruSource Union Bank of CA
E*TRADE Clearing LLC Milliman USA UBS Financial Services, Inc.
Edward D. Jones & Company Morgan Keegan & Company, Inc. Unified Fund Services
ERISA Administrative Services, Inc. Morgan Stanley & Company, Inc. Union Bank
ExpertPlan.com Mutual of Omaha Life Insurance Company US Clearing Company
FASCore, LLC Nathan & Lewis Securities, Inc. USAA Investment Management Company
Ferris Baker Watts, Inc. National City Bank USI Consulting Group
Fidelity National Deferred Company Valic Retirement Services
First Clearing LLC National Financial Vanguard Group
First Clearing LLC National Planning Corporation Wachovia Securities, Inc.
First Southwest Company Nationwide Life Insurance Company Wedbush Morgan Securities
First Trust - Datalynx Newport Retirement Services, Inc. Wells Fargo Investments
Wilmington Trust

Performance of the Fund

Explanation of Performance Calculations. The use of standardized performance calculations enables an investor to compare the Fund's performance to the performance of other funds for the same periods. The Fund's performance data in advertisements must comply with rules of the SEC, which 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. The Fund may use a variety of performance calculations, including "cumulative total return," "average annual total return," "average annual total return at net asset value," and "total return at net asset value." How these types of returns are calculated are described below.

A number of factors should be considered before using the Fund's performance information as a basis for comparison with other investments:

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 debt investments, the types of investments the Fund holds, and its operating expenses that are allocated to the particular class.

Yields. The Fund uses a variety of different yields to illustrate its current returns. Each class of shares calculates its yield separately because of the different expenses that affect each class.

Standardized yield is calculated using the following formula set forth in rules adopted by the SEC, designed to assure uniformity in the way that all funds calculate their yields:



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.

                                       Dividend Yield = dividends paid x 12/maximum offering price (payment date)

The maximum offering price for Class A shares includes the current maximum initial sales charge. The maximum offering price for Class B and Class C shares is the net asset value per share, without considering the effect of contingent deferred sales charges. The Class A dividend yield may also be quoted without deducting the maximum initial sales charge.

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 Fund's Yields for the 30-Day Periods Ended 7/31/09
Standardized Yield Dividend Yield
Class of Shares Without Sales Charge After Sales Charge Without Sales Charge After Sales Charge
Class A1 8.48% 8.08% 8.75% 8.33%
Class B2 7.43% N/A 7.80% N/A
Class C3 7.58% N/A 7.93% N/A

1. Inception of Class A: 11/03/88
2. Inception of Class B: 05/03/93
3. Inception of Class C: 11/01/95

Total Return Information. "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 will differ and are measured separately.

There are different types of "total returns." "Cumulative total return" measures the change in value over the entire period (for example, ten years). "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 the methodology prescribed by the SEC to calculate its standardized total returns.

In calculating the Fund's total returns, the following sales charges are applied unless the returns are shown at "net asset value" as described below:

The Fund's returns are calculated based on the change in value of a hypothetical initial investment of $1,000 ("P" in the formulas below) held for a number of years ("n" in the formulas)









A number of factors should be considered before using the Fund's performance information as a basis for comparison with other investments:

Performance Data. The charts below show the Fund's performance as of its most recent fiscal year end. You can obtain current performance information by visiting the OppenheimerFunds website at www.oppenheimerfunds.com or by calling the Fund's Transfer Agent at the telephone number shown on the cover of this SAI.

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 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.

Total returns for any given past period represent historical performance information and are not, and should not be considered, a prediction of future returns.

 

The Fund's Total Returns for the Periods Ended 7/31/09
Cumulative Total Returns Average Annual Total Returns
10 Years or life of class, if less 1-Year 5-Years 10-Years
Class of Shares After Sales Charge Without Sales Charge After Sales Charge Without Sales Charge After Sales Charge Without Sales Charge After Sales Charge Without Sales Charge
Class A1 6.00% 11.28% (22.98%) (19.14%) (3.60%) (2.66%) 0.58% 1.07%
Class B2 6.38% 6.38% (23.56%) (19.85%) (3.75%) (3.45%) 0.62% 0.62%
Class C3 3.05% 3.05% (20.57%) (19.82%) (3.42%) (3.42%) 0.30% 0.30%

1. Inception of Class A: 11/03/88
2. Inception of Class B: 05/03/93
3. Inception of Class C: 11/01/95

 

Average Annual Total Returns for Class A Shares (After Sales Charge) for the Periods Ended 7/31/091
1-Year 5-Year Life of Class
After Taxes on Distributions (23.04%) (3.62%) 0.58%
After Taxes on Distributions and Redemption of Fund Shares (12.85%) (2.03%) 1.42%

Other Performance Comparisons. In its Annual Report to shareholders, the Fund compares its performance to that of one or more appropriate market indices. You can obtain that information by visiting the OppenheimerFunds website at www.oppenheimerfunds.com or by calling the Fund's Transfer Agent at the telephone number shown on the cover of this SAI. 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. The following are examples of some of those comparisons.

     Lipper Rankings. From time to time the Fund may publish the ranking of the performance of its share classes by Lipper, Inc. ("Lipper"), a widely-recognized independent mutual fund monitoring service. Lipper monitors and ranks the performance of regulated investment companies for various periods in categories based on investment styles. Lipper also publishes "peer-group" indices and averages of the performance of all mutual funds in particular categories.

     Morningstar Ratings. From time to time the Fund may publish the "star ratings" of its classes of shares by Morningstar, Inc. ("Morningstar"), an independent mutual fund monitoring service that rates and ranks mutual funds within their specialized market sectors. Morningstar proprietary star ratings reflect risk-adjusted historical total investment returns for funds with at least a three-year performance history. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star.

     Performance Rankings and Comparisons by Other Entities and Publications. From time to time the Fund may include in its advertisements and sales literature performance information about the Fund cited in newspapers and other periodicals such as The New York Times, The Wall Street Journal, Barron's or other similar publications. That information may include performance quotations from other sources, including Lipper and Morningstar or the Fund's performance may be compared to the performance of various market indices, other investments, or averages, performance rankings or other benchmarks prepared by recognized mutual fund statistical services. The Fund's advertisements and sales literature may also include, for illustrative or comparative purposes, statistical data or other information about general or specific market and economic conditions, for example:

From time to time, the Fund may publish rankings or ratings of the Manager or Transfer Agent by third parties, including comparisons of investor services provided to shareholders of the Oppenheimer funds to those provided by other mutual fund families selected by the rating or ranking services. Those comparisons may be based on the opinions of the rating or ranking service itself, using its research or judgment, or may be based on surveys of investors, brokers, shareholders or others.

Investors may also wish to compare the returns on the Fund's share classes to the return on fixed-income investments available from banks and thrift institutions, including certificates of deposit, ordinary interest-paying checking and savings accounts, and other forms of fixed or variable time deposits or 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.

About Your Account

The Fund's Prospectus describes how to buy, sell and exchange shares of the Fund and certain other Oppenheimer funds. The information below provides further details about the Fund's policies regarding those share transactions. It should be read in conjunction with the information in the Prospectus. Appendix A of this SAI provides 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 investors and certain types of purchases or redemptions.

Determination of Net Asset Value Per Share. The net asset value ("NAV") per share for each class of shares of the Fund is determined by dividing the value of the Fund's net assets attributable to a class by the number of shares of that class that are outstanding. The NAV is determined as of the close of business on the New York Stock Exchange ("NYSE") on each day that the NYSE is open. The NYSE normally closes at 4:00 p.m., Eastern 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). All references to time in this SAI mean "Eastern time." The NYSE's most recent annual announcement (which is subject to change) states that it will close on New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday (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 NYSE members may conduct trading in municipal securities on days that the NYSE is closed (including weekends and 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 days when shareholders may not purchase or redeem shares.

Securities Valuation. The Fund's Board has established procedures for the valuation of the Fund's securities. In general those procedures are as follows:

  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.
  1. money market debt securities held by a non-money market fund that had a maturity of less than 397 days when issued and 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.

In the case of municipal securities the Manager uses pricing services approved by the Board when last sale information is not generally available. The pricing service may use "matrix" comparisons to the prices for comparable instruments on the basis of quality, yield and 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 valuations. That monitoring may include comparing prices used for portfolio valuation to the actual sale prices of selected securities.

Puts, calls, futures and municipal bond index futures are valued at the last sale price on the principal exchange on which they are traded, as determined by a pricing service approved by the Board or by the Manager.

Allocation of Expenses. The Fund pays expenses related to its daily operations, such as custodian fees, Board fees, transfer agency fees, legal fees and auditing costs. Those expenses are paid out of the Fund's assets, not directly by shareholders. However, those expenses reduce the net asset value of Fund shares, and therefore are borne indirectly by shareholders.

For calculating the Fund's net asset value, dividends and distributions, the Fund differentiates between 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. Those expenses are first allocated based on the percentage of the Fund's total assets that is represented by the assets of each share class. Such general expenses include management fees, legal, bookkeeping and audit fees, Board compensation, custodian expenses, share issuance costs, interest, taxes, brokerage commissions, and non-recurring expenses, such as litigation costs. Then the expenses allocated to a share class are allotted equally to each outstanding share within a given class.

Other expenses that are directly attributable to a particular class are allocated equally to each outstanding share within that class. Examples of such expenses include distribution and service plan (12b-1) fees, transfer and shareholder servicing agent fees and expenses, and shareholder meeting expenses to the extent that such expenses pertain only to a specific class.

How to Buy Shares

The Oppenheimer Funds. The "Oppenheimer funds" are those mutual funds for which the Distributor acts as distributor and currently include the following:

Oppenheimer AMT-Free Municipals Oppenheimer New Jersey Municipal Fund
Oppenheimer AMT-Free New York Municipals Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Balanced Fund Oppenheimer Portfolio Series:
Oppenheimer Baring SMA International Fund Active Allocation Fund
Oppenheimer Core Bond Fund Equity Investor Fund
Oppenheimer California Municipal Fund Conservative Investor Fund
Oppenheimer Capital Appreciation Fund Moderate Investor Fund
Oppenheimer Capital Income Fund Oppenheimer Portfolio Series Fixed Income Active Allocation Fund
Oppenheimer Champion Income Fund Oppenheimer Principal Protected Main Street Fund
Oppenheimer Commodity Strategy Total Return Fund Oppenheimer Principal Protected Main Street Fund II
Oppenheimer Developing Markets Fund Oppenheimer Principal Protected Main Street Fund III
Oppenheimer Discovery Fund Oppenheimer Quest Balanced Fund
Oppenheimer Emerging Growth Fund Oppenheimer Quest International Value Fund
Oppenheimer Equity Fund, Inc. Oppenheimer Quest Opportunity Value Fund
Oppenheimer Equity Income Fund, Inc. Oppenheimer Real Estate Fund
Oppenheimer Global Fund Oppenheimer Rising Dividends Fund
Oppenheimer Global Opportunities Fund Oppenheimer Rochester Arizona Municipal Fund
Oppenheimer Global Value Fund Oppenheimer Rochester Maryland Municipal Fund
Oppenheimer Gold & Special Minerals Fund Oppenheimer Rochester Massachusetts Municipal Fund
Oppenheimer International Bond Fund Oppenheimer Rochester Michigan Municipal Fund
Oppenheimer International Diversified Fund Oppenheimer Rochester Minnesota Municipal Fund
Oppenheimer International Growth Fund Oppenheimer Rochester National Municipals
Oppenheimer International Small Company Fund Oppenheimer Rochester North Carolina Municipal Fund
Oppenheimer Limited Term California Municipal Fund Oppenheimer Rochester Ohio Municipal Fund
Oppenheimer Limited-Term Government Fund Oppenheimer Rochester Virginia Municipal Fund
Oppenheimer Limited Term Municipal Fund Oppenheimer Select Value Fund
Oppenheimer Main Street Fund Oppenheimer Senior Floating Rate Fund
Oppenheimer Main Street Opportunity Fund Oppenheimer Small- & Mid- Cap Value Fund
Oppenheimer Main Street Small Cap Fund Oppenheimer Strategic Income Fund
Oppenheimer U.S. Government Trust
Oppenheimer LifeCycle Funds: Oppenheimer Value Fund
Oppenheimer Transition 2010 Fund Limited-Term New York Municipal Fund
Oppenheimer Transition 2015 Fund Rochester Fund Municipals
Oppenheimer Transition 2020 Fund
Oppenheimer Transition 2025 Fund
Oppenheimer Transition 2030 Fund
Oppenheimer Transition 2040 Fund
Oppenheimer Transition 2050 Fund
Money Market Funds:
Oppenheimer Cash Reserves
Oppenheimer Institutional Money Market Fund
Oppenheimer Money Market Fund, Inc.

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 shares are subject.

The availability of different 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 normally are sold subject to an initial sales charge. While Class B and Class C shares have no initial sales charge, the purpose of the deferred sales charge and asset-based sales charge on Class B and Class C shares is the same as that of the initial sales charge on Class A shares – to compensate the Distributor and brokers, dealers and financial institutions that sell shares of the Fund. A salesperson who is entitled to receive compensation from his or her firm for selling Fund shares may receive different levels of compensation for selling one class of shares rather than another.

The Distributor will not accept a purchase order of more than $100,000 for Class B shares or a purchase order of $1 million or more to purchase Class C shares on behalf of a single investor (not including dealer "street name" or omnibus accounts).

Class B or Class C shares may not be purchased by a new investor directly from the Distributor without the investor designating another registered broker-dealer.

Class A Sales Charges Reductions and Waivers. There is an initial sales charge on the purchase of Class A shares of each of the Oppenheimer funds except for the money market funds (under certain circumstances described in this SAI, redemption proceeds of certain money market fund shares may be subject to a CDSC). As discussed in the Prospectus, a reduced initial sales charge rate may be obtained for certain share purchases because of the reduced sales efforts and reduction in expenses realized by the Distributor, dealers or brokers in making such sales. Sales charge waivers may apply in certain other circumstances because the Distributor or dealer or broker incurs little or no selling expenses. Appendix A to this SAI includes additional information regarding certain of these sales charge reductions and waivers.

A reduced sales charge rate may be obtained for Class A shares under a Right of Accumulation or Letter of Intent because of the reduction in sales effort and expenses to the Distributor, dealers or brokers for those sales.

Letter of Intent. Under a Letter of Intent (a "Letter"), you may be able to reduce the initial sales charge rate that applies to your Class A share purchases of the Fund if you purchase Class A, Class B or Class C shares of the Fund or other Oppenheimer funds or Class A, Class B, Class C, Class G and Class H units of advisor sold Section 529 plans, for which the Manager or the Distributor serves as the Program Manager or Program Distributor.

A Letter is an investor's statement in writing to the Distributor of his or her intention to purchase a specified value of those shares or units during a 13 month period (the "Letter period"), which begins on the date of the investor's first share purchase following the establishment of the Letter. The sales charge on each purchase of Class A shares during the Letter period will be at the rate that would apply to a single lump-sum purchase of shares in the amount intended to be purchased. In submitting a Letter, the investor makes no commitment to purchase shares. However, if the investor does not fulfill the terms of the Letter within the Letter period, he or she agrees to pay the additional sales charges that would have been applicable to any purchases that are made. The investor agrees that shares equal in value to 2% of the intended purchase amount will be held in escrow by the Transfer Agent for that purpose, as described in "Terms of Escrow" below. It is the responsibility of the dealer of record and/or the investor to advise the Distributor about the Letter when placing purchase orders during the Letter period. The investor must also notify the Distributor or his or her financial intermediary of any qualifying 529 plan holdings.

To determine whether an investor has fulfilled the terms of a Letter, the Transfer Agent will count purchases of "qualified" Class A, Class B and Class C shares and Class A, Class B, Class C, Class G and Class H units during the Letter period. Purchases of Class N or Class Y shares, purchases made by reinvestment of dividends or capital gains distributions from the Fund or other Oppenheimer funds, purchases of Class A shares with redemption proceeds under the Reinvestment Privilege, and purchases of Class A shares of Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves on which a sales charge has not been paid do not count as "qualified" shares for satisfying the terms of a Letter. An investor will also be considered to have fulfilled the Letter if the value of the investor's total holdings of qualified shares on the last day of the Letter period equals or exceeds the intended purchase amount.

If the terms of the Letter are not fulfilled within the Letter period, the concessions previously paid to the dealer of record for the account and the amount of sales charge retained by the Distributor will be adjusted on the first business day following the expiration of the Letter period to reflect the sales charge rates that are applicable to the actual total purchases.

If total eligible purchases during the Letter period exceed the intended purchase amount and also exceed the amount needed to qualify for the next sales charge rate reduction (stated in the Prospectus), the sales charges paid may be adjusted to that lower rate. That adjustment will only be made if and when the dealer returns to the Distributor the amount of the excess concessions allowed or paid to the dealer over the amount of concessions that are applicable to the actual amount of purchases. The reduced sales charge adjustment will be made by adding to the investors account the number of additional shares that would have been purchased if the lower sales charge rate had been used. Those additional shares will be determined using the net asset value per share in effect on the date of such adjustment.

By establishing a Letter, the investor agrees to be bound by the terms of the Prospectus, this SAI and the application used for a Letter, and if those terms are amended to be bound by the amended terms and that any amendments by the Fund will apply automatically to existing Letters. Group retirement plans qualified under section 401(a) of the Internal Revenue Code may not establish a Letter, however defined benefit plans and Single K sole proprietor plans may do so.

Terms of Escrow That Apply to Letters of Intent.

1. Out of the initial purchase, or out of subsequent purchases if necessary, the Transfer Agent will hold in escrow Fund shares equal to 2% of the intended purchase amount specified in the Letter. For example, if the intended purchase amount is $50,000, the escrow amount would be shares valued at $1,000 (computed at the offering price for a $50,000 share purchase). Any dividends and capital gains distributions on the escrowed shares will be credited to the investor's account.

 2. If the Letter applies to more than one fund account, the investor can designate the fund from which shares will be escrowed. If no fund is selected, the Transfer Agent will escrow shares in the fund account that has the highest dollar balance on the date of the first purchase under the Letter. If there are not sufficient shares to cover the escrow amount, the Transfer Agent will escrow shares in the fund account(s) with the next highest balance(s). If there are not sufficient shares in the accounts to which the Letter applies, the Transfer Agent may escrow shares in other accounts that are linked for Right of Accumulation purposes. Additionally, if there are not sufficient shares available for escrow at the time of the first purchase under the Letter, the Transfer Agent will escrow future purchases until the escrow amount is met.

3. If, during the Letter period, an investor exchanges shares of the Fund for shares of another fund (as described in the Prospectus section titled "How to Exchange Shares"), the Fund shares held in escrow will automatically be exchanged for shares of the other fund and the escrow obligations will also be transferred to that fund.

4. If the total purchases under the Letter are less than the intended purchases specified, on the first business day after the end of the Letter period, the Distributor will redeem escrowed shares equal in value to the difference between the dollar amount of the sales charges actually paid and the amount of the sales charges that would have been paid if the total purchases had been made at a single time. Any shares remaining after such redemption will be released from escrow.

5. If the terms of the Letter are fulfilled, the escrowed shares will be promptly released to the investor at the end of the Letter period.

6. 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.

Share Certificates. When you purchase shares of the Fund, your ownership interest in the shares of the Fund will be recorded as a book entry on the records of the Fund. The Fund will not issue or re-register physical share certificates.

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 values 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.

AccountLink. Shares purchased through AccountLink will be purchased at the net asset value calculated on the same regular business day if the Distributor is instructed to initiate the Automated Clearing House ("ACH") transfer to buy the shares before the close of the NYSE. The NYSE normally closes at 4:00 p.m., but may close earlier on certain days. If the Distributor is instructed to initiate the ACH transfer after the close of the NYSE, the shares will be purchased on the next regular business day.

Dividends will begin to accrue on the shares purchased through the ACH system on the business day the Fund receives Federal Funds before the close of the NYSE. The proceeds of ACH transfers are normally received by the Fund three days after a transfer is initiated. If Federal Funds are received on a business day after the close of the NYSE, dividends will begin to accrue on the next regular business day. If the proceeds of an ACH transfer are not received on a timely basis, the Distributor reserves the right to cancel the purchase order. The Distributor and the Fund are not responsible for any delays in purchasing shares resulting from delays in ACH transmissions.

The minimum purchase through AccountLink is generally $50, however for accounts established prior to November 1, 2002 the minimum purchase is $25.

Asset Builder Plans. As indicated in the Prospectus, you normally must establish your Fund account with $1,000 or more. However, you can open a Fund account for as little as $500 if you establish an Asset Builder Plan at the time of your initial share purchase to automatically purchase additional shares directly from a bank account.

An Asset Builder Plan is available only if your bank is an ACH member and you establish AccountLink. Under an Asset Builder Plan, payments to purchase shares of the Fund will be debited from your bank account automatically. Normally the debit will be made two business days prior to the investment dates you select on your application. Neither the Distributor, the Transfer Agent nor the Fund will be responsible for any delays in purchasing shares that result from delays in ACH transmissions.

To establish an Asset Builder Plan at the time you initially purchase Fund shares, complete the "Asset Builder Plan" information on the Account Application. To establish an Asset Builder Plan for an existing account, use the Asset Builder Enrollment Form. The Account Application and the Asset Builder Enrollment Form are available by contacting the Distributor or may be downloaded from our website at www.oppenheimerfunds.com. Before you establish a new Fund account under the Asset Builder Plan, you should obtain a prospectus of the selected Fund and read it carefully.

You may change the amount of your Asset Builder payment or you can terminate your 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 minimum additional purchase under an Asset Builder Plan is $50, except that for Asset Builder Plans established prior to November 1, 2002, the minimum additional purchase is $25. Shares purchased by Asset Builder Plan payments are subject to the redemption restrictions for recent purchases described in the Prospectus. An Asset Builder Plan may not be used to buy shares for OppenheimerFunds employer-sponsored qualified retirement accounts. The Fund reserves the right to amend, suspend or discontinue offering Asset Builder Plans at any time without prior notice.

Electronic Document Delivery. To access your account documents electronically via eDocs Direct, please visit our website homepage at www.oppenheimerfunds.com and click the hyperlink "Sign Up for Electronic Document Delivery (eDocs Direct)" under the heading "I want to..." in the left hand column, or call 1.888.470.0862 for instructions.

How to Sell Shares

Receiving Redemption Proceeds by Federal Funds Wire. The Fund would normally authorize a Federal Funds wire of redemption proceeds to be made on its next regular business day following the redemption. A Federal Funds wire may be delayed if the Fund's custodian bank is not open for business on that day. In that case, the wire will not be transmitted until the next business day on which the bank and the Fund are both open for business. No dividends will be paid on the proceeds of redeemed shares awaiting transfer by Federal Funds wire.

Redeeming Shares Through Brokers or Dealers. The Distributor is the Fund's agent to repurchase its shares from authorized brokers or dealers 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 next net asset value computed after the Distributor or the broker or dealer receives the order. A repurchase will be processed at that day's net asset value if the order was received by the broker or dealer from its customer prior to the time the close of the NYSE. Normally, the NYSE closes at 4:00 p.m., but may do so earlier on some days.

For accounts redeemed through a broker-dealer, payment will ordinarily be made within three business days after the shares are redeemed. However, the Distributor must receive the required redemption documents in proper form, with the signature(s) of the registered shareholder(s) guaranteed as described in the Prospectus.

Payments "In Kind." As stated in the Prospectus, payment for redeemed shares is ordinarily made in cash. Under certain circumstances, however, the Board may determine that it would be detrimental to the best interests of the remaining shareholders for the Fund to pay for the redeemed shares 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 Fund's portfolio. The Fund will value securities used to pay a redemption in kind using the same method described above under "Determination of Net Asset Value Per Share." That valuation will be made as of the time the redemption price is determined. If shares are redeemed in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities for cash.

The Fund has elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, redemptions by a shareholder, of up to the lesser of $250,000 or 1% of the net assets of the Fund during any 90-day period, must be redeemed solely in cash.

Automatic Withdrawal Plans. Under an Automatic Withdrawal Plan, investors who own Fund shares can authorize the Transfer Agent to redeem shares automatically on a monthly, quarterly, semi annual or annual basis. The minimum periodic redemption amount under an Automatic Withdrawal Plan is $50. Shareholders having AccountLink privileges may have Automatic Withdrawal Plan payments deposited to their designated bank account. Payments may also be made by check, payable to all shareholders of record and sent to the address of record for the account. Automatic withdrawals may be requested by telephone for amounts up to $1,500 per month if the payments are to be made by checks sent to the address of record for the account. Telephone requests are not available if the address on the account has been changed within the prior 15 days.

Fund shares will be redeemed as necessary to meet the requested withdrawal payments. Shares will be redeemed at the net asset value per share determined on the redemption date, which is normally three business days prior to the payment receipt date requested by the shareholder. The Fund cannot guarantee receipt of a payment on the date requested, however. 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 on 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.

Because of the sales charge assessed on Class A share purchases, shareholders should usually not make additional Class A share purchases while participating in an Automatic Withdrawal Plan. A shareholder whose Class B, Class C or Class N account is subject to a CDSC should usually not establish an automatic withdrawal plan because of the imposition of the CDSC on the withdrawals. If a CDSC does apply to a redemption, the amount of the check or payment will be reduced accordingly. Distributions of capital gains from accounts subject to an Automatic Withdrawal Plan must be reinvested in Fund shares. Dividends on shares held in the account may be paid in cash or reinvested. Required minimum distributions from OppenheimerFunds-sponsored retirement plans may not be arranged on this basis.

The shareholder may change the amount, the payment interval, the address to which checks are to be mailed, the designated bank account for AccountLink payments or may terminate a plan at any time by writing to the Transfer Agent. A signature guarantee may be required for certain changes. The requested change will usually be put into effect approximately two weeks after such notification is received. The shareholder may redeem all or any part of the shares in the account by written notice to the Transfer Agent. That notice must be in proper form in accordance with the requirements in the then-current Fund Prospectus.

The Transfer Agent will administer the Automatic Withdrawal Plan as agent for the shareholder(s) who executed the plan authorization and application submitted to the Transfer Agent. Neither the Fund nor the Transfer Agent shall incur any liability for any action taken or not taken by the Transfer Agent in good faith to administer the plan. Any share certificates must be surrendered unendorsed to the Transfer Agent with the plan application to be eligible for automatic withdrawal payments. If the Transfer Agent ceases to act as transfer agent for the Fund, the shareholder will be deemed to have appointed any successor transfer agent to act as agent in administering the plan.

The Transfer Agent will terminate a plan upon its receipt of evidence, satisfactory to it, that the shareholder has died or is legally incapacitated. The Fund may also give directions to the Transfer Agent to terminate a plan. Shares that have not been redeemed at the time a plan is terminated will be held in an account in the name of the shareholder. Share certificates will not be issued for any such shares and all dividends will be reinvested in the account unless and until different instructions are received, in proper form, from the shareholder, his or her executor or guardian, or another authorized person.

The Fund reserves the right to amend, suspend or discontinue offering these plans at any time without prior notice. By requesting an Automatic Withdrawal Plan, the shareholder agrees to the terms and conditions that apply to such plans. 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.

Transfers of Shares. A shareholder will not be required to pay a CDSC when Fund shares are transferred to registration in the name of another person or entity. The transfer may occur 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 CDSC are transferred, the CDSC will continue to apply to the transferred shares and will be calculated as if the transferee had acquired the shares in the same manner and at the same time as the transferring shareholder.

If less than all of the shares held in an account are transferred, and some but not all shares in the account would be subject to a CDSC if redeemed at that time, the priorities for the imposition of the CDSC described in the Prospectus will be followed in determining the order in which the shares are transferred.

Minimum Balance Fee. As stated in the Prospectus, a $12 annual "Minimum Balance Fee" is assessed on each Fund account with a share balance of less than $500. The Minimum Balance Fee is automatically deducted from each such Fund account in September.

Listed below are certain cases in which the Fund has elected, in its discretion, not to assess the Minimum Balance Fee. These exceptions are subject to change:

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 good faith compliance with those laws.

The Fund reserves the authority to modify Minimum Balance Fee in its discretion.

Reinvestment Privilege. Within six months after redeeming Class A or Class B shares, a shareholder may reinvest all or part of the redemption proceeds without a sales charge if:

The reinvestment may only be made in Class A shares of the Fund or other Oppenheimer funds into which shares of the Fund are exchangeable, as described in "How to Exchange Shares" below. This privilege does not apply to Class C shares or to purchases made through automatic investment options. The Fund may amend, suspend or cease offering this reinvestment privilege at any time for shares redeemed after the date of the amendment, suspension or cessation. The shareholder must request the reinvestment privilege from the Transfer Agent or his or her financial intermediary at the time of purchase.

Reinvestment will be at the next net asset value computed after the Transfer Agent receives the reinvestment order. 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 was a capital loss on the redemption, some or all of the loss may not be tax deductible, depending on the timing and amount of the reinvestment. Under the Internal Revenue Code, if the redemption proceeds of Fund shares on which a sales charge was paid are reinvested in shares of the Fund or another of the Oppenheimer funds within 90 days after the 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, the sales charge would be added to the basis of the shares acquired with the redemption proceeds.

How to Exchange Shares

Shares of the Fund (including shares acquired by reinvestment of dividends or distributions from other Oppenheimer funds or from a unit investment trust) may be exchanged for shares of certain other Oppenheimer funds at net asset value without the imposition of a sales charge, however a CDSC may apply to the acquired shares as described below. Shares of certain money market funds purchased without a sales charge may be exchanged for shares of other Oppenheimer funds offered with a sales charge upon payment of the sales charge. Exchanges into another Oppenheimer fund must meet any applicable minimum investment requirements of that fund.

As stated in the Prospectus, shares of a particular class of Oppenheimer funds having more than one class of shares may be exchanged only for shares of the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have a single class without a class designation are deemed "Class A" shares for this purpose. The prospectus of each of the Oppenheimer funds indicates which share class or classes that fund offers and provides information about limitations on the purchase of particular share classes, as applicable for the particular fund. Shareholders that own more than one class of shares of the Fund must specify which class of shares they wish to exchange.

You can obtain a current list of the share classes offered by the funds by calling the toll-free phone number on the first page of this SAI.

The different Oppenheimer funds that are available for exchange have different investment objectives, policies and risks. A shareholder should determine whether the fund selected is appropriate for his or her investment goals 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. Some of the tax consequences of reinvesting redemption proceeds are discussed in "Reinvestment Privilege," above. 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.

The Fund may amend, suspend or terminate the exchange privilege at any time. Although the Fund may impose these changes at any time, it will provide 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, however that notice is not required in extraordinary circumstances.

How Exchanges Affect Contingent Deferred Sales Charges. A CDSC is imposed on exchanges of shares in the following cases:

(1)With respect to Class B shares of Oppenheimer Limited Term California Municipal Fund, Oppenheimer Limited-Term Government Fund, Oppenheimer Limited Term Municipal Fund, Limited Term New York Municipal Fund and Oppenheimer Senior Floating Rate Fund acquired by exchange, the Class B CDSC is imposed on the acquired shares if they are redeemed within five years of the initial purchase of the exchanged Class B shares.

(2)With respect to Class B shares of Oppenheimer Cash Reserves acquired by the exchange of Class B shares of Oppenheimer Capital Preservation Fund, the Class B CDSC is imposed on the acquired shares if they are redeemed within five years of the initial purchase of the exchanged Class B shares.

When Class B or Class C shares are exchanged, the priorities for the imposition of the CDSC described in "How To Buy Shares" in the Prospectus will be followed in determining the order in which the shares are exchanged. Before exchanging shares, shareholders should consider how the exchange may affect any CDSC that might be imposed on the subsequent redemption of remaining shares.

Telephone Exchange Requests. When exchanging shares by telephone, a shareholder must have an existing account in the fund to which the exchange is to be made. Otherwise, the investors must obtain a prospectus of that fund before the exchange request may be submitted. If all telephone lines are busy (which might occur, for example, during periods of substantial market fluctuations), shareholders might not be able to request exchanges by telephone and would have to submit written exchange requests.

Automatic Exchange Plans. Under an Automatic Exchange Plan, shareholders can authorize the Transfer Agent to exchange shares of the Fund for shares of other Oppenheimer funds automatically on a monthly, quarterly, semi-annual or annual basis. The minimum amount that may be exchanged to each other fund account is $50. Instructions regarding the exchange amount, the selected fund(s) and the exchange interval should be provided on the OppenheimerFunds account application or by signature-guaranteed instructions. Any requested changes will usually be put into effect approximately two weeks after notification of a change is received. Exchanges made under these plans are subject to the restrictions that apply to exchanges as set forth in this SAI and in "How to Exchange Shares" in the Prospectus.

The Transfer Agent will administer the Automatic Exchange Plan as agent for the shareholder(s). Neither the Fund nor the Transfer Agent shall incur any liability for any action taken or not taken by the Transfer Agent in good faith to administer the plan. Any share certificates must be surrendered unendorsed to the Transfer Agent with the plan application to be eligible for automatic exchanges. If the Transfer Agent ceases to act as transfer agent for the Fund, the shareholder will be deemed to have appointed any successor transfer agent to act as agent in administering the plan.

The Fund reserves the right to amend, suspend or discontinue offering automatic exchanges at any time without prior notice. By requesting an Automatic Exchange Plan, the shareholder agrees to the terms and conditions that apply to such plans. These provisions may be amended from time to time and any amendments will automatically apply to existing Plans.

Processing Exchange Requests. Shares to be exchanged are redeemed at the net asset value calculated on the regular business day the Transfer Agent receives an exchange request in proper form before the close of the NYSE (the "Redemption Date"). Normally, shares of the fund to be acquired are purchased on the Redemption Date, but such purchases may be delayed by up to five business days if it is determined that either fund 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.

When you exchange some or all of your shares, any special features of your account that are available in the new fund (such as an Asset Builder Plan or Automatic Withdrawal Plan) will be applied to the new fund account unless you tell the Transfer Agent not to do so.

Shares that are subject to a restriction cited in the Prospectus or this SAI and shares covered by a share certificate that is not tendered will not be exchanged. If an exchange request includes such shares, only the shares available without restrictions will be exchanged.

Distributions and Taxes

Dividends and Other Distributions. Dividends will be payable on shares held of record at the time of the previous determination of net asset value, or as otherwise described in "How to Buy Shares." Daily dividends will not be declared or paid on newly purchased shares until such time as Federal Funds (funds credited to a member bank's account at the Federal Reserve Bank) are available from the purchase payment for such shares. Normally, purchase checks received from investors are converted to Federal Funds on the next business day. Shares purchased through dealers or brokers normally are paid for by the third business day following the placement of the purchase order.

Shares redeemed through the regular redemption procedure will be paid dividends through and including the day on which the redemption request is received by the Transfer Agent in proper form. Dividends will be declared on shares repurchased by a dealer or broker for three business days following the trade date (that is, up to and including the day prior to settlement of the repurchase). If all shares in an account are redeemed, all dividends accrued on shares of the same class in the account will be paid together with the redemption proceeds.

The Fund's practice of attempting to pay dividends on Class A shares at a constant level requires the Manager to monitor the Fund's portfolio and, if necessary, to select higher-yielding securities when it is deemed appropriate to seek income at the level needed to meet the target. Those securities must be within the Fund's investment parameters, however. The Fund expects to pay dividends at a targeted level from its net investment income and other distributable income without any impact on the net asset values per share.

The distributions made by the Fund will vary depending on market conditions, the composition of the Fund's portfolio and Fund expenses.  Distributions are calculated in the same manner, at the same time, and on the same day for each class of shares but will normally differ in amount. Distributions on Class B and Class C shares are expected to be lower than distributions on Class A shares and Class Y shares (if applicable) because of the effect of the asset-based sales charge on Class B and Class C shares. Whether they are reinvested in Fund shares or received in cash, distributions are taxable to shareholders, as discussed below, regardless of whether the distributions are paid in cash or reinvested in additional shares of the Fund (or of another fund). Shareholders receiving a distribution in the form of additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date.

Returned checks for the proceeds of redemptions are invested in shares of Oppenheimer Money Market Fund, Inc. If a dividend check or a check representing an automatic withdrawal payment is returned to the Transfer Agent by the Postal Service as undeliverable, it will be reinvested in shares of the Fund. Reinvestments will be made as promptly as possible after the return of such checks to the Transfer Agent. 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.

Taxes. The federal tax treatment of the Fund and distributions to shareholders is briefly highlighted in the Prospectus. The following is only a summary of certain additional tax considerations generally affecting the Fund and its shareholders. The tax discussion in the Prospectus and this SAI is based on tax laws in effect on the date of the Prospectus and SAI. Those laws and regulations may be changed by legislative, judicial, or administrative action, sometimes with retroactive effect. State and local tax treatment may differ from the treatment under the Internal Revenue Code as described below.

Before purchasing Fund shares, investors are urged to consult their tax advisers with reference to their own particular tax circumstances as well as the consequences of federal, state, local and any other jurisdiction's tax rules affecting an investment in the Fund.

Qualification and Taxation as a Regulated Investment Company. The Fund has elected to be taxed as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code. As long as the Fund qualifies as a RIC, the Fund is not subject to federal income tax on the portion of its net investment income (that is, taxable interest, dividends, and other taxable ordinary income, net of expenses) and capital gain net income (that is, the excess of capital gains over capital losses) that it distributed to shareholders.

If the Fund qualifies as a "regulated investment company" under the Internal Revenue Code, it will not be liable for federal income tax on amounts it pays as dividends and other 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. One or more Funds might not meet those tests in a particular year. If the Fund 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 other distributions made to shareholders. In such an instance, all of the Fund's dividends would be taxable to shareholders.

Qualifying as a RIC. To qualify as a RIC, the Fund must be a domestic corporation that is either registered under the Investment Company Act as a management company or unit investment trust or is otherwise described in the Internal Revenue Code as having a specific status under the Investment Company Act. The Fund must also satisfy certain tests with respect to (i) the composition of its gross income, (ii) the composition of its assets and (iii) the amount of its dividend distributions.

Gross Income Test. To qualify as a RIC, the Fund must derive at least 90% of its gross income from dividends, interest, certain payments with respect to loans of securities, gains from the sale or other disposition of securities or foreign currencies, and certain other income derived with respect to its business of investing in such securities or currencies (including, but not limited to, gains from options, futures or forward contracts), and net income derived from interests in certain "qualified publicly traded partnerships."

Asset Test. In addition, at the close of each quarter of its taxable year, the Fund must satisfy two asset tests. First, at least 50% of the value of the Fund's assets must consist of securities of other issuers ("Other Issuers"), U.S. Government securities, securities of other RIC's and cash or cash items (including receivables). The securities of an Other Issuer are not counted towards satisfying the 50% test if the Fund either invests more than 5% of the value of the Fund's assets in the securities of that Other Issuer or holds more than 10% of the outstanding voting securities of that Other Issuer. Second, no more than 25% of the value of the Fund's total assets may be invested in (1) the securities of any one issuer (other than U.S. Government securities and the securities of other RIC's), (2) the securities of two or more issuers (other than the securities of other RIC's) that the Fund controls and that are engaged in the same or similar trades or businesses, or (3) the securities of one or more qualified publicly traded partnerships. For purposes of these tests, obligations issued or guaranteed by certain agencies or instrumentalities of the U.S. Government are treated as U.S. Government securities.

Dividend Distributions Test. During the taxable year or, under specified circumstances, within 12 months after the close of the taxable year, the Fund must distribute at least 90% of its investment company taxable income and at least 90% of its net tax-exempt income for the taxable year, which is generally its net investment income and the excess of its net short-term capital gain minus its net long-term capital loss.

Excise Tax on Regulated Investment Companies. Under the Internal Revenue Code, the Fund must pay an annual, non-deductible excise tax unless, by December 31st each year, it distributes (1) 98% of its taxable investment income earned from January 1 through December 31, (2) 98% of its capital gain net income realized in the period from November 1 of the prior year through October 31 of the current year and (3) undistributed amounts from prior years. It is presently anticipated that the Fund will meet these distribution requirements, although to do so the Fund might be required to liquidate portfolio investments in certain circumstances. In some years, the Board and the Manager may determine that it would be in the shareholders' best interests for the Fund to pay the excise tax on undistributed amounts rather than making the required level of distributions. In that event, the tax may reduce the amount available for shareholder distributions.

Taxation of Fund Distributions. Distributions by the Fund will be treated in the manner described below regardless of whether the distributions are paid in cash or reinvested in additional shares of the Fund (or of another fund). The Fund's distributions will be treated as dividends to the extent paid from the Fund's earnings and profits (as determined under the Internal Revenue Code). Distributions in excess of the Fund's earnings and profits will first reduce the adjusted tax basis of a shareholder's shares and, after such tax basis is reduced to zero, will constitute capital gain to the shareholder (assuming the shares are held as a capital asset). The Fund's dividends will not be eligible for the dividends-received deduction for corporations. Shareholders reinvesting a distribution in shares of the distributing Fund, one of the other funds Fund or another fund will be treated as receiving a distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date.

Exempt-Interest Dividends. The Fund intends to satisfy the requirements under the Internal Revenue Code during each fiscal year to pay "exempt-interest dividends" to its shareholders. To qualify, at the end of each quarter of its taxable year, at least 50% of the value of the Fund's total assets must consist of obligations described in Section 103(a) of the Internal Revenue Code, as amended. Dividends that are derived from net interest income earned by the Fund on tax-exempt municipal securities and designated as "exempt-interest dividends" in a written notice sent by the Fund to its shareholders within 60 days after the close of the Fund's taxable year will be excludable from gross income of shareholders for federal income tax purposes. To the extent any Fund fails to qualify to pay exempt-interest dividends in any given taxable year, such dividends would be included in the gross income of shareholders for federal income tax purposes.

The Fund will allocate interest from tax-exempt municipal securities (as well as ordinary income, capital gains, and tax preference items discussed below) among its shares according to a method that is based on the gross income allocable to each class of shareholders during the taxable year (or under another method, if prescribed by the IRS and SEC). The percentage of each distribution with respect to a taxable year of the Fund that is an exempt-interest dividend will be the same, even though that percentage may differ substantially from the percentage of the Fund's income that was tax-exempt during a particular portion of the year. This percentage normally will be designated after the close of the taxable year.

Exempt-interest dividends are excludable from a shareholder's gross income for federal income tax purposes. Interest on indebtedness incurred or continued to purchase or carry shares of a regulated investment company paying exempt-interest dividends, such as the Fund, will not be deductible by the investor for federal income tax purposes to the extent attributable to exempt-interest dividends. Shareholders receiving Social Security or railroad retirement benefits should be aware that exempt-interest dividends are a factor in determining whether, and to what extent, such benefits are subject to federal income tax.

A portion of the exempt-interest dividends paid by the Fund may give rise to liability under the federal alternative minimum tax for individual or corporate shareholders. Income on certain private activity bonds issued after August 7, 1986, while excludable from gross income for purposes of the federal income tax, is an item of "tax preference" that must be included in income for purposes of the federal alternative minimum tax for individuals and corporations. "Private activity bonds" are bonds that are used for purposes not generally performed by governmental entities and that benefit non-governmental entities. The amount of any exempt-interest dividends that is attributable to tax preference items for purposes of the alternative minimum tax will be identified when tax information is distributed by the Fund.

In addition, corporate taxpayers are subject to the federal alternative minimum tax based in part on certain differences between taxable income as adjusted for other tax preferences and the corporation's "adjusted current earnings," which more closely reflect a corporation's economic income. Because an exempt-interest dividend paid by the Fund will be included in adjusted current earnings, a corporate shareholder may be required to pay alternative minimum tax on exempt-interest dividends paid by the Fund.

Shareholders are advised to consult their tax advisers with respect to their liability for federal alternative minimum tax, and for advice concerning the loss of exclusion from gross income for exempt-interest dividends paid to a shareholder who would be treated as a "substantial user" or "related person" under Section 147(a) of the Internal Revenue Code with respect to property financed with the proceeds of an issue of private activity bonds held by the Fund.

Ordinary Income Dividends. Distributions from income earned by the Fund from one or more of the following sources will be treated as ordinary income to the shareholder:

Capital Gain Distributions. The Fund may either retain or distribute to shareholders its net capital gain (the excess of net long-term capital gain over net short-term capital loss). Currently, the Fund intends to distribute these gains. Distributed net capital gain that is properly designated will be taxable to the Fund's shareholders as long-term capital gains, and in the case of non-corporate shareholders, will qualify for the maximum tax rate of 15% for taxable years beginning before 2011. The amount of distributions designated as net capital gain will be reported to shareholders shortly after the end of each year. Such treatment will apply no matter how long the shareholder has held Fund shares and even if the gain was recognized by the Fund before the shareholder acquired Fund shares.

If the Fund elects to retain its net capital gain for a taxable year, the Fund will be subject to tax on such gain at the highest corporate tax rate. Each shareholder of record on the last day of such taxable year will be informed of his or her portion of both the gain and the tax paid, will be required to report the gain as long-term capital gain, will be able to claim the tax paid as a refundable credit, and will increase the basis of his or her shares by the amount of the capital gain reported minus the tax credit.

Backup withholding. The Fund will be required in certain cases to withhold 28% of ordinary income dividends, capital gain distributions and the proceeds of the redemption of shares, paid to any shareholder (1) who has failed to provide a correct taxpayer identification number or to properly certify that number when required, (2) who is subject to backup withholding for failure to report properly the receipt of interest or dividend income, or (3) who has failed to certify to the Fund that the shareholder is not subject to backup withholding or is an "exempt recipient" (such as a corporation). Any tax withheld by the Fund is remitted by the Fund to the U.S. Treasury and is identified in reports mailed to shareholders in January of each year with a copy sent to the IRS. Backup withholding is not an additional tax. Any amount withheld generally may be allowed as a refund or a credit against a shareholder's federal income tax liability, provided the required information is timely provided to the IRS.

Tax Consequences of Share Redemptions. If all or a portion of a shareholder's investment in the Fund is redeemed, the shareholder will recognize a gain or loss on the redeemed shares equal to the difference between the proceeds of the redeemed shares and the shareholder's adjusted tax basis in the shares. In general, any gain or loss from the redemption of shares of the Fund will be considered capital gain or loss if the shares were held as a capital asset and will be long-term capital gain or loss if the shares were held for more than one year. Any capital loss arising from the redemption of shares held for six months or less, however, will be treated as a long-term capital loss to the extent of the amount of capital gain dividends received on those shares. Special holding period rules under the Internal Revenue Code apply in this case to determine the holding period of shares. There are limits on the deductibility of capital losses in any year.

All or a portion of any loss on redeemed shares may be disallowed if the shareholder purchases other shares of the Fund within 30 days before or after the redemption (including purchases through the reinvestment of dividends). In that case, the basis of the acquired shares will be adjusted to reflect the disallowed loss.  Losses realized by a shareholder on the redemption of Fund shares within six months of purchase will be disallowed for federal income tax purposes to the extent of exempt-interest dividends received on such shares.  If a shareholder exercises the exchange privilege within 90 days after acquiring Fund shares, any loss that the shareholder recognizes on the exchange will be reduced, or any gain will be increased, to the extent that sales charge paid on the exchanged shares reduces any charges the shareholder would have incurred on the purchase of the new shares in the absence of the exchange privilege. Such sales charge will be treated as an amount paid for the new shares.

Taxation of Foreign Shareholders. Under the Internal Revenue Code, taxation of a foreign shareholder depends primarily on whether the foreign shareholder's income from the Fund is effectively connected with the conduct of a U.S. trade or business. Typically, ordinary income dividends paid from a mutual fund are not considered "effectively connected" income. "Foreign shareholders" include, but are not limited to, a nonresident alien individual, a foreign trust, a foreign estate, a foreign corporation, or a foreign partnership.

If a foreign shareholder fails to provide a properly completed and signed Certificate of Foreign Status, the Fund will be required to withhold U.S. tax on ordinary income dividends, capital gains distributions and the proceeds of the redemption of shares. Provided the Fund obtains a proper certification of foreign status, ordinary income dividends that are paid by the Fund to foreign shareholders and that are not "effectively connected income," will be subject to a U.S. withholding tax. The tax rate may be reduced if the foreign person's country of residence has an income tax treaty with the United States allowing for a reduced tax rate on ordinary income dividends paid by the Fund. If the ordinary income dividends from the Fund are effectively connected with the conduct of a U.S. trade or business, then the foreign shareholder may claim an exemption from the U.S. withholding tax described above provided the Fund obtains a properly completed and signed Certificate of Foreign Status. Any tax withheld by the Fund is remitted to the U.S. Treasury and all income and any tax withheld is identified in reports mailed to shareholders in the early part of each year with a copy sent to the IRS. Capital gain dividends are not subject to U.S. withholding tax unless the recipient is a nonresident alien who is present in the United States for 183 days or more during the taxable year in which the dividends are received. A foreign individual who is present in the United States for 183 days or more generally loses his or her status as a nonresident alien.

For taxable years of the Fund beginning before January 1, 2010, properly designated dividends are generally exempt from U.S. federal withholding tax on foreign persons provided such dividends (i) are derived from the Fund's "qualified net interest income" (generally, the Fund's U.S. source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which the Fund is a 10% or greater shareholder, reduced by expenses that are allocable to such income) or (ii) are derived from the Fund's "qualified short-term capital gains" (generally, the excess of the Fund's net short-term capital gain over the Fund's net long-term capital loss for such taxable year). In order to qualify for this exemption from withholding, a shareholder that is a foreign person must comply with applicable certification requirements relating to its non-U.S. status. However, depending on its circumstances, the Fund may designate some, all, or none of its potentially eligible dividends as interest-related dividends or as short-term capital gain dividends, and/or treat such dividends, in whole or in part, as ineligible for this exemption from withholding on foreign persons. In the case of shares held through an intermediary, the intermediary may withhold even if the Fund designates the payment as qualified net interest income or qualified short-term capital gain. Shareholders that are foreign persons should contact their intermediaries with respect to the application of these rules to their accounts.

The tax consequences to foreign persons entitled to claim the benefits of an applicable income tax treaty may be different from those described in this SAI. Foreign shareholders are urged to consult their tax advisers with respect to the particular tax consequences of an investment in the Fund, including the applicability of the U.S. withholding taxes described above.

Additional Information About the Fund

The Distributor. The Fund's shares are sold through dealers, brokers and other financial institutions that have a sales agreement with OppenheimerFunds Distributor, Inc., a subsidiary of the Manager that acts as the Fund's Distributor. The Distributor also distributes shares of the other Oppenheimer funds and is sub-distributor for funds managed by a subsidiary of the Manager.

The Transfer Agent. 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 Oppenheimer 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 of the Fund's assets. The custodian's responsibilities include safeguarding and controlling the Fund's portfolio securities and handling the delivery of such securities to and from the Fund. It is the practice of the Fund to deal with the custodian in a manner uninfluenced by any banking relationship the custodian may have with the Manager and its affiliates. The Fund's cash balances with the custodian in excess of $250,000 are not protected by the federal deposit insurance corporation ("FDIC"). The FDIC protected amount will fall to $100,000 on January 1, 2014 unless the higher limit is extended by legislation. Those uninsured balances at times may be substantial.

Independent Registered Public Accounting Firm.  KPMG LLP serves as the independent registered public accounting firm for the Fund. KPMG LLP audits the Fund's financial statements and performs other related audit and tax services.  KPMG LLP also acts as the independent registered public accounting firm for the Manager and certain other funds advised by the Manager and its affiliates. Audit and non-audit services provided by KPMG LLP to the Fund must be pre-approved by the Audit Committee.

 

/strong>

N-CSR

 


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders of Oppenheimer California Municipal Fund:
We have audited the accompanying statement of assets and liabilities of Oppenheimer California Municipal Fund, including the statement of investments, as of July 31, 2009, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund'ss 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 2009, 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 Oppenheimer California Municipal Fund as of July 31, 2009, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
KPMG llp
Denver, Colorado
September 17, 2009
 

 


 

STATEMENT OF INVESTMENTS July 31, 2009
                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
Municipal Bonds and Notes 128.7%                        
California 122.2%                        
$ 100,000    
Adelanto, CA Elementary School District Community Facilities District No. 11
    4.900 %     09/01/2014     $ 85,806  
  2,675,000    
Adelanto, CA Elementary School District Community Facilities District No. 11
    5.250       09/01/2026       1,724,011  
  7,310,000    
Adelanto, CA Elementary School District Community Facilities District No. 11
    5.350       09/01/2036       4,240,970  
  2,110,000    
Adelanto, CA Elementary School District Community Facilities District No. 11
    5.400       09/01/2036       1,234,097  
  55,000    
Adelanto, CA Improvement Agency, Series B1
    5.500       12/01/2023       50,299  
  5,025,000    
Agua Mansa, CA Industrial Growth Assoc. Special Tax1
    6.500       09/01/2033       4,135,424  
  25,000    
Alvord, CA Unified School District Community Facilities District1
    5.875       09/01/2034       22,261  
  100,000    
Alvord, CA Unified School District Community Facilities District Special Tax1
    4.500       09/01/2017       83,204  
  3,000,000    
Anaheim, CA Public Financing Authority (Anaheim Electric System Distribution)2
    5.250       10/01/2034       3,004,515  
  7,000,000    
Anaheim, CA Public Financing Authority (Anaheim Electric System Distribution)2
    5.250       10/01/2039       7,010,535  
  500,000    
Arvin, CA Community Redevel. Agency1
    5.000       09/01/2025       364,300  
  2,435,000    
Arvin, CA Community Redevel. Agency1
    5.125       09/01/2035       1,580,948  
  600,000    
Arvin, CA Community Redevel. Agency Tax Allocation1
    6.500       09/01/2038       463,260  
  985,000    
Azusa, CA Special Tax Community Facilities District No. 05-11
    5.000       09/01/2021       721,365  
  2,720,000    
Azusa, CA Special Tax Community Facilities District No. 05-11
    5.000       09/01/2027       1,779,179  
  9,760,000    
Azusa, CA Special Tax Community Facilities District No. 05-11
    5.000       09/01/2037       5,631,910  
  1,000,000    
Bakersfield, CA Improvement Bond Act 19151
    5.000       09/02/2027       646,240  
  1,125,000    
Bakersfield, CA Improvement Bond Act 19151
    5.125       09/02/2026       849,983  
  465,000    
Bakersfield, CA Improvement Bond Act 19151
    5.350       09/02/2022       342,984  
  2,260,000    
Bakersfield, CA Improvement Bond Act 19151
    5.400       09/02/2025       1,597,119  
  3,835,000    
Bakersfield, CA Improvement Bond Act 19151
    7.375       09/02/2028       3,419,094  
  3,700,000    
Beaumont, CA Financing Authority, Series A1
    5.350       09/01/2036       2,490,322  
  1,050,000    
Beaumont, CA Financing Authority, Series A1
    6.875       09/01/2036       884,163  
  5,000    
Beaumont, CA Financing Authority, Series A1
    7.000       09/01/2023       4,643  
  685,000    
Beaumont, CA Financing Authority, Series B1
    5.000       09/01/2027       487,446  
  3,170,000    
Beaumont, CA Financing Authority, Series B1
    5.050       09/01/2037       2,015,549  
  5,000,000    
Beaumont, CA Financing Authority, Series B1
    6.000       09/01/2034       4,116,250  
  1,525,000    
Beaumont, CA Financing Authority, Series B1
    6.000       09/01/2034       1,155,310  

 


 

STATEMENT OF INVESTMENTS Continued
                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 450,000    
Beaumont, CA Financing Authority, Series B1
    8.625 %     09/01/2034     $ 439,718  
  225,000    
Beaumont, CA Financing Authority, Series B1
    8.875       09/01/2034       226,118  
  2,340,000    
Beaumont, CA Financing Authority, Series C1
    5.500       09/01/2035       1,623,656  
  2,925,000    
Beaumont, CA Financing Authority, Series D1
    5.800       09/01/2035       2,326,867  
  5,245,000    
Beaumont, CA Financing Authority, Series E1
    6.250       09/01/2038       4,031,569  
  500,000    
Blythe, CA Community Facilities District Special Tax (Hidden Beaches)1
    5.300       09/01/2035       338,910  
  30,000    
Blythe, CA Redevel. Agency (Redevel. Project No. 1 Tax Allocation)1
    5.650       05/01/2029       23,443  
  7,605,000    
Brentwood, CA Infrastructure Financing Authority1
    5.200       09/02/2036       5,039,605  
  25,000    
Buena Park, CA Special Tax (Park Mall)1
    6.100       09/01/2028       20,463  
  60,000    
Butte County, CA Hsg. Authority (Affordable Hsg. Pool)1
    7.000       10/01/2020       56,947  
  2,025,000    
CA ABAG Finance Authority for NonProfit Corporations (Channing House)1
    5.500       02/15/2029       1,599,993  
  65,000    
CA ABAG Finance Authority for NonProfit Corporations (Redding Assisted Living Corp.)1
    5.250       11/15/2031       41,759  
  6,500,000    
CA ABAG Finance Authority for Nonprofit Corporations (The Jackson Lab)1
    5.750       07/01/2037       5,784,025  
  90,000    
CA ABAG Finance Authority for NonProfit Corporations COP1
    6.000       08/15/2020       90,079  
  450,000    
CA ABAG Finance Authority for NonProfit Corporations COP (American Baptist Homes of the West)1
    5.750       10/01/2017       412,133  
  240,000    
CA ABAG Finance Authority for NonProfit Corporations COP (American Baptist Homes of the West)1
    6.200       10/01/2027       214,855  
  10,000    
CA ABAG Finance Authority for NonProfit Corporations COP (Merced Family Health Centers)1
    5.950       01/01/2024       9,999  
  25,000    
CA ABAG Finance Authority for NonProfit Corporations COP (Palo Alto Gardens Apartments)1
    5.350       10/01/2029       23,785  
  4,300,000    
CA ABAG Finance Authority for NonProfit Corporations COP (Redwood Senior Homes & Services)1
    6.125       11/15/2032       3,642,616  
  235,000    
CA ABAG Improvement Bond Act 1915 (Windemere Ranch)1
    6.150       09/02/2029       275,592  
  75,000    
CA Affordable Hsg. Agency (Merced County Hsg. Authority)1
    6.000       01/01/2023       52,091  
  20,000    
CA Bay Area Government Association1
    4.125       09/01/2019       17,191  
  10,530,000    
CA County Tobacco Securitization Agency1
    5.000       06/01/2047       5,532,673  
  39,700,000    
CA County Tobacco Securitization Agency
    5.750 3     06/01/2057       306,881  
  16,700,000    
CA County Tobacco Securitization Agency
    5.820 3     06/01/2033       1,573,641  
  43,500,000    
CA County Tobacco Securitization Agency
    5.890 3     06/01/2046       1,225,395  
  45,600,000    
CA County Tobacco Securitization Agency
    6.125 3     06/01/2057       257,640  
  20,000,000    
CA County Tobacco Securitization Agency
    6.300 3     06/01/2055       181,200  
  82,110,000    
CA County Tobacco Securitization Agency
    6.423 3     06/01/2046       2,060,140  
 

 


 

                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 51,500,000    
CA County Tobacco Securitization Agency
    6.700 %3     06/01/2057     $ 252,865  
  55,250,000    
CA County Tobacco Securitization Agency
    6.901 3     06/01/2057       271,278  
  71,700,000    
CA County Tobacco Securitization Agency
    7.000 3     06/01/2055       502,617  
  347,900,000    
CA County Tobacco Securitization Agency
    7.550 3     06/01/2055       2,132,627  
  173,750,000    
CA County Tobacco Securitization Agency
    7.553 3     06/01/2055       1,065,088  
  409,500,000    
CA County Tobacco Securitization Agency
    8.251 3     06/01/2055       2,510,235  
  5,000,000    
CA County Tobacco Securitization Agency (TASC)1
    0.000 4     06/01/2036       2,728,100  
  28,225,000    
CA County Tobacco Securitization Agency (TASC)1
    0.000 4     06/01/2041       15,060,578  
  28,270,000    
CA County Tobacco Securitization Agency (TASC)1
    0.000 4     06/01/2046       14,990,168  
  3,725,000    
CA County Tobacco Securitization Agency (TASC)1
    5.125       06/01/2038       2,247,404  
  19,815,000    
CA County Tobacco Securitization Agency (TASC)1
    5.125       06/01/2038       11,954,984  
  5,815,000    
CA County Tobacco Securitization Agency (TASC)1
    5.250       06/01/2045       3,215,521  
  6,000,000    
CA County Tobacco Securitization Agency (TASC)1
    5.250       06/01/2046       3,309,540  
  4,375,000    
CA County Tobacco Securitization Agency (TASC)1
    5.750       06/01/2029       3,499,081  
  6,230,000    
CA County Tobacco Securitization Agency (TASC)1
    5.875       06/01/2027       5,167,972  
  9,125,000    
CA County Tobacco Securitization Agency (TASC)1
    5.875       06/01/2035       6,271,156  
  1,250,000    
CA County Tobacco Securitization Agency (TASC)1
    5.875       06/01/2043       836,475  
  10,545,000    
CA County Tobacco Securitization Agency (TASC)1
    6.000       06/01/2035       7,378,231  
  3,825,000    
CA County Tobacco Securitization Agency (TASC)1
    6.125       06/01/2038       2,694,674  
  50,000    
CA County Tobacco Securitization Agency (TASC)1
    6.125       06/01/2043       34,775  
  86,970,000    
CA County Tobacco Securitization Agency (TASC)
    6.375 3     06/01/2046       2,055,971  
  65,800,000    
CA County Tobacco Securitization Agency (TASC)
    6.600 3     06/01/2046       1,221,906  
  9,975,000    
CA Dept. of Veterans Affairs Home Purchase2
    5.000       12/01/2027       8,792,769  
  15,000    
CA Dept. of Water Resources (Center Valley)1
    5.000       12/01/2029       15,006  
  10,000    
CA Dept. of Water Resources (Center Valley)1
    5.400       07/01/2012       10,034  
  10,000    
CA GO1
    5.000       10/01/2023       10,001  
  5,000    
CA GO1
    5.125       02/01/2027       5,001  
  20,000    
CA GO1
    5.125       03/01/2031       19,229  
  5,000    
CA GO1
    5.125       06/01/2031       4,806  
  5,000    
CA GO1
    5.500       10/01/2022       5,006  
  200,000    
CA GO1
    6.250       10/01/2019       200,630  
  60,000    
CA GO1
    6.250       10/01/2019       60,189  
  10,000,000    
CA GO1
    6.500       04/01/2033       10,842,600  
  88,410,000    
CA Golden State Tobacco Securitization Corp. (TASC)1
    0.000 4     06/01/2037       37,525,625  
  141,220,000    
CA Golden State Tobacco Securitization Corp. (TASC)1
    5.125       06/01/2047       76,363,303  
  4,380,000    
CA Golden State Tobacco Securitization Corp. (TASC)1
    5.750       06/01/2047       2,628,657  
  205,940,000    
CA Golden State Tobacco Securitization Corp. (TASC)
    6.902 3     06/01/2047       5,496,539  
  475,000    
CA Health Facilities Financing Authority (Hospital of the Good Samaritan)1
    7.000       09/01/2021       402,273  
  80,000    
CA Health Facilities Financing Authority (Sutter Health)1
    5.350       08/15/2028       78,964  


 

STATEMENT OF INVESTMENTS Continued
                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 10,000,000    
CA HFA (Home Mtg.)2
    5.050 %     02/01/2029     $ 8,304,050  
  13,950,000    
CA HFA (Home Mtg.)2
    5.500       02/01/2042       13,776,113  
  10,000,000    
CA HFA (Home Mtg.)2
    5.600       08/01/2038       8,646,600  
  22,580,000    
CA HFA (Home Mtg.)2
    5.950       08/01/2025       21,506,448  
  25,000    
CA HFA (Multifamily Hsg.)1
    5.375       08/01/2028       22,485  
  205,000    
CA HFA (Multifamily Hsg.)1
    5.950       08/01/2028       205,062  
  380,000    
CA HFA (Multifamily Hsg.), Series A1
    5.900       02/01/2028       380,103  
  95,000    
CA HFA (Multifamily Hsg.), Series B1
    5.500       08/01/2039       79,177  
  30,000    
CA HFA, Series A1
    5.600       08/01/2011       30,029  
  2,000,000    
CA HFA, Series B1
    5.000       02/01/2028       1,672,240  
  165,000    
CA HFA, Series B-11
    5.600       08/01/2017       164,992  
  8,530,000    
CA HFA, Series C1
    5.750       08/01/2030       8,651,297  
  15,505,000    
CA Home Mtg. Finance Authority (Homebuyers Fund)2
    5.800       08/01/2043       15,424,251  
  80,000    
CA Home Mtg. Finance Authority (Homebuyers Fund)1
    5.800       08/01/2043       79,477  
  40,000    
CA Independent Cities Lease Finance Authority (Caritas Affordable Hsg.)1
    5.375       08/15/2040       28,178  
  6,430,000    
CA Infrastructure and Economic Devel. (Copia: The American Center for Wine, Food and the Arts)
    5.000       12/01/2032       1,605,893  
  4,885,000    
CA Infrastructure and Economic Devel. (Copia: The American Center for Wine, Food and the Arts)
    5.530 3     12/01/2026       178,156  
  3,620,000    
CA Infrastructure and Economic Devel. (Copia: The American Center for Wine, Food and the Arts)
    5.550 3     12/01/2027       109,071  
  25,250,000    
CA Infrastructure and Economic Devel. (Copia: The American Center for Wine, Food and the Arts)
    5.624 3     12/01/2032       329,008  
  1,635,000    
CA Infrastructure and Economic Devel. (Copia: The American Center for Wine, Food and the Arts)
    5.660 3     12/01/2037       16,890  
  110,000    
CA Lee Lake Water District Community Facilities District No. 1 (Sycamore Creek)1
    6.000       09/01/2033       83,578  
  65,000    
CA M-S-R Public Power Agency (San Juan)1
    6.000       07/01/2022       70,606  
  10,000    
CA Mobilehome Park Financing Authority (Palomar Estates East & West)1
    5.100       09/15/2023       8,125  
  1,005,000    
CA Municipal Finance Authority (King/Chavez)1
    8.750       10/01/2039       1,017,593  
  1,500,000    
CA Municipal Finance Authority (OCEAA)1
    7.000       10/01/2039       1,227,090  
  1,005,000    
CA Pollution Control Financing Authority (Sacramento Biosolids Facility)1
    5.500       12/01/2024       667,652  
  85,000    
CA Pollution Control Financing Authority (San Diego Gas & Electric Company)1
    5.850       06/01/2021       85,018  
  915,000    
CA Pollution Control Financing Authority (San Diego Gas & Electric Company)1
    5.850       06/01/2021       915,192  
  14,825,000    
CA Public Works (Regents University)2
    5.000       04/01/2034       14,233,181  
  23,100,000    
CA Rural Home Mtg. Finance Authority (Single Family Mtg.)2
    5.500       02/01/2043       23,380,203  

 


 

                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 3,890,000    
CA Rural Home Mtg. Finance Authority (Single Family Mtg.)1
    5.500 %     08/01/2047     $ 2,312,683  
  485,000    
CA Rural Home Mtg. Finance Authority (Single Family Mtg.)1
    5.500       08/01/2047       266,619  
  13,850,000    
CA Rural Home Mtg. Finance Authority (Single Family Mtg.)2
    5.650       02/01/2049       13,634,893  
  34,000,000    
CA Silicon Valley Tobacco Securitization Authority
    5.621 3     06/01/2036       2,380,000  
  21,465,000    
CA Silicon Valley Tobacco Securitization Authority
    5.680 3     06/01/2041       888,007  
  17,650,000    
CA Silicon Valley Tobacco Securitization Authority
    5.850 3     06/01/2047       400,655  
  165,000,000    
CA Silicon Valley Tobacco Securitization Authority
    6.300 3     06/01/2056       1,037,850  
  100,000,000    
CA Silicon Valley Tobacco Securitization Authority
    6.850 3     06/01/2056       549,000  
  100,000    
CA Statewide CDA1
    5.000       09/02/2018       84,349  
  145,000    
CA Statewide CDA1
    5.000       09/02/2019       120,697  
  245,000    
CA Statewide CDA1
    5.125       09/02/2020       201,618  
  2,950,000    
CA Statewide CDA1
    5.125       09/02/2025       2,199,550  
  8,495,000    
CA Statewide CDA1
    5.200       09/02/2036       5,577,477  
  100,000    
CA Statewide CDA
    6.527 3     09/01/2028       18,118  
  75,000    
CA Statewide CDA1
    6.625       09/01/2027       64,871  
  50,000    
CA Statewide CDA1
    6.750       09/01/2037       38,326  
  100,000    
CA Statewide CDA
    6.773 3     09/01/2034       9,925  
  15,000    
CA Statewide CDA1
    7.000       07/01/2022       14,308  
  4,825,000    
CA Statewide CDA (Bentley School)1
    6.750       07/01/2032       3,953,750  
  5,290,000    
CA Statewide CDA (Berkeley Montessori School)1
    7.250       10/01/2033       4,538,820  
  810,000    
CA Statewide CDA (Citrus Gardens Apartments)1
    6.500       07/01/2032       629,921  
  1,365,000    
CA Statewide CDA (Citrus Gardens Apartments)1
    9.000       07/01/2032       1,128,254  
  1,350,000    
CA Statewide CDA (East Tabor Apartments)1
    6.850       08/20/2036       1,439,370  
  50,000    
CA Statewide CDA (Eastfield Ming Quong)1
    5.500       06/01/2012       50,084  
  5,000,000    
CA Statewide CDA (Fairfield Apartments)5,6
    7.250       01/01/2035       1,750,000  
  60,000    
CA Statewide CDA (GP Steinbeck)
    5.492 3     03/20/2022       29,297  
  1,000,000    
CA Statewide CDA (Huntington Park Charter School)1
    5.250       07/01/2042       599,110  
  1,145,000    
CA Statewide CDA (International School Peninsula)1
    5.000       11/01/2025       793,336  
  1,000,000    
CA Statewide CDA (International School Peninsula)1
    5.000       11/01/2029       646,610  
  2,750,000    
CA Statewide CDA (Live Oak School)1
    6.750       10/01/2030       2,275,955  
  6,000,000    
CA Statewide CDA (Marin Montessori School)1
    7.000       10/01/2033       4,989,300  
  16,000,000    
CA Statewide CDA (Microgy Holdings)
    9.000       12/01/2038       12,860,640  
  6,240,000    
CA Statewide CDA (Mountain Shadows Community)1
    5.000       07/01/2031       3,854,510  
  1,400,000    
CA Statewide CDA (Napa Valley Hospice)1
    7.000       01/01/2034       1,101,744  
  1,650,000    
CA Statewide CDA (Notre Dame de Namur University)1
    6.500       10/01/2023       1,217,651  
  4,635,000    
CA Statewide CDA (Notre Dame de Namur University)1
    6.625       10/01/2033       3,160,607  
  30,000    
CA Statewide CDA (Quail Ridge Apartments)1
    5.375       07/01/2032       21,313  

 


 

STATEMENT OF INVESTMENTS Continued
                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 1,380,000    
CA Statewide CDA (Quail Ridge Apartments)1
    6.500 %     07/01/2032     $ 1,062,145  
  2,010,000    
CA Statewide CDA (Quail Ridge Apartments)1
    9.000       07/01/2032       1,599,739  
  425,000    
CA Statewide CDA (Rio Bravo)5,6
    6.500       12/01/2018       338,156  
  1,805,000    
CA Statewide CDA (Sonoma Country Day School)1
    6.000       01/01/2029       1,155,778  
  12,000,000    
CA Statewide CDA (St. Josephs)2
    5.750       07/01/2047       11,890,320  
  220,000    
CA Statewide CDA (Stonehaven Student Hsg.)1
    5.875       07/01/2032       165,763  
  15,000    
CA Statewide CDA (Sutter Health Obligated Group)1
    5.500       08/15/2034       14,583  
  16,000,000    
CA Statewide CDA (Thomas Jefferson School of Law)1
    7.250       10/01/2038       13,350,240  
  4,000,000    
CA Statewide CDA (Turning Point)1
    6.500       11/01/2031       3,180,840  
  60,000    
CA Statewide CDA COP (Children's Hospital of Los Angeles)1
    5.250       08/15/2029       45,733  
  165,000    
CA Statewide CDA COP (Internext Group)1
    5.375       04/01/2030       125,266  
  270,000    
CA Statewide CDA Special Tax Community Facilities District No. 97
    6.842 3     09/01/2022       85,822  
  9,690,000    
CA Statewide CDA, Series A1
    5.150       09/02/2037       6,264,294  
  8,005,000    
CA Statewide CDA, Series B1
    6.250       09/02/2037       6,106,854  
  45,175,000    
CA Statewide Financing Authority Tobacco Settlement1
    6.375 3     06/01/2046       1,067,937  
  220,000,000    
CA Statewide Financing Authority Tobacco Settlement
    7.876 3     06/01/2055       1,348,600  
  7,975,000    
CA Statewide Financing Authority Tobacco Settlement (TASC)1
    6.000       05/01/2037       5,537,362  
  30,010,000    
CA Statewide Financing Authority Tobacco Settlement (TASC)1
    6.000       05/01/2043       20,480,325  
  11,745,000    
CA Statewide Financing Authority Tobacco Settlement (TASC)1
    6.000       05/01/2043       8,015,375  
  11,890,000    
CA Valley Health System COP
    6.875       05/15/2023       6,537,093  
  35,000    
CA Valley Health System, Series A
    6.500       05/15/2025       19,243  
  1,375,000    
CA Valley Sanitation District1
    5.200       09/02/2030       969,018  
  100,000    
CA Western Hills Water District Special Tax1
    5.000       09/01/2014       78,541  
  25,000    
CA Western Hills Water District Special Tax1
    5.200       09/01/2019       16,114  
  25,000    
CA Western Hills Water District Special Tax (Diablo Grande Community Facilities)1
    5.700       09/01/2011       22,990  
  105,000    
CA Western Hills Water District Special Tax (Diablo Grande Community Facilities)1
    6.000       09/01/2024       62,147  
  4,495,000    
CA Western Hills Water District Special Tax (Diablo Grande Community Facilities)1
    6.125       09/01/2031       2,434,986  
  300,000    
CA Western Hills Water District Special Tax (Diablo Grande Community Facilities)1
    6.700       09/01/2020       213,819  
  90,000    
CA Western Hills Water District Special Tax (Diablo Grande Community Facilities)1
    6.750       09/01/2022       61,152  
  3,645,000    
CA Western Hills Water District Special Tax (Diablo Grande Community Facilities)1
    6.875       09/01/2031       2,195,602  
  10,000    
CA William S. Hart Joint School Financing Authority1
    5.600       09/01/2023       9,687  

 


 

                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 10,000    
CA William S. Hart Union School District1
    6.000 %     09/01/2033     $ 8,248  
  2,500,000    
Calexico, CA Community Facilities District No. 2005-1 Special Tax (Hearthstone)1
    5.500       09/01/2036       1,361,600  
  2,325,000    
Calexico, CA Community Facilities District No. 2005-1 Special Tax (Hearthstone)1
    5.550       09/01/2036       1,276,541  
  75,000    
Campbell, CA (Civic Center) COP1
    5.250       10/01/2028       75,020  
  25,000    
Carlsbad, CA Improvement Bond Act 19151
    5.500       09/02/2028       19,576  
  845,000    
Carlsbad, CA Special Tax1
    6.150       09/01/2038       653,709  
  1,500,000    
Carson, CA Redevel. Agency Tax Allocation1
    7.000       10/01/2036       1,517,175  
  4,510,000    
Castaic, CA Union School District Community Facilities District No. 92-11
    9.000       10/01/2019       4,521,410  
  2,190,000    
Chino, CA Community Facilities District Special Tax1
    5.150       09/01/2036       1,367,327  
  45,000    
Chino, CA Community Facilities District Special Tax1
    5.950       09/01/2033       33,588  
  50,000    
Chino, CA Community Facilities District Special Tax No. 101
    6.850       09/01/2020       47,886  
  1,000,000    
Chino, CA Community Facilities District Special Tax No. 2005-11
    5.000       09/01/2023       640,490  
  1,625,000    
Chino, CA Community Facilities District Special Tax No. 2005-11
    5.000       09/01/2027       965,819  
  2,175,000    
Chowchilla, CA Community Facilities Sales Tax District1
    5.000       09/01/2037       1,384,235  
  560,000    
Chowchilla, CA Redevel. Agency1
    5.000       08/01/2037       458,494  
  4,000,000    
Chula Vista, CA Industrial Devel. (San Diego Gas & Electric Company)1
    5.875       01/01/2034       4,072,880  
  11,360,000    
Citrus, CA Community College District2
    5.500       06/01/2031       11,805,142  
  6,065,000    
Coalinga, CA Regional Medical Center COP1
    5.850       09/01/2043       4,900,945  
  2,000,000    
Colton, CA Community Facilities District Special Tax1
    7.500       09/01/2020       1,991,640  
  10,000,000    
Compton, CA Water1
    6.000       08/01/2039       9,813,200  
  5,000    
Contra Costa County, CA Public Financing Authority Tax Allocation1
    5.850       08/01/2033       4,665  
  1,000,000    
Corona, CA Community Facilities District (Buchanan Street)1
    5.150       09/01/2036       640,140  
  1,975,000    
Corona-Norco, CA Unified School District1
    6.000       09/01/2037       1,445,957  
  995,000    
Daly City, CA Hsg. Devel. Finance Agency (Third Tier Francsican)1
    6.500       12/15/2047       733,992  
  3,725,000    
Desert Hot Springs, CA Redevel. Agency Tax Allocation1
    7.375       09/01/2039       3,854,444  
  200,000    
Eastern CA Municipal Water District Community Facilities Special Tax1
    5.000       09/01/2030       140,038  
  340,000    
Eastern CA Municipal Water District Community Facilities Special Tax1
    5.000       09/01/2037       221,578  
  200,000    
Eastern CA Municipal Water District Community Facilities Special Tax1
    5.100       09/01/2037       132,526  
  3,740,000    
Eastern CA Municipal Water District Community Facilities Special Tax1
    5.250       09/01/2035       2,283,943  

 


 

STATEMENT OF INVESTMENTS Continued
                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 50,000    
Eastern CA Municipal Water District Community Facilities Special Tax (Barrington Heights)1
    5.125 %     09/01/2035     $ 29,921  
  1,500,000    
Eastern CA Municipal Water District Community Facilities Special Tax (Crown Valley Village)1
    5.625       09/01/2034       1,067,250  
  425,000    
Eastern CA Municipal Water District Community Facilities Special Tax No. 2003-251
    5.000       09/01/2036       279,085  
  20,000    
Eastern CA Municipal Water District Community Facilities Special Tax No. 2004-261
    5.000       09/01/2025       14,983  
  525,000    
Eastern CA Municipal Water District Improvement Bond Act 19151
    5.200       09/01/2036       356,139  
  1,725,000    
Eastern CA Municipal Water District Improvement Bond Act 19151
    5.500       09/02/2035       1,190,147  
  4,000,000    
El Dorado County, CA Special Tax1
    5.250       09/01/2035       2,496,640  
  5,750,000    
Elk Grove, CA Special Tax Community Facilities District No. 2005-1X1
    5.200       09/01/2027       2,484,633  
  28,770,000    
Elk Grove, CA Special Tax Community Facilities District No. 2005-1X1
    5.250       09/01/2037       11,135,141  
  25,000    
Etiwanda, CA School District Special Tax1
    5.400       09/01/2035       17,225  
  10,300,000    
Etiwanda, CA School District Special Tax Community Facilities District No. 2004-21
    6.000       09/01/2037       7,740,141  
  6,000,000    
Fairfield, CA Community Facilities District Special Tax (Fairfield Commons)1
    6.875       09/01/2038       4,684,680  
  700,000    
Farmersville, CA Unified School District COP1
    5.000       08/01/2026       572,936  
  100,000    
Fillmore, CA Public Financing (Central City Redevel.)1
    5.500       06/01/2031       76,006  
  2,615,000    
Folsom, CA Special Tax Community Facilities District No. 311
    5.000       09/01/2026       1,784,345  
  9,050,000    
Folsom, CA Special Tax Community Facilities District No. 311
    5.000       09/01/2036       5,418,959  
  10,000    
Folsom, CA Special Tax Community Facilities District No. 71
    6.000       09/01/2024       8,353  
  10,000    
Fontana, CA Redevel. Agency (Jurupa Hills)1
    5.500       10/01/2027       10,001  
  20,000    
Fremont, CA Community Facilities District (Pacific Commons)1
    6.250       09/01/2026       17,552  
  50,000    
Garden Grove, CA Hsg. Authority (Multifamily Hsg.)1
    6.700       07/01/2024       50,087  
  10,000    
Garden Grove, CA Hsg. Authority (Stuart Drive-Rose Garden)1
    6.700       01/01/2025       8,583  
  5,145,000    
Grossmont, CA Union High School District2
    5.500       08/01/2030       5,342,009  
  4,895,000    
Grossmont, CA Union High School District2
    5.500       08/01/2031       5,050,943  
  1,675,000    
Hawthorne, CA Community Redevel. Agency Special Tax1
    7.200       10/01/2025       1,562,239  
  1,180,000    
Hawthorne, CA Community Redevel. Agency Special Tax1
    7.200       10/01/2025       1,100,562  
  1,165,000    
Heber, CA Public Utilities District (Heber Meadows)1
    5.300       09/01/2035       789,660  
  1,020,000    
Hemet, CA Unified School District1
    5.100       09/01/2030       708,665  
  785,000    
Hemet, CA Unified School District1
    5.125       09/01/2036       503,342  

 


 

                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 1,285,000    
Hemet, CA Unified School District1
    5.125 %     09/01/2037     $ 835,057  
  1,505,000    
Hemet, CA Unified School District1
    5.250       09/01/2035       1,011,721  
  1,155,000    
Hemet, CA Unified School District Community Facilities District No. 2005-31
    5.375       09/01/2026       806,652  
  5,835,000    
Hemet, CA Unified School District Community Facilities District No. 2005-31
    5.750       09/01/2039       3,804,128  
  60,000    
Hemet, CA Unified School District Community Facilities District Special Tax1
    5.625       09/01/2035       42,976  
  30,000    
Hesperia, CA Improvement Bond Act 19151
    8.500       09/02/2024       29,167  
  1,370,000    
Hesperia, CA Public Financing Authority, Tranche A1
    6.250       09/01/2035       1,076,272  
  3,375,000    
Hesperia, CA Public Financing Authority, Tranche B1
    6.250       09/01/2035       2,651,400  
  3,355,000    
Hesperia, CA Public Financing Authority, Tranche C1
    6.250       09/01/2035       2,635,688  
  1,070,000    
Hesperia, CA Unified School District1
    5.000       09/01/2030       732,715  
  1,710,000    
Hesperia, CA Unified School District1
    5.000       09/01/2037       1,088,295  
  50,000    
Hesperia, CA Unified School District1
    5.200       09/01/2035       33,348  
  1,520,000    
Imperial County, CA Community Facilities District No. 2004-2 Special Tax1
    5.900       09/01/2037       926,090  
  2,000,000    
Imperial County, CA Community Facilities District No. 2004-2 Special Tax1
    6.000       09/01/2037       1,237,080  
  5,000    
Imperial County, CA COP1
    6.000       09/01/2009       5,012  
  870,000    
Imperial County, CA Special Tax1
    5.000       09/01/2026       628,149  
  1,070,000    
Imperial County, CA Special Tax1
    5.000       09/01/2037       680,980  
  3,385,000    
Imperial County, CA Special Tax1
    5.000       09/01/2037       2,154,316  
  295,000    
Imperial County, CA Special Tax1
    5.000       09/01/2037       187,747  
  1,550,000    
Imperial County, CA Special Tax1
    5.100       09/01/2037       1,003,114  
  2,445,000    
Indio, CA Community Facilities District Special Tax1
    5.200       09/01/2027       1,769,471  
  2,215,000    
Indio, CA Community Facilities District Special Tax1
    5.250       09/01/2027       1,613,406  
  2,520,000    
Indio, CA Community Facilities District Special Tax1
    5.250       09/01/2036       1,648,861  
  4,095,000    
Indio, CA Community Facilities District Special Tax1
    5.250       09/01/2036       2,679,399  
  285,000    
Indio, CA Community Facilities District Special Tax (Sonora Wells)1
    5.000       09/01/2020       227,664  
  300,000    
Indio, CA Community Facilities District Special Tax (Sonora Wells)1
    5.000       09/01/2021       233,526  
  625,000    
Indio, CA Community Facilities District Special Tax (Sonora Wells)1
    5.050       09/01/2026       450,006  
  2,805,000    
Indio, CA Community Facilities District Special Tax (Sonora Wells)1
    5.125       09/01/2036       1,798,566  
  45,000    
Indio, CA Hsg. (Olive Court Apartments)1
    6.375       12/01/2026       44,996  
  25,000    
Indio, CA Improvement Bond Act 1915 Assessment District No. 2002-21
    6.125       09/02/2027       20,629  
  2,000,000    
Indio, CA Improvement Bond Act 1915 Assessment District No. 2003-031
    6.125       09/02/2029       1,603,600  

 


 

STATEMENT OF INVESTMENTS Continued
                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 25,000    
Indio, CA Improvement Bond Act 1915 Assessment District No. 2003-5 (Sunburst)1
    5.875 %     09/02/2029     $ 19,432  
  2,820,000    
Indio, CA Improvement Bond Act 1915 Assessment District No. 2004-031
    5.500       09/02/2030       2,036,407  
  354,105,000    
Inland, CA Empire Tobacco Securitization Authority (TASC)
    8.000 3     06/01/2057       2,000,693  
  3,250,000    
Ione, CA Special Tax Community Facilities District 2005-2-A1
    6.000       09/01/2036       2,289,625  
  10,000    
Irvine, CA Improvement Bond Act 19151
    5.625       09/02/2024       9,432  
  30,000    
Jurupa, CA Community Services District Special Tax1
    5.000       09/01/2036       20,673  
  2,500,000    
Jurupa, CA Community Services District Special Tax Community Facilities District No. 241
    6.625       09/01/2038       2,162,600  
  5,000    
King, CA Community Devel. Agency Tax Allocation (King City Redevel.)1
    6.400       09/01/2009       5,006  
  50,000    
King, CA Community Devel. Agency Tax Allocation (King City Redevel.)1
    6.750       09/01/2016       49,994  
  30,000    
Kingsburg, CA Public Financing Authority1
    8.000       09/15/2021       30,007  
  5,000,000    
La Verne, CA COP (Bethren Hillcrest Homes)1
    5.600       02/15/2033       3,375,550  
  4,500,000    
La Verne, CA COP (Bethren Hillcrest Homes)1
    6.625       02/15/2025       3,825,720  
  790,000    
Lake Berryessa, CA Resort Improvement District1
    5.250       09/02/2017       608,411  
  1,440,000    
Lake Berryessa, CA Resort Improvement District1
    5.500       09/02/2027       940,824  
  2,425,000    
Lake Berryessa, CA Resort Improvement District1
    5.550       09/02/2037       1,452,987  
  2,020,000    
Lake Elsinore, CA Community Facilities District No. 2006-2 Special Tax (Viscaya)1
    5.400       09/01/2036       1,383,579  
  2,345,000    
Lake Elsinore, CA Public Financing Authority1
    6.875       09/01/2038       1,870,653  
  5,575,000    
Lake Elsinore, CA Special Tax1
    5.150       09/01/2036       3,664,726  
  980,000    
Lake Elsinore, CA Special Tax1
    5.200       09/01/2026       728,581  
  920,000    
Lake Elsinore, CA Special Tax1
    5.200       09/01/2026       663,624  
  2,800,000    
Lake Elsinore, CA Special Tax1
    5.250       09/01/2037       1,794,072  
  1,150,000    
Lake Elsinore, CA Special Tax1
    5.350       09/01/2036       781,184  
  1,210,000    
Lake Elsinore, CA Special Tax1
    5.350       09/01/2036       821,941  
  2,000,000    
Lake Elsinore, CA Special Tax1
    5.450       09/01/2036       1,334,780  
  1,170,000    
Lake Elsinore, CA Unified School District1
    5.000       09/01/2037       714,975  
  1,220,000    
Lake Elsinore, CA Unified School District1
    5.350       09/01/2035       833,760  
  3,430,000    
Lake Elsinore, CA Unified School District1
    5.350       09/01/2035       1,960,862  
  1,435,000    
Lake Elsinore, CA Unified School District1
    5.400       09/01/2035       955,696  
  1,100,000    
Lake Elsinore, CA Unified School District Community Facilities District Special Tax No. 2006-61
    5.900       09/01/2037       769,263  
  10,000    
Lathrop, CA Financing Authority (Water Supply)1
    5.700       06/01/2019       8,820  
  1,800,000    
Lathrop, CA Financing Authority (Water Supply)1
    6.000       06/01/2035       1,367,352  
  3,430,000    
Lathrop, CA Improvement Bond Act 1915 (Mossdale Village)1
    5.100       09/02/2035       2,251,452  


 

                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 50,000    
Lathrop, CA Improvement Bond Act 1915 (Mossdale Village)1
    6.000 %     09/02/2022     $ 42,825  
  20,000    
Lathrop, CA Improvement Bond Act 1915 (Mossdale Village)1
    6.125       09/02/2028       16,419  
  50,000    
Lathrop, CA Improvement Bond Act 1915 (Mossdale Village)1
    6.125       09/02/2033       39,191  
  4,455,000    
Lathrop, CA Special Tax Community Facilities District No. 03-21
    7.000       09/01/2033       3,898,838  
  475,000    
Lathrop, CA Special Tax Community Facilities District No. 06-11
    5.000       09/01/2015       409,745  
  445,000    
Lathrop, CA Special Tax Community Facilities District No. 06-11
    5.000       09/01/2016       372,238  
  670,000    
Lathrop, CA Special Tax Community Facilities District No. 06-11
    5.125       09/01/2017       549,400  
  800,000    
Lathrop, CA Special Tax Community Facilities District No. 06-11
    5.125       09/01/2018       638,584  
  1,015,000    
Lathrop, CA Special Tax Community Facilities District No. 06-11
    5.200       09/01/2019       793,121  
  505,000    
Lathrop, CA Special Tax Community Facilities District No. 06-11
    5.250       09/01/2021       375,498  
  5,680,000    
Lathrop, CA Special Tax Community Facilities District No. 06-11
    5.300       09/01/2026       3,881,826  
  32,305,000    
Lathrop, CA Special Tax Community Facilities District No. 06-11
    5.375       09/01/2036       19,756,123  
  635,000    
Lincoln, CA Special Tax1
    5.000       09/01/2026       444,290  
  1,315,000    
Lincoln, CA Special Tax1
    5.000       09/01/2036       805,372  
  60,000,000    
Long Beach, CA Bond Finance Authority Natural Gas1
    2.142 7     11/15/2033       41,700,000  
  17,500,000    
Long Beach, CA Bond Finance Authority Natural Gas2
    5.500       11/15/2037       15,738,530  
  15,000,000    
Los Angeles, CA Community College District2
    5.000       08/01/2033       14,334,300  
  10,000,000    
Los Angeles, CA Community College District2
    6.000       08/01/2033       10,785,200  
  1,575,000    
Los Angeles, CA Community Redevel. Agency (Grand Central Square)1
    5.000       12/01/2026       1,468,924  
  14,210,000    
Los Angeles, CA Dept. of Airports (Los Angeles International Airport)2
    5.250       05/15/2024       14,368,386  
  10,000,000    
Los Angeles, CA Dept. of Airports (Los Angeles International Airport)2
    5.375       05/15/2026       10,101,117  
  11,000,000    
Los Angeles, CA Dept. of Airports (Los Angeles International Airport)2
    5.375       05/15/2027       11,042,661  
  10,095,000    
Los Angeles, CA Dept. of Airports (Los Angeles International Airport)2
    5.375       05/15/2028       10,079,824  
  3,000,000    
Los Angeles, CA Dept. of Water & Power2
    5.375       07/01/2034       3,049,740  
  12,000,000    
Los Angeles, CA Dept. of Water & Power2
    5.375       07/01/2038       12,163,200  
  16,300,000    
Los Angeles, CA Harbor Dept.2
    5.250       08/01/2034       16,285,086  
 

 


 

STATEMENT OF INVESTMENTS Continued
                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 1,500,000    
Los Angeles, CA IDA (Santee Court Parking Facility)1
    5.000 %     12/01/2020     $ 832,080  
  1,100,000    
Los Angeles, CA IDA (Santee Court Parking Facility)1
    5.000       12/01/2027       577,060  
  35,000    
Los Angeles, CA Regional Airports Improvement Corp. (United Airlines)5,6
    8.800       11/15/2021       32,498  
  25,000    
Los Banos, CA COP8
    6.000       12/01/2019       22,930  
  1,605,000    
Los Banos, CA Redevel. Agency Tax Allocation1
    5.000       09/01/2036       1,188,198  
  85,000    
Madera County, CA COP (Valley Children's Hospital)1
    5.750       03/15/2028       79,031  
  925,000    
Madera, CA Special Tax1
    5.000       09/01/2036       561,401  
  10,000    
Manteca, CA Unified School District Special Tax Community Facilities District No. 891
    5.400       09/01/2023       7,881  
  1,375,000    
Mendota, CA Joint Powers Financing Authority Wastewater1
    5.150       07/01/2035       910,676  
  100,000    
Menifee, CA Union School District Special Tax1
    5.000       09/01/2022       73,728  
  915,000    
Menifee, CA Union School District Special Tax1
    5.200       09/01/2030       612,181  
  400,000    
Menifee, CA Union School District Special Tax1
    5.200       09/01/2035       269,888  
  500,000    
Menifee, CA Union School District Special Tax1
    5.250       09/01/2035       318,350  
  1,010,000    
Menifee, CA Union School District Special Tax1
    5.250       09/01/2036       682,578  
  2,930,000    
Merced, CA Special Tax1
    5.000       09/01/2036       1,614,928  
  500,000    
Merced, CA Special Tax1
    5.100       09/01/2035       282,145  
  3,000,000    
Modesto, CA Special Tax Community Facilities District No. 41
    5.150       09/01/2036       1,953,840  
  3,000,000    
Montebello, CA Community Redevel. Agency (Montebello Hills Redevel.)1
    8.100       03/01/2027       3,227,310  
  1,250,000    
Moreno Valley, CA Special Tax Community Facilities District No. 51
    5.000       09/01/2037       795,538  
  1,475,000    
Moreno Valley, CA Unified School District Community Facilities District1
    5.150       09/01/2035       975,978  
  680,000    
Moreno Valley, CA Unified School District Community Facilities District1
    5.200       09/01/2036       450,622  
  2,000,000    
Moreno Valley, CA Unified School District Community Facilities District Special Tax1
    5.000       09/01/2037       1,272,860  
  750,000    
Moreno Valley, CA Unified School District Community Facilities District Special Tax No. 2004-31
    5.000       09/01/2037       477,323  
  10,000    
Murrieta, CA Community Facilities District Special Tax (Bluestone)1
    6.300       09/01/2031       8,175  
  240,000    
Murrieta, CA Community Facilities District Special Tax (Meadowlane/Amberwalk)1
    5.125       09/01/2035       159,089  
  25,000    
Murrieta, CA Community Facilities District Special Tax (Murrieta Springs)1
    5.375       09/01/2029       18,403  
  35,000    
Murrieta, CA Valley Unified School District Special Tax1
    5.250       09/01/2037       23,351  
  370,000    
Murrieta, CA Valley Unified School District Special Tax1
    5.375       09/01/2026       282,761  
  1,355,000    
Murrieta, CA Valley Unified School District Special Tax1
    5.450       09/01/2038       930,167  

 


 

                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 25,000    
Murrieta, CA Water Public Financing Authority1
    6.600 %     10/01/2016     $ 24,850  
  1,040,000    
Northern CA Gas Authority1
    1.000 7     07/01/2017       794,300  
  20,000,000    
Northern CA Gas Authority1
    1.030 7     07/01/2019       13,875,000  
  23,675,000    
Northern CA Tobacco Securitization Authority (TASC)1
    5.500       06/01/2045       13,677,758  
  157,335,000    
Northern CA Tobacco Securitization Authority (TASC)
    6.700 3     06/01/2045       3,201,767  
  10,000    
Oakdale, CA Public Financing Authority Tax Allocation (Central City Redevel.)1
    6.100       06/01/2027       8,239  
  1,000,000    
Oakland, CA GO1
    6.000       01/15/2034       1,025,780  
  1,000,000    
Oakland, CA Unified School District9
    6.125       08/01/2029       1,005,570  
  250,000    
Oakland, CA Unified School District9
    6.500       08/01/2024       263,433  
  900,000    
Oakley, CA Public Finance Authority1
    5.200       09/02/2026       689,850  
  4,410,000    
Oakley, CA Public Finance Authority1
    5.250       09/02/2036       2,945,880  
  3,235,000    
Olivehurst, CA Public Utilities District (Plumas Lake Community Facilities District)1
    7.625       09/01/2038       2,685,665  
  15,000,000    
Orange County, CA Sanitation District COP2,9
    5.000       02/01/2035       14,456,025  
  1,555,000    
Palm Desert, CA Financing Authority
    5.000 3     08/01/2014       1,252,117  
  440,000    
Palm Desert, CA Financing Authority
    5.050 3     08/01/2015       333,432  
  390,000    
Palm Desert, CA Financing Authority
    5.100 3     08/01/2016       275,902  
  230,000    
Palm Desert, CA Financing Authority
    5.650 3     04/01/2018       138,989  
  1,020,000    
Palm Desert, CA Financing Authority
    5.650 3     08/01/2018       602,606  
  265,000    
Palm Desert, CA Financing Authority
    5.750 3     04/01/2019       147,208  
  1,165,000    
Palm Desert, CA Financing Authority
    5.750 3     08/01/2019       632,141  
  305,000    
Palm Desert, CA Financing Authority
    5.850 3     04/01/2020       157,545  
  1,310,000    
Palm Desert, CA Financing Authority
    5.850 3     08/01/2020       660,934  
  340,000    
Palm Desert, CA Financing Authority
    5.950 3     04/01/2021       156,716  
  1,450,000    
Palm Desert, CA Financing Authority
    5.950 3     08/01/2021       652,747  
  380,000    
Palm Desert, CA Financing Authority
    6.000 3     04/01/2022       158,867  
  1,605,000    
Palm Desert, CA Financing Authority
    6.000 3     08/01/2022       655,193  
  395,000    
Palm Desert, CA Financing Authority
    6.010 3     04/01/2023       151,486  
  1,755,000    
Palm Desert, CA Financing Authority
    6.010 3     08/01/2023       656,616  
  410,000    
Palm Desert, CA Financing Authority
    6.020 3     04/01/2024       145,866  
  1,910,000    
Palm Desert, CA Financing Authority
    6.020 3     08/01/2024       663,362  
  430,000    
Palm Desert, CA Financing Authority
    6.030 3     04/01/2025       140,902  
  2,070,000    
Palm Desert, CA Financing Authority
    6.030 3     08/01/2025       662,379  
  445,000    
Palm Desert, CA Financing Authority
    6.040 3     04/01/2026       133,625  
  2,235,000    
Palm Desert, CA Financing Authority
    6.040 3     08/01/2026       655,190  
  465,000    
Palm Desert, CA Financing Authority
    6.050 3     04/01/2027       129,024  
  1,400,000    
Palm Desert, CA Financing Authority
    6.050 3     08/01/2027       379,176  
  480,000    
Palm Desert, CA Financing Authority
    6.060 3     04/01/2028       121,219  
  1,415,000    
Palm Desert, CA Financing Authority
    6.060 3     08/01/2028       348,670  
 

 


 

STATEMENT OF INVESTMENTS Continued
                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 500,000    
Palm Desert, CA Financing Authority
    6.070 %3     04/01/2029     $ 114,875  
  1,370,000    
Palm Desert, CA Financing Authority
    6.070 3     08/01/2029       307,017  
  520,000    
Palm Desert, CA Financing Authority
    6.080 3     04/01/2030       109,985  
  1,430,000    
Palm Desert, CA Financing Authority
    6.080 3     08/01/2030       294,966  
  540,000    
Palm Desert, CA Financing Authority
    6.090 3     04/01/2031       103,972  
  1,495,000    
Palm Desert, CA Financing Authority
    6.090 3     08/01/2031       280,641  
  560,000    
Palm Desert, CA Financing Authority
    6.100 3     04/01/2032       99,708  
  1,560,000    
Palm Desert, CA Financing Authority
    6.100 3     08/01/2032       270,800  
  580,000    
Palm Desert, CA Financing Authority
    6.100 3     04/01/2033       95,485  
  1,625,000    
Palm Desert, CA Financing Authority
    6.100 3     08/01/2033       260,813  
  590,000    
Palm Desert, CA Financing Authority
    6.100 3     04/01/2034       89,786  
  1,705,000    
Palm Desert, CA Financing Authority
    6.100 3     08/01/2034       252,954  
  2,075,000    
Palm Desert, CA Financing Authority
    6.100 3     08/01/2035       285,935  
  5,000,000    
Palm Desert, CA Improvement Bond Act 19151
    5.100       09/02/2037       2,896,650  
  3,000,000    
Palm Desert, CA Special Tax Community Facilities District No. 2005-11
    5.150       09/01/2027       1,978,620  
  9,000,000    
Palm Desert, CA Special Tax Community Facilities District No. 2005-11
    5.200       09/01/2037       5,302,800  
  2,335,000    
Palm Desert, CA Special Tax Community Facilities District No. 2005-1-A1
    5.250       09/01/2026       1,585,045  
  6,000,000    
Palm Desert, CA Special Tax Community Facilities District No. 2005-1-A1
    5.450       09/01/2032       3,848,760  
  8,000,000    
Palm Desert, CA Special Tax Community Facilities District No. 2005-1-A1
    5.500       09/01/2036       4,995,840  
  120,000    
Palm Springs, CA Airport Passenger Facilities (Palm Springs International Airport)1
    5.450       07/01/2020       100,806  
  2,460,000    
Palm Springs, CA Airport Passenger Facilities (Palm Springs International Airport)1
    5.550       07/01/2028       1,738,187  
  250,000    
Palm Springs, CA Airport Passenger Facilities (Palm Springs International Airport)1
    6.400       07/01/2023       204,698  
  525,000    
Palm Springs, CA Airport Passenger Facilities (Palm Springs International Airport)1
    6.500       07/01/2027       414,493  
  10,000    
Palm Springs, CA Improvement Bond Act 19151
    5.550       09/02/2023       8,237  
  100,000    
Palmdale, CA Community Facilities District Special Tax1
    5.400       09/01/2035       65,060  
  6,460,000    
Palmdale, CA Community Facilities District Special Tax1
    6.125       09/01/2037       4,842,287  
  5,610,000    
Palmdale, CA Community Facilities District Special Tax1
    6.250       09/01/2035       4,407,216  
  500,000    
Palmdale, CA Elementary School District Special Tax Community Facilities District No. 90-11
    5.700       08/01/2018       505,345  
  20,000    
Palo Alto, CA Improvement Bond Act 1915 (University Ave. Area)1
    5.750       09/02/2022       19,427  
  1,390,000    
Perris, CA Community Facilities District Special Tax1
    5.300       09/01/2035       937,861  


 

                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 2,085,000    
Perris, CA Community Facilities District Special Tax (Amber Oaks)1
    6.000 %     09/01/2034     $ 1,586,602  
  2,500,000    
Perris, CA Community Facilities District Special Tax (Chaparral Ridge)1
    6.250       09/01/2033       1,983,475  
  2,115,000    
Perris, CA Community Facilities District Special Tax (Harmony Grove)1
    5.300       09/01/2035       1,427,033  
  10,000    
Perris, CA Community Facilities District Special Tax (May Farms)1
    5.100       09/01/2030       6,254  
  120,000    
Perris, CA Community Facilities District Special Tax (May Farms)1
    5.150       09/01/2035       71,173  
  1,305,000    
Perris, CA Community Facilities District Special Tax No. 20011
    5.000       09/01/2037       731,165  
  1,310,000    
Perris, CA Community Facilities District Special Tax, Series A1
    5.750       09/01/2035       955,134  
  3,605,000    
Perris, CA Community Facilities District Special Tax, Series B1
    6.000       09/01/2034       2,743,261  
  140,000    
Perris, CA Public Financing Authority1
    5.000       09/01/2017       114,647  
  85,000    
Perris, CA Public Financing Authority1
    5.100       09/01/2018       68,042  
  2,000,000    
Perris, CA Public Financing Authority1
    5.350       10/01/2036       1,448,920  
  10,000    
Perris, CA Public Financing Authority, Series A1
    6.000       09/01/2023       7,855  
  80,000    
Perris, CA Public Financing Authority, Series A1
    6.125       09/01/2034       61,927  
  1,845,000    
Perris, CA Public Financing Authority, Series A1
    6.250       09/01/2033       1,324,433  
  2,080,000    
Perris, CA Public Financing Authority, Series A1
    6.600       09/01/2038       1,677,624  
  2,035,000    
Perris, CA Public Financing Authority, Series C1
    6.200       09/01/2038       1,553,173  
  870,000    
Perris, CA Public Financing Authority, Series D1
    5.500       09/01/2024       627,227  
  10,800,000    
Perris, CA Public Financing Authority, Series D1
    5.800       09/01/2038       6,923,016  
  25,000    
Pleasant Hill, CA Special Tax Downtown Community Facilities District No. 11
    6.000       09/01/2032       19,393  
  860,000    
Pomona, CA Public Financing Authority1
    5.000       02/01/2026       685,016  
  50,000    
Pomona, CA Unified School District1
    6.150       08/01/2030       51,375  
  20,500,000    
Port of Oakland, CA2
    5.000       11/01/2032       18,735,955  
  75,000    
Port of Oakland, CA1
    5.875       11/01/2030       77,654  
  9,925,000    
Port of Oakland, CA1
    5.875       11/01/2030       9,356,099  
  6,000,000    
Poway, CA Unified School District Special Tax Community Facilities District No. 141
    5.250       09/01/2036       4,126,920  
  3,000,000    
Ramona, CA Unified School District COP1
    0.000 4     05/01/2032       2,439,240  
  2,000,000    
Rancho Cordova, CA Community Facilities District Special Tax (Sunridge Anatolia)1
    6.000       09/01/2028       1,617,580  
  25,000    
Rancho Cordova, CA Community Facilities District Special Tax (Sunridge Anatolia)1
    6.000       09/01/2033       19,270  
  20,000    
Rancho Cordova, CA Community Facilities District Special Tax (Sunridge Anatolia)1
    6.100       09/01/2037       15,246  

 


 

STATEMENT OF INVESTMENTS Continued
                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 600,000    
Rancho Cucamonga, CA Community Facilities District Special Tax (Amador)1
    5.000 %     09/01/2027     $ 428,754  
  1,260,000    
Rancho Cucamonga, CA Community Facilities District Special Tax (Amador)1
    5.000       09/01/2037       801,902  
  13,585,000    
Rancho Cucamonga, CA Community Facilities District Special Tax (Etiwanda)1
    5.375       09/01/2036       9,266,464  
  570,000    
Rancho Cucamonga, CA Community Facilities District Special Tax (Vintners)1
    5.000       09/01/2027       407,316  
  1,120,000    
Rancho Cucamonga, CA Community Facilities District Special Tax (Vintners)1
    5.000       09/01/2037       712,802  
  2,600,000    
Rancho Cucamonga, CA Community Facilities District Special Tax (Vintners)1
    5.375       09/01/2036       1,773,486  
  20,000    
Rancho Santa Fe, CA Community Services District Special Tax1
    6.600       09/01/2023       18,441  
  10,000    
Redding, CA Improvement Bond Act 1915 (Tierra Oaks Assessment District 1993-1)1
    7.000       09/02/2012       9,416  
  490,000    
Rialto, CA Special Tax Community Facilities District No. 2006-11
    5.250       09/01/2026       363,609  
  1,470,000    
Rialto, CA Special Tax Community Facilities District No. 2006-11
    5.350       09/01/2036       989,398  
  25,000    
Richgrove, CA School District1
    6.375       07/01/2018       23,494  
  2,660,000    
Richmond, CA Joint Powers Financing Authority (Westridge Hilltop Apartments)1
    5.000       12/15/2026       1,974,970  
  1,165,000    
Richmond, CA Joint Powers Financing Authority (Westridge Hilltop Apartments)1
    5.000       12/15/2033       791,210  
  5,780,000    
Rio Vista, CA Community Facilities District Special Tax No. 11
    5.125       09/01/2036       3,749,139  
  3,000,000    
Rio Vista, CA Community Facilities District Special Tax No. 2004-11
    5.850       09/01/2035       2,002,350  
  15,445,000    
River Islands, CA Public Financing Authority1
    5.200       09/01/2037       10,161,420  
  100,000    
River Islands, CA Public Financing Authority1
    6.000       09/01/2027       81,330  
  25,000    
River Islands, CA Public Financing Authority1
    6.000       09/01/2035       18,975  
  700,000    
Riverbank, CA Redevel. Agency (Riverbank Reinvestment)1
    5.000       08/01/2032       559,321  
  11,585,000    
Riverside County, CA Community Facilities District (Scott Road)1
    7.250       09/01/2038       9,225,831  
  25,000    
Riverside County, CA Community Facilities District Special Tax1
    5.600       09/01/2019       21,716  
  1,500,000    
Riverside, CA Improvement Bond Act 1915 (Hunter Park Assessment District)1
    5.200       09/02/2036       984,840  
  250,000    
Riverside, CA Improvement Bond Act 1915 (Sycamore Canyon Assessment District)1
    8.500       09/02/2012       250,463  
  1,000,000    
Riverside, CA Special Tax Community Facilities District No. 92-1, Series A1
    5.300       09/01/2034       677,650  

 


 

                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 25,000    
Riverside, CA Unified School District1
    5.500 %     09/01/2032     $ 19,115  
  1,385,000    
Riverside, CA Unified School District Special Tax Community Facilities District No. 129
    8.500       09/01/2038       1,367,923  
  25,000    
Romoland, CA School District Special Tax1
    5.250       09/01/2035       16,371  
  2,000,000    
Romoland, CA School District Special Tax1
    5.375       09/01/2038       1,287,220  
  7,745,000    
Roseville, CA Special Tax1
    5.050       09/01/2030       4,807,709  
  1,115,000    
Roseville, CA Special Tax (Diamond Creek)1
    5.000       09/01/2026       628,057  
  4,850,000    
Roseville, CA Special Tax (Diamond Creek)1
    5.000       09/01/2037       2,351,426  
  2,825,000    
Roseville, CA Special Tax (Fiddyment Ranch)1
    5.250       09/01/2036       1,691,186  
  3,445,000    
Roseville, CA Special Tax (Stone Point)1
    5.250       09/01/2036       1,936,503  
  1,800,000    
Roseville, CA Special Tax (Westpark)1
    5.200       09/01/2036       1,068,750  
  2,000,000    
Roseville, CA Special Tax Community Facilities District No. 1 (Westpark)1
    5.150       09/01/2030       1,260,060  
  4,040,000    
Sacramento County, CA Special Tax Community Facilities District No. 05-21
    6.000       09/01/2037       2,724,899  
  70,000    
Sacramento, CA Health Facility (Center for Aids Research Education and Services)1
    5.300       01/01/2024       66,112  
  15,000    
Sacramento, CA Special Tax (North Natomas Community Facilities)1
    6.000       09/01/2033       11,889  
  9,930,000    
Sacramento, CA Special Tax Community Facilities No. 05-1 (College Square)1
    5.900       09/01/2037       6,481,112  
  20,000    
San Bernardino County, CA COP (Medical Center Financing)1
    5.500       08/01/2019       19,954  
  1,515,000    
San Bernardino County, CA Redevel. Agency Tax Allocation (San Sevaine Redevel.)1
    5.000       09/01/2025       1,380,407  
  1,850,000    
San Bernardino, CA Joint Powers Financing Authority (Tax Allocation)1
    6.625       04/01/2026       1,699,651  
  1,410,000    
San Bernardino, CA Mountains Community Hospital District COP8
    5.000       02/01/2027       896,591  
  3,235,000    
San Bernardino, CA Mountains Community Hospital District COP8
    5.000       02/01/2037       1,809,303  
  1,225,000    
San Diego County, CA COP1
    5.700       02/01/2028       829,766  
  6,645,000    
San Diego County, CA Redevel. Agency (Gillespie Field)1
    5.750       12/01/2032       4,583,522  
  25,000    
San Diego, CA Improvement Bond Act 19151
    6.200       09/02/2033       19,791  
  10,000    
San Diego, CA Public Facilities Financing Authority1
    5.000       05/15/2029       9,912  
  45,000    
San Diego, CA Public Facilities Financing Authority8
    5.250       05/15/2027       45,008  
  10,000    
San Diego, CA Public Facilities Financing Authority8
    5.250       05/15/2027       10,002  
  10,000,000    
San Diego, CA Regional Building Authority (County Operations Center & Annex)2
    5.375       02/01/2036       10,025,850  
  15,000    
San Francisco, CA City & County Airports Commission1
    5.000       05/01/2023       14,984  
  65,000    
San Francisco, CA City & County Airports Commission1
    5.000       05/01/2030       56,504  

 


 

STATEMENT OF INVESTMENTS Continued
                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 15,000    
San Francisco, CA City & County Airports Commission (SFO Fuel Company)1
    5.250 %     01/01/2024     $ 14,356  
  1,040,000    
San Gorgonio, CA Memorial Health Care District9
    6.750       08/01/2023       1,071,699  
  6,500,000    
San Gorgonio, CA Memorial Healthcare9
    7.100       08/01/2033       6,638,840  
  6,490,000    
San Jacinto, CA Financing Authority, Tranche A1
    6.600       09/01/2033       4,517,170  
  6,345,000    
San Jacinto, CA Financing Authority, Tranche B1
    6.600       09/01/2033       4,416,247  
  6,530,000    
San Jacinto, CA Financing Authority, Tranche C1
    6.600       09/01/2033       4,536,195  
  500,000    
San Jacinto, CA Unified School District Special Tax1
    5.100       09/01/2036       273,380  
  35,000    
San Jose, CA Improvement Bond Act 19151
    5.875       09/02/2023       29,953  
  25,000    
San Jose, CA Special Tax Community Facilities District No. 9 (Bailey Highway 101)1
    6.600       09/01/2027       22,506  
  575,000    
Santa Clara County, CA Hsg. Authority (Rivertown Apartments)1
    6.000       08/01/2041       575,253  
  50,000    
Santa Clarita, CA Community Facilities District Special Tax1
    5.850       11/15/2032       38,396  
  6,395,000    
Santa Cruz County, CA Redevel. Agency (Live Oak/Soquel Community)1
    7.000       09/01/2036       6,524,115  
  5,560,000    
Saugus, CA Union School District Community Facilities District No. 20061
    11.625       09/01/2038       5,677,260  
  1,680,000    
Saugus, CA Union School District Community Facilities District No. 20061
    11.625       09/01/2038       1,715,431  
  10,000    
Seaside, CA Redevel. Agency Tax Allocation1
    5.375       08/01/2033       8,471  
  1,090,000    
Shafter, CA Community Devel. Agency Tax Allocation1
    5.400       11/01/2026       826,907  
  3,335,000    
Shafter, CA Community Devel. Agency Tax Allocation1
    5.450       11/01/2036       2,301,183  
  355,000    
Soledad, CA Redevel. Agency (Soledad Redevel.)1
    5.350       12/01/2028       319,035  
  5,000    
Sonoma County, CA Community Redevel. Agency (Roseland)1
    7.900       08/01/2013       5,095  
  125,000    
Southern CA Public Power Authority1
    5.000       11/01/2033       103,445  
  25,000,000    
Southern CA Public Power Authority Natural Gas1
    2.158 7     11/01/2038       13,191,250  
  2,255,000    
Southern CA Public Power Authority Natural Gas1
    5.250       11/01/2027       2,009,070  
  97,775,000    
Southern CA Tobacco Securitization Authority
    7.100 3     06/01/2046       1,815,682  
  25,940,000    
Southern CA Tobacco Securitization Authority (TASC)1
    5.000       06/01/2037       15,665,425  
  15,000    
Spreckels, CA Union School District1
    6.125       08/01/2018       15,068  
  1,935,000    
Stockton, CA Community Facilities District1
    6.125       09/01/2031       1,490,376  
  2,930,000    
Stockton, CA Community Facilities District1
    6.250       09/01/2037       2,205,558  
  5,000,000    
Stockton, CA Community Facilities District (Arch Road East No. 99-02)1
    5.875       09/01/2037       3,566,150  
  1,350,000    
Stockton, CA Public Financing Authority, Series A1
    5.000       09/01/2023       1,138,428  
  2,925,000    
Stockton, CA Public Financing Authority, Series A1
    5.250       09/01/2031       2,290,685  
  2,930,000    
Stockton, CA Public Financing Authority, Series A1
    5.250       09/01/2034       2,229,584  
  6,000,000    
Stockton, CA Public Financing Authority, Series A1
    5.250       07/01/2037       4,482,900  

 


 

                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 10,000    
Suisun City, CA Public Financing Authority (Suisun City Redevel.)1
    5.200 %     10/01/2028     $ 8,825  
  15,000    
Sulphur Springs, CA Unified School District Community Facilities District No. 2002-1-A1
    6.000       09/01/2033       11,562  
  75,000    
Susanville, CA Public Financing Authority1
    7.750       09/01/2017       75,141  
  20,000    
Temecula, CA Public Financing Authority Community Facilities District (Harveston)1
    5.100       09/01/2036       13,041  
  990,000    
Temecula, CA Public Financing Authority Community Facilities District (Roripaugh)1
    4.900       09/01/2013       785,862  
  165,000    
Temecula, CA Public Financing Authority Community Facilities District (Roripaugh)1
    5.000       09/01/2014       124,319  
  740,000    
Temecula, CA Public Financing Authority Community Facilities District (Roripaugh)1
    5.050       09/01/2015       528,797  
  805,000    
Temecula, CA Public Financing Authority Community Facilities District (Roripaugh)1
    5.100       09/01/2016       546,450  
  8,000,000    
Temecula, CA Public Financing Authority Community Facilities District (Roripaugh)1
    5.450       09/01/2026       4,008,480  
  13,790,000    
Temecula, CA Public Financing Authority Community Facilities District (Roripaugh)1
    5.500       09/01/2036       6,123,312  
  1,025,000    
Tracy, CA Community Facilities District1
    5.700       09/01/2026       812,302  
  3,105,000    
Tracy, CA Community Facilities District1
    5.750       09/01/2036       2,252,367  
  4,560,000    
Trinity County, CA COP8
    8.500       01/15/2026       3,801,353  
  50,000    
Truckee-Donner, CA Public Utility District Special Tax1
    6.100       09/01/2033       39,061  
  60,000    
Turlock, CA Public Financing Authority1
    5.450       09/01/2024       56,809  
  35,000    
Union City, CA Special Tax Community Facilities District No. 1997-11
    5.800       09/01/2028       27,627  
  15,000,000    
University of California (Regents Medical Center)1
    1.382 7     05/15/2047       9,018,750  
  100,000    
Upland, CA Community Facilities District Special Tax (Colonies at San Antonio)1
    5.900       09/01/2024       81,218  
  60,000    
Upland, CA Community Facilities District Special Tax (Colonies at San Antonio)1
    6.000       09/01/2024       49,249  
  95,000    
Vacaville, CA Public Financing Authority1
    5.400       09/01/2022       92,905  
  2,635,000    
Val Verde, CA Unified School District1
    6.000       10/01/2021       2,410,155  
  50,000    
Valley Center-Pauma, CA Unified School District (Woods Valley Ranch)1
    6.000       09/01/2033       38,539  
  1,470,000    
Ventura County, CA Area Hsg. Authority (Mira Vista Senior Apartments)1
    5.150       12/01/2031       1,310,623  
  600,000    
Victoria Gardens, CA Public Facilities Community Facilities District of Etiwanda School District1
    6.000       09/01/2027       489,954  
  4,685,000    
Victoria Gardens, CA Public Facilities Community Facilities District of Etiwanda School District1
    6.000       09/01/2037       3,520,637  
  50,000    
Watsonville, CA Redevel. Agency Tax Allocation (Watsonville 2000 Redevel.)1
    5.000       09/01/2024       45,127  

 


 

STATEMENT OF INVESTMENTS Continued
                                 
Principal                        
Amount         Coupon     Maturity     Value  
 
California Continued                        
$ 50,000    
West Kern, CA Water District1
    4.500 %     06/01/2025     $ 42,037  
  135,000    
West Patterson, CA Financing Authority Special Tax1
    6.100       09/01/2032       98,464  
  4,900,000    
West Sacramento, CA Financing Authority Special Tax1
    6.100       09/01/2029       3,991,295  
  2,000,000    
West Sacramento, CA Special Tax Community Facilities District No. 231
    5.300       09/01/2037       1,245,480  
  700,000    
Westside, CA Union School District1
    5.000       09/01/2026       505,407  
  3,860,000    
Westside, CA Union School District1
    5.000       09/01/2036       2,475,688  
  4,200,000    
Westside, CA Union School District1
    5.250       09/01/2036       2,805,642  
  10,000    
Woodland, CA Special Tax Community Facilities District No. 11
    6.000       09/01/2028       8,088  
  3,550,000    
Yuba City, CA Redevel. Agency1
    5.250       09/01/2039       2,627,533  
  15,000    
Yucaipa, CA Redevel. Agency (Eldorado Palms Mobile Home)1
    6.000       05/01/2030       12,370  
       
 
                     
       
 
                    1,402,423,567  
       
 
                       
U.S. Possessions - 6.5%                        
  3,110,000    
Northern Mariana Islands Ports Authority, Series A1
    5.500       03/15/2031       2,067,497  
  1,860,000    
Northern Mariana Islands Ports Authority, Series A
    6.250       03/15/2028       1,239,932  
  3,700,000    
Puerto Rico Aqueduct & Sewer Authority1
    0.000 4     07/01/2024       2,971,914  
  1,900,000    
Puerto Rico Aqueduct & Sewer Authority1
    6.000       07/01/2038       1,854,058  
  23,500,000    
Puerto Rico Highway & Transportation Authority, Series N1
    0.930 7      07/01/2045       12,167,125  
  6,055,000    
Puerto Rico ITEMECF (Cogeneration Facilities)1
    6.625       06/01/2026       6,060,571  
  540,000    
Puerto Rico ITEMECF (Mennonite General Hospital)1
    6.500       07/01/2012       535,529  
  40,340,000    
Puerto Rico Port Authority (American Airlines), Series A
    6.250       06/01/2026       16,227,168  
  25,000    
Puerto Rico Port Authority (American Airlines), Series A
    6.300       06/01/2023       10,055  
  27,000,000    
V.I. Public Finance Authority (Hovensa Coker)1
    6.500       07/01/2021       26,854,470  
  5,150,000    
V.I. Public Finance Authority, Series E1
    6.000       10/01/2022       4,922,164  
       
 
                     
       
 
                    74,910,483  
       
 
                       
Total Investments, at Value (Cost $2,055,330,721) - 128.7%                     1,477,334,050  
Liabilities in Excess of Other Assets - (28.7)                     (329,547,403 )
       
 
                     
       
 
                       
Net Assets100.0%                   $ 1,147,786,647  
       
 
                     
Footnotes to Statement of Investments
1.   All or a portion of the security has been segregated for collateral to cover borrowings. See Note 6 of accompanying Notes.
 
2.   Security represents the underlying municipal bond on an inverse floating rate security. The bond was purchased by the Fund and subsequently segregated and transferred to a trust. See Note 1 of accompanying Notes.
 
3.   Zero coupon bond reflects effective yield on the date of purchase.
 
4.   Denotes a step bond: a zero coupon bond that converts to a fixed or variable interest rate at a designated future date.
 
5.   Issue is in default. See Note 1 of accompanying Notes.
 
6.   Non-income producing security.
 
7.   Represents the current interest rate for a variable or increasing rate security.
 
8.   Illiquid security. The aggregate value of illiquid securities as of July 31, 2009 was $6,585,187, which represents 0.57% of the Fund's net assets. See Note 5 of accompanying Notes.
 
9.   When-issued security or delayed delivery to be delivered and settled after July 31, 2009. See Note 1 of accompanying Notes.

 


 

Valuation Inputs
Various data inputs are used in determining the value of each of the Fund's investments as of the reporting period end. These data inputs are categorized in the following hierarchy under applicable financial accounting standards:
  1)   Level 1unadjusted quoted prices in active markets for identical assets or liabilities (including securities actively traded on a securities exchange)
 
  2)   Level 2inputs other than unadjusted quoted prices that are observable for the asset (such as unadjusted quoted prices for similar assets and market corroborated inputs such as interest rates, prepayment speeds, credit risks, etc.)
 
  3)   Level 3significant unobservable inputs (including the Manager's own judgments about assumptions that market participants would use in pricing the asset).
The table below categorizes amounts that are included in the Fund's Statement of Assets and Liabilities as of July 31, 2009 based on valuation input levels:
                                 
                    Level 3        
    Level 1 -     Level 2 -     Significant        
    Unadjusted     Other Significant     Unobservable        
    Quoted Prices     Observable Inputs     Inputs     Value  
 
Assets Table
                               
Investments, at Value:
                               
Municipal Bonds and Notes
                               
California
  $     $ 1,402,423,567     $     $ 1,402,423,567  
U.S. Possessions
          74,910,483             74,910,483  
     
Total Assets
  $     $ 1,477,334,050     $ /B>     $ 1,477,334,050  
     
Currency contracts and forwards, if any, are reported at their unrealized appreciation/depreciation at measurement date, which represents the change in the contract's value from trade date. Futures, if any, are reported at their variation margin at measurement date, which represents the amount due to/from the Fund at that date. All additional assets and liabilities included in the above table are reported at their market value at measurement date.
See the accompanying Notes for further discussion of the methods used in determining value of the Fund's investments, and a summary of changes to the valuation techniques, if any, during the reporting period.
To simplify the listings of securities, abbreviations are used per the table below:
     
ABAG
  Association of Bay Area Governments
CDA
  Communities Devel. Authority
COP
  Certificates of Participation
DRIVERS
  Derivative Inverse Tax Exempt Receipts
GO
  General Obligation
HFA
  Housing Finance Agency
IDA
  Industrial Devel. Agency
ITEMECF
  Industrial, Tourist, Educational, Medical and Environmental Community Facilities
OCEAA
  Orange County Educational Arts Academy
ROLs
  Residual Option Longs
TASC
  Tobacco Settlement Asset-Backed Bonds
V.I.
  United States Virgin Islands
See accompanying Notes to Financial Statements.


 

STATEMENT OF ASSETS AND LIABILITIES July 31, 2009
         
Assets
       
Investments, at value (cost $2,055,330,721) - see accompanying statement of investments
  $ 1,477,334,050  
Cash
    908,859  
Receivables and other assets:
       
Interest
    29,801,718  
Shares of beneficial interest sold
    3,623,985  
Investments sold
    1,385,001  
Other
    1,678,081  
 
     
Total assets
    1,514,731,694  
 
       
Liabilities
       
Payables and other liabilities:
       
Payable for short-term floating rate notes issued (See Note 1)
    239,925,000  
Payable on borrowings (See Note 6)
    112,500,000  
Investments purchased (including $10,302,261 purchased on a when-issued or delayed delivery basis)
    10,942,261  
Shares of beneficial interest redeemed
    1,786,940  
Dividends
    843,974  
Distribution and service plan fees
    235,229  
Trustees' compensation
    232,314  
Interest expense on borrowings
    66,273  
Transfer and shareholder servicing agent fees
    48,462  
Shareholder communications
    41,387  
Other
    323,207  
 
     
Total liabilities
    366,945,047  
 
       
Net Assets
  $ 1,147,786,647  
 
     
 
       
Composition of Net Assets
       
Par value of shares of beneficial interest
  $ 171,503  
Additional paid-in capital
    2,048,261,487  
Accumulated net investment income
    3,183,984  
Accumulated net realized loss on investments
    (325,833,656 )
Net unrealized depreciation on investments
    (577,996,671 )
 
     
   
Net Assets
  $ 1,147,786,647  
 
     

 


 

         
Net Asset Value Per Share
       
   
Class A Shares:
       
Net asset value and redemption price per share (based on net assets of $883,103,241 and 131,889,763 shares of beneficial interest outstanding)
  $ 6.70  
Maximum offering price per share (net asset value plus sales charge of 4.75% of offering price)
  $ 7.03  
   
Class B Shares:
       
Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $22,476,170 and 3,353,443 shares of beneficial interest outstanding)
  $ 6.70  
   
Class C Shares:
       
Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $242,207,236 and 36,259,974 shares of beneficial interest outstanding)
  $ 6.68  
See accompanying Notes to Financial Statements.

 


 

STATEMENT OF OPERATIONS For the Year Ended July 31, 2009
         
Investment Income
       
Interest
  $ 127,799,135  
Other income
    1,613  
 
     
Total investment income
    127,800,748  
 
Expenses
       
Management fees
    5,527,308  
Distribution and service plan fees:
       
Class A
    2,309,427  
Class B
    255,296  
Class C
    2,436,873  
Transfer and shareholder servicing agent fees:
       
Class A
    403,261  
Class B
    34,717  
Class C
    160,282  
Shareholder communications:
       
Class A
    40,644  
Class B
    4,992  
Class C
    23,406  
Borrowing fees
    9,649,364  
Interest expense and fees on short-term floating rate notes issued (See Note 1)
    7,934,513  
Interest expense on borrowings
    3,284,537  
Trustees' compensation
    59,003  
Custodian fees and expenses
    19,066  
Other
    214,587  
 
     
Total expenses
    32,357,276  
Less reduction to custodian expenses
    (916 )
 
     
Net expenses
    32,356,360  
 
       
Net Investment Income
    95,444,388  
 
       
Realized and Unrealized Loss
       
Net realized loss on investments
    (223,070,800 )
Net change in unrealized depreciation on investments
    (214,956,154 )
 
       
Net Decrease in Net Assets Resulting from Operations
  $ (342,582,566 )
 
     
See accompanying Notes to Financial Statements.

 


 

STATEMENTS OF CHANGES IN NET ASSETS
                 
Year Ended July 31,   2009     2008  
 
Operations
               
Net investment income
  $ 95,444,388     $ 112,310,232  
Net realized loss
    (223,070,800 )     (97,488,834 )
Net change in unrealized depreciation
    (214,956,154 )     (400,450,354 )
     
Net decrease in net assets resulting from operations
    (342,582,566 )     (385,628,956 )
 
               
Dividends and/or Distributions to Shareholders
               
Dividends from net investment income:
               
Class A
    (74,437,079 )     (86,084,191 )
Class B
    (1,851,664 )     (2,369,470 )
Class C
    (17,973,354 )     (18,804,393 )
     
 
    (94,262,097 )     (107,258,054 )
 
               
Beneficial Interest Transactions
               
Net decrease in net assets resulting from beneficial interest transactions:
               
Class A
    (119,320,364 )     (179,841,768 )
Class B
    (7,662,498 )     (14,432,228 )
Class C
    (15,936,988 )     (42,138,978 )
     
 
    (142,919,850 )     (236,412,974 )
 
               
Net Assets
               
Total decrease
    (579,764,513 )     (729,299,984 )
Beginning of period
    1,727,551,160       2,456,851,144  
     
End of period (including accumulated net investment income of $3,183,984 and $3,402,115, respectively)
  $ 1,147,786,647     $ 1,727,551,160  
     
See accompanying Notes to Financial Statements.

 


 

STATEMENT OF CASH FLOWS For the Year Ended July 31, 2009
         
Cash Flows from Operating Activities
       
Net decrease in net assets from operations
  $ (342,582,566 )
Adjustments to reconcile net decrease in net assets from operations to net cash provided by operating activities:
       
Purchase of investment securities
    (365,352,458 )
Proceeds from disposition of investment securities
    512,636,815  
Short-term investment securities, net
    177,666,936  
Premium amortization
    811,672  
Discount accretion
    (20,776,993 )
Net realized loss on investments
    223,070,800  
Net change in unrealized depreciation on investments
    214,956,154  
Decrease in interest receivable
    4,412,958  
Decrease in receivable for securities sold
    1,883,417  
Increase in other assets
    (1,495,166 )
Increase in payable for securities purchased
    10,942,261  
Increase in payable for accrued expenses
    14,348  
 
     
Net cash provided by operating activities
    416,188,178  
 
       
Cash Flows from Financing Activities
       
Proceeds from bank borrowings
    759,800,000  
Payments on bank borrowings
    (730,600,000 )
Payments on short-term floating rate notes issued
    (201,690,000 )
Proceeds from shares sold
    254,019,360  
Payments on shares redeemed
    (458,838,068 )
Cash distributions paid
    (38,686,328 )
 
     
Net cash used in financing activities
    (415,995,036 )
Net increase in cash
    193,142  
Cash, beginning balance
    715,717  
 
     
Cash, ending balance
  $ 908,859  
 
     
Supplemental disclosure of cash flow information:
Noncash financing activities not included herein consist of reinvestment of dividends and distributions of $56,984,074.
Cash paid for interest on bank borrowings - $3,399,943.
Cash paid for interest on short-term floating rate notes issued - $7,934,513.
See accompanying Notes to Financial Statements.

 


 

FINANCIAL HIGHLIGHTS
                                         
Class A   Year Ended July 31,   2009     2008     2007     2006     2005  
 
Per Share Operating Data
                                       
Net asset value, beginning of period
  $ 9.02     $ 11.43     $ 11.44     $ 11.52     $ 10.31  
 
Income (loss) from investment operations:
                                       
Net investment income1
    .56       .57       .53       .55       .62  
Net realized and unrealized gain (loss)
    (2.32 )     (2.43 )           (.02 )     1.21  
     
Total from investment operations
    (1.76 )     (1.86 )     .53       .53       1.83  
 
Dividends and/or distributions to shareholders:
                                       
Dividends from net investment income
    (.56 )     (.55 )     (.54 )     (.61 )     (.62 )
 
Net asset value, end of period
  $ 6.70     $ 9.02     $ 11.43     $ 11.44     $ 11.52  
     
 
                                       
Total Return, at Net Asset Value2
    (19.14 )%     (16.60 )%     4.67 %     4.74 %     18.20 %
 
                                       
Ratios/Supplemental Data
                                       
Net assets, end of period (in thousands)
  $ 883,104     $ 1,344,257     $ 1,907,202     $ 1,213,319     $ 621,736  
 
Average net assets (in thousands)
  $ 918,284     $ 1,584,343     $ 1,603,883     $ 901,717     $ 477,934  
 
Ratios to average net assets:3
                                       
Net investment income
    8.21 %     5.69 %     4.56 %     4.85 %     5.59 %
Expenses excluding interest and fees on short-term floating rate notes issued
    1.88 %     0.86 %     0.81 %     0.92 %     0.92 %
Interest and fees on short-term floating rate notes issued4
    0.67 %     0