Form 485BPOS Oppenheimer Rochester
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Registration No. 333-132781
File No. 811-21879
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 | ☒ |
| Pre-Effective Amendment No. | □ |
| Post-Effective Amendment No. 17 | ☒ |
and/or
| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 | ☒ |
| Amendment No. 18 | ☒ |
Oppenheimer Rochester®
Massachusetts Municipal Fund
(Exact Name of Registrant as Specified in Charter)
6803 South Tucson Way, Centennial,
Colorado 80112-3924
(Address of Principal Executive Offices) (Zip Code)
(303) 768-3200
(Registrant’s Telephone Number, including Area Code)
Cynthia Lo Bessette, Esq.
OFI Global Asset Management, Inc.
225 Liberty Street, New York,
New York 10281-1008
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
□ immediately upon filing pursuant to paragraph (b)
☒ on July 29, 2016 pursuant to paragraph (b)
□ 60 days after filing pursuant to paragraph (a)(1)
□
on
pursuant to paragraph (a)(1)
□ 75 days after filing pursuant to paragraph (a)(2)
□
on
pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
□ This post-effective amendment designates a new effective date for a previously filed post-effective amendment.
Oppenheimer Rochester Arizona Municipal Fund
Oppenheimer Rochester Maryland Municipal Fund
Oppenheimer Rochester Massachusetts Municipal Fund
Oppenheimer Rochester Michigan Municipal Fund
Oppenheimer Rochester Minnesota Municipal Fund
Oppenheimer Rochester North Carolina Municipal Fund
Oppenheimer Rochester Ohio Municipal Fund
Oppenheimer Rochester Virginia Municipal Fund
Supplement dated July 29, 2016 to the Prospectus and Statement of Additional Information
This supplement amends the Prospectus and Statement of Additional Information ("SAI") of each of the above-referenced Funds (each, a "Fund"), each dated July 29, 2016, and is in addition to any other supplements.
The following information is added to the sections titled “More About Your Account” in each Prospectus and “How to Buy Shares” in each SAI:
Effective as of the close of the New York Stock Exchange (“NYSE”) on March 24, 2016 (the “Closing Date”), the Fund will no longer accept purchase orders from new investors and shareholders of other Oppenheimer funds will no longer be able to exchange shares of other funds into the Fund, subject to the following exceptions:
| · | Existing shareholders of the Fund can continue to purchase new shares of the Fund, exchange shares of other funds into the Fund, and make purchases through dividend and capital gain reinvestments. |
| · | Existing shareholders of the Fund in broker/dealer advisory-fee programs can continue to purchase shares and exchange into the Fund. Existing broker/dealer advisory-fee programs can add new shareholders (except for group retirement plans as described below). The Fund will not be permitted to be added to new broker/dealer advisory-fee platforms. |
| · | Existing registered investment advisor (“RIA”) and bank trust firms that have an investment allocation to the Fund in a fee-based advisory account, can continue to add new clients, purchase shares, and exchange into the Fund except for group retirement plans described below. The Fund will not be available to new RIA and bank trust firms. |
| · | Existing shareholders of the Fund in group retirement plans can continue to purchase shares of the Fund and exchange into the Fund. Group retirement plans may include but are not limited to defined contribution (DC), 401(k) (including “Single K”), 403(b), pension and profit sharing plans, defined benefit plans (including “Single DB Plus”), SIMPLE IRAs and SEP IRAs. The Fund will be closed to new group retirement plans and new participants in existing plans. |
| · | Existing shareholders investing in self-directed brokerage accounts can continue to purchase shares of the Fund and exchange into the Fund. The Fund will be closed to new shareholders investing in self-directed brokerage accounts. |
| · | The Fund reserves the right, in its discretion, to accept purchases and exchanges from institutional investors which may include, among others, corporations, endowments, foundations and insurance companies. |
| · | The Fund reserves the right, in its discretion, to accept purchases and exchanges from the Manager or an affiliate of the Manager. |
Existing shareholders as of the Closing Date who later sell all of their shares of the Fund will not be permitted to establish new accounts in the Fund unless such purchase is through an exception listed above.
Present or former officers, directors, trustees and employees (and their eligible family members) of the Fund, the Fund’s investment adviser and its affiliates, its parent company and the subsidiaries of its parent company will not be permitted to establish a new account of the Fund after the Closing Date unless such purchase is through an exception listed above. Notwithstanding the foregoing, the Fund, at its discretion, reserves the right to offer new purchases to, and to establish new accounts for, the Fund’s investment adviser and its affiliates.
| July 29, 2016 | PS0000.150 |
Oppenheimer Rochester Arizona Municipal Fund
Oppenheimer Rochester Maryland Municipal Fund
Oppenheimer Rochester Massachusetts Municipal Fund
Oppenheimer Rochester Michigan Municipal Fund
Oppenheimer Rochester Minnesota Municipal Fund
Oppenheimer Rochester North Carolina Municipal Fund
Oppenheimer Rochester Ohio Municipal Fund
Oppenheimer Rochester Virginia Municipal Fund
Supplement dated July 29, 2016 to the
Summary Prospectus, Prospectus, and Statement of Additional Information
This supplement amends the Summary Prospectus, Prospectus, and Statement of Additional Information (“SAI”) of each of the above-referenced funds (each, a “Fund”), and is in addition to any other supplement(s).
Effective September 28, 2016:
| 1. | All references in the Summary Prospectus, Prospectus and SAI to “Oppenheimer Cash Reserves,” “Oppenheimer Institutional Money Market Fund,” and “Oppenheimer Money Market Fund” are deleted and replaced by references to “Oppenheimer Government Cash Reserves,” “Oppenheimer Institutional Government Money Market Fund” and “Oppenheimer Government Money Market Fund,” respectively. |
| July 29, 2016 | PS0000.151 |
As with all mutual funds, the Securities
and Exchange Commission has not approved or disapproved the Fund’s securities nor has it determined that this prospectus is accurate or complete. It is a criminal offense to represent otherwise.
The Fund Summary
Investment Objective. The Fund seeks tax-free income.
Fees and Expenses of the
Fund. This table describes the fees and expenses that you may pay if you buy and hold or redeem shares of the Fund. You may qualify for sales
charge discounts if you (or you and your spouse) invest, or agree to invest in the future, at least $50,000 in certain funds in the Oppenheimer family of funds. More information about these and other discounts is
available from your financial professional and in the section “About Your Account” beginning on page 20 of the prospectus and in the sections “How to Buy Shares” beginning on page 71 and
“Appendix A” in the Fund’s Statement of Additional Information.
Shareholder Fees
(fees paid directly from your
investment)
| Class A | Class B | Class C | Class Y | ||
| Maximum Sales Charge (Load) imposed on purchases (as % of offering price) | 4.75% | None | None | None | |
| Maximum Deferred Sales Charge (Load) (as % of the lower of original offering price or redemption proceeds) | None | 5% | 1% | None | |
Annual Fund Operating Expenses1
(expenses that you pay as a percentage
of the value of your investment)
| Class A | Class B | Class C | Class Y | ||
| Management Fees | 0.55% | 0.55% | 0.55% | 0.55% | |
| Distribution and/or Service (12b-1) Fees | 0.25% | 1.00% | 1.00% | N/A | |
| Other Expenses | |||||
| Interest and Fees from Borrowing | 0.57% | 0.57% | 0.57% | 0.57% | |
| Interest and Related Expenses from Inverse Floaters | 0.02% | 0.02% | 0.02% | 0.02% | |
| Other Expenses | 0.25% | 0.33% | 0.26% | 0.25% | |
| Total Other Expenses | 0.84% | 0.92% | 0.85% | 0.84% | |
| Total Annual Fund Operating Expenses | 1.64% | 2.47% | 2.40% | 1.39% | |
| Fee Waiver and/or Expense Reimbursement2 | (0.25)% | (0.33)% | (0.26)% | 0.00% | |
| Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement | 1.39% | 2.14% | 2.14% | 1.39% | |
| 1. | Expenses have been restated to reflect current fees. |
| 2. | After discussions with the Fund’s Board, the Manager has contractually agreed to waive fees and/or reimburse the Fund for certain expenses in order to limit “Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement” (excluding any applicable interest and fees from borrowings and interest and related expenses from inverse floaters, dividend expenses, taxes, any subsidiary expenses, Acquired Fund Fees and Expenses, brokerage commissions, unusual and infrequent expenses and certain other Fund expenses) to annual rates of 0.80% for Class A shares, 1.55% for Class B and Class C shares and 0.80% for Class Y shares, as calculated on the daily net assets of the Fund. This fee waiver and/or expense reimbursement may not be amended or withdrawn for one year from the date of this prospectus, unless approved by the Board. |
Example. The following Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in a class of shares of the Fund for the time periods indicated. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating
expenses remain the same. Any applicable fee waivers and/or expense reimbursements are reflected in the below examples for the period during which such fee waivers and/or expense reimbursements are in effect. Although
your actual costs may be higher or lower, based on these assumptions your expenses would be as follows:
| If shares are redeemed | If shares are not redeemed | ||||||||
| 1 Year | 3 Years | 5 Years | 10 Years | 1 Year | 3 Years | 5 Years | 10 Years | ||
| Class A | $611 | $948 | $1,309 | $2,321 | $611 | $948 | $1,309 | $2,321 | |
| Class B | $719 | $1,047 | $1,501 | $2,413 | $219 | $747 | $1,301 | $2,413 | |
| Class C | $319 | $732 | $1,272 | $2,748 | $219 | $732 | $1,272 | $2,748 | |
| Class Y | $142 | $443 | $766 | $1,680 | $142 | $443 | $766 | $1,680 | |
Portfolio Turnover. The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A
higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in the annual fund operating
expenses or in the Example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 5% of the average value of its portfolio.
| Oppenheimer Rochester Massachusetts Municipal Fund | 1 |
Principal Investment
Strategies. 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 regular federal individual and, as applicable, the Fund’s state income tax. The
Fund selects investments without regard to the alternative minimum tax (“AMT”). Additionally, under normal market conditions, the Fund invests at least 80% of its net assets (plus borrowings for investment
purposes) in Massachusetts municipal securities. These securities are generally issued by the state and its political subdivisions (such as cities, towns, counties, agencies and authorities) and primarily include
municipal bonds (long-term (more than one-year) obligations), municipal notes (short-term obligations) and interests in municipal leases. Municipal securities generally are classified as general or revenue
obligations. General obligations are secured by the issuer’s pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue obligations are bonds whose interest is payable
only from the revenues derived from a particular facility or class of facilities, or a specific excise tax or other revenue source. The securities in which the Fund invests may also include those issuers located
outside of Massachusetts, such as U.S. territories, commonwealths and possessions or by their agencies, instrumentalities and authorities, if the interest on such securities is not subject to Massachusetts and federal
income tax. These securities are “Massachusetts municipal securities” for purposes of this prospectus.
Most of the securities the Fund
buys are “investment-grade,” although it can invest as much as 25% of its total assets in below-investment-grade securities (commonly called “junk bonds”).This restriction is applied at the
time of purchase and the Fund may continue to hold a security whose credit rating has been downgraded or, in the case of an unrated security, after the Fund’s Sub-Adviser has changed its assessment of the
security’s credit quality. As a result, credit rating downgrades or other market fluctuations may cause the Fund’s holdings of below-investment-grade securities to exceed, at times significantly, this
restriction for an extended period of time. Investment-grade securities are rated in one of the four highest rating categories of nationally recognized statistical rating organizations, such as S&P Global Ratings
(‘S&P”) (or, in the case of unrated securities, determined by the Fund’s Sub-Adviser, OppenheimerFunds, Inc., to be comparable to securities rated investment-grade). The Fund also invests in
unrated securities, in which case the Fund’s Sub-Adviser internally assigns ratings to those securities, after assessing their credit quality and other factors, in investment-grade or below-investment-grade
categories similar to those of nationally recognized statistical rating organizations. There can be no assurance, nor is it intended, that the Sub-Adviser’s credit analysis process is consistent or comparable
with the credit analysis process used by a nationally recognized statistical rating organization.
The Fund does not limit its
investments to securities of a particular maturity range, and may hold both short- and long-term securities. However, the Fund currently focuses on longer-term securities to seek higher yields. This portfolio strategy
is subject to change. The Fund may invest in obligations that pay interest at fixed or variable rates.
The Fund can invest in inverse
floating rate securities, a type of variable rate instrument, to seek increased income and return. Inverse floating rate securities are leveraged instruments and the extent of their leverage will vary depending on the
security’s characteristics. The Fund limits its investments in inverse floating rate securities as further described in this prospectus under “Principal Risks.”
The Fund can borrow money to
purchase additional securities, another form of leverage. Although the amount of borrowing will vary from time to time, the amount of leveraging from borrowings will not exceed one-third of the Fund’s total
assets.
In selecting investments for the
Fund, the portfolio managers look at a wide range of Massachusetts municipal securities from different issuers that provide high current income, including unrated bonds, that have favorable credit characteristics and
that provide opportunities for value. The portfolio managers may consider selling a security if any of these factors no longer applies to a security purchased for the Fund, but are not required to do so.
Principal Risks. The price of the Fund’s shares can go up and down substantially. The value of the Fund’s investments may change because of
broad changes in the markets in which the Fund invests or because of poor investment selection, which could cause the Fund to underperform other funds with similar investment objectives. There is no assurance that the
Fund will achieve its investment objective. When you redeem your shares, they may be worth less than what you paid for them. These risks mean that you can lose money by investing in the Fund.
Risks of Investing in Municipal
Securities. Municipal securities may be subject to interest rate risk, duration risk, credit risk, credit spread risk, extension risk, reinvestment risk and prepayment risk. Interest rate risk is the
risk that when prevailing interest rates fall, the values of already-issued debt securities generally rise; and when prevailing interest rates rise, the values of already-issued debt securities generally fall, and
they may be worth less than the amount the Fund paid for them. When interest rates change, the values of longer-term debt securities usually change more than the values of shorter-term debt securities. Risks
associated with rising interest rates are heightened given that interest rates in the U.S. are at, or near, historic lows. Duration risk is the risk that longer-duration debt securities will be more volatile and more
likely to decline in price in a rising interest rate environment than shorter-duration debt securities. Credit risk is the risk that the issuer of a security might not make interest and principal payments on the
security as they become due. If an issuer fails to pay interest or repay principal, the Fund’s income or share value might be reduced. Adverse news about an issuer or a downgrade in an issuer’s credit
rating, for any reason, can also reduce the market value of the issuer’s securities. “Credit spread” is the difference in yield between securities that is due to differences in their credit quality.
There is a risk that credit spreads may increase when the market expects lower-grade bonds to default more frequently. Widening credit spreads may quickly reduce the market values of the Fund’s lower-rated and
unrated securities. Some unrated securities may not have an active trading market or may trade less actively than rated securities, which means that the Fund might have difficulty selling them promptly at an
acceptable price. Extension risk is the risk that an increase in interest rates could cause principal payments on a debt security to be repaid at a slower rate than expected. Extension risk is particularly
| 2 | Oppenheimer Rochester Massachusetts Municipal Fund |
prevalent for a callable security where an
increase in interest rates could result in the issuer of that security choosing not to redeem the security as anticipated on the security’s call date. Such a decision by the issuer could have the effect of
lengthening the debt security’s expected maturity, making it more vulnerable to interest rate risk and reducing its market value. Reinvestment risk is the risk that when interest rates fall the Fund may be
required to reinvest the proceeds from a security’s sale or redemption at a lower interest rate. Callable bonds are generally subject to greater reinvestment risk than non-callable bonds. Prepayment risk is the
risk that the issuer may redeem the security prior to the expected maturity or that borrowers may repay the loans that underlie these securities more quickly than expected, thereby causing the issuer of the security
to repay the principal prior to the expected maturity. The Fund may need to reinvest the proceeds at a lower interest rate, reducing its income.
Fixed-Income Market Risks. The fixed-income securities market can be susceptible to increases in volatility and decreases in liquidity. Liquidity may decline unpredictably in response to overall economic conditions
or credit tightening. During times of reduced market liquidity, the Fund may not be able to readily sell bonds at the prices at which they are carried on the Fund’s books and could experience a loss. If the Fund
needed to sell large blocks of bonds to meet shareholder redemption requests or to raise cash, those sales could further reduce the bonds’ prices, particularly for lower-rated and unrated securities. An
unexpected increase in redemptions by Fund shareholders, which may be triggered by general market turmoil or an increase in interest rates, could cause the Fund to sell its holdings at a loss or at undesirable
prices.
Economic and other market
developments can adversely affect fixed-income securities markets in the United States, Europe and elsewhere. At times, participants in debt securities markets may develop concerns about the ability of certain issuers
of debt securities to make timely principal and interest payments, or they may develop concerns about the ability of financial institutions that make markets in certain debt securities to facilitate an orderly market.
Those concerns may impact the market price or value of those debt securities and may cause increased volatility in those debt securities or debt securities markets. Under some circumstances, as was the case during the
latter half of 2008 and early 2009, those concerns could cause reduced liquidity in certain debt securities markets, reducing the willingness of some lenders to extend credit, and making it more difficult for
borrowers to obtain financing on attractive terms (or at all). A lack of liquidity or other adverse credit market conditions may hamper the Fund’s ability to sell the debt securities in which it invests or to
find and purchase suitable debt instruments.
Risks of
Below-Investment-Grade Securities. As compared to investment-grade debt securities, below-investment-grade debt securities (also referred to as “junk” bonds), whether rated or unrated, may be
subject to greater price fluctuations and increased credit risk, as the issuer might not be able to pay interest and principal when due, especially during times of weakening economic conditions or rising interest
rates. Credit rating downgrades of a single issuer or related similar issuers whose securities the Fund holds in significant amounts could substantially and unexpectedly increase the Fund’s exposure to
below-investment-grade securities and the risks associated with them, especially liquidity and default risk. The market for below-investment-grade securities may be less liquid and therefore these securities may be
harder to value or sell at an acceptable price, especially during times of market volatility or decline.
Because the
Fund can invest up to 25% of its assets in below-investment-grade securities, the Fund’s credit risks are greater than those of funds that buy only investment-grade securities. This restriction is applied at the time of purchase and the Fund may continue to hold a security whose credit rating has been downgraded or, in the case of an unrated security, after the
Fund’s Sub-Adviser has changed its assessment of the security’s credit quality. As a result, credit rating downgrades or other market fluctuations may cause the Fund’s holdings of
below-investment-grade securities to exceed, at times significantly, this restriction for an extended period of time. Credit rating downgrades of a single issuer or related similar issuers whose securities the Fund
holds in significant amounts could substantially and unexpectedly increase the Fund’s exposure to below-investment-grade securities and the risks associated with them, especially liquidity and default risk. If
the Fund has more than 25% of its total assets invested in below-investment-grade securities, the Sub-Adviser will not purchase additional below-investment-grade securities until the level of holdings in those
securities no longer exceeds the restriction.
Risks of Massachusetts Municipal
Securities. Because the Fund invests primarily in Massachusetts municipal securities, the value of its portfolio investments will be highly sensitive to events affecting the financial stability of the
Commonwealth of Massachusetts and its municipalities, agencies, authorities and other instrumentalities that issue those securities. Budgetary stress on the state or its municipalities, changes in legislation or
policy, erosion of the tax base, the effects of natural disasters, or other economic, legislative, political, or social issues may have a significant negative impact on the value of state or local
securities.
Risks of Investing in U.S.
Territories, Commonwealths and Possessions. The Fund also invests in obligations of the governments of U.S. territories, commonwealths and possessions such as Puerto Rico, the U.S. Virgin Islands, Guam, and the Northern Mariana
Islands to the extent such obligations are exempt from regular federal individual and state income taxes. These investments also are considered to be “Massachusetts municipal securities” for purposes of
this prospectus. Accordingly, the Fund may be adversely affected by local political, economic and social conditions and developments within these U.S. territories, commonwealths and possessions affecting the issuers
of such obligations.
Certain of the municipalities in
which the Fund invests, including Puerto Rico, currently experience significant financial difficulties. As a result, securities issued by certain of these municipalities are currently considered below-investment-grade
securities. A credit rating downgrade relating to, default by, or insolvency or bankruptcy of, one or several municipal security issuers of a state, territory, commonwealth or possession in which the Fund invests
could affect the market values and marketability of many or all municipal obligations of such state, territory, commonwealth or possession.
| Oppenheimer Rochester Massachusetts Municipal Fund | 3 |
As of the date of this
prospectus, the Fund invested a significant percentage of its total assets in Puerto Rican municipal securities. In the past two years, securities issued by Puerto Rico and its agencies and instrumentalities have been
subject to multiple credit downgrades as a result of Puerto Rico’s ongoing fiscal challenges and uncertainty about its ability to make full repayment on these obligations. More recently, certain issuers of
Puerto Rican municipal securities have failed to make payments on obligations that have come due, and additional missed payments or defaults may be likely to occur in the future. Such developments could adversely
impact the Fund’s performance.
Municipal Sector Focus Risk. The Fund will not concentrate its investments in issuers in any one industry. The Securities and Exchange Commission has taken the position that investment of more than 25% of a
fund’s total assets in issuers in the same industry constitutes concentration in that industry. Many types of municipal securities (such as general obligation, government appropriation, municipal leases, special
assessment and special tax bonds) are not considered a part of any “industry” for purposes of this policy. Therefore, the Fund may invest more than 25% of its total assets in those types of municipal
securities. Those municipal securities may finance or pay interest from the revenues of projects that are subject to similar economic, business or political developments that could increase their credit risk.
Legislation that affects the financing of a particular municipal project, or economic factors that have a negative impact on a project, would be likely to affect many other similar projects. At times, the Fund may
change the relative emphasis of its investments in securities issued by certain municipalities. If the Fund has a greater emphasis on investments in one or more particular municipalities, it may be subject to greater
risks from adverse events affecting such municipalities than a fund that invests in different municipalities or that is more diversified.
Risks of Tobacco Related
Bonds. In 1998, the largest U.S. tobacco manufacturers reached an out of court agreement, known as the Master Settlement Agreement (the “MSA”), to settle claims against them by 46
states and six other U.S. jurisdictions. The tobacco manufacturers agreed to make annual payments to the government entities in exchange for the release of all litigation claims. A number of the states have sold bonds
that are backed by those future payments. The Fund may invest in two types of those bonds: (i) bonds that make payments only from a state’s interest in the MSA and (ii) bonds that make payments from both the MSA
revenue and from an “appropriation pledge” by the state. An “appropriation pledge” requires the state to pass a specific periodic appropriation to make the payments and is generally not an
unconditional guarantee of payment by a state.
The settlement payments are
based on factors, including, but not limited to, annual domestic cigarette shipments, cigarette consumption, inflation and the financial capability of participating tobacco companies. Payments could be reduced if
consumption decreases, if market share is lost to non-MSA manufacturers, or if there is a negative outcome in litigation regarding the MSA, including challenges by participating tobacco manufacturers regarding the
amount of annual payments owed under the MSA.
The Fund can invest up to 25% of
its total assets in tobacco-related bonds without an appropriation pledge that make payments only from a state’s interest in the MSA.
Risks of Land-Secured or
“Dirt” Bonds. These special assessment or special tax bonds are issued to promote residential, commercial and industrial growth and redevelopment. They are exposed to real estate development-related
risks. The bonds could default if the developments failed to progress as anticipated or if taxpayers failed to pay the assessments, fees and taxes specified in the financing plans for a project.
Taxability Risk. The Fund’s investments in municipal securities rely on the opinion of the issuer’s bond counsel that the interest paid on those securities will not be subject to federal and
state income tax. Income from tax-exempt municipal securities could be declared taxable because of unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service, state tax authorities, or a
court, or the non-compliant conduct of a bond issuer.
Risks of Borrowing and
Leverage. The Fund can borrow up to one-third of the value of its total assets (including the amount borrowed) from banks, as permitted by the Investment Company Act of 1940. It can use those
borrowings for a number of purposes, including for purchasing securities, which can create “leverage.” In that case, changes in the value of the Fund’s investments will have a larger effect on its
share price than if it did not borrow. Borrowing results in interest payments to the lenders and related expenses. Borrowing for investment purposes might reduce the Fund’s return if the yield on the securities
purchased is less than those borrowing costs. The Fund may also borrow to meet redemption obligations, for temporary and emergency purposes, or to unwind or contribute to trusts in connection with the Fund’s
investment in inverse floaters (instruments also involving the use of leverage, as discussed below). The Fund currently participates in a line of credit with other Oppenheimer funds for its borrowing.
The Fund can participate in a
committed reverse repurchase agreement program. Reverse repurchase agreements that the Fund may engage in also create leverage. A reverse repurchase agreement is the sale by the Fund of a debt obligation to a party
for a specified price, with the simultaneous agreement by the Fund to repurchase that debt obligation from that party on a future date at a higher price. Similar to a borrowing, reverse repurchase agreements provide
the Fund with cash for investment and operational purposes. When the Fund engages in reverse repurchase agreements, changes in the value of the Fund’s investments will have a larger effect on its share price
than if it did not engage in these transactions due to the effect of leverage. Reverse repurchase agreements create fund expenses and require that the Fund have sufficient cash available to repurchase the debt
obligation when required. Reverse repurchase agreements also involve the risk that the market value of the debt obligation that is the subject of the reverse repurchase agreement could decline significantly below the
price at which the Fund is obligated to repurchase the security.
Risks of Derivative
Investments. Derivatives may involve significant risks. Derivatives may be more volatile than other types of investments, may require the payment of premiums, may increase portfolio turnover, may be
illiquid, and may not
| 4 | Oppenheimer Rochester Massachusetts Municipal Fund |
perform as expected. Derivatives are subject to
counterparty risk and the Fund may lose money on a derivative investment if the issuer or counterparty fails to pay the amount due. Some derivatives have the potential for unlimited loss, regardless of the size of the
Fund’s initial investment. As a result of these risks, the Fund could realize little or no income or lose money from its investment, or a hedge might be unsuccessful. In addition, under new rules enacted and
currently being implemented under financial reform legislation, certain over-the-counter derivatives are (or soon will be) required to be executed on a regulated market and/or cleared through a clearinghouse. It is
unclear how these regulatory changes will affect counterparty risk, and entering into a derivative transaction with a clearinghouse may entail further risks and costs.
Inverse Floaters. The Fund invests in inverse floating rate securities (“inverse floaters”) because, under ordinary circumstances, they offer higher yields and thus provide higher income than
fixed-rate municipal bonds of comparable maturity and credit quality. Because inverse floaters are leveraged instruments, the value of an inverse floater will change more significantly in response to changes in
interest rates and other market fluctuations than the market value of a conventional fixed-rate municipal security of comparable maturity and credit quality, including the municipal bond underlying an inverse floater.
During periods of rising interest rates, the market values of inverse floaters will tend to decline more quickly than those of fixed-rate securities.
An inverse floater is created
when a fixed-rate municipal bond is contributed to a trust. The trust issues two separate classes of securities: short-term floating rate securities with a fixed principal amount that represent a senior interest in
the underlying municipal bond, and the inverse floater that represents a residual, subordinate interest in the underlying municipal bond. The trust issues and sells the short-term floating rate securities to third
parties and the inverse floater to the Fund. The short-term floating rate securities generally bear short-term rates of interest. When interest is paid on the underlying municipal bond to the trust, such proceeds are
first used to pay interest owing to holders of the short-term floating rate securities, with any remaining amounts being paid to the Fund, as the holder of the inverse floater. Accordingly, the amount of such interest
paid to the Fund is inversely related to the rate of interest on the short-term floating rate securities. Inverse floaters produce less income when short-term interest rates rise (and, in extreme cases, may pay no
income) and more income when short-term interest rates fall. Thus, if short-term interest rates rise after the issuance of the inverse floater, any yield advantage to the Fund is reduced and may be eliminated.
Additionally, because the principal amount of the short-term floating rate security is fixed and is not adjusted in response to changes in the market value of the underlying municipal bond, any change in the market
value of the underlying municipal bond is reflected entirely in a change to the value of the inverse floater. Upon the occurrence of certain adverse events, a trust may be collapsed and the underlying municipal bond
liquidated, and the Fund could lose the entire amount of its investment in the inverse floater and may, in some cases, be contractually required to pay the negative difference, if any, between the liquidation value of
the underlying municipal bond and the principal amount of the short-term floating rate securities.
The Fund may invest in inverse
floaters with any degree of leverage (measured by comparing the outstanding principal amount of related short-term floating rate securities to the par value of the underlying municipal bond). However, the Fund may
only expose up to 20% of its total assets to the effects of leverage from its investments in inverse floaters. This limitation is measured by comparing the aggregate principal amount of the short-term floating rate
securities that are related to the inverse floaters held by the Fund to the total assets of the Fund. Nevertheless, the value of, and income earned on, an inverse floater that has a higher degree of leverage
(represented by an outstanding principal amount of related short-term floating rate securities that constitutes a larger percentage of the par value of the underlying municipal bond) will fluctuate more significantly
in response to changes in interest rates and to changes in the market value of the related underlying municipal bond, and are more likely to be eliminated entirely under adverse market conditions.
Who Is The Fund Designed
For? The Fund is designed for investors seeking tax-free income. Because it invests in tax-exempt securities, the Fund is not appropriate for
retirement plan accounts or other tax-exempt or tax-deferred accounts. The Fund is not a complete investment program. You should carefully consider your own investment goals and risk tolerance before investing in the
Fund.
An investment in the Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund’s Past
Performance. The bar chart and table below provide some indication of the risks of investing
in the Fund by showing changes in the Fund’s performance (for Class A Shares) from calendar year to calendar
year and by showing how the Fund’s average annual returns for the periods of time shown in the table compare
with those of a broad measure of market performance. The Fund’s past investment performance (before and after
taxes) is not necessarily an indication of how the Fund will perform in the future. More recent performance
information is available by calling the toll-free number on the back of this prospectus and on the Fund’s website: https://www.oppenheimerfunds.com/fund/RochesterMassachusettsMunicipalFund
in the Fund by showing changes in the Fund’s performance (for Class A Shares) from calendar year to calendar
year and by showing how the Fund’s average annual returns for the periods of time shown in the table compare
with those of a broad measure of market performance. The Fund’s past investment performance (before and after
taxes) is not necessarily an indication of how the Fund will perform in the future. More recent performance
information is available by calling the toll-free number on the back of this prospectus and on the Fund’s website: https://www.oppenheimerfunds.com/fund/RochesterMassachusettsMunicipalFund
| Oppenheimer Rochester Massachusetts Municipal Fund | 5 |
Sales charges and
taxes are not included and the returns would be lower if they were. During the period shown, the highest return for a calendar quarter was 19.95% (3rd Qtr 09) and the lowest return for a calendar quarter was -23.42%
(4th Qtr 08). For the period from January 1, 2016 to June 30, 2016 the cumulative return (not annualized) before sales charges and taxes was 4.61%.
The following table shows the
average annual total returns for each class of the Fund’s shares. After-tax returns are calculated using the highest individual federal marginal income tax rates and do not reflect the impact of state or local
taxes. Your actual after-tax returns, depending on your individual tax situation, may differ from those shown and after-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred
arrangements, such as 401(k) plans or individual retirement accounts. After-tax returns are shown for only one class and after-tax returns for other classes will vary.
Average Annual Total Returns for the periods ending December 31, 2015
| 1 Year | 5 Years (or life of class, if less) | 10 Years (or life of class, if less) | ||
| Class A Shares (inception 7/18/2006) | ||||
| Return Before Taxes | (2.28)% | 4.61% | 2.04% | |
| Return After Taxes on Distributions | (2.28)% | 4.61% | 2.04% | |
| Return After Taxes on Distributions and Sale of Fund Shares | 0.74% | 4.76% | 2.67% | |
| Class B Shares (inception 7/18/2006) | (3.06)% | 4.49% | 2.08% | |
| Class C Shares (inception 7/18/2006) | 0.77% | 4.84% | 1.78% | |
| Class Y Shares (inception 7/29/2011) | 2.52% | 4.98% | N/A | |
| Barclays Municipal Bond Index | 3.30% | 5.35% | 4.85%1 | |
| (reflects no deduction for fees, expenses, or taxes) | 4.80%2 | |||
| Consumer Price Index | 0.73% | 1.53% | 1.61%1 | |
| (reflects no deduction for fees, expenses, or taxes) | 1.04%2 | |||
| 1. | As of 7/31/06 |
| 2. | As of 7/31/11 |
Investment Adviser. OFI Global Asset Management, Inc. (the “Manager”) is the Fund’s investment adviser. OppenheimerFunds, Inc. (the
“Sub-Adviser”) is its sub-adviser.
Portfolio Managers. Scott S. Cottier, CFA, and Troy E. Willis, J.D., CFA, each have been a portfolio manager and a Vice President of the Fund since its
inception. Mark R. DeMitry, CFA, has been a portfolio manager of the Fund since September 2006 and a Vice President of the Fund since June 2009. Michael L. Camarella, CFA, has been a portfolio manager of the Fund
since January 2008 and a Vice President of the Fund since June 2009. Charles S. Pulire, CFA, has been a portfolio manager of the Fund since December 2010 and a Vice President of the Fund since September 2011.
Elizabeth S. Mossow, CFA, has been a portfolio manager of the Fund since July 2013 and Vice President of the Fund since January 2016.
Purchase and Sale of Fund
Shares. You can buy most classes of Fund shares with a minimum initial investment of $1,000. Traditional and Roth IRA, Asset Builder Plan,
Automatic Exchange Plan and government allotment plan accounts may be opened with a minimum initial investment of $500. For wrap fee-based programs, salary reduction plans and other retirement plans and accounts,
there is no minimum initial investment. Once your account is open, subsequent purchases may be made in any amount.
Shares may be purchased through
a financial intermediary or the Distributor and redeemed through a financial intermediary or the Transfer Agent on days the New York Stock Exchange is open for trading. Shareholders may purchase or redeem shares by
mail, through the website at www.oppenheimerfunds.com or by calling 1.800.225.5677. Share transactions may be paid by check, by Federal Funds wire or directly from or into your bank account.
Class B shares
are no longer offered for new purchases. Any investments for existing Class B share accounts will be made in Class A shares of Oppenheimer Money Market Fund.
Taxes. Dividends paid from net investment income on tax-exempt municipal securities will be excludable from gross income for federal individual
income tax purposes. Dividends that are derived from interest paid on certain “private activity
| 6 | Oppenheimer Rochester Massachusetts Municipal Fund |
bonds” may be an item of tax preference
if you are subject to the federal alternative minimum tax. Certain distributions may be taxable as ordinary income or as capital gains. The tax treatment of dividends is the same whether they are taken in cash or
reinvested.
Payments to Broker-Dealers and
Other Financial Intermediaries. If you purchase Fund shares through a broker-dealer or other financial intermediary (such as a bank), the Fund, the Sub-Adviser, or their
related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information.
| Oppenheimer Rochester Massachusetts Municipal Fund | 7 |
More About The Fund
About the Fund’s
Investments
The allocation of the
Fund’s portfolio among different types of investments will vary over time and the Fund’s portfolio might not always include all of the different types of investments described below. The Statement of
Additional Information contains additional information about the Fund’s investment policies and risks.
The Fund’s Principal
Investment Strategies and Risks. The strategies and types of investments discussed in the Fund Summary are the ones that the Fund considers to be the most important in
seeking to achieve its investment objective. Additionally, the following strategies and risks are those the Fund expects its portfolio to be subject to as a whole.
The Sub-Adviser tries to reduce
risks by selecting a wide variety of municipal investments and by carefully researching securities before they are purchased. However, changes in the overall market prices of municipal securities and the income they
pay can occur at any time. The yield and share prices of the Fund can change daily based on changes in interest rates and market conditions and in response to other economic events.
Unless this prospectus or the
Statement of Additional Information 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).
Municipal Securities. Municipal securities are issued to raise money for a variety of public or private purposes, including financing state or local governments, financing specific projects or financing public
facilities. These debt obligations are issued by the state governments, as well as their political subdivisions (such as cities, towns, and counties) and their agencies and authorities. The Fund buys municipal bonds
and notes, tax-exempt commercial paper, certificates of participation in municipal leases and other debt obligations. Municipal securities generally are classified as general or revenue obligations. General
obligations are secured by the issuer’s pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue obligations are bonds whose interest is payable only from the revenues
derived from a particular facility or class of facilities, or a specific excise tax or other revenue source. Some revenue obligations are private activity bonds that pay interest that may be a tax preference item for
investors subject to the federal alternative minimum tax. The Fund selects investments without regard to this type of tax treatment.
Additionally, there are times
when an issuer will pledge its taxing power to offer additional security to a revenue bond. These securities are sometimes called “double-barreled bonds.” The Fund can also buy securities issued by any
commonwealths, territories or possessions of the United States, or their respective agencies, instrumentalities or authorities, if the interest paid on the security is not subject to federal regular individual, and as
applicable, the Fund’s state income tax (in the opinion of bond counsel to the issuer at the time the security is issued). Because municipal bond issuers may not be subject to the same disclosure obligations as
other bond issuers, investments in municipal securities may be riskier than certain other investments.
The Fund can buy both long-term
and short-term municipal securities. Long-term securities have a maturity of more than one year. The Fund generally focuses on longer-term securities to seek higher income.
Massachusetts
municipal securities are municipal securities that are not subject (in the opinion of bond counsel to the issuer at the time they are issued) to federal and state individual income tax. The term “Massachusetts
municipal securities” also includes debt securities of the governments of certain possessions, territories and commonwealths of the United States if the interest is not subject to state individual income tax.
Some debt securities, such as zero-coupon securities, do not pay current interest. Other securities may be subject to calls by the issuer (to redeem the debt) or to prepayment prior to their stated maturity.
Municipal securities may be
subject to the following risks:
| ■ | Interest Rate Risk. Interest rate risk is the risk that rising interest rates, or an expectation of rising interest rates in the near future, will cause the values of the Fund’s investments to decline. The values of debt securities usually change when prevailing interest rates change. When interest rates rise, the values of outstanding debt securities generally fall, and those securities may sell at a discount from their face amount. When interest rates rise, the decrease in values of outstanding debt securities may not be offset by higher income from new investments. When interest rates fall, the values of already-issued debt securities generally rise. However, when interest rates fall, the Fund’s investments in new securities may be at lower yields and may reduce the Fund’s income. The values of longer-term debt securities usually change more than the values of shorter-term debt securities when interest rates change; thus, interest rate risk is usually greater for securities with longer maturities or durations. “Zero-coupon” or “stripped” securities may be particularly sensitive to interest rate changes. Risks associated with rising interest rates are heightened given that interest rates in the U.S. are at, or near, historic lows. |
| ■ | Duration Risk. Duration risk is the risk that longer-duration debt securities are more likely to decline in price than shorter-duration debt securities, in a rising interest-rate environment. Duration is a measure of the price sensitivity of a debt security or portfolio to interest rate changes. “Effective duration” attempts to measure the expected percentage change in the value of a bond or portfolio resulting from a change in prevailing interest rates. The change in the value of |
| 8 | Oppenheimer Rochester Massachusetts Municipal Fund |
| a bond or portfolio can be approximated by multiplying its duration by a change in interest rates. For example, if a bond has an effective duration of three years, a 1% increase in general interest rates would be expected to cause the bond’s value to decline about 3% while a 1% decrease in general interest rates would be expected to cause the bond’s value to increase 3%. The duration of a debt security may be equal to or shorter than the full maturity of a debt security. |
| ■ | Credit Risk. Credit risk is the risk that the issuer of a security might not make interest and principal payments on the security as they become due. U.S. government securities generally have lower credit risks than securities issued by private issuers or certain foreign governments. If an issuer fails to pay interest, the Fund’s income might be reduced, and if an issuer fails to repay principal, the value of the security might fall and the Fund could lose the amount of its investment in the security. The extent of this risk varies based on the terms of the particular security and the financial condition of the issuer. A downgrade in an issuer’s credit rating or other adverse news about an issuer, for any reason, can reduce the market value of that issuer’s securities. |
| ■ | Credit Spread Risk. Credit spread risk is the risk that credit spreads (i.e., the difference in yield between securities that is due to differences in their credit quality) may increase when the market expects lower-grade bonds to default more frequently. Widening credit spreads may quickly reduce the market values of the Fund’s lower-rated and unrated securities. Some unrated securities may not have an active trading market or may trade less actively than rated securities, which means that the Fund might have difficulty selling them promptly at an acceptable price. |
| ■ | Extension Risk. Extension risk is the risk that, if interest rates rise rapidly, repayments of principal on certain debt securities may occur at a slower rate than expected, and the expected maturity of those securities could lengthen as a result. Securities that are subject to extension risk generally have a greater potential for loss when prevailing interest rates rise, which could cause their values to fall sharply. Extension risk is particularly prevalent for a callable security where an increase in interest rates could result in the issuer of that security choosing not to redeem the security as anticipated on the security’s call date. Such a decision by the issuer could have the effect of lengthening the debt security’s expected maturity, making it more vulnerable to interest rate risk and reducing its market value. |
| ■ | Reinvestment Risk. Reinvestment risk is the risk that when interest rates fall, the Fund may be required to reinvest the proceeds from a security’s sale or redemption at a lower interest rate. Callable bonds are generally subject to greater reinvestment risk than non-callable bonds. |
| ■ | Prepayment Risk. Certain fixed-income securities are subject to the risk of unanticipated prepayment. Prepayment risk is the risk that, when interest rates fall, the issuer will redeem the security prior to the security’s expected maturity, or that borrowers will repay the loans that underlie these fixed-income securities more quickly than expected, thereby causing the issuer of the security to repay the principal prior to expected maturity. The Fund may need to reinvest the proceeds at a lower interest rate, reducing its income. Securities subject to prepayment risk generally offer less potential for gains when prevailing interest rates fall. If the Fund buys those securities at a premium, accelerated prepayments on those securities could cause the Fund to lose a portion of its principal investment. The impact of prepayments on the price of a security may be difficult to predict and may increase the security’s price volatility. Interest-only and principal-only securities are especially sensitive to interest rate changes, which can affect not only their prices but can also change the income flows and repayment assumptions about those investments. |
Fixed-Income Market Risks. The fixed-income securities market can be susceptible to unusual volatility and illiquidity. Volatility and illiquidity may be more pronounced in the case of lower-rated and unrated
securities. Liquidity can decline unpredictably in response to overall economic conditions or credit tightening. Increases in volatility and decreases in liquidity may be caused by a rise in interest rates (or the
expectation of a rise in interest rates), which are at or near historic lows in the U.S. and in other countries. During times of reduced market liquidity, the Fund may not be able to readily sell bonds at the prices
at which they are carried on the Fund’s books. If the Fund needed to sell large blocks of bonds to meet shareholder redemption requests or to raise cash, those sales could further reduce the bonds’ prices.
An unexpected increase in Fund redemption requests, which may be triggered by market turmoil or an increase in interest rates, could cause the Fund to sell its holdings at a loss or at undesirable prices. Similarly,
the prices of the Fund’s holdings could be adversely affected if an investment account managed similarly to that of the Fund were to experience significant redemptions and those accounts were required to sell
its holdings at an inopportune time. The liquidity of an issuer’s securities may decrease as result of a decline in an issuer’s credit rating, the occurrence of an event that causes counterparties to avoid
transacting with the issuer, or an increase in the issuer’s cash outflows. A lack of liquidity or other adverse credit market conditions may hamper the Fund’s ability to sell the debt securities in which
it invests or to find and purchase suitable debt instruments.
Economic and other market
developments can adversely affect fixed-income securities markets in the United States, Europe and elsewhere. At times, participants in debt securities markets may develop concerns about the ability of certain issuers
of debt securities to make timely principal and interest payments, or they may develop concerns about the ability of financial institutions that make markets in certain debt securities to facilitate an orderly market.
Those concerns may impact the market price or value of those debt securities and may cause increased volatility in those debt securities or debt securities markets, reducing the willingness of some lenders to extend
credit, and making it more difficult for borrowers to obtain financing on attractive terms (or at all). Under some circumstances, as was the case during the latter half of 2008 and early 2009, those concerns could
cause reduced liquidity in certain debt securities markets.
Following the financial crisis,
the Federal Reserve has sought to stabilize the economy by keeping the federal funds rate at or near zero percent. The Federal Reserve purchased large quantities of securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, pursuant to its monetary stimulus program known as “quantitative easing”. As the Federal Reserve has ended its securities purchases pursuant to quantitative
easing or if the Federal Reserve raises
| Oppenheimer Rochester Massachusetts Municipal Fund | 9 |
the federal funds rate, there is a risk that
interest rates may rise and cause fixed-income investors to move out of fixed-income securities, which may also increase redemptions in fixed-income mutual funds.
In addition, although the
fixed-income securities markets have grown significantly in the last few decades, regulations and business practices have led some financial intermediaries to curtail their capacity to engage in trading (i.e.,
“market making”) activities for certain debt securities. As a result, dealer inventories of fixed-income securities, which provide an indication of the ability of financial intermediaries to make markets
in fixed-income securities, are at or near historic lows relative to market size. Because market makers help stabilize the market through their financial intermediary services, further reductions in dealer inventories
could have the potential to decrease liquidity and increase volatility in the fixed-income securities markets.
U.S. Territories, Commonwealths
and Possessions. The Fund also invests in obligations of the governments of U.S. territories, commonwealths and possessions such as Puerto Rico, the U.S. Virgin Islands, Guam and the Northern Mariana
Islands to the extent such obligations are exempt from regular federal individual and state income taxes. Accordingly, the Fund may be adversely affected by local political, economic and social conditions and
developments within these U.S. territories, commonwealths and possessions affecting the issuers of such obligations. 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 an Appendix to the Statement of Additional Information.
Significant
Investment in Puerto Rico Municipal Securities. As of the date of this prospectus, the Fund invested a significant percentage of its total assets in Puerto Rican municipal securities, which are exempt from federal,
state, and, where applicable, local income taxes. The Sub-Adviser expects the Fund to remain invested in municipal securities issued by Puerto Rico, its agencies and instrumentalities, subject to market, economic and
political conditions. Like many U.S. states and municipalities, Puerto Rico experienced a significant downturn during the recent recession. Puerto Rico continues to face significant fiscal challenges, including
persistent government deficits, underfunded public pension benefit obligations, underfunded government retirement systems, sizable debt service obligations and a high unemployment rate. The amount of its outstanding
public debt will make it very difficult for Puerto Rico to make full repayment. Certain issuers of Puerto Rico municipal securities have failed to make payments on obligations that have come due, and additional missed
payments and defaults may be likely to occur in the future. As a result of Puerto Rico’s challenging economic and fiscal environment, certain securities issued by Puerto Rico and its agencies are currently
considered below-investment-grade securities. The Fund holds some of these securities, which may subject the Fund to additional risks as described in this prospectus. If the economic situation in Puerto Rico persists
or worsens, the volatility, liquidity, credit quality and performance of the Fund could be adversely affected.
Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a short-term obligation with a stated maturity of usually 270 days or less. It is issued by state and local governments or their agencies to finance seasonal
working capital needs or as short-term financing in anticipation of longer-term financing. While tax-exempt commercial paper is intended to be repaid from general revenues or refinanced, it frequently is backed by a
letter of credit, lending arrangement, note, repurchase agreement or other credit facility agreement offered by a bank or financial institution. Because tax-exempt issuers may constantly reissue their commercial paper
and use the proceeds (or other sources) to repay maturing paper, the commercial paper of a tax-exempt issuer that is unable to continue to obtain liquidity in that manner may default. There may be a limited secondary
market for issues of tax-exempt commercial paper.
Municipal Lease Obligations. Municipal leases are used by state and local governments to obtain funds to acquire land, equipment or facilities. The Fund can invest in certificates of participation that represent a
proportionate interest in payments made under municipal lease obligations. Most municipal leases, while secured by the leased property, are not general obligations of the issuing municipality. They often contain
“non-appropriation” clauses under which the municipal government has no obligation to make lease or installment payments in future years unless money is appropriated on a yearly basis.
If the municipal government
stops making payments or transfers its payment obligations to a private entity, the obligation could lose value or become taxable. Although the obligation may be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure might prove difficult, time consuming and costly, and may result in a delay in recovering or the failure to recover the original investment.
Some lease obligations may not have an active trading market, making it difficult for the Fund to sell them quickly at an acceptable price.
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 Master Settlement Agreement (“MSA”) 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, a litigation settlement agreement reached out of court in November 1998 between 46 states and six other U.S. jurisdictions and the four largest U.S. tobacco manufacturers at that time. Subsequently, a number of smaller tobacco manufacturers signed on to the MSA, which provides for annual payments by the manufacturers to the states and other jurisdictions in perpetuity. 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. |
| 10 | Oppenheimer Rochester Massachusetts Municipal Fund |
A number of
states have securitized the future flow of those payments by selling bonds, some through distinct governmental entities created for such purpose. The bonds are backed by the future revenue flows from the tobacco
manufacturers. Annual payments on the bonds, and thus the risk to the Fund, are highly dependent on the receipt of future settlement payments. The 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. 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, including challenges by participating tobacco manufacturers regarding the amount of annual payments owed under the MSA, and an
adverse outcome could affect the payment streams associated with the MSA or cause delays or reductions in bond payments. The MSA itself has been subject to legal challenges and has, to date, withstood those
challenges. The Statement of Additional Information contains more detailed information about the litigation related to the tobacco industry and the MSA.
| ■ | “Subject to Appropriation” (STA) Tobacco 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, “government appropriation” or “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) from 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. 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.
Municipal Sector Focus. The Fund will not concentrate its investments in issuers in any one industry. The Securities and Exchange Commission has taken the position that investment of more than 25% of a
fund’s total assets in issuers in the same industry constitutes concentration in that industry. Many types of municipal securities (such as general obligation, government appropriation, municipals leases,
special assessment and special tax bonds) are not considered a part of any “industry” for purposes of this policy. Therefore, the Fund may invest more than 25% of its total assets in those types of
municipal securities. Those municipal securities may finance or pay interest from the revenues of projects that are subject to similar economic, business or political developments that could increase their credit
risk. Legislation that affects the financing of a particular municipal project, or economic factors that have a negative impact on a project, would be likely to affect many other similar projects. At times, the Fund
may change the relative emphasis of its investments in securities issued by certain municipalities. If the Fund has a greater emphasis on investments in one or more particular municipalities, it may be subject to
greater risks from adverse events affecting such municipalities than a fund that invests in different municipalities or that is more diversified.
Insured Municipal Bonds. The Fund may invest in municipal bonds that are covered by insurance guaranteeing the timely payment of principal at maturity and interest when due. Insurance guarantees that interest
payments on a municipal security will be made on time and that the principal will be repaid when the security matures. Either the issuer of the municipal security or the Fund purchases the insurance. Insurance is
expected to protect the Fund against losses caused by a municipal security issuer’s failure to make interest and principal payments. However, insurance does not protect the Fund or its shareholders against
losses caused by declines in a municipal security’s value. Also, the Fund cannot be certain that any insurance company will make the payments it guarantees. Immediately following the financial crisis of 2008,
certain significant providers of insurance for municipal securities incurred significant losses as a result of exposure to sub-prime mortgages and other lower credit quality investments that have experienced recent
defaults or otherwise suffered extreme credit deterioration. As a result, such losses have reduced certain insurers’ capital and called into question their continued ability to perform their obligations under
such insurance if they are called upon to do so in the future. While an insured municipal security will typically be deemed to have the rating of its insurer, if the insurer of a municipal security suffers a downgrade
in its credit rating or the market discounts the value of the insurance provided by the insurer, the rating of the underlying municipal security will be more relevant and the value of the municipal security would more
closely, if not entirely, reflect such rating. The Fund may lose money on its investment if the insurance company does not make payments it guarantees. In addition, if the Fund purchases the insurance, it must pay the
premiums, which will reduce the Fund’s yield. If a municipal security’s insurer fails to fulfill its obligations or loses its credit rating, the value of the security could drop.
Land-Secured or “Dirt”
Bonds (Special Tax or Special Assessment Bonds). The Fund can invest more than 25% of its total assets in municipal securities for similar types of projects that are issued in connection with special taxing districts that are organized
to plan and finance infrastructure development to induce residential, commercial and industrial growth and redevelopment. The bonds financed by these methods, such as tax assessment, special tax or tax increment
financing
| Oppenheimer Rochester Massachusetts Municipal Fund | 11 |
generally are payable solely from taxes or
other revenues attributable to the specific projects financed by the bonds without recourse to the credit or taxing power of related or overlapping municipalities. These projects often are exposed to real estate
development-related risks, such as the failure of property development, availability of financing, extended vacancies of properties, increased competition, limitations on rents, changes in neighborhood values and the
demand of properties to tenants, and changes in interest rates. These real estate risks may be heightened in the event that these projects are in foreclosure. Additionally, upon foreclosure the Fund may pay certain
maintenance or operating expenses or taxes relating to such projects. These expenses may increase the overall expenses of the Fund and reduce its returns.
In addition, these projects can
have more taxpayer concentration risk than general tax-supported bonds, such as general obligation bonds. Further, the fees, special taxes, or tax allocations and other revenues that are established to secure such
financings generally are limited as to the rate or amount that may be levied or assessed and are not subject to increase pursuant to rate covenants or municipal or corporate guarantees. The bonds could default if
development failed to progress as anticipated or if larger taxpayers failed to pay the assessments, fees and taxes as provided in the financing plans of the projects.
Ratings of Municipal Securities
the Fund Buys. The Sub-Adviser may rely to some extent on credit ratings by nationally recognized statistical rating organizations in evaluating the credit risk of securities selected for the
Fund’s portfolio. Credit ratings evaluate the expectation that scheduled interest and principal payments will be made in a timely manner. They do not reflect any judgment of market risk. Ratings and market value
may change from time to time, positively or negatively, to reflect new developments regarding the issuer.
Rating organizations might not
change their credit rating of an issuer in a timely manner to reflect events that could affect the issuer’s ability to make timely payments on its obligations. In selecting securities for its portfolio and
evaluating their income potential and credit risk, the Fund does not rely solely on ratings by rating organizations but evaluates business, economic and other factors affecting issuers as well. Many factors affect an
issuer’s ability to make timely payments, and the credit risk of a particular security may change over time. The Sub-Adviser also may use its own research and analysis to assess those risks. If a bond is
insured, it will usually be rated by the rating organizations based on the financial strength of the insurer. The rating categories are described in an Appendix to the Statement of Additional Information.
Most of the municipal securities
the Fund buys are “investment-grade” at the time of purchase. “Investment-grade” securities are those rated within the four highest rating categories of S&P Global Ratings
(“S&P”), Moody’s, Fitch or another nationally recognized statistical rating organization (or, in the case of unrated securities, determined by the Sub-Adviser to be comparable to securities rated
investment-grade). While securities rated within the fourth highest category by Standard & Poor’s (meaning BBB+, BBB or BBB-) or by Moody’s (meaning Baa1, Baa2 or Baa3) are considered
“investment-grade,” they have some speculative characteristics. If two or more nationally recognized statistical rating organizations have assigned different ratings to a security, the Sub-Adviser uses the
highest rating assigned.
Risks of
Below-Investment-Grade Securities. Below-investment-grade securities (also referred to as “junk bonds”) generally have higher yields than investment-grade securities but also have higher risk
profiles. Below-investment-grade securities are considered to be speculative and entail greater risk with respect to the ability of the issuer to timely repay principal and pay interest or dividends in accordance with
the terms of the obligation and may have more credit risk than investment-grade securities, especially during times of weakening economic conditions or rising interest rates. These 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 below-investment-grade securities. The major risks of
below-investment-grade securities include:
| ■ | Prices of below-investment-grade securities may be subject to extreme price fluctuations, even under normal market conditions. Adverse changes in an issuer’s industry and general economic conditions may have a greater impact on the prices of below-investment-grade securities than on the prices of investment-grade securities. |
| ■ | Below-investment-grade securities may be issued by less creditworthy issuers and may be more likely to default than investment-grade securities. Issuers of below-investment-grade securities may have more outstanding debt relative to their assets than issuers of investment-grade securities. Issuers of below-investment-grade securities may be unable to meet their interest or principal payment obligations because of an economic downturn, specific issuer developments, or the unavailability of additional financing. |
| ■ | In the event of an issuer’s bankruptcy, claims of other creditors may have priority over the claims of the holders of below-investment-grade securities. |
| ■ | Below-investment-grade securities may be less liquid than investment-grade securities, even under normal market conditions. There are fewer dealers in the below-investment-grade securities market and there may be significant differences in the prices quoted by the dealers. Because they are less liquid, judgment may play a greater role in valuing certain of the Fund’s securities than is the case with securities trading in a more liquid market. |
| ■ | Below-investment-grade securities typically contain redemption provisions that permit the issuer of the securities containing such provisions to redeem the securities at its discretion. If the issuer redeems below-investment-grade securities, the Fund may have to invest the proceeds in securities with lower yields and may lose income. |
| ■ | Below-investment-grade securities markets may be more susceptible to real or perceived adverse credit, economic, or market conditions than investment-grade securities. |
The Fund can invest up to 25% of
its total assets in below-investment-grade securities. This restriction is applied at the time of purchase and the Fund may continue to hold a security whose credit rating has been downgraded or, in the case of an
| 12 | Oppenheimer Rochester Massachusetts Municipal Fund |
unrated security, after the Fund’s
Sub-Adviser has changed its assessment of the security’s credit quality. As a result, credit rating downgrades or other market fluctuations may cause the Fund’s holdings of below-investment-grade
securities to exceed, at times significantly, this restriction for an extended period of time. Credit rating downgrades of a single issuer or related similar issuers whose securities the Fund holds in significant
amounts could substantially and unexpectedly increase the Fund’s exposure to below-investment-grade securities and the risks associated with them, especially liquidity and default risk. If the Fund has more than
25% of its total assets invested in below-investment-grade securities, the Sub-Adviser will not purchase additional below-investment-grade securities until the level of holdings in those securities no longer exceeds
the restriction.
Unrated
Securities. Because the Fund purchases securities that are not rated by any nationally recognized statistical rating organization, the Sub-Adviser may internally assign ratings to
those securities, after assessing their credit quality and other factors, in categories similar to those of nationally recognized statistical rating organizations. There can be no assurance, nor is it intended, that
the Sub-Adviser’s credit analysis process is consistent or comparable with the credit analysis process used by a nationally recognized statistical rating organization. Unrated securities are considered
“investment-grade” or “below-investment-grade” if judged by the Sub-Adviser to be comparable to rated investment-grade or below-investment-grade securities. The Sub-Adviser’s rating does
not constitute a guarantee of the credit quality. In addition, some unrated securities may not have an active trading market or may trade less actively than rated securities, which means that the Fund might have
difficulty selling them promptly at an acceptable price.
In evaluating the credit quality
of a particular security, whether rated or unrated, the Sub-Adviser will normally take into consideration a number of factors including, but not limited to, the financial resources of the issuer, 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, the degree of community support for the
financed facility, the capabilities of the issuer’s management, and regulatory factors affecting the issuer or the particular facility.
A reduction in the rating of a
security after the Fund buys it will not require the Fund to dispose of the security. However, the Sub-Adviser will evaluate such downgraded securities to determine whether to keep them in the Fund’s
portfolio.
Taxability Risk. The Fund’s investments in municipal securities rely on the opinion of the issuer’s bond counsel that the interest paid on those securities will not be subject to federal and
state income tax. Tax opinions are generally provided at the time the municipal security is initially issued. However, after the Fund buys a security, the Internal Revenue Service may determine that a bond issued as
tax-exempt should in fact be taxable and the Fund’s dividends with respect to that bond might be subject to federal income tax. In addition, income from tax-exempt municipal securities could be declared taxable
because of unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service, state tax authorities, or a court, or the non-compliant conduct of a bond issuer.
Borrowing and Leverage. The Fund can borrow from banks, a technique referred to as “leverage,” in amounts up to one-third of the Fund’s total assets (including the amount borrowed) less all
liabilities and indebtedness other than borrowings. The Fund can use those borrowings for investment-related purposes such as purchasing securities believed to be desirable by the Sub-Adviser when available, funding
amounts necessary to unwind or “collapse” trusts that issued “inverse floaters” to the Fund (an investment vehicle used by the Fund as described in this prospectus), or to contribute to such
trusts to enable them to meet tenders of their other securities by the holders. The Fund currently participates in a line of credit with other Oppenheimer funds for those purposes. The Fund may also borrow to meet
redemption obligations or for temporary and emergency purposes.
Borrowing for leverage will
subject the Fund to greater costs (for interest payments to the lender, origination fees and related expenses) than funds that do not borrow for leverage and these other purposes. The interest on borrowed money is an
expense that might reduce the Fund’s yield, especially if the cost of borrowing to buy securities exceeds the yield on the securities purchased with the proceeds of a loan. Using leverage may also make the
Fund’s share price more sensitive, i.e. volatile, to interest rate changes than if the Fund did not use leverage due to the tendency to exaggerate the effect of any increase or decrease in the value of the
Fund’s portfolio securities. The use of leverage may also cause the Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or meet segregation requirements
under the Investment Company Act of 1940.
Derivative Investments. The Fund can invest in different types of “derivative” instruments that are consistent with its investment strategies. A derivative is an instrument whose value depends on (or
is derived from) the value of an underlying security, asset, interest rate, index or currency. Inverse floaters are the primary type of derivative the Fund can use.
Risks of
Derivative Investments. Derivatives may be volatile and may involve significant risks. The underlying security, obligor or other instrument on which a derivative is based, or the derivative
itself, may not perform as expected. For some derivatives, it is possible to lose more than the amount invested in the derivative investment. In addition, some derivatives have the potential for unlimited loss,
regardless of the size of the Fund’s initial investment. Certain derivative investments held by the Fund may be illiquid, making it difficult to close out an unfavorable position. Derivative transactions may
require the payment of premiums and may increase portfolio turnover. Derivatives are subject to credit risk, since the Fund may lose money on a derivative investment if the issuer or counterparty fails to pay the
amount due. As a result of these risks, the Fund could realize little or no income or lose money from the investment, or the use of a derivative for hedging might be unsuccessful.
In addition, under financial
reform legislation currently being implemented, certain over-the-counter derivatives, including certain interest rate swaps and certain credit default swaps, are (or soon will be) required to be executed on a
regulated market and/or cleared through a clearinghouse, which may result in increased margin requirements and costs for the
| Oppenheimer Rochester Massachusetts Municipal Fund | 13 |
Fund. It is unclear how these regulatory
changes will affect counterparty risk, and entering into a derivative transaction that is cleared may entail further risks and costs, including the counterparty risk of the clearinghouse and the futures commission
merchant through which the Fund accesses the clearinghouse.
The Fund may use derivatives to
seek income or capital gain to hedge against the risks of other investments. Derivatives may allow the Fund to increase or decrease its exposure to certain markets or risks. Examples include, but are not limited to,
interest rate swaps or municipal bond swaps. While the Fund may use derivatives for hedging purposes, it typically does not use hedging instruments, such as options, to hedge investment risks.
Inverse Floaters. The Fund may invest in inverse floaters to seek greater income and total return. Inverse floaters, under ordinary circumstances, offer higher yields and thus provide higher income than
fixed-rate municipal bonds of comparable maturity and credit quality. During periods of rising interest rates, the market values of inverse floaters will tend to decline more quickly than those of fixed rate
securities.
An inverse floater is created as
part of a “tender option bond” transaction. In most cases, in a tender option bond transaction the Fund sells a fixed-rate municipal bond (the “underlying municipal bond”) to a trust (the
“Trust”). The Trust then issues and sells short-term floating rate securities with a fixed principal amount representing a senior interest in the underlying municipal bond to third parties and the inverse
floater, representing a residual, subordinate interest in the underlying municipal bond, to the Fund. The proceeds of the sale of the bond by the Fund remaining after it buys the inverse floater can be used for any
purpose. The interest rate on the short-term floating rate securities resets periodically, usually weekly, to a prevailing market rate and holders of these securities are granted the option to tender their securities
back to the Trust for repurchase at their principal amount plus accrued interest thereon (the “purchase price”) periodically, usually daily or weekly. A remarketing agent for the Trust is required to
attempt to re-sell any tendered short-term floating rate securities to new investors for the purchase price. If the remarketing agent is unable to successfully re-sell the tendered short-term floating rate securities,
a liquidity provider to the Trust must contribute cash to the Trust to ensure that the tendering holders receive the purchase price of their securities on the repurchase date.
The Fund may also purchase an
inverse floater created as part of a tender option bond transaction not initiated by the Fund when a third party, such as a municipal issuer or financial institution, transfers an underlying municipal bond to a
Trust.
Because holders of the
short-term floating rate securities are granted the right to tender their securities to the Trust for repurchase at frequent intervals for the purchase price, with such payment effectively guaranteed by the liquidity
provider, the securities generally bear short-term rates of interest commensurate with money market instruments. When interest is paid on the underlying municipal bond to the Trust, such proceeds are first used to pay
the Trust’s administrative expenses and accrued interest to holders of the short-term floating rate securities, with any remaining amounts being paid to the Fund, as the holder of the inverse floater.
Accordingly, the amount of such interest on the underlying municipal bond paid to the Fund is inversely related to the rate of interest on the short-term floating rate securities. Additionally, because the principal
amount of the short-term floating rate securities is fixed and is not adjusted in response to changes in the market value of the underlying municipal bond, any change in the market value of the underlying municipal
bond is reflected entirely in a change to the value of the inverse floater.
Typically, the terms of an
inverse floater grant the Fund, as holder, the right to voluntarily terminate the Trust and to obtain the underlying municipal bond. To do so, the Fund would generally need to pay the Trust the purchase price of the
short-term floating rate securities and a specified portion of any market value gain on the underlying municipal bond since its deposit into the Trust. Through the exercise of such right, the Fund can
“collapse” the Trust, terminate its investment in the related inverse floater and obtain the underlying municipal bond. Additionally, the Fund also typically has the right to exchange with the Trust (i) a
principal amount of short-term floating rate securities held by the Fund for a corresponding additional principal amount of the inverse floater or (ii) a principal amount of the inverse floater held by the Fund for a
corresponding additional principal amount of short-term floating rate securities (which are typically then sold to other investors). Through the exercise of this right, the Fund may increase (or decrease) the
principal amount of short-term floating rate securities outstanding, thereby increasing (or decreasing) the amount of leverage provided by the short-term floating rate securities to the Fund’s investment
exposure to the underlying municipal bond.
The Fund’s investments in
inverse floaters involve certain risks. 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. Thus, if short-term interest rates rise after the issuance of the inverse floater, any yield advantage to the Fund is reduced and may be eliminated. All inverse floaters entail
some degree of leverage represented by the outstanding principal amount of the related short-term floating rate securities.
The value of, and income earned
on, an inverse floater that has a higher degree of leverage (represented by an outstanding principal amount of related short-term floating rate securities that constitutes a larger percentage of the par value of the
underlying municipal bond) will fluctuate more significantly in response to changes in interest rates and to changes in the market value of the related underlying municipal bond than that of an inverse floater having
a lower degree of leverage. Changes in the value of an inverse floater will also be more significant than changes in the market value of the related underlying municipal bond because the leverage provided by the
related short-term floating rate securities increases the sensitivity of an inverse floater to changes in interest rates and to the market value of the underlying municipal bond. An inverse floater can be expected to
underperform fixed-rate municipal bonds when long-term interest rates are rising, but can be expected to outperform fixed-rate municipal bonds when long-term interest rates are falling. Additionally, a tender option
bond transaction typically provides for the automatic termination or “collapse” of a Trust upon the occurrence of certain adverse events, usually referred to as “mandatory tender events” or
“tender option termination
| 14 | Oppenheimer Rochester Massachusetts Municipal Fund |
events.” These events may include, among
others, a credit ratings downgrade of the underlying municipal bond below a specified level, a decrease in the market value of the underlying municipal bond below a specified amount, a bankruptcy of the liquidity
provider or the inability of the remarketing agent to re-sell to new investors short-term floating rate securities that have been tendered for repurchase. Following such an event, the underlying municipal bond is
generally sold for current market value and the proceeds distributed to holders of the short-term floating rate securities and inverse floater, with the holder of the inverse floater (the Fund) generally receiving the
proceeds of such sale only after the holders of the short-term floating rate securities have received proceeds equal to the purchase price of their securities (and the liquidity provider is generally required to
contribute cash to the Trust only in an amount sufficient to ensure that holders of the short-term floating rates securities receive the purchase price for their securities in connection with such termination of the
Trust, in which instance the Fund may have an obligation to reimburse the liquidity provider, as described below). The sale of the underlying bond following such an event could be at an adverse price that might result
in the loss by the Fund of a substantial portion, or even all, of its investment in the related inverse floater.
The Fund may enter into
shortfall/reimbursement agreements with the liquidity provider in connection with certain inverse floaters held by the Fund. These agreements commit the Fund to reimburse the liquidity provider to the extent that the
liquidity provider must provide cash to a Trust, including following the termination of a Trust resulting from the occurrence of a “mandatory tender event.” In connection with such an event and the
termination of the Trust triggered thereby, the shortfall/reimbursement agreement will make the Fund liable for the amount of the negative difference, if any, between the liquidation value of the underlying municipal
bond and the purchase price of the short-term floating rate securities issued by the Trust. The Sub-Adviser monitors the Fund’s potential exposure with respect to these agreements on a daily basis and intends to
take action to terminate the Fund’s investment in related inverse floaters, if it deems it appropriate to do so.
Accounting Treatment of Inverse
Floaters. When the Fund creates an inverse floater in a tender option bond transaction by selling an underlying municipal bond to a Trust, the transaction is considered a secured
borrowing for financial reporting purposes. As a result of such accounting treatment, the Fund includes the underlying municipal bond on its Statement of Investments and as an asset on its Statement of Assets and
Liabilities (but does not separately include the related inverse floater on either). The Fund also includes a liability on its Statement of Assets and Liabilities equal to the outstanding principal amount and accrued
interest on the related short-term floating rate securities issued by the Trust. Interest on the underlying municipal bond is recorded as investment income on the Fund’s Statement of Operations, while interest
payable on the related short-term floating rate securities is recorded as interest expense (which affects the Fund’s annual operating expenses, shown earlier in this prospectus). As mentioned above, the Fund may
also purchase an inverse floater created as part of a tender option bond transaction when a third party, such as a municipal issuer or financial institution, transfers an underlying municipal bond to a Trust. For
financial reporting purposes, the Fund includes the inverse floater related to such transaction on its Statement of Investments and interest on the security is recorded as investment income on the Fund’s
Statement of Operations.
Floating Rate/Variable Rate
Obligations. Some municipal securities have variable or floating interest rates. Variable rates are adjustable at stated periodic intervals. Floating rates are automatically adjusted
according to a specified market rate for those investments, such as, for example, the percentage of LIBOR, the SIFMA Municipal Swap Index or the percentage of the prime rate of a bank. These obligations may be secured
by bank letters of credit or other credit support arrangements. Inverse floaters, discussed in this prospectus, are a type of variable rate obligation.
Other Investment Strategies and
Risks. The Fund can also use the investment techniques and strategies described below. The Fund might not use all of these techniques or
strategies or might only use them from time to time.
To seek a higher yield, the Fund
also can invest in municipal securities other than those of its state. Although any interest from those securities generally would be exempt from federal taxation, any such interest may be subject to the Fund’s
state personal income tax. The Fund does not expect to invest a significant portion of its assets in securities that are not exempt from its state’s personal income tax.
When-Issued and Delayed-Delivery
Transactions. The Fund may purchase municipal securities on a “when-issued” basis and may purchase or sell such securities on a “delayed-delivery” basis.
“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. During the
period between the purchase and the settlement dates, the buyer makes no payment for the security and receives no interest. When-issued or delayed-delivery securities the Fund buys are subject to changes in value as a
result of market fluctuations during that period and the value of the security on the delivery date may be more or less than the Fund paid. The Fund may lose money if the value of the security has declined below the
purchase price.
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. A 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 short-term interest rate environment and lower levels of income as short-term interest rates decline. In
times of substantial market volatility, however, 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’s ability to
engage in transactions using PLNs may be limited due to market factors. 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. The Fund may also transfer a PLN to a sponsor to create an inverse floater, which may further increase the volatility of the market value of a PLN or the
inverse floater.
| Oppenheimer Rochester Massachusetts Municipal Fund | 15 |
Distressed Debt Securities. The Fund may invest in debt securities issued by companies that are involved in reorganizations, financial restructurings or bankruptcy. Such distressed debt securities are speculative and
involve substantial risks in addition to the risks of investing in below-investment-grade debt securities. The Fund will generally not receive interest payments on the distressed securities and may also incur costs to
protect its investment. In addition, distressed securities involve the substantial risk that principal will not be repaid. These securities may present a substantial risk of default or may be in default at the time of
investment. The Fund may incur additional expenses to the extent it is required to seek recovery upon a default in the payment of principal of or interest on its portfolio holdings. In any reorganization or
liquidation proceeding relating to a portfolio company, the Fund may lose its entire investment or may be required to accept cash or securities with a value less than its original investment. Distressed securities and
any securities received in an exchange for such securities may be subject to restrictions on resale. Distressed securities are subject to the Fund’s limitation on holding below-investment-grade
securities.
Defaulted Securities. The Fund may purchase defaulted securities if the investment adviser believes that there is potential for resumption of income payments or realization of income on the sale of the
securities or the collateral or other advantageous developments appear likely in the near future. Notwithstanding the investment adviser’s belief about the resumption of income payments or realization of income,
the purchase of defaulted securities is highly speculative and involves a high degree of risk, including the risk of a substantial or complete loss of the Fund’s investment. Defaulted securities are subject to
the Fund’s limitation on holding below-investment-grade securities. The investment adviser does not expect that this will be a significant investment strategy of the Fund.
Zero-Coupon Securities. The Fund can invest without limit in zero-coupon securities. These debt obligations do not pay interest prior to their maturity date or else they do not start to pay interest at a stated
coupon rate until a future date. They are issued and traded at a discount from their face amount. The discount varies as the securities approach their maturity date (or the date interest payments are scheduled to
begin). When interest rates change, zero-coupon securities are subject to greater fluctuations in their value than securities that pay current interest. The Fund accrues the discount on zero-coupon bonds as tax-free
income on a current basis. The Fund may have to pay out the imputed income on zero-coupon securities without receiving actual cash payments currently.
Illiquid Securities. Investments may be illiquid because they do not have an active trading market, making it difficult to value them or dispose of them promptly at an acceptable price. The Sub-Adviser
monitors holdings of illiquid securities on an ongoing basis to determine whether to sell any holdings.
The Fund will
not invest more than 15% of its net assets in illiquid securities.
Taxable Investments. 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. Taxable investments include, for
example, hedging instruments, repurchase agreements, and many of the types of securities the Fund would buy for temporary defensive purposes. The Fund 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.
Temporary Defensive and Interim
Investments. For temporary defensive purposes in times of adverse or unstable market, economic or political conditions, the Fund can invest up to 100% of its total assets in investments that may be
inconsistent with the Fund’s principal investment strategies. Generally, the Fund would invest in short-term municipal securities, but could also invest in U.S. government securities or highly-rated corporate
debt securities. The Fund might also hold these types of securities as interim investments pending the investment of proceeds from the sale of Fund shares or the sale of Fund portfolio securities or to meet
anticipated redemptions of Fund shares. The income from some temporary defensive investments may not be tax-exempt, and therefore to the extent the Fund invests in these securities, it might not achieve its investment
objective.
Investments in Money Market
Instruments. The Fund can invest its free cash balances in money market instruments to provide liquidity or for defensive purposes. Money market instruments are short-term, U.S. dollar-denominated debt
instruments issued or guaranteed by domestic and foreign corporations and financial institutions, the U.S. government, its agencies and instrumentalities and other entities. Money market instruments include
certificates of deposit, commercial paper, repurchase agreements, treasury bills and other short term debt obligations that have a final maturity, as defined under rules under the Investment Company Act, of 397 days
or less. They may have fixed, variable or floating interest rates. Money market instruments are subject to certain risks, including the risk that an issuer of an obligation that the Fund holds might have its credit
rating downgraded or might default on its obligations, or that interest rates might rise sharply, causing the value of the Fund’s investments to fall.
The Fund may invest in money
market instruments by investing in Class E shares of Oppenheimer Institutional Money Market Fund. It may also invest in money market instruments directly, or in other affiliated or unaffiliated money market funds. The
Fund may invest in such other money market funds, such as Oppenheimer Institutional Money Market Fund, rather than purchasing individual short-term investments. Oppenheimer Institutional Money Market Fund is a
registered open-end management investment company, regulated as a money market fund under the Investment Company Act of 1940, and is part of the Oppenheimer family of funds. At the time of an investment, the Fund
cannot always predict what will be the yield of the Oppenheimer Institutional Money Market Fund, or any other money market fund it may hold, because of the wide variety of instruments that such fund may hold in its
portfolio. The return on those investments may, in some cases, be lower than the return that would have been derived from other types of investments that would provide liquidity. As a shareholder, the Fund will be
subject to its proportional share of the expenses of any other money market fund it may hold, including its advisory fee. However, the Manager will waive a portion of the Fund’s advisory fee to the extent of
the
| 16 | Oppenheimer Rochester Massachusetts Municipal Fund |
Fund’s share of the advisory fee paid to
the Manager by Oppenheimer Institutional Money Market Fund, or to any other similar affiliated money market fund of which the Fund is a shareholder. If the Fund invests in an unaffiliated money market fund, the
Manager will not waive a portion of the Fund’s advisory fee representing the Fund’s share of the advisory fee paid by such unaffiliated fund to any unaffiliated manager.
Investments by “Funds of
Funds.” Class Y shares of the Fund are offered as an investment to certain other Oppenheimer funds that act as “funds of funds,” which may invest significant portions of their assets
in shares of the Fund. From time to time, those investments may also represent a significant portion of the Fund’s outstanding shares or of its outstanding Class Y shares. The Oppenheimer funds of funds
typically use asset allocation strategies that may increase or reduce the amount of their investment in the Fund frequently, possibly on a daily basis during volatile market conditions. If the size of those purchases
or redemptions were significant relative to the size of the Fund’s assets, the Fund might be required to purchase or sell portfolio securities, which could increase its transaction costs and reduce the
performance of all of its share classes. A decline in the Fund’s assets due to large redemptions could also cause the Fund’s operating expenses to increase. Further discussion of the possible effects of
frequent trading in the Fund’s shares is included elsewhere in this prospectus.
Portfolio Turnover. A change in the securities held by the Fund is known as “portfolio turnover.” The Fund may engage in active and frequent trading to try to achieve its investment objective and
may have a portfolio turnover rate of over 100% annually. Increased portfolio turnover may result in higher brokerage fees or other transaction costs, which can reduce performance. 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 commission. If the Fund realizes capital gains when it sells
investments, it generally must pay those gains to shareholders, increasing its taxable distributions. The Financial Highlights table at the end of this prospectus shows the Fund’s portfolio turnover rates during
past fiscal years.
Conflicts of Interest. The investment activities of the Manager, the Sub-Adviser and their affiliates in regard to other accounts they manage may present conflicts of interest that could disadvantage the Fund
and its shareholders. The Manager, the Sub-Adviser or their affiliates may provide investment advisory services to other funds and accounts that have investment objectives or strategies that differ from, or are
contrary to, those of the Fund. That may result in another fund or account holding investment positions that are adverse to the Fund’s investment strategies or activities. Other funds or accounts advised by the
Manager, the Sub-Adviser or their affiliates may have conflicting interests arising from investment objectives that are similar to those of the Fund. Those funds and accounts may engage in, and compete for, the same
types of securities or other investments as the Fund or invest in securities of the same issuers that have different, and possibly conflicting, characteristics. The trading and other investment activities of those
other funds or accounts may be carried out without regard to the investment activities of the Fund and, as a result, the value of securities held by the Fund or the Fund’s investment strategies may be adversely
affected. The Fund’s investment performance will usually differ from the performance of other accounts advised by the Manager, the Sub-Adviser or their affiliates and the Fund may experience losses during
periods in which other accounts they advise achieve gains. The Manager and the Sub-Adviser have adopted policies and procedures designed to address potential conflicts of interest identified by the Manager and the
Sub-Adviser. However, such policies and procedures may also limit the Fund’s investment activities and affect its performance. For example, the investment activities of such funds or accounts may result in the
Manager’s, the Sub-Adviser’s, or their affiliates’ receipt of material non-public information concerning certain securities, which could lead to restrictions in the trading of such securities or
other investment activities of the Fund or other funds or accounts managed by the Manager, the Sub-Adviser or their affiliates.
Changes To The Fund’s
Investment Policies. The Fund’s fundamental investment policies cannot be changed without the approval of a majority of the Fund’s outstanding
voting shares; however, the Fund’s Board can change non-fundamental policies without a shareholder vote. Significant policy changes will be described in supplements to this prospectus. The Fund’s
investment objective is not a fundamental policy. However, the Fund has an 80% investment policy described in “Principal Investment Strategies” that is a fundamental policy. Moreover, shareholders will
receive 60 days’ advance notice of any change in the 80% investment strategy described in “Principal Investment Strategies” relating to the Fund’s state municipal securities, which is not a
fundamental policy. Other investment restrictions that are fundamental policies are listed in the Fund’s Statement of Additional Information. An investment policy is not fundamental unless this prospectus or the
Statement of Additional Information states that it is.
Portfolio Holdings. The Fund’s portfolio holdings are included in its semi-annual and annual reports that are distributed to its shareholders within 60
days after the close of the applicable reporting period. The Fund also discloses its portfolio holdings in its Schedule of Investments on Form N-Q, which are public filings that are required to be made with the
Securities and Exchange Commission within 60 days after the end of the Fund’s first and third fiscal quarters. Therefore, the Fund’s portfolio holdings are made publicly available no later than 60 days
after the end of each of its fiscal quarters. In addition, the Fund’s portfolio holdings information, as of the end of each calendar month, may be posted and available on the Fund’s website no sooner than
30 days after the end of each calendar month.
A description of the
Fund’s policies and procedures with respect to the disclosure of its portfolio holdings is available in the Fund’s Statement of Additional Information.
| Oppenheimer Rochester Massachusetts Municipal Fund | 17 |
How the Fund is Managed
THE MANAGER AND THE
SUB-ADVISER. OFI Global Asset Management, Inc., the Manager, is a wholly-owned subsidiary of OppenheimerFunds, Inc. The Manager oversees the
Fund’s investments and its business operations. OppenheimerFunds, Inc., the Sub-Adviser, chooses the Fund’s investments and provides related advisory services. The Manager carries out its duties, subject
to the policies established by the Fund’s Board, under an investment advisory agreement with the Fund that states the Manager’s responsibilities. The agreement sets the fees the Fund pays to the Manager
and describes the expenses that the Fund is responsible to pay to conduct its business. The Sub-Adviser has a sub-advisory agreement with the Manager and is paid by the Manager.
The Manager has been an
investment adviser since 2012. The Sub-Adviser has been an investment adviser since 1960. The Manager and the Sub-Adviser are located at 225 Liberty Street, New York, New York 10281-1008.
Advisory Fees. Under the investment advisory agreement, the Fund pays the Manager an advisory fee at an annual rate that declines on additional assets as the Fund grows: 0.55% of the first $500 million
of average annual net assets, 0.50% of the next $500 million, 0.45% of the next $500 million and 0.40% of average annual net assets over $1.5 billion, calculated on the daily net assets of the Fund. Under the
sub-advisory agreement, the Manager pays the Sub-Adviser a percentage of the net investment advisory fee (after all applicable waivers) that it receives from the Fund as compensation for the provision of the
investment advisory services. The Fund’s advisory fee for the fiscal year ended March 31, 2016 was 0.55% of average annual net assets, before any applicable waivers.
After discussions with the
Fund’s Board of Trustees, the Manager has contractually agreed to waive fees and/or reimburse the Fund for certain expenses in order to limit “Total Annual Fund Operating Expenses After Fee Waiver and/or
Expense Reimbursement” (excluding (i) interest and fees from borrowing, interest and related expenses from inverse floaters, taxes, dividends tied to short sales, brokerage commissions, and other expenditures
which are capitalized in accordance with generally accepted accounting principles; (ii) expenses incurred directly or indirectly by the Fund as a result of investments in other investment companies, wholly-owned
subsidiaries and pooled investment vehicles; (iii) certain other expenses attributable to, and incurred as a result of, a Fund’s investments; and (iv) other unusual and infrequent expenses (including litigation
expenses) not incurred in the ordinary course of the Fund’s business) to annual rates of 0.80% for Class A shares, 1.55% for Class B and Class C shares, and 0.80% for Class Y shares, as calculated on the daily
net assets of the Fund. This fee waiver and/or expense reimbursement may not be amended or withdrawn for one year from the date of this prospectus, unless approved by the Board.
The Total Annual Fund Operating
Expenses shown in the Annual Fund Operating Expenses table earlier in this prospectus include certain interest and related expenses from the Fund’s investment in inverse floaters. Under accounting rules, the
Fund recognized additional income in an amount that offsets those expenses. Therefore, the Fund’s total expenses and net asset values were not affected. If the interest and related expenses from the Fund’s
investment in inverse floaters were excluded (after applying any applicable fee waivers and/or expense reimbursements) the expense ratios for the Fund would be 1.37% for Class A, 2.12% for Class B, 2.12% for Class C,
and 1.37% for Class Y. The Fund’s annual operating expenses may vary in future years.
A discussion regarding the basis
for the Board’s approval of the Fund’s investment advisory arrangements is available in the Fund’s Semi-Annual Report to shareholders for the period ended September 30, 2015.
Portfolio Managers. The Fund’s portfolio is managed by a team of investment professionals, including Scott S. Cottier, CFA, Troy E. Willis, J.D., CFA,
Mark R. DeMitry, CFA, Michael L. Camarella, CFA, Charles S. Pulire, CFA, and Elizabeth S. Mossow, CFA, who are primarily responsible for the day-to-day management of the Fund’s investments. Messrs. Cottier and
Willis have been portfolio managers and Vice Presidents of the Fund since its inception. Mr. DeMitry has been a portfolio manager of the Fund since September 2006 and a Vice President of the Fund since June 2009. Mr.
Camarella has been a portfolio manager of the Fund since January 2008 and a Vice President of the Fund since June 2009. Mr. Pulire has been a portfolio manager of the Fund since December 2010 and a Vice President of
the Fund since September 2011. Mrs. Mossow has been a portfolio manager of the Fund since July 2013 and Vice President of the Fund since January 2016.
Mr. Cottier has been a Vice
President and Senior Portfolio Manager of the Sub-Adviser since September 2002. Mr. Cottier is a co-team leader, a portfolio manager, an officer, and a trader for the Fund and other Oppenheimer funds.
Mr. Willis has been a Vice
President of the Sub-Adviser since July 2009 and a Senior Portfolio Manager of the Sub-Adviser since January 2006. He was an Assistant Vice President of the Sub-Adviser from July 2005 to June 2009 and an Associate
Portfolio Manager of the Sub-Adviser from June 2003 to December 2005. Mr. Willis is a co-team leader, a portfolio manager, an officer, and a trader for the Fund and other Oppenheimer funds.
Mr. DeMitry has been a Vice
President and Senior Portfolio Manager of the Sub-Adviser since July 2009. He was an Associate Portfolio Manager with the Sub-Adviser from September 2006 to June 2009. He was a Research Analyst with the Sub-Adviser
from June 2003 to August 2006. He was a Credit Analyst with the Sub-Adviser from July 2001 to May 2003. Mr. DeMitry is a portfolio manager, an officer and a trader for the Fund and other Oppenheimer funds.
Mr. Camarella has been a Vice
President and Senior Portfolio Manager of the Sub-Adviser since January 2011. He was an Assistant Vice President of the Sub-Adviser from July 2009 to December 2010 and an Associate Portfolio Manager with the
Sub-Adviser from January 2008 to December 2010. He was a Research Analyst with the Sub-Adviser from April 2006 to December 2007. He was a Credit Analyst with the Sub-Adviser from June 2003 to March 2006. Mr. Camarella
is a portfolio manager, an officer and a trader for the Fund and other Oppenheimer funds.
| 18 | Oppenheimer Rochester Massachusetts Municipal Fund |
Mr. Pulire has been a Vice
President of the Sub-Adviser since February 2013 and Senior Portfolio Manager of the Sub-Adviser since January 2013. He was an Assistant Vice President and an Associate Portfolio Manager of the Sub-Adviser from
December 2010 to January 2013. He was a Research Analyst with the Sub-Adviser from February 2008 to November 2010 and was a Credit Analyst with the Sub-Adviser from May 2006 to January 2008. Mr. Pulire is a portfolio
manager, an officer and a trader for the Fund and other Oppenheimer funds.
Mrs. Mossow has been a Vice
President and Portfolio Manager of the Sub-Adviser since January 2016 and was an Assistant Vice President of the Sub-Adviser from January 2011 to January 2016 and an Associate Portfolio Manager of the Sub-Adviser from
June 2013 to January 2016. She was a Portfolio Research Analyst of the Sub-Adviser from June 2011 to June 2013 and was a Credit Analyst of the Sub-Adviser from May 2007 to May 2011. She was a Risk Management Analyst
at Manning & Napier Associates from September 2006 to May 2007 and was an Analyst/Trading Assistant at The Baupost Group from August 2000 to March 2006. Mrs. Mossow is a portfolio manager, an officer and a trader
for the Fund and other Oppenheimer funds.
The Statement
of Additional Information provides additional information about portfolio manager compensation, other accounts managed and ownership of Fund shares.
| Oppenheimer Rochester Massachusetts Municipal Fund | 19 |
More About Your
Account
About Your Account
Where Can You Buy Fund
Shares? Oppenheimer funds may be purchased either directly or through a variety of “financial intermediaries” that offer Fund shares to their clients. Financial intermediaries include
securities dealers, financial advisers, brokers, banks, trust companies, insurance companies and the sponsors of fund “supermarkets,” fee-based advisory or wrap fee-based programs.
What Classes of
Shares Does the Fund Offer? The Fund offers investors three different classes of shares. The different classes of shares represent investments in the same portfolio of securities, but the classes are subject to
different expenses and will usually have different share prices. When you buy shares, be sure to specify the class of shares you wish to purchase. If you do not choose a class, your investment will be made in Class A shares.
Class B shares are no longer offered for new purchases. Notwithstanding the statement above, if you are an eligible employee (defined below) who does not choose a class, your investment will be made in Class Y shares.
Class A
Shares. If you buy Class A shares, you will pay an initial sales charge on investments up to $1 million for regular accounts unless you qualify for certain fee waivers. The amount of the sales
charge will vary depending on the amount you invest. The sales charge rates for different investment amounts are listed in “About Class A Shares” below.
Class B
Shares. If you purchased Class B shares, you did not pay a sales charge at the time of purchase, but you pay an annual asset-based sales charge (distribution fee) over a period of approximately
six years. If you sell your shares within six years after buying them, you will normally pay a contingent deferred sales charge. The amount of the contingent deferred sales charge varies depending on how long you own
your shares. Class B shares are no longer offered for new purchases. Any investments for existing Class B share accounts will be made in Class A shares of Oppenheimer Money Market
Fund. See “About Class B Shares” below.
Class C
Shares. If you buy Class C shares, you will pay no sales charge at the time of purchase, but you will pay an ongoing asset-based sales charge (distribution fee). If you sell your shares within 12
months after buying them, you will normally pay a contingent deferred sales charge of 1.00%, as described in “About Class C Shares” below.
Class Y
Shares. Class Y shares are offered only to institutional investors, wrap fee-based programs and eligible employees. See “About Class Y Shares” below.
Certain sales charge waivers may
apply to purchases or redemptions of Class A, Class B, or Class C shares. More information about those waivers is available in the Fund’s Statement of Additional Information, or by visiting the OppenheimerFunds
website at: www.oppenheimerfunds.com
What is the Minimum
Investment? You can buy most Fund share classes with a minimum initial investment of $1,000. Reduced initial minimums are available for other share
classes in certain circumstances, including the following:
| ■ | Traditional and Roth IRA accounts as well as Asset Builder Plan, Automatic Exchange Plan and government allotment plan accounts may be opened with a minimum initial investment of $500. |
| ■ | For wrap fee-based programs, salary reduction plans and other retirement plans and accounts, there is no minimum initial investment. |
There are no subsequent purchase
minimums.
Minimum Account Balance. The minimum account balance on Fund accounts is $500. Small accounts may be redeemed by the Fund if the value has fallen below $500.
Choosing a Share Class. Once you decide that the Fund is an appropriate investment for you, deciding which class of shares is best suited to your needs depends on
a number of factors that you should discuss with your financial advisor. The Fund’s operating costs that apply to a share class and the effect of the different types of sales charges on your investment will
affect your investment results over time. For example, expenses such as the distribution or service fees will reduce the net asset value and the dividends on share classes that are subject to those expenses.
Two of the factors to consider
are how much you plan to invest and, while future financial needs cannot be predicted with certainty, how long you plan to hold your investment. For example, with larger purchases that qualify for a reduced initial
sales charge on Class A shares, the effect of paying an initial sales charge on purchases of Class A shares may be less over time than the effect of the distribution fees on other share classes. If your goals and
objectives change over time and you plan to purchase additional shares, you should re-evaluate each of the factors to see if you should consider a different class of shares.
The discussion below is not
intended to be investment advice or a recommendation, because each investor’s financial considerations are different. The discussion below assumes that you will purchase only one class of shares and not a
combination of shares of different classes. These examples are based on approximations of the effects of current sales
| 20 | Oppenheimer Rochester Massachusetts Municipal Fund |
charges and expenses projected over time, and
do not detail all of the considerations in selecting a class of shares. You should analyze your options carefully with your financial advisor before making that choice.
| ■ | Investing for the Shorter Term. While the Fund is meant to be a long-term investment, if you have a relatively short-term investment horizon, you should consider investing in Class C shares in most cases. That is because the effect of the initial sales charge on most Class A shares may be greater than the effect of the ongoing asset-based sales charge on Class C shares over the short-term. The Class C contingent deferred sales charge does not apply to redemptions of shares held for more than one year. |
| ■ | Investing for the Longer Term. If you have a longer-term investment horizon, Class A shares may be more appropriate in most cases. That is because the effect of the ongoing asset-based sales charge on Class C shares might be greater than the effect of the initial sales charge on Class A shares, regardless of the amount of your investment. |
| ■ | Amount of Your Investment. Your choice will also depend on how much you plan to invest. If you plan to invest more than $100,000, and as your investment horizon increases, Class C shares might not be as advantageous as Class A shares. That is because the effect of the ongoing asset-based sales charge on Class C shares may be greater than the effect of the reduced front-end sales charge on Class A share purchases of $100,000 or more. If you invest $1 million or more, in most cases Class A shares will be the most advantageous choice, no matter how long you intend to hold your shares. |
| The Distributor normally will not accept purchase orders from a single investor for $1 million or more of Class C shares. Dealers or other financial intermediaries are responsible for determining the suitability of a particular share class for an investor. |
Are There Differences in Account
Features That Matter to You? Some account features may not be available for all share classes. Other features may not be advisable because of the effect of the contingent deferred sales charge. Therefore, you should
carefully review how you plan to use your investment account before deciding which class of shares to buy.
How Do Share Classes Affect
Payments to Your Financial Intermediary? The Class B and Class C contingent deferred sales charges and asset-based sales charges have the same purpose as the front-end sales charge or contingent deferred sales charge on Class A
shares: to compensate the Distributor for concessions and expenses it pays to brokers, dealers and other financial intermediaries for selling Fund shares. Those financial intermediaries may receive different
compensation for selling different classes of shares. The Sub-Adviser or Distributor may also pay dealers or other financial intermediaries additional amounts from their own resources based on the value of Fund shares
held by the intermediary for its own account or held for its customers’ accounts. For more information about those payments, see “Payments to Financial Intermediaries and Service Providers”
below.
About Class A Shares. Class A shares are sold at their offering price, which is the net asset value of the shares (described below) plus, in most cases, an
initial sales charge. The Fund receives the amount of your investment, minus the sales charge, to invest for your account. In some cases, Class A purchases may qualify for a reduced sales charge or a sales charge
waiver, as described below and in the Statement of Additional Information.
The Class A sales charge rate
varies depending on the amount of your purchase. A portion or all of the sales charge may be retained by the Distributor or paid to your broker, dealer or other financial intermediary as a concession. The current
sales charge rates and concessions paid are shown in the table below. There is no initial sales charge on Class A purchases of $1 million or more, but a contingent deferred sales charge (described below) may apply.
| Amount of Purchase | Front-End Sales Charge As a Percentage of Offering Price | Front-End Sales Charge As a Percentage of Net Amount Invested | Concession As a Percentage of Offering Price | |
| Less than $50,000 | 4.75% | 4.98% | 4.00% | |
| $50,000 or more but less than $100,000 | 4.50% | 4.71% | 4.00% | |
| $100,000 or more but less than $250,000 | 3.50% | 3.63% | 3.00% | |
| $250,000 or more but less than $500,000 | 2.50% | 2.56% | 2.25% | |
| $500,000 or more but less than $1 million | 2.00% | 2.04% | 1.80% | |
Due to rounding, the actual
sales charge for a particular transaction may be higher or lower than the rates listed above.
Reduced Class A Sales
Charges. Under a “Right of Accumulation” or a “Letter of Intent” you may be eligible to buy Class A shares of the Fund at
the reduced sales charge rate that would apply to a larger purchase. Purchases of “qualified shares” of the Fund and certain other Oppenheimer funds may be added to your Class A share purchases for
calculating the applicable sales charge.
Class A, Class B and Class C
shares of most Oppenheimer funds (including shares of the Fund), and Class A, Class B, Class C, Class G and Class H units owned in adviser sold college savings programs, for which an affiliate of the Manager or the
Distributor serves as the “Program Manager” or “Program Distributor” are “qualified shares” for satisfying the terms of a Right of Accumulation or a Letter of Intent. Purchases made
by reinvestment of dividend or capital gain distributions are “qualified shares” for satisfying the terms of a Right of Accumulation, but are not “qualified shares” for satisfying the terms of
a Letter of Intent. Purchases of Class R, Class Y or Class I shares of Oppenheimer funds, purchases under the
| Oppenheimer Rochester Massachusetts Municipal Fund | 21 |
“reinvestment privilege” described
below, and purchases of Class A shares of Oppenheimer Money Market Fund or Oppenheimer Cash Reserves on which a sales charge has not been paid do not count as “qualified shares” for Right of Accumulation
or Letter of Intent purposes. The Fund reserves the right to modify or to cease offering these programs at any time.
| ■ | Right of Accumulation. To qualify for the reduced Class A sales charge that would apply to a larger purchase than you are currently making, you can add the value of qualified shares that you and your spouse currently own, and other qualified share purchases that you are currently making, to the value of your Class A share purchase of the Fund. The Distributor or the financial intermediary through which you are buying shares will determine the value of the qualified shares you currently own based on the greater of their current offering price or the amount you paid for the shares. For purposes of calculating that value, the Distributor will only take into consideration the value of shares owned as of December 31, 2007 and any shares purchased subsequently. The value of any shares that you have redeemed will not be counted. In totaling your holdings, you may count shares held in: |
| ■ | your individual accounts (including IRAs, 403(b) plans and eligible college savings programs), |
| ■ | your joint accounts with your spouse, |
| ■ | accounts you or your spouse hold as trustees or custodians on behalf of your children who are minors. |
A fiduciary can apply a right of
accumulation to all shares purchased for a trust, estate or other fiduciary account that has multiple accounts (including employee benefit plans for the same employer and Single K plans for the benefit of a sole
proprietor).
If you are buying shares
directly from the Fund, you must inform the Distributor of your eligibility and holdings at the time of your purchase in order to qualify for the Right of Accumulation. If you are buying shares through a financial
intermediary you must notify the intermediary of your eligibility for the Right of Accumulation at the time of your purchase.
To count shares held in accounts
at other firms, you may be requested to provide the Distributor or your current financial intermediary with a copy of account statements showing your current qualified share holdings. The Transfer Agent will retain
the provided values of the qualified share holdings, and apply that Right of Accumulation to future purchases, until any subsequent changes in those qualified share holdings are reported to the Transfer Agent. Shares
purchased under a Letter of Intent may also qualify as eligible holdings under a Right of Accumulation.
| ■ | Letter of Intent. You may also qualify for reduced Class A sales charges by submitting a Letter of Intent to the Distributor. A Letter of Intent is a written statement of your intention to purchase a specified value of qualified shares over a 13-month period. The total amount of your intended purchases will determine the reduced sales charge rate that will apply to your Class A share purchases during that period. You must notify the Distributor or your financial intermediary of any qualifying college savings program purchases or purchases through other financial intermediaries. |
Submitting a Letter of Intent
does not obligate you to purchase the specified amount of shares. If you do not complete the anticipated purchases, you will be charged the difference between the sales charge that you paid and the sales charge that
would apply to the actual value of shares you purchased. A certain portion of your shares will be held in escrow by the Fund’s Transfer Agent for this purpose. Please refer to “How to Buy Shares –
Letter of Intent” in the Fund’s Statement of Additional Information for more complete information. You may also be able to apply the Right of Accumulation to purchases you make under a Letter of Intent.
Class A Purchases at Net Asset
Value. Class A shares are offered at net asset value (without a sales charge) to clients of financial intermediaries who have entered into an agreement with the Distributor and have been approved
by the Distributor to offer Class A shares to self-directed brokerage accounts that may or may not charge transaction fees to customers.
Class A Contingent Deferred Sales
Charge. Although there is no initial sales charge on Class A purchases of shares of one or more of the Oppenheimer funds totaling $1 million or more, those Class A shares may be subject to a 0.75%
contingent deferred sales charge if they are redeemed within an 18-month “holding period” measured from the date of purchase (except as described in an Appendix to the Statement of Additional Information).
That sales charge will be calculated on the lesser of the original net asset value of the redeemed shares at the time of purchase or the aggregate net asset value of the redeemed shares at the time of redemption. The
Class A contingent deferred sales charge does not apply to shares purchased by the reinvestment of dividends or capital gain distributions.
The Distributor pays concessions
from its own resources equal to 0.50% of Class A purchases of $1 million or more (other than purchases by certain group omnibus retirement plans) plus advances the service fee for those purchases. The concession will
not be paid on shares purchased by exchange or shares that were previously subject to a front-end sales charge and concession.
About Class B Shares. Class B shares are sold at net asset value per share without an initial sales charge. However, if Class B shares are redeemed within a six
year “holding period” from the beginning of the calendar month in which they were purchased, a contingent deferred sales charge will be deducted from the redemption proceeds. The “holding
period” for shares purchased after February 5, 2012 will begin on the date of purchase. Class B shares are also subject to an asset-based sales charge that is calculated daily based on an annual rate of 0.75%.
The Class B contingent deferred sales charge and asset-based sales charge are paid to compensate the Distributor for providing distribution-related services to the Fund in connection with the sale of Class B
shares.
| 22 | Oppenheimer Rochester Massachusetts Municipal Fund |
Class B shares
are no longer offered for new purchases. Dividend and/or capital gains distributions will continue to be made in Class B shares, and exchanges of Class B shares into and from other Oppenheimer funds and certain
account transfers will be permitted.
Any investments
for existing Class B share accounts will be made in Class A shares of Oppenheimer Money Market Fund.
The amount of the Class B
contingent deferred sales charge will depend on the number of years since you invested, according to the following schedule:
| Years Since Purchase Order was Accepted | Contingent Deferred Sales Charge on Redemptions in That Year (As % of Amount Subject to Charge) | |
| 0-1 | 5.0% | |
| 1-2 | 4.0% | |
| 2-3 | 3.0% | |
| 3-4 | 3.0% | |
| 4-5 | 2.0% | |
| 5-6 | 1.0% | |
| More than 6 | None | |
In the table, a
“year” is a 12-month period.
Automatic Conversion of Class B
Shares. Class B shares automatically convert to Class A shares six years (72 months) after you purchase them. This conversion eliminates the Class B asset-based sales charge, however, the shares
will be subject to the ongoing Class A fees and expenses. The conversion is based on the relative net asset value of the two classes, and no sales load or other charge is imposed. When any Class B shares that you hold
convert to Class A shares, all other Class B shares that were acquired by reinvesting dividends and distributions on the converted shares will also convert.
Class B shares are no longer
offered for new purchases, however, current Class B shares will continue to mature and convert to Class A shares according to their established conversion schedule. For further information on the conversion feature and its tax implications, see “Class B Conversion” in the Statement of Additional Information.
About Class C Shares. Class C shares are sold at net asset value per share without an initial sales charge. However, if Class C shares are redeemed within a 12
month “holding period” from the date of purchase, a contingent deferred sales charge of 1.00% may be deducted from the redemption proceeds. Class C shares are also subject to an asset-based sales charge
that is calculated daily based on an annual rate of 0.75%. The Class C contingent deferred sales charge and asset-based sales charge are paid to compensate the Distributor for providing distribution-related services
to the Fund in connection with the sale of Class C shares.
About Class Y Shares. Class Y shares are not available directly to individual investors, except for eligible employees (defined below). Class Y shares are sold
at net asset value per share without an initial sales charge, and are available only to:
| ■ | Wrap fee-based programs and fee-based clients of a broker, dealer, registered investment advisor or other financial intermediary; |
| ■ | “Institutional investors” which may include corporations; trust companies; endowments and foundations; defined contribution, defined benefit, and other employer sponsored retirement and deferred compensation plans; retirement plan platforms; insurance companies; registered investment advisor firms; registered investment companies; bank trusts; college savings programs; and family offices; and |
| ■ | Eligible employees, which are 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, subject to the requirement to receive Fund documents electronically through eDocs Direct. |
An institutional investor that
buys Class Y shares for its customers’ accounts may impose charges on those accounts. The procedures for buying, selling, exchanging and transferring the Fund’s other classes of shares (other than the time
those orders must be received by the Distributor or Transfer Agent at their Colorado office) and some of the special account features available to investors buying other classes of shares do not apply to Class Y
shares. Instructions for buying, selling, exchanging or transferring Class Y shares must be submitted by the institutional investor, not by its customers for whose benefit the shares are held.
Individual shareholders who hold
Class Y shares through retirement plans or financial intermediaries will not be eligible to hold Class Y shares outside of their respective retirement plan or financial intermediary platform.
The Price of Fund Shares. Shares may be purchased at their offering price which is the net asset value per share plus any initial sales charge that applies. Shares
are redeemed at their net asset value per share less any contingent deferred sales charge that applies. The net asset value that applies to a purchase or redemption order is the next one calculated after the
Distributor receives the order, in proper form as described in this prospectus, or after any agent appointed by the
| Oppenheimer Rochester Massachusetts Municipal Fund | 23 |
Distributor receives the order in proper form
as described in this prospectus. Your financial intermediary can provide you with more information regarding the time you must submit your purchase order and whether the intermediary is an authorized agent for the
receipt of purchase and redemption orders.
Net Asset Value. The Fund calculates the net asset value of each class of shares based on the value of the Fund’s portfolio determined as of 4:00 p.m, Eastern time, on each day the New York Stock
Exchange (the “NYSE”) is open for trading (referred to in this prospectus as a “regular business day”), except in the case of a NYSE scheduled early closing, in which case the Fund will
calculate the net asset value of each class of shares based on the value of the Fund’s portfolio determined as of the NYSE scheduled early closing time (the “Valuation Time”).
The net asset value per share
for a class of shares on a “regular business day” is determined by dividing the value of the Fund’s net assets attributable to that class by the number of shares of that class outstanding on that
day. The Fund’s assets generally trade in the over-the-counter market rather than on a securities exchange. Therefore, to determine net asset values, the Fund assets are generally valued at the mean between the
bid and asked prices as determined by a pricing service. If the prices determined by the pricing service do not accurately reflect fair value for a security (in the Sub-Adviser’s judgment) or if a
security’s value has been materially affected by events occurring after the price is received from the pricing service and before the time as of which the Fund’s net asset values are calculated that day,
that security may be valued by another method that the Board of Trustees believes accurately reflects the fair value.
The Board has adopted valuation
procedures for the Fund and has delegated the day-to-day responsibility for fair value determinations to the Sub-Adviser’s Valuation Committee. Fair value determinations by the Sub-Adviser are subject to review,
approval and ratification by the Board at its next scheduled meeting after the fair valuations are determined. In determining whether prices received from the pricing services are reliable, the Sub-Adviser monitors
the information it receives in the ordinary course of its investment management responsibilities for significant events that it believes in good faith will affect the prices of the securities of issuers held by the
Fund. Those may include events affecting specific issuers or events affecting securities markets (for example, a securities market closes early because of a natural disaster). The Fund uses fair value pricing
procedures to reflect what the Sub-Adviser and the Board believe to be more accurate values for the Fund’s portfolio securities, although it may not always be able to accurately determine such values. There can
be no assurance that the Fund could obtain the fair value assigned to a security if it were to sell the security at the same time at which the Fund determines its net asset value per share.
Contingent Deferred Sales
Charge. If you redeem shares during their applicable contingent deferred sales charge holding period, the contingent deferred sales charge generally will be deducted from the redemption proceeds.
In some circumstances you may be eligible for one of the waivers described in “Sales Charge Waivers” below and in the “Special Sales Charge Arrangements and Waivers” Appendix to the Statement
of Additional Information. You must advise the Transfer Agent or your financial intermediary of your eligibility for a waiver when you place your redemption request.
A contingent deferred sales
charge will be based on the net asset value of the redeemed shares at the time of redemption or the original net asset value, whichever is lower. A contingent deferred sales charge is not imposed on:
| ■ | any increase in net asset value over the initial purchase price, |
| ■ | shares purchased by the reinvestment of dividends or capital gains distributions, or |
| ■ | shares eligible for a sales charge waiver (see “Sales Charge Waivers” below). |
The Fund redeems shares in the
following order:
| ■ | shares acquired by the reinvestment of dividends or capital gains distributions, |
| ■ | other shares that are not subject to the contingent deferred sales charge, and |
| ■ | shares held the longest during the holding period. |
You are not charged a contingent
deferred sales charge when you exchange shares of the Fund for shares of other Oppenheimer funds. However, if you exchange your shares within the applicable holding period, your original holding period will carry over
to the shares you acquire, even if the new fund has a different holding period. The contingent deferred sales charge applicable to the share class of the Oppenheimer fund you exchange into will apply to the acquired
shares, except in the case of Class R shares of an Oppenheimer fund purchased prior to July 1, 2014 that are subject to a contingent deferred sales charge, in which case the contingent deferred sales charge applicable
to the shares of the Oppenheimer fund you exchange from will continue to apply.
Sales Charge Waivers. The Fund and the Distributor offer the following opportunities to purchase shares without front-end or contingent deferred sales charges.
The Fund reserves the right to amend or discontinue these programs at any time without prior notice.
| ■ | Dividend Reinvestment. Dividends or capital gains distributions may be reinvested in shares of the Fund, or any of the other Oppenheimer funds into which shares of the Fund may be exchanged, without a sales charge. |
| ■ | Exchanges of Shares. There is no sales charge on exchanges of shares except for exchanges of Class A shares of Oppenheimer Money Market Fund or Oppenheimer Cash Reserves on which you have not paid a sales charge. |
| ■ | Reinvestment Privilege. There is no sales charge on reinvesting the proceeds from redemptions of Class A shares or Class B shares that occurred within the previous three months if you paid an initial or contingent deferred sales charge |
| 24 | Oppenheimer Rochester Massachusetts Municipal Fund |
| on the redeemed shares. This reinvestment privilege does not apply to reinvestment purchases made through automatic investment options. You must advise the Distributor, the Transfer Agent or your financial intermediary that you qualify for the waiver at the time you submit your purchase order. |
In addition, the “Special
Sales Charge Arrangements and Waivers” Appendix to the Statement of Additional Information provides detailed information about certain other initial sales charge and contingent deferred sales charge waivers and
arrangements. A description of those sales charge waivers and arrangements is available for viewing on the OppenheimerFunds website at www.oppenheimerfunds.com and may also be ordered by calling 1.800.225.5677. You must advise the Distributor, the Transfer Agent or your financial intermediary that you qualify for one of those waivers at the time you submit your purchase order or
redemption request.
How to Buy, Sell and Exchange
Shares
Buying Shares. You can buy shares in several ways. The Distributor has appointed certain financial intermediaries, including brokers, dealers and others,
as servicing agents to accept purchase and redemption orders. The Distributor or servicing agent must receive your order, in proper form, before the Valuation Time for you to receive that day’s offering price.
If your order is received on a day other than a regular business day or after the Valuation Time, the order will receive the next offering price that is determined. To be in proper form, your purchase order must
comply with the procedures described below. If you submit a purchase request without designating which Oppenheimer fund you wish to invest in or if the selected Oppenheimer fund or share class is no longer offered,
your investments will be made in Class A shares of Oppenheimer Money Market Fund. This policy does not apply to purchases by or for certain retirement plans or accounts. The Distributor, in its sole discretion, may reject any purchase order for the Fund’s shares.
Buying Shares Through a Financial
Intermediary. You can buy shares through any servicing agent (a broker, dealer or other financial intermediary) that has a sales agreement with the Distributor. Your servicing agent will place your
order with the Distributor on your behalf. A servicing agent may charge a processing fee for that service. Your account information will be shared with the financial intermediary designated as the dealer of record for
the account.
Buying Shares Through the
Distributor. We recommend that you discuss your investment with a financial advisor before you make a purchase to be sure that the Fund is appropriate for you. If you want to purchase shares directly
from the Distributor, complete an OppenheimerFunds new account application and mail it with a check payable in U.S. dollars to “OppenheimerFunds Distributor, Inc.” at the address shown on the back cover.
If you do not list a dealer on your application, the Distributor is designated as the broker-dealer of record, but solely for the purpose of acting as your agent to purchase the shares. For new investors who do not
designate a broker-dealer, Class A shares (and Class Y shares for institutional investors) are the only purchase option. Other share classes 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 a 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. For more information regarding undesignated investments, please call the Transfer Agent at the number on the back
cover of this prospectus.
| ■ | Involuntary Redemptions. In some circumstances, involuntary redemptions may be made to repay the Distributor for losses from the cancellation of share purchase orders. |
Identification Requirements. Federal regulations may require the Fund to obtain your name, your date of birth (for a natural person), your residential street address or principal place of business, and your Social
Security Number, Employer Identification Number or other government-issued identification when you open an account. Additional information may be required to open a corporate account or in certain other circumstances.
The Fund or the Transfer Agent may use this information to verify your identity. The Fund may not be able to establish an account if the necessary information is not received. The Fund may also place limits on account
transactions while it is in the process of verifying your identity. Additionally, if the Fund is unable to verify your identity after your account is established, the Fund may be required to redeem your shares and
close your account.
Suspension of Share
Offering. The offering of Fund shares may be suspended during any period in which the determination of net asset value is suspended, and may be suspended by the Board at any time the Board believes
it is in the Fund’s best interest to do so.
Selling Shares. You can generally redeem (sell) some or all of your shares on any regular business day. You may redeem your shares by writing a letter, by
wire, by telephone or on the Internet. You can also set up an Automatic Withdrawal Plan to redeem shares on a regular basis. The redemption of Fund shares may be suspended under certain circumstances described in
“Payment Delays” below. If you have questions about any of these procedures, and especially if you are redeeming shares in a special situation,
such as due to the death of the owner or from a retirement plan account, please call your financial intermediary or the Transfer Agent for assistance.
Redemption Price. Your shares will be redeemed at net asset value less any applicable sales charge or other fees. The net asset value used will be the next one calculated after your order is received, in
proper form, by the Transfer Agent or your authorized financial intermediary. To be in proper form, your redemption order must comply with the procedures described below. The redemption price for shares will change
from day-to-day because the value of the securities in the Fund’s portfolio and the Fund’s expenses fluctuate. The redemption price will normally differ for each class of shares. The redemption price of
your shares may be more or less than their original cost.
| Oppenheimer Rochester Massachusetts Municipal Fund | 25 |
Redemptions
“In-Kind.” Shares may be “redeemed in-kind” under certain circumstances (such as a lack of liquidity in the Fund’s portfolio to meet redemptions). That means that the redemption
proceeds will be paid in securities from the Fund’s portfolio on a pro-rata basis, possibly including illiquid securities. If the Fund redeems your shares in-kind, you may bear transaction costs and will bear
market risks until such securities are converted into cash. You may incur taxable capital gain when converting securities to cash.
Redemption or
transfer requests will not be honored until the Transfer Agent receives all required documents in proper form. From time to time, the Transfer Agent, in its discretion, may waive certain of the requirements for
redemptions stated in this prospectus.
Options for Receiving Redemption
Proceeds:
| ■ | By Check. The Fund will normally send redemption proceeds by check to the address on your account statement. |
| ■ | By AccountLink. If you have linked your Fund account to your bank account with AccountLink (described below), you may have redemption proceeds transferred directly into your account. Normally the transfer to your bank is initiated on the bank business day after the redemption. You will not receive dividends on the proceeds of redeemed shares while they are waiting to be transferred. |
| ■ | By Wire. You can arrange to have redemption proceeds sent by Federal Funds wire to an account at a bank that is a member of the Federal Reserve wire system. The redemption proceeds will normally be transmitted on the next bank business day after the shares are redeemed. You will not receive dividends on the proceeds of redeemed shares while they are waiting to be transmitted. |
Payment Delays. Payment for redeemed shares is usually made within seven days after the Transfer Agent receives redemption instructions in proper form. For accounts registered in the name of a
broker-dealer, payment will normally be forwarded to the broker-dealer within three business days. The Transfer Agent may delay processing redemption payments for recently purchased shares until the purchase payment
has cleared. That delay may be as much as five business days from the date the shares were purchased. That delay may be avoided if you purchase shares by Federal Funds wire or certified check. Under the Investment
Company Act of 1940, the Fund may suspend the right of redemption or postpone the date of payment for more than seven days in the following unusual circumstances:
| ■ | during any period in which the NYSE is closed other than customary weekend and holiday closings or during any period in which trading on the NYSE is deemed to be restricted; |
| ■ | during any period in which an emergency exists, as a result of which (i) it is not reasonably practicable for the Fund to dispose of securities owned by it or (ii) it is not reasonably practicable for the Fund to fairly determine the value of its net assets; or |
| ■ | during such other periods as the Securities and Exchange Commission may by order permit to protect Fund shareholders. |
The Securities and Exchange
Commission will determine the conditions under which trading shall be deemed to be restricted and the conditions under which an emergency shall be deemed to exist.
The Oppenheimer Exchange
Privilege. You can exchange all or part of your Fund shares for shares of the same class of other Oppenheimer funds that offer the exchange privilege.
For example, you can exchange Class A shares of the Fund only for Class A shares of another fund. You can obtain a list of the Oppenheimer funds that are currently available for exchanges by calling a service
representative at the telephone number on the back of this prospectus. The funds available for exchange can change from time to time. The Fund may amend, suspend or terminate the exchange privilege at any time. You
will receive 60 days’ notice of any material change in the exchange privilege unless applicable law allows otherwise.
Requirements for Exchanges of
Shares. To exchange shares of the Fund, you must meet several conditions. The Fund may amend the following requirements at any time:
| ■ | Shares of the fund selected for exchange must be available for sale in your state of residence. |
| ■ | The selected fund must offer the exchange privilege. |
| ■ | You must meet the minimum purchase requirements for the selected fund. |
| ■ | Generally, exchanges may be made only between identically registered accounts, unless all account owners send written exchange instructions with a signature guarantee. |
| ■ | Before exchanging into a fund, you should obtain its prospectus and should read it carefully. |
Timing of Exchange
Transactions. Exchanged shares are normally redeemed from one fund and the proceeds are reinvested in the fund selected for exchange on the same regular business day on which the Transfer Agent or its
agent (such as a financial intermediary holding the investor’s shares in an “omnibus” or “street name” account) receives an exchange request that conforms to these policies. The request
must be received before the Valuation Time on that day in order to receive that day’s net asset value on the exchanged shares. For requests received after the Valuation Time the shares being exchanged will be
valued at the next net asset value calculated after the request is received. The Transfer Agent may delay transmitting the proceeds from an exchange for up to five business days, if it determines, in its discretion,
that an earlier transmittal of the redemption proceeds would be detrimental to either the fund from which shares are being exchanged or the fund into which the exchange is being made. The exchange proceeds will be
invested in the new fund at
| 26 | Oppenheimer Rochester Massachusetts Municipal Fund |
the next net asset value calculated after the
proceeds are received. In the event that a delay in the reinvestment of proceeds occurs, the Transfer Agent will notify you or your financial intermediary.
Taxes on Exchanges. For tax purposes, an exchange of shares of the Fund is considered a sale of those shares and a purchase of the shares of the fund into which you are exchanging. Therefore, an exchange may
result in a capital gain or loss for tax purposes.
Frequent Purchase and Exchange
Limitations
The Board has adopted a policy
to discourage and seek to limit or eliminate frequent purchases or exchanges of shares of the Fund by shareholders or authorized broker-dealer representatives of shareholders, in order to prevent the negative impacts,
if any, that this activity may impose on other shareholders of the Fund. Negative impacts may include, without limitation, interference with portfolio management, increased taxes on portfolio securities, diminishment
of Fund performance due to the need to sell portfolio securities at less favorable prices, increases in portfolio and administrative transaction costs resulting from large volumes of frequent purchase or exchange
activity, and the possible dilution of Fund yields as a result of such activity. In addition, a Fund that invests in non-U.S. securities is subject to the risk that an investor may seek to take advantage of a delay
between the change in value of the Fund’s portfolio securities and the determination of the Fund’s net asset value as a result of different closing times of U.S. and non-U.S. markets by buying or selling
Fund shares at a price that does not reflect their true value. A similar risk exists for Funds that invest in securities of small capitalization companies, securities of issuers located in emerging markets or high
yield securities (junk bonds) that are thinly traded and therefore may have actual values that differ from their market prices. This short-term arbitrage activity can reduce the return received by long-term
shareholders. The Fund will seek to eliminate these opportunities by using fair value pricing, as described in “Fair Value Pricing” in this Prospectus.
There is no guarantee that this
policy will be sufficient to identify and prevent all frequent purchases or exchanges that may have negative impacts to a Fund. In addition, the implementation of the Funds’ policy involves judgments that are
inherently subjective and involve some selectivity in their application. The Fund, however, seeks to make judgments that are consistent with the interests of the Fund’s shareholders. No matter how the Fund
defines frequent purchases or exchanges, other purchases and sales of Fund shares may have adverse effects on the management of a Fund’s portfolio and its performance. Additionally, due to the complexity and
subjectivity involved in identifying certain frequent trading and the volume of Fund shareholder transactions, there can be no guarantee that the Fund will be able to identify violations of the policy or to reduce or
eliminate all detrimental effects of frequent purchases, redemptions or exchanges.
The Fund may from time to time
use other methods that it believes are appropriate to deter market timing or other trading activity that may be detrimental to a fund or long-term shareholders.
Right to Refuse Any Purchase
and/or Exchange Orders. The Fund may refuse, or cancel as permitted by law, any purchase or exchange order in its discretion for any reason at any time, and is not obligated to provide notice before rejecting or
canceling an order. If a shareholder has engaged in purchases and redemptions of shares that would have been prohibited had the activity been attempted as an exchange, that shareholder may be prohibited from
purchasing new Fund shares unless the Fund determines that such activity is not frequent trading activity.
Right to Terminate or Suspend
Account Privileges. The Fund may, in its discretion, limit or terminate trading activity by any person, group or account that it believes would be disruptive, even if the activity has not exceeded the policy
described in this prospectus. As part of the Fund’s policy to detect and deter frequent purchases and exchanges, the Fund may review and consider the history of frequent trading activity in all accounts in the
Oppenheimer funds known to be under common ownership or control. The Fund may send a written warning to a shareholder that it believes may be engaging in disruptive or excessive trading activity; however, the Fund
reserves the right to suspend or terminate the ability to purchase or exchange shares, with or without warning, for any account that the Fund determines, in the exercise of its discretion, has engaged in such trading
activity.
Omnibus Accounts. Underlying shareholder or account data, including individual transactions, in “omnibus” or “street name” accounts (“omnibus accounts”) in the name of a
broker-dealer or other financial intermediaries are often not disclosed to a Fund, which may make it difficult for a Fund to monitor for frequent trading activity. Financial intermediaries holding omnibus accounts
where underlying shareholder or account data is not disclosed to a Fund will, generally, enter into written agreements which require the financial intermediaries to provide such data at the Fund’s request.
Overall purchase and redemption activity in omnibus accounts will be monitored to identify patterns which may suggest frequent trading by the underlying owners. Financial intermediaries will be required to apply the
Fund’s policy in addition to their own frequent trading controls. For financial intermediaries, the Fund will request individual account or transaction information, and based on the information and data it
receives, will apply its policy to review transactions that may constitute frequent purchase or exchange activity. The Fund may prohibit, in its sole discretion, purchases or exchanges of Fund shares by a financial
intermediary or by some or all of its clients.
30-Day Exchange Limit. In addition to the discretionary ability to limit or reject any order to purchase or exchange shares of a Fund at any time, if a shareholder exchanges shares of another Oppenheimer fund
account for shares of the Fund, his or her Fund account will be “blocked” from exchanges into any other fund for a period of 30 calendar days from the date of the exchange, subject to certain exceptions
described below. Likewise, if a Fund shareholder exchanges Fund shares for shares of another eligible Oppenheimer fund, that fund account will be “blocked” from further exchanges for 30 calendar days,
subject to the exception described below. The block will apply to the full account balance and not just to the amount exchanged into the account. For example, if a shareholder exchanged $2,000 from one fund into
another fund in which the
| Oppenheimer Rochester Massachusetts Municipal Fund | 27 |
shareholder already owned shares worth $10,000,
then, following the exchange and assuming no exception applied, the full account balance ($12,000 in this example) would be blocked from exchanges into another fund for a period of 30 calendar days.
Exceptions to 30-Day Exchange
Limit
| ■ | Exchanges Into Money Market Funds. A shareholder will be permitted to exchange shares of the Fund for shares of an eligible money market fund any time, even if the shareholder has exchanged shares into the Fund during the prior 30 days. Exchanges from that money market fund into another fund will be monitored for excessive activity and the Fund may limit or refuse any exchange order from a money market fund in its discretion pursuant to this policy. |
| ■ | Dividend Reinvestments and Share Conversions. The reinvestment of dividends or distributions from one fund to purchase shares of another fund and the conversion of shares from one share class to another class within the same fund will not be considered exchanges for purposes of imposing the 30-day limit. |
| ■ | Asset Allocation Programs. Investment programs by Oppenheimer “funds of funds” that entail rebalancing investments in underlying Oppenheimer funds will not be subject to these limits. However, third-party asset allocation and rebalancing programs will be subject to the 30-day limit described above. Asset allocation firms that want to exchange shares held in accounts on behalf of their customers must identify themselves and execute an acknowledgement and agreement to abide by these policies with respect to their customers’ accounts. “On-demand” exchanges outside the parameters of portfolio rebalancing programs will also be subject to the 30-day limit. |
| ■ | Automatic Exchange Plans. Accounts that receive exchange proceeds through automatic or systematic exchange plans that are established through the Transfer Agent will not be subject to the 30-day exchange limit as a result of those automatic or systematic exchanges but may be blocked from exchanges, under the 30-day limit, if they receive proceeds from other exchanges. |
| ■ | Redemptions of Shares. These exchange policy limits do not apply to redemptions of shares. Shareholders are permitted to redeem their shares on any regular business day, subject to the terms of this prospectus. |
Other Limitations on
Exchanges. There are a number of other special conditions and limitations that apply to certain types of exchanges. Those conditions and circumstances are described in the section “How to
Exchange Shares” in the Statement of Additional Information. For information about sales charges that may apply to exchanges of shares see the sections “Contingent Deferred Sales Charge” and
“Sales Charge Waivers” in this prospectus.
Submitting Share Transaction
Requests. Share transactions may be requested by telephone or internet, in writing, through your financial intermediary, or by establishing one of
the Investor Services plans described below. Certain transactions may also be submitted by fax. If an account has more than one owner, the Fund and the Transfer Agent may rely on instructions from any one owner or
from the financial intermediary’s representative of record for the account, unless that authority has been revoked. Class Y share transactions may only be submitted in writing, by fax, by phone through a service
representative, or through an investor’s designated financial intermediary.
Internet and Telephone Transaction
Requests. Purchase, redemption and exchange requests may be submitted on the OppenheimerFunds website, www.oppenheimerfunds.com. Those requests may also be made by calling the telephone number on
the back cover and either speaking to a service representative or accessing PhoneLink, the OppenheimerFunds automated telephone system that enables shareholders to perform certain account transactions automatically
using a touch-tone phone.
You will need to obtain a user
I.D. and password to execute transactions through PhoneLink or on the internet. Some internet and telephone transactions require the Oppenheimer AccountLink feature, described below, that links your Fund account with
an account at a U.S. bank or other financial institution. The Transfer Agent will record any telephone calls to verify data concerning transactions.
The following policies apply to
internet and telephone transactions:
| ■ | Purchases through AccountLink that are submitted through PhoneLink or on the internet are limited to $100,000. |
| ■ | Purchases through AccountLink that are submitted by calling a service representative are limited to $250,000. |
| ■ | Redemptions that are submitted by telephone or on the internet and request the proceeds to be paid by check, must be made payable to all owners of record of the shares and must be sent to the address on the account statement. Telephone or internet redemptions paid by check may not exceed $100,000 in any seven-day period. This service is not available within 15 days of changing the address on an account. |
| ■ | Redemptions by telephone or on the internet that are sent to your bank account through AccountLink are not subject to any dollar limits. |
| ■ | Exchanges submitted by telephone or on the internet may be made only between accounts that are registered with the same name(s) and address. |
| ■ | Shares for which share certificates have been issued may not be redeemed or exchanged by telephone or on the internet. |
| ■ | Shares held in an OppenheimerFunds-sponsored qualified retirement plan account may not be redeemed or exchanged by telephone or on the internet. |
| 28 | Oppenheimer Rochester Massachusetts Municipal Fund |
The Transfer Agent has adopted
procedures to confirm that telephone and internet instructions are genuine. Callers are required to provide service representatives with tax identification numbers and other account data and PhoneLink and internet
users are required to use PIN numbers. The Transfer Agent will also send you written confirmations of share transactions. The Transfer Agent and the Fund will not be liable for losses or expenses that occur from
telephone or internet instructions reasonably believed to be genuine.
The Transfer Agent maintains
physical, electronic and procedural safeguards that are reasonably designed to protect your personal account information. It is important that you do your part to keep your account information private and to prevent
unauthorized transactions. If you obtain a user ID and password for your account, do not allow it to be used by anyone else. Also, take special precautions when accessing your account on a computer used by others. We
advise you not to send personal or account information to us in non-secure emails. Instead, you are encouraged to take advantage of the secure features of our website to encrypt your email correspondence. The Transfer
Agent, its affiliates, and the Fund are not responsible for any account losses incurred as a result of fraud if they have reason to believe that the person transacting business on an account is authorized to do so. By
completing the terms of online registration to access an account through the OppenheimerFunds website, you waive any right to reclaim any losses from the Transfer Agent, its affiliates, or the Fund incurred through
fraudulent activity.
Telephone or internet
transaction privileges may be modified, suspended or terminated by the Fund at any time. The Fund will provide you notice of such changes whenever it is required to do so by applicable law.
Purchases and Redemptions by
Federal Funds Wire. Shares purchased through the Distributor may be paid for by Federal Funds wire. Redemption proceeds may also be transmitted by wire. The minimum wire purchase or redemption is $2,500. There
is a $10 fee for each wire redemption request. Before sending a wire purchase, call the Distributor’s Wire Department at 1.800.225.5677 to notify the Distributor of the wire and to receive further instructions.
To set up wire redemptions on your account or to arrange for a wire redemption, call the Transfer Agent at the telephone number on the back of this prospectus for information.
Written Transaction
Requests. You can send purchase, exchange or redemption requests to the Transfer Agent at the address on the back cover. Your request must include:
| ■ | The Fund’s name; |
| ■ | For existing accounts, the Fund account number (from your account statement); |
| ■ | For new accounts, a completed account application; |
| ■ | For purchases, a check payable to the Fund or to OppenheimerFunds Distributor, Inc.; |
| ■ | For redemptions, any special payment instructions; |
| ■ | For redemptions or exchanges, the dollar amount or number of shares to be redeemed or exchanged; |
| ■ | For redemptions or exchanges, any share certificates that have been issued (exchanges or redemptions of shares for which certificates have been issued cannot be processed until the Transfer Agent receives the certificates); |
| ■ | For individuals, the names and signatures of all registered owners exactly as they appear in the account registration; |
| ■ | For corporations, partnerships or other businesses or as a fiduciary, the name of the entity as it appears in the account registration and the names and titles of any individuals signing on its behalf; and |
| ■ | Other documents requested by the Transfer Agent to assure that the person purchasing, redeeming or exchanging shares is properly identified and has proper authorization to carry out the transaction. |
Certain Requests Require a
Signature Guarantee. To protect you and the Fund from fraud, certain redemption requests must be in writing and must include a signature guarantee. A notary public seal will not be accepted for these requests
(other situations might also require a signature guarantee):
| ■ | You wish to redeem more than $100,000 and receive a check; |
| ■ | The redemption check is not payable to all shareholders listed on the account statement; |
| ■ | The redemption check is not sent to the address of record on your account statement; |
| ■ | Shares are being transferred to a Fund account with a different owner or name; or |
| ■ | Shares are being redeemed by someone (such as an Executor) other than the owners. |
Where Can You Have Your Signature
Guaranteed? The Transfer Agent will accept a signature guarantee from a number of financial institutions, including:
| ■ | a U.S. bank, trust company, credit union or savings association, |
| ■ | a foreign bank that has a U.S. correspondent bank, |
| ■ | a U.S. registered dealer or broker in securities, municipal securities or government securities, or |
| ■ | a U.S. national securities exchange, a registered securities association or a clearing agency. |
Fax Requests. You may send requests for certain types of account transactions to the Transfer Agent by fax. Please call the number on the back of this prospectus for information about which transactions
may be handled this way. Transaction
| Oppenheimer Rochester Massachusetts Municipal Fund | 29 |
requests submitted by fax are subject to the
same rules and restrictions as the written, telephone and internet requests described in this prospectus. However, requests that require a signature guarantee may not be submitted by fax.
Submitting Transaction Requests
Through Your Financial Intermediary. You can submit purchase, redemption or exchange requests through any broker, dealer or other financial intermediary that has an agreement with the Distributor. The broker, dealer or other
intermediary will place the order with the Distributor on your behalf. A broker or dealer may charge a processing fee for that service. If your shares are held in the name of your financial intermediary, you must
redeem them through that intermediary.
Intermediaries that perform
account transactions for their clients by participating in “Networking” through the National Securities Clearing Corporation are responsible for obtaining their clients’ permission to perform those
transactions, and are responsible to their clients who are shareholders of the Fund if the intermediary performs any transaction erroneously or improperly.
Client Account Exchanges by
Financial Intermediaries. The Fund and the Transfer Agent permit brokers, dealers and other financial intermediaries to submit exchange requests on behalf of their customers, unless that authority has been revoked.
The Fund or the Transfer Agent may limit or refuse exchange requests submitted by such financial intermediaries if, in the Transfer Agent’s judgment, exercised in its discretion, the exchanges would be
disruptive to any of the funds involved in the transaction.
Investment Plans and Services
AccountLink. You can use our AccountLink feature to link your Fund account with an account at a U.S. bank or other financial institution that is an Automated Clearing House (ACH) member. AccountLink
lets you:
| ■ | transmit funds electronically to purchase shares by internet, by telephone or automatically through an Asset Builder Plan. The purchase payment will be debited from your bank account. |
| ■ | have the Transfer Agent send redemption proceeds or dividends and distributions directly to your bank account. |
AccountLink privileges should be
requested on your account application or on your broker-dealer’s settlement instructions if you buy your shares through a broker-dealer. For an established account, you can request AccountLink privileges by
sending signature-guaranteed instructions and proper documentation to the Transfer Agent. AccountLink privileges will apply to each shareholder listed in the registration on the account as well as to the financial
intermediary’s representative of record unless and until the Transfer Agent terminates or receives written instructions terminating or changing those privileges. After you establish AccountLink for your account,
any change you make to your bank account information must be made by signature-guaranteed instructions to the Transfer Agent signed by all shareholders on the account. Please call the Transfer Agent for more
information.
Asset Builder Plans. Under an Asset Builder Plan, you may purchase shares of the Fund automatically. An Asset Builder Plan is available only if you have established AccountLink with a bank or other financial
institution. Payments to purchase Fund shares will be debited from your linked account.
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 add an Asset Builder Plan to an existing account, use the Asset Builder
Enrollment Form. 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.
Class B shares are no longer
offered for new purchases. Any Class B share purchases for existing accounts will be made in Class A shares of Oppenheimer Money Market Fund.
The Transfer Agent may require a
reasonable period after receipt of your instructions to implement any requested changes. For more details, see the account application, the Asset Builder Enrollment Form and the Statement of Additional Information. Those documents are available by contacting the Distributor or
may be downloaded from our website at www.oppenheimerfunds.com. The Fund reserves the right to amend, suspend or discontinue offering Asset Builder Plans at any time without prior notice.
Automatic Redemption and Exchange
Plans. The Fund has several plans that enable you to redeem shares automatically or exchange them for shares of another Oppenheimer fund on a regular basis. Please call the Transfer Agent or
consult the Statement of Additional Information for details.
Less Paper, Less Waste. To avoid sending duplicate copies of Fund materials to households, the Fund will mail only one copy of each prospectus, annual and semi-annual report and annual notice of the Fund’s
privacy policy to shareholders having the same last name and address on the Fund’s records. The consolidation of these mailings, called “householding,” benefits the Fund through lower printing costs
and reduced mailing expense.
If you prefer to receive
multiple copies of these materials, you may call the Transfer Agent at the number on the back of this prospectus or you may notify the Transfer Agent in writing. Multiple copies of prospectuses, reports and privacy
notices will be sent to you commencing within 30 days after the Transfer Agent receives your request to stop householding.
You may also choose to receive
your account documents electronically via eDocs Direct. In order to sign up for eDocs Direct, you need to register for online access to your account(s) through the website at www.oppenheimerfunds.com, or call
1.888.470.0862 for information and instructions. Once registered, you can select your preferences for electronic document delivery of account documents.
| 30 | Oppenheimer Rochester Massachusetts Municipal Fund |
DISTRIBUTION AND SERVICE (12b-1)
PLANS
Service Plan for Class A
Shares. The Fund has adopted a service plan for Class A shares that reimburses the Distributor for a portion of the costs of maintaining accounts and providing services to Class A shareholders.
Reimbursement is made periodically at an annual rate of up to 0.25% of the Class A shares daily net assets. The Distributor currently uses all of those fees to pay brokers, dealers, banks and other financial
intermediaries for providing personal service and maintaining the accounts of their customers that hold Class A shares. For Class A purchases with no front-end sales charge imposed due to the qualifying breakpoint,
the Distributor normally pays intermediaries the service fee in advance for the first year after shares are purchased and then pays that fee periodically. Any unreimbursed expenses the Distributor incurs with respect
to Class A shares in any fiscal year cannot be recovered in subsequent periods. Because the service fee is paid out of the Fund’s assets on an ongoing basis, over time it will increase the cost of your
investment.
Distribution and Service Plans for
Class B and Class C Shares. The Fund has adopted Distribution and Service Plans for Class B and Class C shares to pay the Distributor for distributing those share classes, maintaining accounts and providing
shareholder services. Under the plans, the Fund pays the Distributor an asset-based sales charge for Class B and Class C shares calculated at an annual rate of 0.75% of the daily net assets of those classes. The Fund
also pays a service fee under the plans at an annual rate of 0.25% of the daily net assets of Class B and Class C. Altogether, these fees increase the Class B and Class C annual expenses by 1.00%, calculated on the
daily net assets of the applicable class. Because these fees are paid out of the Fund’s assets on an on going basis, over time they will increase the cost of your investment and may cost you more than other
types of sales charges.
Use of Plan
Fees: The Distributor uses the service fees to compensate brokers, dealers, banks and other financial intermediaries for maintaining accounts and providing personal services to Class B and Class
C shareholders in the applicable share class. The Distributor normally pays intermediaries the 0.25% service fee in advance for the first year after shares are purchased and then pays that fee periodically.
Class B shares are no longer
offered for new purchases. Any investments for existing Class B share accounts will be made in Class A shares of Oppenheimer Money Market Fund. No sales concessions will be paid on those purchases, however a
concession may be paid if the acquired Oppenheimer Money Market Fund shares are exchanged for shares of another Oppenheimer fund.
Class C
Shares: At the time of a Class C share purchase, the Distributor generally pays financial intermediaries a sales concession of 0.75% of the purchase price from its own resources. Therefore, the
total amount, including the advance of the service fee, that the Distributor pays the intermediary at the time of a Class C share purchase is 1.00% of the purchase price. The Distributor normally retains the
asset-based sales charge on Class C share purchases during the first year and then pays that fee to the intermediary as an ongoing concession. See the Statement of Additional Information for exceptions to these
arrangements.
Payments to Financial
Intermediaries and Service Providers. The Sub-Adviser and/or the Distributor, Transfer Agent and/or Sub-Transfer Agent, at their discretion, may also make payments to broker-dealers, other financial intermediaries or to
service providers for some or all of the following services: distribution, promotional and marketing support, operational and recordkeeping, sub-accounting, networking and administrative services.
The types of financial
intermediaries that may receive compensation for providing such services include, but are not limited to, broker-dealers, financial advisors, registered investment advisers, sponsors of fund
“supermarkets,” sponsors of fee-based advisory or wrap fee-based programs, sponsors of college and retirement savings programs, banks, trust companies, retirement plan or qualified tuition program
administrators, third party administrators, financial intermediaries that offer products that hold Fund shares, and insurance companies that offer variable annuity or variable life insurance products.
Payments for distribution or
promotional and marketing support are made out of the Sub-Adviser’s and/or the Distributor’s own resources and/or assets, including from the revenues or profits derived from the advisory fees the
Sub-Adviser receives from the Manager for sub-advisory services on behalf of the Fund. Such payments, which may be substantial, are paid to financial intermediaries who perform services for the Sub-Adviser, and/or the
Distributor, and are in addition to payments made pursuant to an applicable 12b-1 plan. Such payments are separate from any commissions the Distributor pays to financial intermediaries out of the sales charges paid by
investors.
Payments for
distribution-related expenses and asset retention items, paid by the Sub-Adviser or the Distributor, such as marketing or promotional expenses, are often referred to as “revenue sharing.” Revenue sharing
payments may be made on the basis of the sales of shares attributable to that financial intermediary, the average net assets of the Fund and other Oppenheimer funds attributable to the accounts of that financial
intermediary and its clients, negotiated lump sum payments for distribution services provided, or similar fees. In some circumstances, revenue sharing payments may create an incentive for a financial intermediary or
its representatives to recommend or offer shares of the Fund or other Oppenheimer funds to its customers. These payments also may give a financial intermediary an incentive to cooperate with the Distributor’s
marketing efforts. A revenue sharing payment may, for example, qualify the Fund for preferred status with the financial intermediary receiving the payment or provide representatives of the Distributor with access to
representatives of the financial intermediary’s sales force, in some cases on a preferential basis over funds of competitors. Additionally, as firm support, the Sub-Adviser or Distributor may reimburse expenses,
including, but not limited to, educational seminars and “due diligence” or training meetings (to the extent permitted by applicable laws or the rules of the Financial Industry Regulatory Authority
(“FINRA”)) designed to increase sales representatives’ awareness about Oppenheimer funds,
| Oppenheimer Rochester Massachusetts Municipal Fund | 31 |
including travel and lodging expenditures.
However, the Sub-Adviser or Distributor does not consider a financial intermediary’s sale of shares of the Fund or other Oppenheimer funds when selecting brokers or dealers to effect portfolio transactions for
the funds.
Various factors are used to
determine whether to make revenue sharing payments. Possible considerations include, without limitation, the types of services provided by the financial intermediary, sales of Fund shares, the redemption rates on
accounts of clients of the financial intermediary or overall asset levels of Oppenheimer funds held for or by clients of the financial intermediary, the willingness of the financial intermediary to allow the
Distributor to provide educational and training support for the financial intermediary’s sales personnel relating to the Oppenheimer funds, the availability of the Oppenheimer funds on the financial
intermediary’s sales system, as well as the overall quality of the services provided by the financial intermediary. The Sub-Adviser and Distributor have adopted guidelines for assessing and implementing each
prospective revenue sharing arrangement. To the extent that financial intermediaries receiving distribution-related payments from the Sub-Adviser or Distributor sell more shares of the Oppenheimer funds or retain more
shares of the funds in their client accounts, the Sub-Adviser and Distributor benefit from the incremental management and other fees they receive with respect to those assets.
Payments may be made by the
Transfer Agent or Sub-Transfer Agent to financial intermediaries to compensate or reimburse them for services provided, such as sub-transfer agency services for shareholders or retirement plan participants, omnibus
accounting or sub-accounting, participation in networking arrangements, operational and recordkeeping and other administrative services. These payments are made out of the Transfer Agent’s or Sub-Transfer
Agent’s own resources and/or assets, including from the revenues or profits derived from the transfer agency fees the Transfer Agent receives from the Fund. Financial intermediaries that may receive these fees
for providing services may include, but are not limited to, retirement plan administrators, qualified tuition program sponsors, banks and trust companies, broker-dealers, and insurance companies that offer variable
annuity or variable life insurance products, and other financial intermediaries. These fees may be used by the financial intermediary to offset or reduce fees that would otherwise be paid directly to them by certain
account holders, such as retirement plans.
Payments made by the
Sub-Adviser, and/or the Distributor, the Transfer Agent and Sub-Transfer Agent are not reflected in the tables in the “Fees and Expenses of the Fund” section of this prospectus because they are not paid by
the Fund.
The Statement of Additional
Information contains more information about revenue sharing payments made by the Sub-Adviser and/or Distributor and operational and recordkeeping, networking and sub-accounting payments made by the Transfer Agent
and/or Sub-Transfer Agent. Your broker-dealer or other financial intermediary may charge you fees or commissions in addition to those disclosed in this prospectus. You should ask your financial intermediary for details about any such payments it receives from the Sub-Adviser, Distributor, Transfer Agent or Sub-Transfer Agent, or any
other fees or expenses it charges.
Dividends, Capital Gains and
Taxes
Dividends. The Fund intends to declare dividends separately for each class of shares from net tax-exempt income and/or net taxable investment income
each regular business day and to pay those dividends monthly. Daily dividends will not be declared or paid on newly-purchased shares until Federal Funds are available to the Fund from the purchase payment for such
shares.
The Fund attempts to pay
dividends on Class A shares at a constant level. There is no assurance that it will be able to do so. The Board of Trustees may change the targeted dividend level at any time, without prior notice to shareholders. The
amount of those dividends and any other distributions paid on other classes of shares may vary over time, depending on market conditions, the composition of the Fund’s portfolio, and expenses borne by the
particular class of shares. Dividends and other distributions paid on Class A and Class Y shares will generally be higher than dividends for Class B and Class C shares, which normally have higher expenses than Class A
or Class Y. The Fund cannot guarantee that it will pay any dividends or other distributions.
Capital Gains. Although the Fund does not seek capital gains, it may realize capital gains on the sale of portfolio securities. If it does, it may make
distributions out of any short-term or long-term capital gains annually. The Fund may also make supplemental distributions of ordinary income and exempt-interest dividends and capital gains following the end of its
fiscal year. There can be no assurance that the Fund will pay any capital gains distributions in a particular year. Long-term capital gains will be separately identified in the tax information the Fund sends you after
the end of the calendar year.
Options for Receiving Dividends
and Distributions. When you open your Fund account, you can specify on your application how you want to receive distributions of dividends and capital gains. To change that option, you must notify the
Transfer Agent. There are four payment options available:
| ■ | Reinvest All Distributions in the Fund. You can elect to reinvest all dividends and capital gains distributions in additional shares of the Fund. |
| ■ | Reinvest Only Dividends or Capital Gains. You can elect to reinvest some types of distributions in the Fund while receiving the other types of distributions by check or having them sent to your bank account through AccountLink. Different treatment is available for distributions of dividends, short-term capital gains and long-term capital gains. |
| 32 | Oppenheimer Rochester Massachusetts Municipal Fund |
| ■ | Receive All Distributions in Cash. You can elect to receive all dividends and capital gains distributions by check or have them sent to your bank through AccountLink. |
| ■ | Reinvest Your Distributions in Another Oppenheimer Fund. You can reinvest all of your dividends and capital gains distributions in another Oppenheimer fund that is available for exchanges. You must have an existing account in the same share class in the selected fund. |
Taxes. Dividends paid from net investment income earned by the Fund on tax-exempt municipal securities will be excludable from gross income for federal income tax purposes. All or a portion of
the dividends paid by the Fund that are derived from interest paid on certain “private activity bonds” may be an item of tax preference if you are subject to the federal alternative minimum tax. The
portion of the Fund’s exempt-interest dividends that was a tax preference item for the most recent calendar year is available on the OppenheimerFunds website. The tax preference amount will vary from year to
year.
Dividends and capital gains
distributions may be subject to federal, state or local taxes. Any short-term capital gain distributions are taxable to you as ordinary income. Any long-term capital gain distributions are taxable to you as long-term
capital gains, no matter how long you have owned shares in the Fund. The Fund may derive gains in part from municipal obligations the Fund purchased below their principal or face values. All, or a portion of these
gains may be taxable to you as ordinary income rather than capital gains. Whether you reinvest your distributions in additional shares or take them in cash, the tax treatment is the same.
After the end of each calendar
year the Fund will send you and the Internal Revenue Service statements showing the amount of any taxable distributions you received in the previous year and will separately identify any portion of these distributions
that qualify for taxation as long-term capital gains or for any other special tax treatment.
If you are neither a resident
nor a citizen of the United States, or if you are a foreign entity, the Fund’s ordinary income dividends paid to you (which include distributions of net short-term capital gains) generally will be subject to a
30% U.S. withholding tax, unless a lower rate applies under an income tax treaty. Certain distributions that may be reported by the Fund as arising from Qualified Interest Income and Qualified Short-term Capital Gains
(if applicable) and paid to a foreign shareholder may be eligible for an exemption from U.S. withholding tax. To the extent the Fund’s distributions are derived from ordinary dividends, they will not be eligible
for this exemption. In addition, under legislation known as “FATCA” (the Foreign Account Tax Compliance Act), the Fund will be required to withhold 30% of the ordinary dividends it pays and the gross
proceeds of share redemptions and certain capital gains it pays after December 31, 2018, to certain foreign shareholders that fail to meet prescribed information reporting or certification requirements.
Backup Withholding. Unless an exception applies, the Fund may be required to withhold U.S. federal income tax on distributions and redemption proceeds payable to you if you fail to provide the Fund with your
correct social security number or taxpayer identification number or fail to make required certifications, or if you have been notified by the IRS that you are subject to backup withholding. Any amounts withheld may be
credited against U.S. federal income tax liability.
Avoid “Buying a
Distribution.” If you buy shares on or just before the ex-dividend date, or just before the Fund declares a capital gains distribution, you will pay the full price for the shares, and then receive a
portion of the price back as a taxable dividend or capital gain.
Remember, There May be Taxes on
Transactions. Because the Fund’s share prices fluctuate, you may have a capital gain or loss when you sell or exchange your shares. A capital gain or loss is the difference between the price you
paid for the shares and the price you receive when you sell or exchange them. Any capital gain is subject to capital gains tax.
Returns of Capital Can
Occur. In certain cases, distributions made by the Fund may be considered a return of capital to shareholders, which is generally non-taxable, resulting in a reduction in the basis in their
shares. If this occurs, the Fund will notify you.
Cost Basis Reporting. The Fund is required to report to the Internal Revenue Service (“IRS”), and furnish to Fund shareholders, detailed “cost basis” and “holding period”
information for Fund shares acquired on or after January 1, 2012 (“covered shares”) that are redeemed on or after that date. These requirements do not apply to investments through a tax-deferred
arrangement, such as a 401(k) plan or an individual retirement plan. If you redeem covered shares during any year, the Fund will report the following information to the IRS and to you on Form 1099-B: (i) the cost
basis of such shares, (ii) the gross proceeds you received on the redemption and (iii) the holding period for the redeemed shares.
The default method for
calculating the cost basis of covered shares is based on the average cost of all Fund shares you purchased on or after January 1, 2012 and prior to a particular redemption. If you and your financial or tax adviser
determine another calculation method may be more beneficial for your individual tax situation, you may be able to elect another IRS-accepted method via the OppenheimerFunds website, www.oppenheimerfunds.com, or by
notifying the Fund’s Transfer Agent in writing.
You should contact your
financial or tax advisor about the application of the cost basis reporting rules to you, particularly whether you should elect a cost basis calculation method or use the default average cost basis.
This information is only a
summary of certain income tax information about your investment. You are encouraged to consult your tax adviser about the effect of an investment in the Fund on your particular tax situation and about any changes to the Internal Revenue Code that may
occur from time to time. Additional information about the tax effects of investing in the Fund is contained in the Statement of Additional Information.
| Oppenheimer Rochester Massachusetts Municipal Fund | 33 |
Qualification as
a Regulated Investment Company. The Fund intends to qualify each year as a “regulated investment company” under the Internal Revenue Code, by satisfying certain income, asset diversification
and income distribution requirements, but it reserves the right not to qualify. The Fund qualified during its most recent fiscal year. The Fund, as a regulated investment company, will not be subject to federal income
taxes on any of its income, provided that it satisfies certain income, diversification and distribution requirements.
Other Taxability
Risk Considerations. It is possible that, because of events occurring after the date of its issuance, a municipal security owned by the Fund will be determined to pay interest that is
includable in gross income for purposes of the federal income tax, and that determination could be retroactive to the date of issuance. Such a determination may cause a portion of prior distributions to shareholders
to be taxable to shareholders in the year of receipt.
Legislation affecting tax-exempt
municipal securities is often considered by the United States Congress and legislation affecting the exemption of interest or other income thereon for purposes of taxation by a state may be considered by the
state’s legislature. Court proceedings may also be filed, the outcome of which could modify the tax treatment of a state’s municipal securities. There can be no assurance that legislation enacted or
proposed, or actions by a court, after the date of issuance of a municipal security will not have an adverse effect on the tax status of interest or other income or the market value of that municipal security. Please
consult your tax adviser regarding pending or proposed federal and state tax legislation, court proceedings and other tax considerations.
Massachusetts Tax
Considerations. For Massachusetts resident individual shareholders, exempt-interest dividends from the Fund generally will be exempt from Massachusetts personal income tax to the extent that such
dividends are directly attributable to interest received by the Fund from obligations issued by the Commonwealth of Massachusetts, any political subdivision thereof or any Massachusetts agency or instrumentality. If,
however, any portion of exempt-interest dividends from the Fund is attributable to income received by the Fund from municipal securities of any state other than Massachusetts, such income will be subject to the
Massachusetts personal income tax. While capital gain dividends from the Fund generally will be taxable to Massachusetts resident individual shareholders, a portion of such dividends may also be exempt if derived by
the Fund from certain types of Massachusetts obligations. Ordinary dividends (if any) from the Fund generally will be taxable to Massachusetts resident individual shareholders at the Massachusetts personal income tax
rate applicable to dividend income, but any portion that is attributable to interest received by the Fund on U.S. government securities will be exempt from Massachusetts personal income tax. Corporate shareholders
that are subject to the Massachusetts corporate excise tax generally will need to include all distributions (including exempt-interest dividends) from the Fund in calculating the net income measure of the
Massachusetts corporate excise tax. The Fund will mail a written notice to shareholders each taxable year indicating the portion of dividends received by Massachusetts resident individual shareholders that is exempt
from the Massachusetts personal income tax.
Financial Highlights
The Financial Highlights Table
is presented to help you understand the Fund’s financial performance for the past five fiscal years. Certain information reflects financial results for a single Fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been audited by KPMG LLP, the Fund’s
independent registered public accounting firm. KPMG LLP’s report, along with the Fund’s financial statements, are included in the annual report, which is available upon request.
| 34 | Oppenheimer Rochester Massachusetts Municipal Fund |
Financial
Highlights
| Class A | Year Ended March 31, 2016 | Year Ended March 31, 2015 | Year Ended March 31, 2014 | Year Ended March 28, 20131 | Year Ended March 30, 20121 | |
| Per Share Operating Data | ||||||
| Net asset value, beginning of period | $10.64 | $10.35 | $11.38 | $11.24 | $9.90 | |
| Income (loss) from investment operations: | ||||||
| Net investment income2 | 0.46 | 0.54 | 0.55 | 0.53 | 0.61 | |
| Net realized and unrealized gain (loss) | (0.22) | 0.28 | (1.08) | 0.17 | 1.34 | |
| Total from investment operations | 0.24 | 0.82 | (0.53) | 0.70 | 1.95 | |
| Dividends and/or distributions to shareholders: | ||||||
| Dividends from net investment income | (0.50) | (0.53) | (0.50) | (0.56) | (0.61) | |
| Net asset value, end of period | $10.38 | $10.64 | $10.35 | $11.38 | $11.24 | |
| Total Return, at Net Asset Value3 | 2.35% | 8.05% | (4.61)% | 6.32% | 20.18% | |
| Ratios/Supplemental Data | ||||||
| Net assets, end of period (in thousands) | $31,035 | $34,700 | $36,908 | $56,766 | $43,995 | |
| Average net assets (in thousands) | $32,101 | $35,013 | $46,038 | $50,744 | $44,127 | |
| Ratios to average net assets:4 | ||||||
| Net investment income | 4.47% | 5.11% | 5.22% | 4.65% | 5.71% | |
| Expenses excluding specific expenses listed below | 1.05% | 1.03% | 1.04% | 0.94% | 0.96% | |
| Interest and fees from borrowings | 0.90% | 0.56% | 0.31% | 0.36% | 0.38% | |
| Interest and fees on short-term floating rate notes issued | 0.02% | 0.04% | 0.04% | 0.05% | 0.08% | |
| Total expenses5 | 1.97% | 1.63% | 1.39% | 1.35% | 1.42% | |
| Expenses after payments, waivers and/or reimbursements and reduction to custodian expenses | 1.72% | 1.40% | 1.15% | 1.20% | 1.26% | |
| Portfolio turnover rate | 5% | 16% | 14% | 10% | 13% | |
| 1. | March 28, 2013 and March 30, 2012 represent the last business days of the Fund’s respective reporting periods. |
| 2. | Per share amounts calculated based on the average shares outstanding during the period. |
| 3. | Assumes an initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. |
| 4. | Annualized for periods less than one full year. |
| 5. | Interest and fee expense relates to the Fund’s liability for short-term floating rate notes issued in conjunction with inverse floating rate security transactions. |
| Oppenheimer Rochester Massachusetts Municipal Fund | 35 |
Financial Highlights
| Class B | Year Ended March 31, 2016 | Year Ended March 31, 2015 | Year Ended March 31, 2014 | Year Ended March 28, 20131 | Year Ended March 30, 20121 | |
| Per Share Operating Data | ||||||
| Net asset value, beginning of period | $10.63 | $10.35 | $11.38 | $11.23 | $9.89 | |
| Income (loss) from investment operations: | ||||||
| Net investment income2 | 0.39 | 0.46 | 0.47 | 0.45 | 0.53 | |
| Net realized and unrealized gain (loss) | (0.22) | 0.27 | (1.08) | 0.18 | 1.34 | |
| Total from investment operations | 0.17 | 0.73 | (0.61) | 0.63 | 1.87 | |
| Dividends and/or distributions to shareholders: | ||||||
| Dividends from net investment income | (0.42) | (0.45) | (0.42) | (0.48) | (0.53) | |
| Net asset value, end of period | $10.38 | $10.63 | $10.35 | $11.38 | $11.23 | |
| Total Return, at Net Asset Value3 | 1.68% | 7.15% | (5.33)% | 5.63% | 19.31% | |
| Ratios/Supplemental Data | ||||||
| Net assets, end of period (in thousands) | $525 | $1,017 | $1,285 | $1,731 | $1,846 | |
| Average net assets (in thousands) | $632 | $1,148 | $1,370 | $1,844 | $1,738 | |
| Ratios to average net assets:4 | ||||||
| Net investment income | 3.73% | 4.38% | 4.47% | 3.94% | 4.96% | |
| Expenses excluding specific expenses listed below | 1.88% | 1.82% | 1.89% | 1.78% | 1.80% | |
| Interest and fees from borrowings | 0.90% | 0.56% | 0.31% | 0.37% | 0.38% | |
| Interest and fees on short-term floating rate notes issued | 0.02% | 0.04% | 0.04% | 0.05% | 0.08% | |
| Total expenses5 | 2.80% | 2.42% | 2.24% | 2.20% | 2.26% | |
| Expenses after payments, waivers and/or reimbursements and reduction to custodian expenses | 2.47% | 2.15% | 1.90% | 1.97% | 2.01% | |
| Portfolio turnover rate | 5% | 16% | 14% | 10% | 13% | |
| 1. | March 28, 2013 and March 30, 2012 represent the last business days of the Fund’s respective reporting periods. |
| 2. | Per share amounts calculated based on the average shares outstanding during the period. |
| 3. | Assumes an initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. |
| 4. | Annualized for periods less than one full year. |
| 5. | Interest and fee expense relates to the Fund’s liability for short-term floating rate notes issued in conjunction with inverse floating rate security transactions. |
| 36 | Oppenheimer Rochester Massachusetts Municipal Fund |
Financial Highlights
| Class C | Year Ended March 31, 2016 | Year Ended March 31, 2015 | Year Ended March 31, 2014 | Year Ended March 28, 20131 | Year Ended March 30, 20121 | |
| Per Share Operating Data | ||||||
| Net asset value, beginning of period | $10.61 | $10.33 | $11.36 | $11.22 | $9.88 | |
| Income (loss) from investment operations: | ||||||
| Net investment income2 | 0.39 | 0.46 | 0.47 | 0.44 | 0.52 | |
| Net realized and unrealized gain (loss) | (0.22) | 0.27 | (1.08) | 0.18 | 1.35 | |
| Total from investment operations | 0.17 | 0.73 | (0.61) | 0.62 | 1.87 | |
| Dividends and/or distributions to shareholders: | ||||||
| Dividends from net investment income | (0.42) | (0.45) | (0.42) | (0.48) | (0.53) | |
| Net asset value, end of period | $10.36 | $10.61 | $10.33 | $11.36 | $11.22 | |
| Total Return, at Net Asset Value3 | 1.69% | 7.17% | (5.33)% | 5.54% | 19.33% | |
| Ratios/Supplemental Data | ||||||
| Net assets, end of period (in thousands) | $15,404 | $18,107 | $18,228 | $26,442 | $21,408 | |
| Average net assets (in thousands) | $16,461 | $18,075 | $21,270 | $24,549 | $18,875 | |
| Ratios to average net assets:4 | ||||||
| Net investment income | 3.73% | 4.35% | 4.47% | 3.90% | 4.93% | |
| Expenses excluding specific expenses listed below | 1.81% | 1.78% | 1.79% | 1.68% | 1.71% | |
| Interest and fees from borrowings | 0.90% | 0.56% | 0.31% | 0.36% | 0.38% | |
| Interest and fees on short-term floating rate notes issued | 0.02% | 0.04% | 0.04% | 0.05% | 0.08% | |
| Total expenses5 | 2.73% | 2.38% | 2.14% | 2.09% | 2.17% | |
| Expenses after payments, waivers and/or reimbursements and reduction to custodian expenses | 2.47% | 2.15% | 1.90% | 1.95% | 2.01% | |
| Portfolio turnover rate | 5% | 16% | 14% | 10% | 13% | |
| 1. | March 28, 2013 and March 30, 2012 represent the last business days of the Fund’s respective reporting periods. |
| 2. | Per share amounts calculated based on the average shares outstanding during the period. |
| 3. | Assumes an initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. |
| 4. | Annualized for periods less than one full year. |
| 5. | Interest and fee expense relates to the Fund’s liability for short-term floating rate notes issued in conjunction with inverse floating rate security transactions. |
| Oppenheimer Rochester Massachusetts Municipal Fund | 37 |
Financial Highlights
| Class Y | Year Ended March 31, 2016 | Year Ended March 31, 2015 | Year Ended March 31, 2014 | Year Ended March 28, 20131 | Period Ended March 30, 20121,2 | |
| Per Share Operating Data | ||||||
| Net asset value, beginning of period | $10.63 | $10.35 | $11.37 | $11.23 | $10.43 | |
| Income (loss) from investment operations: | ||||||
| Net investment income3 | 0.46 | 0.54 | 0.55 | 0.54 | 0.38 | |
| Net realized and unrealized gain (loss) | (0.21) | 0.27 | (1.07) | 0.17 | 0.83 | |
| Total from investment operations | 0.25 | 0.81 | (0.52) | 0.71 | 1.21 | |
| Dividends and/or distributions to shareholders: | ||||||
| Dividends from net investment income | (0.50) | (0.53) | (0.50) | (0.57) | (0.41) | |
| Net asset value, end of period | $10.38 | $10.63 | $10.35 | $11.37 | $11.23 | |
| Total Return, at Net Asset Value4 | 2.45% | 8.00% | (4.51)% | 6.43% | 11.87% | |
| Ratios/Supplemental Data | ||||||
| Net assets, end of period (in thousands) | $4,973 | $5,194 | $4,395 | $4,966 | $2,196 | |
| Average net assets (in thousands) | $5,156 | $5,102 | $4,005 | $3,713 | $1,012 | |
| Ratios to average net assets:5 | ||||||
| Net investment income | 4.47% | 5.11% | 5.18% | 4.73% | 5.23% | |
| Expenses excluding specific expenses listed below | 0.80% | 0.76% | 0.79% | 0.69% | 0.71% | |
| Interest and fees from borrowings | 0.90% | 0.56% | 0.31% | 0.36% | 0.39% | |
| Interest and fees on short-term floating rate notes issued | 0.02% | 0.04% | 0.04% | 0.05% | 0.08% | |
| Total expenses6 | 1.72% | 1.36% | 1.14% | 1.10% | 1.18% | |
| Expenses after payments, waivers and/or reimbursements and reduction to custodian expenses | 1.72% | 1.36% | 1.14% | 1.10% | 1.18% | |
| Portfolio turnover rate | 5% | 16% | 14% | 10% | 13% | |
| 1. | March 28, 2013 and March 30, 2012 represent the last business days of the Fund’s respective reporting periods. |
| 2. | For the period from July 29, 2011 (inception of offering) to March 30, 2012. |
| 3. | Per share amounts calculated based on the average shares outstanding during the period. |
| 4. | Assumes an initial investment on the business day before the first day of the fiscal period, with all dividends and distributions reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the last business day of the fiscal period. Sales charges are not reflected in the total returns. Total returns are not annualized for periods less than one full year. Returns do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. |
| 5. | Annualized for periods less than one full year. |
| 6. | Interest and fee expense relates to the Fund’s liability for short-term floating rate notes issued in conjunction with inverse floating rate security transactions. |
| 38 | Oppenheimer Rochester Massachusetts Municipal Fund |
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Information and
Services
Statement of Additional
Information and Annual and Semi-Annual Reports. The Fund’s Statement of Additional Information and Annual and Semi-Annual Reports to shareholders provide additional information
about the Fund’s investments. The Annual Report includes a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during its last fiscal year. The
Fund’s Statement of Additional Information and audited financial statements included in its most recent Annual Report dated March 31, 2016, including the notes thereto and report of the independent registered
public accounting firm thereon, are incorporated by reference into (are legally considered part of) this prospectus.
How to Request More Information
You can request the above
documents, the notice explaining the Fund’s privacy policy, and other information about the Fund, without charge, by:
| Telephone: | Call OppenheimerFunds Services toll-free: 1.800.CALL OPP (1.800.225.5677) |
| Mail: | Use the following address for regular mail: OppenheimerFunds Services P.O. Box 5270 Denver, Colorado 80217-5270 |
| Use the following address for courier or express mail: OppenheimerFunds Services 12100 East Iliff Avenue Suite 300 Aurora, Colorado 80014 | |
| Internet: | You may request documents, and read or download certain documents at www.oppenheimerfunds.com |
Information about the Fund
including the Statement of Additional Information can be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1.202.551.8090. Reports and other information about the Fund are available on the EDGAR database on the SEC’s website at www.sec.gov. Copies may be obtained after payment of a duplicating fee
by electronic request at the SEC’s e-mail address: [email protected] or by writing to the SEC’s Public Reference Section, Washington, D.C. 20549-1520.
No one has been authorized to provide
any information about the Fund or to make any representations about the Fund other than what is contained in this prospectus. This prospectus is not an offer to sell shares of the Fund, nor a solicitation of an offer
to buy shares of the Fund, to any person in any state or other jurisdiction where it is unlawful to make such an offer.
July 29, 2016
Statement of Additional
Information
This document contains
additional information about Rochester State Specific Municipal Funds (the “Fund”) and supplements information in the Fund’s prospectus dated July 29, 2016 (the “Prospectus”).
Any reference to the term
“Fund” or “Funds” throughout this SAI refers to each fund named below, unless otherwise indicated.
This Statement of Additional
Information (“SAI”) is not a prospectus. It should be read together with the Prospectus. The Fund’s financial statements are incorporated by reference into this SAI from its most recent Annual
Report. The Fund’s Prospectus and most recent Annual Report may be obtained without charge, upon request, by writing to OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217, or by calling
OppenheimerFunds Services at the toll-free number shown below, or by downloading it from the OppenheimerFunds website at www.oppenheimerfunds.com.
Additional Information About the
Fund’s Investment Policies and Risks
OFI Global Asset Management,
Inc. (“OFI Global”), the Fund’s investment adviser, has retained OppenheimerFunds, Inc. (the “Sub-Adviser”) to choose the Fund’s investments and provide related advisory services to
the Fund. The portfolio manager(s), who is responsible for the day-to-day management of the Fund’s portfolio, is employed by the Sub-Adviser unless indicated otherwise. In this Statement of Additional
Information (“SAI”), references to the “Manager” mean OFI Global and the Sub-Adviser unless the context indicates otherwise or unless otherwise specified. Prior to January 1, 2013, all
references in this SAI to the “Sub-Adviser” refer to OppenheimerFunds, Inc. in its capacity as the Manager.
The investment objective, the
principal investment policies and the principal risks of the Fund are described in the Prospectus. This SAI contains supplemental information about those policies and risks and the types of securities that the
Fund’s Sub-Adviser can select for the Fund. 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 municipal securities that
the Fund holds to maturity are redeemable by the security’s issuer at their full principal value plus any accrued interest. During the time they are held in the Fund’s portfolio, however, the values of
those securities may be affected by changes in general interest rates and other factors. The current values of debt securities vary inversely with changes in prevailing interest rates, meaning that after a security is
purchased if interest rates increase, the security will normally decline in value and if interest rates decrease, normally its value would increase. Those changes in value generally will not result in realized gains
or losses unless the Fund sells a security prior to its maturity. However, if the Fund disposes of a security prior to its maturity, 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 factors affecting the yields of municipal securities include:
general conditions in the municipal securities market, the size of a particular offering, the maturity of the obligation and the rating of the issue (if any).
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). That means the Fund
does not have to buy or sell securities solely to meet percentage limits if those limits were exceeded because the value of the investment changed in proportion to the size of the Fund.
The Fund’s Main Investment
Policies
Municipal Securities. The types of municipal securities in which the Fund may invest are described in the Prospectus under “Principal 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.
| • | Interest Rate Risk. Interest rate risk refers to the fluctuations in value of a debt security resulting from the relationship between price and yield. An increase in general interest rates will tend to reduce the market value of already-issued debt securities and a decline in general interest rates will tend to increase their value. Debt securities with longer maturities are usually subject to greater fluctuations in value from interest rate changes than obligations having shorter maturities. Variable rate debt securities pay interest based on an interest rate benchmark. When the benchmark rate changes, the interest payments on those securities may be reset at a higher or lower rate. Except for investments in variable rate debt securities, fluctuations in general interest rates do not affect the amount of interest income received. Fluctuations in the market valuations of debt securities may, however, affect the value of Fund assets. “Zero-coupon” or “stripped” securities may be particularly sensitive to interest rate changes. Risks associated with rising interest rates are heightened given that interest rates in the U.S. are at, or near, historic lows. |
| • | Duration Risk. Duration risk is the risk that longer-duration debt securities are more likely to decline in price than shorter-duration debt securities, in a rising interest-rate environment. Duration is a measure of the price sensitivity of a debt security or portfolio to interest rate changes. “Effective duration” attempts to measure the expected percentage change in the value of a bond or portfolio resulting from a change in prevailing interest rates. The change in the value of a bond or portfolio can be approximated by multiplying its duration by a change in interest rates. For example, if a bond has an effective duration of three years, a 1% increase in general interest rates would be expected to cause the bond’s value to decline about 3% while a 1% decrease in general interest rates would be expected to cause the bond’s value to increase 3%. The duration of a debt security may be equal to or shorter than the full maturity of a debt security. |
| • | Credit Risk. Credit risk relates to the ability of the issuer to meet interest or principal payments or both as they become due. In general, lower-grade, higher-yield bonds are subject to credit risk to a greater extent than lower-yield, higher-quality bonds. In making investments in debt securities, the Sub-Adviser may rely to some extent on the ratings of ratings organizations or it may use its own research to evaluate a security’s credit-worthiness. If securities the Fund |
| buys are unrated, they may be assigned a rating by the Sub-Adviser in categories similar to those of a rating organization. The Fund does not have investment policies establishing specific maturity ranges for the Fund’s investments, and they may be within any maturity range (short, medium or long) depending on the Sub-Adviser’s evaluation of investment opportunities available within the debt securities markets. | |
| • | Credit Spread Risk. Credit spread risk the risk that credit spreads (i.e., the difference in yield between securities that is due to differences in their credit quality) may increase when the market expects lower-grade bonds to default more frequently. Widening credit spreads may quickly reduce the market values of the Fund’s lower-rated and unrated securities. Some unrated securities may not have an active trading market or may trade less actively than rated securities, which means that the Fund might have difficulty selling them promptly at an acceptable price. |
| • | Extension Risk. Extension risk is the risk that, if interest rates rise rapidly, repayments of principal on certain debt securities may occur at a slower rate than expected, and the expected maturity of those securities could lengthen as a result. Securities that are subject to extension risk generally have a greater potential for loss when prevailing interest rates rise, which could cause their values to fall sharply. Extension risk is particularly prevalent for a callable security where an increase in interest rates could result in the issuer of that security choosing not to redeem the security as anticipated on the security’s call date. Such a decision by the issuer could have the effect of lengthening the debt security’s expected maturity, making it more vulnerable to interest rate risk and reducing its market value. |
| • | Reinvestment Risk. Reinvestment risk is the risk that when interest rates fall, the Fund may be required to reinvest the proceeds from a security’s sale or redemption at a lower interest rate. Callable bonds are generally subject to greater reinvestment risk than non-callable bonds. |
| • | Prepayment Risk. Certain fixed-income securities are subject to the risk of unanticipated prepayment. Prepayment risk is the risk that, when interest rates fall, the issuer will redeem the security prior to the security’s expected maturity, or that borrowers will repay the loans that underlie these fixed-income securities more quickly than expected, thereby causing the issuer of the security to repay the principal prior to expected maturity. The Fund may need to reinvest the proceeds at a lower interest rate, reducing its income. Securities subject to prepayment risk generally offer less potential for gains when prevailing interest rates fall. If the Fund buys those securities at a premium, accelerated prepayments on those securities could cause the Fund to lose a portion of its principal investment. The impact of prepayments on the price of a security may be difficult to predict and may increase the security’s price volatility. Interest-only and principal-only securities are especially sensitive to interest rate changes, which can affect not only their prices but can also change the income flows and repayment assumptions about those investments. |
Fixed-Income Market Risks. The fixed-income securities market can be susceptible to unusual volatility and illiquidity. Volatility and illiquidity may be more pronounced in the case of lower-rated and unrated
securities. Liquidity can decline unpredictably in response to overall economic conditions or credit tightening. Increases in volatility and decreases in liquidity may be caused by a rise in interest rates (or the
expectation of a rise in interest rates), which are at or near historic lows in the U.S. and in other countries. During times of reduced market liquidity, the Fund may not be able to readily sell bonds at the prices
at which they are carried on the Fund’s books. If the Fund needed to sell large blocks of bonds to meet shareholder redemption requests or to raise cash, those sales could further reduce the bonds’ prices.
An unexpected increase in Fund redemption requests, which may be triggered by market turmoil or an increase in interest rates, could cause the Fund to sell its holdings at a loss or at undesirable prices. Similarly,
the prices of the Fund’s holdings could be adversely affected if an investment account managed similarly to that of the Fund were to experience significant redemptions and that account were required to sell its
holdings at an inopportune time. The liquidity of an issuer’s securities may decrease as result of a decline in an issuer’s credit rating, the occurrence of an event that causes counterparties to avoid
transacting with the issuer, or an increase in the issuer’s cash outflows. A lack of liquidity or other adverse credit market conditions may hamper the Fund’s ability to sell the debt securities in which
it invests or to find and purchase suitable debt instruments.
Economic and other market
developments can adversely affect fixed-income securities markets in the United States, Europe and elsewhere. At times, participants in debt securities markets may develop concerns about the ability of certain issuers
of debt securities to make timely principal and interest payments, or they may develop concerns about the ability of financial institutions that make markets in certain debt securities to facilitate an orderly market.
Those concerns may impact the market price or value of those debt securities and may cause increased volatility in those debt securities or debt securities markets. Under some circumstances, as was the case during the
latter half of 2008 and early 2009, those concerns may cause reduced liquidity in certain debt securities markets, reducing the willingness of some lenders to extend credit, and making it more difficult for borrowers
to obtain financing on attractive terms (or at all).
Following the financial crisis,
the Federal Reserve has sought to stabilize the economy by keeping the federal funds rate at or near zero percent. The Federal Reserve has also purchased large quantities of securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, pursuant to its monetary stimulus program known as “quantitative easing”. As the Federal Reserve tapers its securities purchases pursuant to quantitative
easing or raises the federal funds rate, there is a risk that interest rates may rise and cause fixed-income investors to move out of fixed-income securities, which may also increase redemptions in fixed-income mutual
funds.
In addition, although the
fixed-income securities markets have grown significantly in the last few decades, regulations and business practices have led some financial intermediaries to curtail their capacity to engage in trading (i.e.,
“market
2
making”) activities for certain debt
securities. As a result, dealer inventories of fixed-income securities, which provide an indication of the ability of financial intermediaries to make markets in fixed-income securities, are at or near historic lows
relative to market size. Because market makers help stabilize the market through their financial intermediary services, further reductions in dealer inventories could have the potential to decrease liquidity and
increase volatility in the fixed-income securities markets.
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 investments that pay a lower rate of return, which could reduce the Fund’s yield.
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.
General Obligation Bonds. The basic security behind general obligation bonds is the issuer’s pledge of its full faith and credit and taxing power, if any, for the repayment of principal and the payment of
interest. Issuers of general obligation bonds include states, counties, cities, towns, and regional districts. The proceeds of these obligations are used to fund a wide range of public projects, including construction
or improvement of schools, highways and roads, and water and sewer systems. The rate of taxes that can be levied for the payment of debt service on these bonds may be limited or unlimited. Additionally, there may be
limits on 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.
Private Activity Bonds. The Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), includes rules governing tax-exemption for interest paid on certain types of municipal securities
known as “private activity bonds” (referred to as “industrial development bonds” 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 can be excluded 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) tax-exempt organizations. 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.
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.
Under Internal Revenue Code
Section 147(a), certain types of private activity bonds that would otherwise be qualified tax-exempt private activity bonds will not be qualified for any period during which the bond 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.
Therefore, certain municipal
securities could lose their tax-exempt status retroactively if the issuer or user fails to meet certain continuing requirements regarding the use and operation of the bond-financed facilities and the use and
expenditure of the proceeds of such securities for the entire period during which the securities are outstanding. 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.
Tax-exempt interest on certain
qualified private activity bonds may nonetheless be treated as a “tax preference” item subject to the alternative minimum tax (the “AMT”). 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 shareholders that are subject to the AMT.
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.
Insured Municipal Bonds. Bonds purchased by the Fund may be covered by insurance that guarantees that interest payments on the bond will be made on time and the principal will be repaid when the bond matures.
Either the issuer of the bond or the Fund purchases the insurance. Insurance is expected to protect the Fund against losses caused by a bond issuer’s failure to make interest or principal payments. However,
insurance does not protect the Fund or its shareholders against losses caused by declines in a bond’s market value. Also, the Fund cannot be certain that any insurance company does not make these payments. In
addition, if the Fund purchases the insurance, it may pay the premiums, which will reduce the Fund’s yield. The Fund seeks to use only insurance companies with claims paying ability, financial strength, or
equivalent ratings of at least investment grade. However, if insurance from insurers with these ratings is not available, the Fund may use insurance companies with lower ratings or stop purchasing insurance or insured
bonds. If a bond’s insurer fails to fulfill its obligations or loses its credit rating, the value of the bond could drop.
Municipal Notes. Municipal securities that have a maturity of less than one year (when the security is issued) are generally known as “municipal notes.” Municipal notes generally are used to
provide for short-term working capital needs. Some of the types of municipal notes the Fund can invest in are described below.
Tax Anticipation Notes. These are issued to finance working capital needs of municipalities. Generally, they are issued in anticipation of various seasonal tax revenue, such as income, sales, use or other business
taxes, and are payable from these specific future taxes.
Revenue Anticipation
Notes. These are notes issued in expectation of receipt of other types of revenue, such as federal revenues available under federal revenue-sharing programs.
Bond Anticipation Notes. Bond anticipation notes are issued to provide interim financing until long-term financing can be arranged. The long-term bonds that are issued typically also provide the money for the
repayment of the notes.
Construction Loan Notes. These are sold to provide project construction financing until permanent financing can be secured. After successful completion and acceptance of the project, it may receive permanent
financing through public agencies, such as the Federal Housing Administration.
Tax-Exempt Commercial
Paper. This type of short-term obligation (usually having a maturity of 270 days or less) is issued by a municipality to meet current working capital needs.
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.
4
Some municipal lease securities
may be deemed to be “illiquid” securities. The Sub-Adviser may determine that certain municipal leases are liquid under guidelines that require the Sub-Adviser to evaluate, among other factors, the
following:
| • | the frequency (or anticipated frequency) of trades and price quotations for such securities; |
| • | the number, quality and experience of dealers willing to purchase or sell a security and the number of other potential purchasers; |
| • | dealer undertakings to make a market in a security and the identity of such dealers; and |
| • | the nature of the security and the nature of the marketplace trades. |
While the Fund holds such
securities, the Sub-Adviser 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% (measured at the time of purchase) 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 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.
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.
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
6
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”), S&P Global Ratings (“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 or indicative of market value risk. 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. Ratings and market value may change from time to time, positively or negatively, to reflect new developments regarding the issuer.
“Investment-grade”
securities are those rated within the four highest rating categories of S&P’s, Moody’s, Fitch or another nationally recognized statistical rating organization (or, in the case of unrated securities,
determined by the Fund’s Sub-Adviser to be comparable to securities rated investment-grade). While securities rated within the fourth highest category by S&P’s (meaning BBB+, BBB or BBB-) or by
Moody’s (meaning Baa1, Baa2 or Baa3) are considered “investment-grade,” they have some speculative characteristics. If two or more nationally recognized statistical rating organizations have assigned
different ratings to a security, the Sub-Adviser uses the highest rating assigned.
Below-investment-grade
securities (also referred to as “junk bonds”) are those rated below investment grade by the S&P, Moody’s, Fitch or other nationally recognized statistical rating organization or unrated
securities the Sub-Adviser believes are of comparable quality.
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 Sub-Adviser 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, Fitch or another nationally recognized statistical rating organization change as a result of changes in those rating
organizations or their rating systems, the Fund will attempt to use similar ratings as standards for investments in accordance with the Fund’s investment policies. The Sub-Adviser continuously monitors the
issuers of below-investment-grade securities held by the Fund for their ability to make required principal and interest payments, as well as in an effort to control the liquidity of the Fund so that it can meet
redemption requests.
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, Fitch and other nationally recognized statistical rating organizations for municipal securities is contained in an Appendix to this SAI.
Unrated
Securities. Because the Fund purchases securities that are not rated by any nationally recognized statistical rating organization, the Sub-Adviser may internally assign ratings to
those securities, after assessing their credit quality and other factors, in categories similar to those of nationally recognized statistical rating organizations. Unrated securities are considered
“investment-grade” or “below-investment-grade” if judged by the Sub-Adviser to be comparable to rated investment-grade or below-investment-grade securities. There can be no assurance, nor is it
intended, that the Sub-Adviser’s credit analysis process is consistent or comparable with the credit analysis process used by a nationally recognized statistical rating organization. The Sub-Adviser’s
rating does not constitute a guarantee of the credit quality. In addition, some unrated securities may not have an active trading market, which means that the Fund might have difficulty selling them promptly at an
acceptable price. In evaluating the credit quality of a particular security, whether rated or unrated, the Sub-Adviser will normally take into consideration a number of factors including, but not limited to, the
financial resources of the issuer, 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, the degree of community support for the financed facility, the capabilities of the issuer’s management, and regulatory factors affecting the issuer or the particular facility.
Risks of Below-Investment-Grade
Securities. Below-investment-grade securities (also referred to as “junk bonds”) are those rated below investment grade by S&P, Moody’s, Fitch or other nationally recognized
statistical rating organization or unrated securities the investment adviser believes are of comparable quality. The investment adviser continuously monitors the issuers of below-investment-grade securities held by
the Fund for their ability to make required principal and interest payments, as well as in an effort to control the liquidity of the Fund so that it can meet redemption requests. While below-investment-grade
securities generally may have a higher yield than securities rated in the investment-grade categories, they are subject to increased risks. Below-investment-grade securities are considered to be speculative with
respect to the ability of the issuer to timely repay principal and pay interest or dividends in accordance with the terms of
the obligation and may have more credit risk
than investment-grade securities, especially during times of weakening economic conditions or rising interest rates. The risks of below-investment-grade securities include:
| • | Prices of below-investment-grade securities are subject to extreme price fluctuations, even under normal market conditions. Negative economic developments may have a greater impact on the prices of below-investment-grade securities than on those of investment-grade securities. In addition, the market values of below-investment-grade securities tend to reflect individual issuer developments to a greater extent than do the market values of investment-grade securities, which react primarily to fluctuations in the general level of interest rates. |
| • | Below-investment-grade securities may be issued by less creditworthy issuers and may be more likely to default than investment-grade securities. The issuers of below-investment-grade securities may have more outstanding debt relative to their assets than issuers of higher-grade securities. Below-investment-grade securities are vulnerable to adverse changes in the issuer’s industry and to general economic conditions. If the issuer experiences financial stress, it may not be able to pay interest and principal payments in a timely manner. The issuer’s ability to pay its debt obligations also may be lessened by specific issuer developments or the unavailability of additional financing. In the event of a default of an issuer of a below-investment-grade security, the Fund may incur expenses to the extent necessary to seek recovery or to negotiate new terms. |
| • | Below-investment-grade securities are frequently ranked junior to claims by other creditors. If the issuer cannot meet its obligations, the senior obligations are generally paid off before the junior obligations, which could limit the Fund’s ability to fully recover principal or to receive interest payments when senior securities are in default. As a result, investors in below-investment-grade securities have a lower degree of protection with respect to principal and interest payments than do investors in investment-grade securities. |
| • | There may be less of a market for below-investment-grade securities and as a result they may be harder to sell at an acceptable price. Not all dealers maintain markets in all below-investment-grade securities. As a result, there is no established retail secondary market for many of these securities. The Fund anticipates that such securities could be sold only to a limited number of dealers or institutional investors. To the extent a secondary trading market does exist, it is generally not as liquid as the secondary market for investment-grade securities. The lack of a liquid secondary market may have an adverse impact on the market price of the security. The lack of a liquid secondary market for certain securities may also make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing its securities. Market quotations are generally available on many below-investment-grade securities only from a limited number of dealers and may not necessarily represent firm bids of such dealers or prices for actual sales. In addition, the trading volume for below-investment-grade securities is generally lower than that for investment-grade securities and the secondary markets could contract under adverse market or economic conditions independent of any specific adverse changes in the condition of a particular issuer. Under certain economic and/or market conditions, the Fund may have difficulty disposing of certain below-investment-grade securities due to the limit number of investors in that sector of the market. When the secondary market for below-investment-grade securities becomes more illiquid, or in the absence of readily available market quotations for such securities, the relative lack of reliable objective data makes it more difficult to value the Fund’s securities and judgment plays a more important role in determining such valuations. |
| • | Below-investment-grade securities frequently have redemption features that permit an issuer to repurchase the security from the Fund before it matures. During times of falling interest rates, issuers of these securities are likely to redeem or prepay the securities and finance them with securities with a lower interest rate. To the extent an issuer is able to refinance the securities, or otherwise redeem them; the Fund may have to replace the securities with lower yielding securities, which could result in a lower return for the Fund. |
| • | Below-investment-grade securities markets may also react strongly to adverse news about an issuer or the economy, or to the perception or expectation of adverse news, whether or not it is based on fundamental analysis. An increase in interest rates could severely disrupt the market for below-investment-grade securities. Additionally, below-investment-grade securities may be affected by legislative and regulatory developments. These developments could adversely affect the Fund’s net asset value and investment practices, the secondary market for below-investment-grade securities, the financial condition of issuers of these securities and the value and liquidity of outstanding below-investment-grade securities, especially in a thinly traded market. |
These 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 below-investment-grade securities. Credit rating
downgrades of a single issuer or related similar issuers whose securities the Fund holds in significant amounts could substantially and unexpectedly increase the Fund’s exposure to below-investment-grade
securities and the risks associated with them, especially liquidity and default risk.
While securities rated
“Baa” by Moody’s, “BBB” by S&P or Fitch, or the similar category by the investment adviser if an unrated security, 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. Therefore, the Fund’s investments could be affected by the fiscal stability of, for example, Puerto Rico, the U.S. Virgin
Islands, Guam, or the Northern Mariana
8
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 credit rating downgrade relating to, default by, or
insolvency or bankruptcy of one or several municipal security issuers of a territory, commonwealth or possession could affect the market values and marketability of many or all municipal obligations of such territory,
commonwealth or possession. 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 an Appendix to this SAI.
Inverse Floaters. The Fund may invest in inverse floaters to seek greater income and total return. Inverse floaters, under ordinary circumstances, offer higher yields and thus provide higher income than
fixed-rate municipal bonds of comparable maturity and credit quality. Inverse floaters may offer relatively high current income, reflecting the spread between long-term and short-term tax-exempt interest rates. During
periods of rising interest rates, the market values of inverse floaters will tend to decline more quickly than those of fixed rate securities. However, as long as the municipal yield curve remains positively sloped
(meaning short-term interest rates are lower than long-term interest rates), buyers of inverse floaters will have the opportunity to earn interest at above market rates. If the yield curve flattens or becomes
negatively sloped, the yield advantage offered by an inverse floater will diminish (or disappear).
An inverse floater is created as
part of a financial transaction referred to as a “tender option bond” transaction. In most cases, in a tender option bond transaction the Fund sells a fixed-rate municipal bond (the “underlying
municipal bond”) to a trust (the “Trust”). The Trust then issues and sells short-term floating rate securities with a fixed principal amount representing a senior interest in the underlying municipal
bond to third parties and a residual, subordinate interest in the underlying municipal bond (referred to as the “inverse floater”) to the Fund. The proceeds of the sale of the bond by the Fund remaining
after it buys the inverse floater can be used for any purpose. The interest rate on the short-term floating rate securities resets periodically, usually weekly, to a prevailing market rate and holders of these
securities are granted the option to tender their securities back to the Trust for repurchase at their principal amount plus accrued interest thereon (the “purchase price”) periodically, usually daily or
weekly. A remarketing agent for the Trust is required to attempt to re-sell any tendered short-term floating rate securities to new investors for the purchase price. If the remarketing agent is unable to successfully
re-sell the tendered short-term floating rate securities, a liquidity provider to the Trust must contribute cash to the Trust to ensure that the tendering holders receive the purchase price of their securities on the
repurchase date.
The Fund may also purchase an
inverse floater created as part of a tender option bond transaction not initiated by the Fund when a third party, such as a municipal issuer or financial institution, transfers an underlying municipal bond to a
Trust.
Because holders of the
short-term floating rate securities are granted the right to tender their securities to the Trust for repurchase at frequent intervals for the purchase price, with such payment effectively guaranteed by the liquidity
provider, the securities generally bear short-term rates of interest commensurate with money market instruments. When interest is paid on the underlying municipal bond to the Trust, such proceeds are first used to pay
the Trust’s administrative expenses and accrued interest to holders of the short-term floating rate securities, with any remaining amounts being paid to the Fund, as the holder of the inverse floater.
Accordingly, the amount of such interest on the underlying municipal bond paid to the Fund is inversely related the rate of interest on the short-term floating rate securities. Additionally, because the principal
amount of the short-term floating rate securities is fixed and is not adjusted in response to changes in the market value of the underlying municipal bond, any change in the market value of the underlying municipal
bond is reflected entirely in a change to the value of the inverse floater.
Typically, the terms of an
inverse floater grant certain rights to the Fund, as holder. For example, the Fund typically has the right upon request to require that the Trust compel a tender of the short-term floating rate securities to
facilitate the Fund’s acquisition of the underlying municipal bond. Following such a request, the Fund pays the Trust the purchase price of the short-term floating rate securities and a specified portion of any
market value gain on the underlying municipal bond since its deposit into the Trust, which the Trust uses to redeem the short-term floating rate securities. The Trust then distributes the underlying municipal bond to
the Fund. Through the exercise of this right, the Fund can voluntarily terminate or “collapse” the Trust, terminate its investment in the related inverse floater and obtain the underlying municipal bond.
Additionally, the Fund also typically has the right to exchange with the Trust (i) a principal amount of short-term floating rate securities held by the Fund for a corresponding additional principal amount of the
inverse floater or (ii) a principal amount of the inverse floater held by the Fund for a corresponding additional principal amount of short-term floating rate securities (which are typically then sold to other
investors). Through the exercise of this right, the Fund may increase (or decrease) the principal amount of short-term floating rate securities outstanding, thereby increasing (or decreasing) the amount of leverage
provided by the short-term floating rate securities to the Fund’s investment exposure to the underlying municipal bond. The Fund’s investments in inverse floaters involve certain risks. 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. Thus, if short-term
interest rates rise after the issuance of the inverse floater, any yield advantage is reduced or eliminated. All inverse floaters entail some degree of leverage represented by the outstanding principal amount of the
related short-term floating rate securities and the value of, and income earned on, an inverse floater that has a higher degree of leverage (represented by a larger outstanding principal amount of related short-term
floating rate securities relative to the par value of the underlying
municipal bond) will fluctuate more
significantly in response to changes in interest rates and to changes in the market value of the related underlying municipal bond than an inverse floater with a lower degree of leverage. Changes in the value of an
inverse floater will also be more significant than changes in the market value of the related underlying municipal bond because the leverage provided by the related short-term floating rate securities increases the
sensitivity of an inverse floater to changes in interest rates and to the market value of the underlying municipal bond. An inverse floater can be expected to underperform fixed-rate municipal bonds when long-term
interest rates are rising, but can be expected to outperform fixed-rate municipal bonds when long-term interest rates are falling. Additionally, a tender option bond transaction typically provides for the automatic
termination or “collapse” of a Trust upon the occurrence of certain adverse events, usually referred to as “mandatory tender events” or “tender option termination events.” These
events may include, among others, a credit ratings downgrade of the underlying municipal bond below a specified level, a decrease in the market value of the underlying municipal bond below a specified amount, a
bankruptcy of the liquidity provider or the inability of the remarketing agent to re-sell to new investors short-term floating rate securities that have been tendered for repurchase by holders thereof. Following such
an event, the underlying municipal bond is generally sold for current market value and the proceeds distributed to holders of the short-term floating rate securities and inverse floater, with the holder of the inverse
floater (the Fund) generally receiving the proceeds of such sale only after the holders of the short-term floating rate securities have received proceeds equal to the purchase price of their securities (and the
liquidity provider is generally required to contribute cash to the Trust only in an amount sufficient to ensure that holders of the short-term floating rates securities receive the purchase price for their securities
in connection with such termination of the Trust, in which instance the Fund may have an obligation to reimburse the liquidity provider, as described below). The sale of the underlying bond following such an
event could be at an adverse price that might result in the loss by the Fund of a substantial portion, or even all, of its investment in the related inverse floater.
Finally, the Fund may enter into
shortfall/reimbursement agreements with the liquidity provider of certain tender option bond transactions in connection with certain inverse floaters held by the Fund. These agreements commit the Fund to reimburse the
liquidity provider to the extent that the liquidity provider must provide cash to a Trust, including following the termination of a Trust resulting from the occurrence of a “mandatory tender event.” In
connection with the occurrence of such an event and the termination of the Trust triggered thereby, the shortfall/reimbursement agreement will effectively make the Fund liable for the amount of the negative
difference, if any, between the liquidation value of the underlying municipal bond and the purchase price of the short-term floating rate securities issued by the Trust. Under the standard terms of a tender option
bond transaction, absent such a shortfall/reimbursement agreement, the Fund, as holder of the inverse floater, would not be required to make such a reimbursement payment to the liquidity provider. The Sub-Adviser
monitors the Fund’s potential exposure with respect to these agreements on a daily basis and intends to take action to terminate the Fund’s investment in related inverse floaters, if it deems it
appropriate to do so.
When the Fund creates an inverse
floater in a tender option bond transaction by selling an underlying municipal bond to a sponsor for deposit into a Trust, the transaction is considered a secured borrowing for financial reporting purposes. As a
result of such accounting treatment, the Fund includes the underlying municipal bond on its Statement of Investments and as an asset on its Statement of Assets and Liabilities (but does not separately include the
related inverse floater on either). The Fund also includes a liability on its Statement of Assets and Liabilities equal to the outstanding principal amount and accrued interest on the related short-term floating rate
securities issued by the Trust. Interest on the underlying municipal bond is recorded as investment income on the Fund’s Statement of Operations, while interest payable on the related short-term floating rate
securities is recorded as interest expense. As mentioned above, the Fund may also purchase an inverse floater created as part of a tender option bond transaction when a third party, such as a municipal issuer or
financial institution, transfers an underlying municipal bond to a Trust. For financial reporting purposes, the Fund includes the inverse floater related to such transaction on its Statement of Investments and
interest on the security is recorded as investment income on the Fund’s Statement of Operations.
Borrowing and Leverage. The Fund can borrow from banks, as permitted by the Investment Company Act. It can use those borrowings for investment-related purposes such as purchasing securities believed to be
desirable by the Sub-Adviser. The Fund also can borrow from banks and other lenders to meet redemption obligations or for temporary and emergency purposes. When the Fund borrows money, it is using a speculative
investment technique known as “leverage,” and changes in the value of the Fund’s investments will have a larger effect on its share price than if it did not borrow. Under the Fund’s investment
policies, the Fund may not borrow money, except to the extent permitted under the Investment Company Act, the rules or regulations thereunder or any exemption from that Act that applies to the Fund. Currently, under
the Investment Company Act, a mutual fund may borrow only from banks (other than for emergency purposes) and the maximum amount it may borrow is up to one-third of its total assets (including the amount borrowed),
less all liabilities and indebtedness other than borrowings, meaning that the value of those assets must be at least equal to 300% of the amount borrowed. If the value of the Fund’s assets fails to meet this
300% asset coverage requirement, the Fund will reduce the amount of its borrowings within three days to meet the requirement. To do so, the Fund might have to sell a portion of its investments at a disadvantageous
time and for a disadvantageous price.
The Fund may also borrow up to
5% of its total assets for temporary or emergency purposes from any person. Under the Investment Company Act, there is a rebuttable presumption that a loan is temporary if it is repaid within 60 days and not extended
or renewed.
10
The Fund will pay interest and
may pay other fees in connection with loans. Interest expense and the amount of any other fees incurred by the Fund in connection with loans will raise the overall expenses of the Fund and may reduce its returns. If
the Fund does borrow, its expenses will usually be greater than comparable funds that do not borrow. The interest and fees paid on a loan might be more or less than the yield on any securities purchased with the loan
proceeds. If those costs are more than the yield on the securities purchased, the Fund’s return will be reduced. Additionally, on the maturity date for any loan, the Fund must have sufficient cash available to
pay back the lender the amount borrowed.
Loans are typically secured by
assets of the Fund, meaning that the Fund will grant the lender a security interest in some or all of its assets to secure its performance under the related loan. If the Fund were to default in the payment of interest
or other fees in connection with a secured loan or fail to repay the principal amount of that loan on maturity or fail to satisfy other obligations it may owe to the lender in connection with that loan, the lender
would have certain rights to foreclose on, take, and liquidate those assets of the Fund in which the lender was granted a security interest in order to satisfy any outstanding amounts the Fund owed in connection with
the loan.
The Fund participates in a
secured line of credit (the “Line of Credit”) with certain commercial paper conduits, as lenders, Citibank, N.A. as a secondary lender and administrator, and other banks, each as lenders from time to time.
The Line of Credit enables the Fund to participate with certain other Oppenheimer funds, as borrowers, in a committed, secured borrowing facility that permits borrowings by the participants of up to a maximum
aggregate amount, as negotiated from time to time. Borrowings by the Fund under the Line of Credit can be used to purchase securities for investment or for other purposes. The Fund’s Board determined that the
Fund’s participation in the Line of Credit is consistent with the Fund’s investment objective and policies and is in the best interests of the Fund and its shareholders.
Under the Line of Credit, in the
event that the commercial paper conduit lenders are unable or unwilling to make loans, Citibank, N.A. and the other bank lenders, if any, would then be required to make those loans. Under the Line of Credit, interest
is charged to the Fund, based on its borrowings, at current commercial rates. Additionally, the Fund will pay its pro rata portion of a loan commitment fee for the Line of Credit, and pays additional fees annually to
the lenders on its outstanding borrowings for management and administration of the facility. The Fund can prepay loans and terminate its participation in the Line of Credit at any time upon prior notice to Citibank,
N.A. As a borrower under the Line of Credit, the Fund has certain rights and remedies under state and federal law comparable to those it would have with respect to a loan from a bank.
Reverse Repurchase
Agreements. A reverse repurchase agreement is the sale of a debt obligation to a party for a specified price, with the simultaneous agreement to repurchase it from that party on a future date at a
higher price. These transactions involve the risk that the market value of the securities sold under a reverse repurchase agreement could decline below the price that a Fund is required to repurchase them. A Fund will
identify liquid assets on its books to cover its obligations under reverse repurchase agreements until payment is made to the other party.
Illiquid 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 Fund’s procedures for determining liquidity, the Sub-Adviser determines the liquidity of portfolio investments. The Sub-Adviser takes into account the trading activity and potential purchasers for the
securities, among other factors. The Sub-Adviser monitors holdings of illiquid securities on an ongoing basis to determine whether to sell any holdings to maintain adequate liquidity. Liquidity may dissipate at
anytime and there can be no assurance that the Sub-Adviser’s liquidity determinations will be correct or that a reduction in liquidity will not occur between the time such determination is made and an event
prompting the Fund to sell a security.
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
Sub-Adviser 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.
Other Investments and Investment Strategies
The Fund may also use the
following types of investments and investment strategies.
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 short-term interest rate environment and lower levels of income as short-term 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.
The Fund’s ability to
engage in transactions using PLNs may be limited due to market factors. 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.
Distressed Debt Securities. The Fund may invest in securities that are the subject of bankruptcy proceedings or otherwise in default or in risk of being in default as to the repayment of principal and/or interest at
the time of acquisition by the Fund or that are rated in the lower rating categories by one or more nationally recognized statistical rating organizations (for example, Ca or lower by Moody’s and CC or lower by
S&P or Fitch) or, if unrated, are in the judgment of the Sub-Adviser of equivalent quality (“Distressed Securities”). Investment in Distressed Securities is speculative and involves significant
risks.
The Fund will generally make
such investments only when the Sub-Adviser believes it is reasonably likely that the issuer of the Distressed Securities will make an exchange offer or will be the subject of a plan of reorganization pursuant to which
the Fund will receive new securities in return for the Distressed Securities. However, there can be no assurance that such an exchange offer will be made or that such a plan of reorganization will be adopted.
Additionally, a significant period of time may pass between the time at which the Fund makes its investment in Distressed Securities and the time that any such exchange offer or plan of reorganization is completed, if
at all. During this period, it is unlikely that the Fund would receive any interest payments on the Distressed Securities, the Fund will be subject to significant uncertainty as to whether or not the exchange offer or
plan of reorganization will be completed and the Fund may be required to bear certain extraordinary expenses to protect and recover its investment. Therefore, the Fund’s ability to achieve current income for its
shareholders may be diminished. The Fund also will be subject to significant uncertainty as to when and in what manner and for what value the obligations evidenced by the distressed securities will eventually be
satisfied (e.g., through a liquidation of the obligor’s assets, an exchange offer or plan of reorganization involving the distressed securities or a payment of some amount in satisfaction of the obligation).
Even if an exchange offer is made or plan of reorganization is adopted with respect to Distressed Securities held by the Fund, there can be no assurance that the securities or other assets received by a Fund in
connection with such exchange offer or plan of reorganization will not have a lower value or income potential than may have been anticipated when the investment was made or no value. Moreover, any securities received
by the Fund upon completion of an exchange offer or plan of reorganization may be restricted as to resale. Similarly, if the Fund participates in negotiations with respect to any exchange offer or plan of
reorganization with respect to an issuer of Distressed Securities, the Fund may be restricted from disposing of such securities. To the extent that a Fund becomes involved in such proceedings, the Fund may have a more
active participation in the affairs of the issuer than that assumed generally by an investor. The Fund, however, will not make investments for the purpose of exercising day-to-day management of any issuer’s
affairs.
Defaulted Securities. The Fund may, from time to time, purchase defaulted securities if, the Sub-Adviser believes that there is a potential for resumption of income payments or realization of income on the sale
of the securities or the collateral or other advantageous developments appear likely in the near future. The purchase of defaulted securities is highly speculative and involves a high degree of risk. There is a risk
of a substantial or complete loss of the Fund’s investment in the event the issuer does not restructure or reorganize to enable it to resume paying interest and principal to holders. Issuers of defaulted
securities may have substantial capital needs and may become involved in bankruptcy or reorganization proceedings and it may be difficult to obtain information about the condition of such issuers. Such bankruptcy or
receivership proceedings may require participation by the Sub-Adviser on behalf of the Fund. Defaulted securities may be less actively traded than other securities, making it more difficult to dispose of substantial
holdings of such securities at prevailing market prices. Their market prices also are subject to abrupt and erratic movements and above-average price volatility and the spread between the bid and asked prices may be
greater than normally expected.
12
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 Sub-Adviser 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 Sub-Adviser’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 acquire securities subject to 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 institution 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 institutions include U.S. commercial banks, U.S. branches of foreign banks, or broker-dealers that have been designated as primary dealers in
government securities. Institutions must meet credit requirements set by the investment adviser 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 institution 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 investment adviser will monitor the institution’s creditworthiness to confirm that it 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, along with the affiliated entities managed by the investment adviser or its affiliates, 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.
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 Sub-Adviser judges market conditions incorrectly or employs a strategy
that does not correlate well with the Fund’s other investments.
14
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 Fund may:
| • | sell interest rate futures or municipal bond index futures, |
| • | buy puts on such futures or securities, or |
| • | write covered calls on securities, broadly-based municipal bond indices, interest rate futures or municipal bond index futures. |
Covered calls may also be
written on debt securities to attempt to increase the Fund’s income, but that income would not be tax-exempt. Therefore it is unlikely that the Fund would write covered calls for that purpose.
The Fund may also use hedging to
establish a position in the debt securities market as a temporary substitute for purchasing individual debt securities. In that case the Fund will normally seek to purchase the securities, and then terminate that
hedging position. For this type of hedging, the Fund may:
| • | buy interest rate futures or municipal bond index futures, or |
| • | buy calls on such futures or on securities |
The Fund is not obligated to use
hedging instruments, even though it is permitted to use them in the Sub-Adviser’s discretion, as described below. The Fund’s strategy of hedging with futures and options on futures will be incidental to
the Fund’s investment activities in the underlying cash market. The particular hedging instruments the Fund can use are described below. The Fund may employ new hedging instruments and strategies when they are
developed, if those investment methods are consistent with the Fund’s investment objective and are permissible under applicable regulations governing the Fund.
Futures. The Fund may buy and sell futures contracts relating to debt securities (these are called “interest rate futures”), and municipal bond indices (these are referred to as
“municipal bond index futures”).
An interest rate future
obligates the seller to deliver (and the purchaser to take) cash or a specific type of debt security to settle the futures transaction. Either party could also enter into an offsetting contract to close out the
futures position.
A “municipal bond
index” assigns relative values to the municipal bonds in the index, and is used as the basis for trading long-term municipal bond futures contracts. Municipal bond index futures are similar to interest rate
futures except that settlement is made only in cash. The obligation under the contract may also be satisfied by entering into an offsetting contract. The strategies which the Fund employs in using municipal bond index
futures are similar to those with regard to interest rate futures.
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 20% of the Fund’s total assets may be subject to calls. |
| 2. | 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. |
| 3. | 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. 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
16
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 Derivatives and Hedging
Instruments. The use of derivatives and hedging instruments requires special skills and knowledge of investment techniques that are different than those required for normal portfolio management. These
risks include the following:
Selection Risk. If the investment adviser 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 exchange traded 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 Swaps. In an interest rate swap, the Fund and another party exchange their rights to receive interest payments on a security or payments based on a reference rate. For example,
they might swap the right to receive floating rate payments based on a reference rate such as “LIBOR” for the right to receive fixed rate payments.
Interest rate swaps entail both
interest rate risk and credit risk. There is a risk that based on movements of interest rates, 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, the Fund may lose the net amount of contractual interest payments that it has not yet received.
The Fund may not enter into interest rate swaps
with respect to more than 25% of its total assets.
Asset Coverage for Certain
Investments and Trading Practices. A Fund will segregate with its custodian or otherwise designate on its books and records liquid assets in an amount the Fund believes to be adequate to ensure that it has sufficient liquid
assets to meet its obligations under its derivatives contracts, or the Fund may enter into an offsetting position to “cover” its obligations with respect to such transactions. Depending upon the
contractual terms of the derivatives instrument, the customary settlement practice associated with the derivative instrument and the instrument’s liquidity, among other things, the amounts that are segregated or
designated may be based on the notional (or contract) amount of the derivative or on the daily mark-to-market obligation under the derivatives contract. These amounts may be reduced by amounts on deposit with the
applicable broker or counterparty to the derivatives transaction. With respect to less liquid derivative instruments (or in other situations in which the Sub-Adviser believes it necessary), a Fund may segregate
amounts in addition to the amounts described above. By segregating or designating liquid assets equal to only the mark-to-market obligation under a derivatives contract, a Fund will have the ability to utilize these
instruments to a greater extent than if the Fund segregated or designated liquid assets equal to the full market value of the underlying asset or the notional (or contract) amount of the instrument.
In certain circumstances, a Fund
may enter into an offsetting position rather than segregating or designating liquid assets (e.g., the Fund may “cover” a written put option with a purchased put option with the same or higher exercise
price). Although the Sub-Adviser will attempt to ensure that a Fund has sufficient liquid assets to meet its obligations under its derivative contracts, it is possible that the Fund’s liquid assets may be
insufficient to support such obligations under its derivatives positions.
Segregating or designating a
large percentage of the Fund’s liquid assets could impede the Sub-Adviser’s ability to manage the Fund’s portfolio. A Fund may modify its asset segregation policies from time to time.
Regulatory Aspects of Derivatives
and Hedging Instruments. As a result of recent amendments to rules under the Commodity Exchange Act (“CEA”) by the Commodity Futures Trading Commission (“CFTC”), the Manager must either
operate within certain guidelines and restrictions with respect to the Fund’s use of futures, options on such futures, commodity options and certain swaps, or be subject to registration with the CFTC as a
“commodity pool operator” (“CPO”) with respect to the Fund, and, upon the finalization of additional CFTC rules, be required to operate the Fund in compliance with certain disclosure,
reporting, and recordkeeping requirements.
Previously, the CFTC permitted
unlimited futures transactions and options thereon, so long as a fund had claimed an exclusion from registration as a CPO, and swap contracts were not formerly regulated by the CFTC. Under the amended rules, the
investment adviser of a registered investment company may claim an exemption from registration as a CPO only if the registered investment company that it advises uses futures contracts, options on such futures,
commodity options and certain swaps solely for “bona fide hedging purposes,” or limits its use of such instruments for non-bona fide hedging purposes to certain de minimis amounts.
While the Manager will be
registered as a CPO under the CEA, the Manager currently intends to limit and monitor, consistent with internal compliance procedures, the Fund’s use of futures, options on such futures, commodity options and
certain swaps in order to permit the Fund to continue to claim an exemption under the CFTC rules. As such, with respect to the management of the Fund, the Manager will not be subject to the disclosure, reporting and
recordkeeping requirements under the CFTC rules.
Financial reform legislation
enacted in 2010 that is currently being implemented imposes execution and clearing requirements on certain types of over-the-counter derivatives, among other things. In a cleared derivatives transaction, the
Fund’s ultimate counterparty is a central derivatives clearing organization, or clearing house, rather than a bank or broker. The Fund will enter into cleared derivatives transactions with an executing broker.
Such transactions then will be submitted for clearing and, if cleared, will be held in accounts at regulated futures commission merchants that are members of central clearing house counterparties. In contrast to
bilateral derivatives transactions, cleared derivatives transactions are submitted for clearing to central clearing house counterparties immediately following execution of the agreement. Central clearing house
counterparties and the members of such clearing houses generally can require termination of existing cleared derivatives transactions at any time, and can also require increases in margin above the margin that was
required at the beginning of a transaction.
The Fund is also subject to the
risk that, after entering into a cleared derivatives transaction, no futures commission merchant or clearing house counterparty is willing or able to clear the transaction on the Fund’s behalf. In such an event,
the Fund is likely to have to pay a termination amount to the executing broker. Further, the assets of the Fund might not be fully protected in the event of the bankruptcy of the Fund’s futures commission
merchant or the clearing house counterparty, because the Fund might be limited to recovering only a pro rata share of all available funds and margin segregated on behalf of the futures commission merchant’s
customers. Also, the Fund is subject to the risk that the futures commission merchant will use the Fund’s assets, which are held in an omnibus account with assets belonging to the futures commission
merchant’s other customers, to satisfy payment obligations of a defaulting customer of the futures commission merchant to the clearing house counterparty. In addition, futures commission merchants generally
provide to the clearing house counterparty the net amount of variation margin required for cleared derivatives for all customers in the aggregate, rather than the gross amount for each customer. The Fund is therefore
subject to the risk that
18
a clearing house counterparty will not make
variation margin payments owed to the Fund if another customer of the futures commission merchant has suffered a loss and is in default. In cleared derivatives transactions, the Fund is also required to post initial
as well as variation margin, thus increasing the cost of transacting in this type of instrument.
The ultimate impact of the 2010
financial reform legislation and related regulations remains unclear. New regulations could, among other things, restrict the Fund’s ability to engage in, or increase the cost to the Fund of, derivatives
transactions.
Temporary Defensive and Interim
Investments. The securities the Fund may invest in for temporary defensive purposes include the following:
| • | short-term municipal securities; |
| • | obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities; |
| • | corporate debt securities rated within the three highest grades by a nationally recognized rating agency; |
| • | commercial paper rated “A-1” by S&P, or a comparable rating by another nationally recognized rating agency; and |
| • | certificates of deposit of domestic banks with assets of $1 billion or more. |
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 Sub-Adviser will attempt
to sell those assets as soon as reasonably practicable in most cases, depending upon, among other things, the Sub-Adviser’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 or assets 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 Sub-Adviser 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 in Debt Securities
Secured by Real Estate. Although the Fund is not expected to invest in real estate, to the extent consistent with its investment objective and its policies, the Fund would be permitted to invest in debt
securities secured by real estate or interests in real estate, or issued by companies, including real estate investment trusts, that invest in real estate or interests in real estate. It is possible that the Fund
could, as a result of an investment in debt securities of an issuer, come to hold an interest in real estate if the issuer defaulted on its debt obligations.
Cyber Security Risk. With the increased use of technologies such as the Internet and the dependence on computer systems to perform necessary business functions, the Fund may be prone to operational and
informational security risks resulting from breaches in cyber security (“cyber-attacks”). A cyber-attack refers to both intentional and unintentional events that may cause a Fund to lose proprietary
information, suffer data corruption, or lose operational capacity. Cyber-attacks include, but are not limited to, infection by computer viruses or other malicious software code, gaining unauthorized access to systems,
networks, or devices that are used to service the Fund’s operations through “hacking” or other means for the purpose of misappropriating assets or sensitive information, corrupting data, or causing
operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorized access, such
as causing denial-of-service attacks on the
Fund’s websites (i.e., efforts to make network services unavailable to intended users). In addition, authorized persons could inadvertently or intentionally release confidential or proprietary information stored
on the Fund’s systems.
Cyber security failures or
breaches by the Fund’s affiliates or service providers, may cause disruptions and impact the business operations, potentially resulting in financial losses to both the Fund and shareholder, the inability of fund
shareholders to transact business and the mutual funds to process transactions, inability to calculate the Fund’s net asset value, impediments to trading, violations of applicable privacy and other laws
(including the release of private shareholder information), regulatory fines, penalties, reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. In addition, substantial
costs may be incurred in order to prevent any cyber incidents in the future. While the investment adviser has policies and procedures (and risk management systems) designed to prevent or reduce the impact of such
cyber-attacks, there are inherent limitations in such controls, systems and protocols, including the possibility that certain risks have not been identified, as well as the rapid development of new threats. These
cyber security risks are also present for issuers of securities in which the Fund invests, which could result in material adverse consequences for such issuers, and may cause the Fund’s investment in such
securities to lose value and may result in financial loss for Fund shareholders.
Investment Restrictions
Non-Diversification of the
Fund’s Investments. Each Fund, except Oppenheimer Rochester Arizona Municipal Fund, Oppenheimer Rochester Massachusetts Municipal Fund, Oppenheimer Rochester Minnesota Municipal Fund and Oppenheimer Rochester
Ohio Municipal Fund, is “non-diversified” as defined in the Investment Company Act. Funds that are diversified are subject to limitations on the amount of their assets that can be invested in the
securities of any one “issuer.” Therefore, a Fund that is non-diversified 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.
Diversification of the Arizona,
Massachusetts, Minnesota and Ohio Funds. Oppenheimer Rochester Arizona Municipal Fund, Oppenheimer Rochester Massachusetts Municipal Fund, Oppenheimer Rochester Minnesota Municipal Fund and Oppenheimer Rochester Ohio Municipal
Fund intend to be “diversified” as defined in the Investment Company Act. Currently, under the Investment Company Act a “diversified” fund is one with at least 75% of the value of its total
assets represented by: (i) cash and cash items (including receivables), (ii) securities issued by the U.S. government or any of its agencies or instrumentalities, (iii) securities of other investment companies, and
(iv) other securities that, for any one issuer, are limited in respect to an amount not greater than 5% of the value of the fund’s total assets and not more than 10% of the outstanding voting securities of such
issuer. A change to a non-diversified status would require shareholder approval.
In implementing this policy, 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.
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Fundamental Policies. The Fund has adopted policies and restrictions to govern its investments. Under the Investment Company Act, fundamental policies are those policies 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:
| • | 67% or more of the shares present or represented by proxy at a shareholder meeting, if the holders of more than 50% of the outstanding shares are present or represented by proxy; or |
| • | more than 50% of the outstanding shares. |
The Fund’s investment
objective is not 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.
| • | The Fund may not borrow money, except to the extent permitted under the Investment Company Act, the rules or regulations thereunder or any exemption therefrom that is applicable to the Fund, as such statute, rules, regulations or exemptions may be amended or interpreted from time to time by the Securities & Exchange Commission, its staff, or other authority with appropriate jurisdiction. |
| • | The Fund may not make any investment if, as a result, the Fund’s investments will be concentrated in any one industry, except to the extent permitted under the Investment Company Act, the rules or regulations thereunder or any exemption therefrom that is applicable to the Fund, as such statute, rules, regulations or exemption may be amended or interpreted from time to time by the Securities & Exchange Commission, its staff, or other authority with appropriate jurisdiction. For purposes of this concentration limitation, the Fund’s investment adviser may analyze the characteristics of a particular issuer and instrument and may assign an industry or sector classification consistent with those characteristics in the event that any third party classification provider that may be used by the investment adviser does not assign a classification. |
| • | The Fund cannot make loans, except to the extent permitted under the Investment Company Act, the rules or regulations thereunder or any exemption therefrom that is applicable to the Fund, as such statute, rules, regulations or exemption may be amended or interpreted from time to time by the Securities & Exchange Commission, its staff, or other authority with appropriate jurisdiction. |
| • | The Fund cannot invest in real estate or commodities, except to the extent permitted under the Investment Company Act, the rules or regulations thereunder or any exemption therefrom that is applicable to the Fund, as such statute, rules, regulations or exemption may be amended or interpreted from time to time by the Securities & Exchange Commission, its staff, or other authority with appropriate jurisdiction. |
| • | The Fund cannot issue “senior securities,” except to the extent permitted under the Investment Company Act, the rules or regulations thereunder or any exemption therefrom that is applicable to the Fund, as such statute, rules, regulations or exemption may be amended or interpreted from time to time by the Securities & Exchange Commission, its staff, or other authority with appropriate jurisdiction. |
| • | The Fund cannot underwrite securities of other issuers, except to the extent permitted under the Investment Company Act or the Securities Act of 1933, the rules or regulations thereunder or any exemption therefrom that is applicable to the Fund, as such statutes, rules, regulations or exemption may be amended or interpreted from time to time by the Securities & Exchange Commission, its staff, or other authority with appropriate jurisdiction. |
For purposes of the Fund’s
policy not to concentrate its investments, described above, the Fund has adopted an industry classification that is not a fundamental policy.
The following is only a brief
summary of certain current limitations imposed on investment companies by the Investment Company Act and certain rules and interpretations thereunder, and is not a complete description of such limits. The discussion
below is based on current law, regulations and administrative interpretations. Those laws, regulations and administrative interpretations may be changed by legislative, judicial, or administrative action, sometimes
with retroactive effect.
The Investment Company Act
prohibits a fund from issuing “senior securities,” which are generally defined as fund obligations that have a priority over the fund’s shares with respect to the payment of dividends or the
distribution of fund assets, except that the fund may borrow money as described above.
Currently, under the Investment
Company Act, and an Oppenheimer funds’ exemptive order, a fund may borrow only from banks and/or affiliated investment companies in an amount up to one-third of its total assets (including the amount borrowed
less all liabilities and indebtedness other than borrowing), except that a fund may borrow up to 5% of its total assets from any person for temporary purposes. Under the Investment Company Act, there is a rebuttable
presumption that a loan is temporary if it is repaid within 60 days and not extended or renewed.
Under the Investment Company Act a fund
currently cannot make any commitment as an underwriter, if immediately thereafter the amount of its outstanding underwriting commitments, plus the value of its investments in securities of issuers (other than
investment companies) of which it owns more than ten percent of the outstanding voting securities, exceeds twenty-five percent of the value of the fund’s total assets, except to the extent that a fund may be
considered an underwriter within the meaning of the Securities Act when reselling securities held in its own portfolio.
The Investment Company Act does
not prohibit a fund from owning real estate, commodities or contracts related to commodities. The extent to which the Fund can invest in real estate and/or commodities or contracts related to commodities is set out in
the investment strategies described in the Prospectus and this SAI.
Current SEC staff
interpretations under the Investment Company Act prohibit a fund from lending more than one-third of its total assets, except through the purchase of debt obligations or the use of repurchase agreements.
The Investment Company Act does
not define what constitutes “concentration” in an industry. However, the SEC has taken the position that investment of more than 25% of a fund’s total assets in issuers in the same industry
constitutes concentration in that industry. That limit does not apply to securities issued or guaranteed by the U.S. Government or its agencies and instrumentalities or securities issued by investment companies;
however, securities issued by any one foreign government are considered to be part of a single “industry.”
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-Fundamental
Restrictions. The Fund has the following additional operating policy that is not “fundamental” and can be changed by the Board without shareholder approval.
The Fund cannot invest in
securities of other investment companies, except to the extent permitted under the Investment Company Act, the rules and regulations thereunder or any exemption therefrom, as such statute, rules and regulations may be
amended or interpreted from time to time.
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/Sub-Adviser, 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/Sub-Adviser, 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/Sub-Adviser 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 accordance with the Fund’s, the Manager’s/Sub-Adviser’s, the
Distributor’s and the Transfer Agent’s policies and procedures regarding dissemination of information about the Fund’s portfolio holdings.
| • | Public Disclosure. The Fund’s portfolio holdings are made publicly available no later than 60 days after the close of each of the Fund’s fiscal quarters in its annual and semi-annual reports to shareholders and in its Schedules of Investments on Form N-Q. Those documents are publicly available at the SEC. In addition, the Fund’s portfolio holdings information, as of the end of each calendar month, may be posted and available on the Fund’s website (at www.oppenheimerfunds.com) no sooner than 30 calendar days after the end of the calendar month to which the information relates. Partial holdings, listed by security or by issuer, may be posted on the Fund’s website no sooner |
22
| than 5 business days following the month to which the information relates. The Fund may delay posting its holdings or may not post any holdings, if the Manager/Sub-Adviser believes that would be in the best interests of the Fund and its shareholders. Other general information about the Fund’s portfolio investments, such as portfolio composition by asset class, industry, country, currency, credit rating or maturity, may also be publicly disclosed 5 days after the end of the calendar month to which the information relates. |
The Fund’s portfolio
holdings (which may include the Fund’s entire portfolio or individual securities therein) may be released to the following categories of individuals or entities pursuant to ongoing arrangements, provided that
such individual or entity either (1) has signed an agreement to keep such information confidential and will not use such information in any way that is detrimental to the Fund or (2) as a member of any service
provider to the Funds or of the Fund’s 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. For the categories of individuals and entities described below that have ongoing arrangements to receive portfolio holdings information, such
information may be furnished as often as appropriate for the purpose for which it is being provided, which may be as frequently as daily and often with no time lag between the date of the information and the date it
is furnished.
| • | Employees of the Fund’s service providers who need to have access to such information; |
| • | The Fund’s independent registered public accounting firm; |
| • | Members of the Fund’s Board and the Board’s legal counsel; |
| • | The Fund’s custodian bank; |
| • | The Fund’s financial printers; |
| • | A proxy voting service designated by the Fund and its Board; |
| • | Rating/ranking organizations (such as Lipper and Morningstar); |
| • | Portfolio pricing services retained by the Manager/Sub-Adviser to provide portfolio security prices; |
| • | Brokers and dealers for purposes of providing portfolio analytic services, in connection with portfolio transactions (purchases and sales), and to obtain bids or bid and asked prices (if securities held by the Fund are not priced by the Fund’s regular pricing services, or to obtain prices for inter-fund trades or similar transactions); and |
| • | Other service providers to the Fund, the Manager, the Sub-Adviser, the Distributor, and the Transfer Agent, including providers of index services and personal trading compliance services. |
Month-end lists of the
Fund’s complete portfolio holdings may be disclosed for legitimate business reasons, no sooner than 5 business days after the relevant month end, pursuant to special requests and under limited circumstances
discussed below, provided that:
| • | The third-party recipient must first submit a request for release of Fund portfolio holdings, explaining the business reason for the request; |
| • | Senior officers in the Manager’s/Sub-Adviser’s Investment Operations and Legal departments must approve the completed request for release of Fund portfolio holdings; and |
| • | Before receiving the data, the third-party recipient must sign a portfolio holdings non-disclosure agreement, agreeing to keep confidential the information that is not publicly available regarding the Fund’s holdings and agreeing not to use such information in any way that is detrimental to the Fund. |
Portfolio holdings may be
disclosed for legitimate business purposes to brokers and dealers for purposes of providing portfolio analytic services, in connection with portfolio transactions (purchases and sales), and to obtain bids or bid and
asked prices (if securities held by the Fund are not priced by the Fund’s regular pricing services). Portfolio holdings also may be disclosed for legitimate business purposes to consultants for pension plans
that invest in Oppenheimer funds and sponsors of 401(k) plans that include Oppenheimer funds.
Portfolio holdings (which may
include the Fund’s entire portfolio or individual securities therein) may be provided by the Manager/Sub-Adviser or its attorneys to other third parties subject to non-disclosure agreements or available
confidentiality rights, including in the following circumstances:
| • | Response to legal process in litigation matters, such as responses to subpoenas or in class action matters where the Fund may be part of the plaintiff class (and seeks recovery for losses on a security) or a defendant; and |
| • | Response to regulatory requests for information (from the SEC, the Financial Industry Regulatory Authority (“FINRA”), state securities regulators, and/or foreign securities authorities, including without limitation requests for information in inspections or for position reporting purposes); |
Portfolio managers and analysts
may, subject to the Manager’s/Sub-Adviser’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 up to 5 business days prior
to making the redemption request, provided that
such shareholders have entered into a non-disclosure agreement not to disclose or trade on the basis of such portfolio holdings.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 Fund’s policy regarding disclosure of portfolio holdings and all material amendments have been reviewed
and approved by the Fund’s board. The investment manager conducts periodic reviews of compliance with the policy and provides periodic reports relating to such reviews to the Board. The Fund’s Board
reserves the right to amend the Fund’s policy regarding the disclosure of portfolio holdings from time to time without prior notice and in its sole discretion.
| Bloomberg L.P. | FactSet Research Systems Inc. | Sungard Investment Systems, LLC |
| Brown Brothers Harriman & Co. | MSCI Inc. | The Yield Book Inc. |
How the Fund is Managed
Organization and History. Each Fund, except Oppenheimer Rochester Arizona Municipal Fund, Oppenheimer Rochester Massachusetts Municipal Fund, Oppenheimer Rochester Minnesota Municipal Fund and Oppenheimer Rochester
Ohio Municipal Fund, is an open-end, non-diversified management investment company with an unlimited number of authorized shares of beneficial interest. Oppenheimer Rochester Arizona Municipal Fund, Oppenheimer
Rochester Massachusetts Municipal Fund, Oppenheimer Rochester Minnesota Municipal Fund and Oppenheimer Rochester Ohio Municipal Fund are open-end, diversified management investment companies each with an unlimited
number of authorized shares of beneficial interest. Each Fund was organized as a Massachusetts business trust in March 2006. Each Fund was reorganized as a Delaware statutory trust in December 2013.
Classes of Shares. The Fund’s Board of Trustees (the “Board”) is authorized, without shareholder approval, to:
| • | create new series and classes of shares; |
| • | reclassify unissued shares into additional series and classes; and |
| • | divide or combine the shares of a class into a greater or lesser number of shares without changing the proportionate beneficial interest of a shareholder in the Fund. |
The Fund currently has four
classes of shares: Class A, Class B, Class C and Class Y. All classes invest in the same investment portfolio. Each class of shares:
| • | has its own dividends and distributions; |
| • | pays certain expenses which may be different for the different classes; |
| • | will generally have a different net asset value; |
| • | will generally have separate voting rights on matters in which interests of one class are different from interests of another class; and |
| • | votes as a class on matters that affect that class alone. |
Each share of each class:
| • | represents an interest in the Fund proportionately equal to the interest of each other share of the same class; |
| • | is freely transferable; |
| • | has one vote at shareholder meetings, with fractional shares voting proportionally; |
| • | may be voted in person or by proxy at shareholder meetings; and |
| • | does not have cumulative voting rights, preemptive rights or subscription rights. |
Class B Share Availability.
Class B shares are no longer
offered for new purchases. See the Prospectus section “More About Your Account” for details.
Class Y Share Availability.
Class Y shares are not available
directly to individual investors, except for eligible employees (defined below). Class Y shares are sold at net asset value per share without an initial sales charge, and are available only to:
| • | Wrap fee-based programs and fee-based clients of a broker, dealer, registered investment advisor or other financial intermediary; |
| • | “Institutional investors” which may include corporations; trust companies; endowments and foundations; defined contribution, defined benefit, and other employer sponsored retirement and deferred compensation plans; retirement plan platforms; insurance companies; registered investment adviser firms; registered investment companies; bank trusts; college savings programs; and family offices; and |
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| • | Eligible employees, which are 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, subject to the requirement to receive Fund documents electronically through eDocs Direct. |
Individual shareholders who hold
Class Y shares through retirement plans or financial intermediaries will not be eligible to hold Class Y shares outside of their respective retirement plan or financial intermediary platform.
Voluntary Conversion to Class Y
Shares. For shareholders who currently hold other classes of Fund shares, but are authorized to purchase Class Y shares, those shareholders can convert their eligible existing shares to Class Y
shares of the Fund either through their financial intermediary or by submitting written instructions to the Transfer Agent. Shares that are subject to a contingent deferred sales charge (“CDSC”) are not
eligible to convert to Class Y shares until the applicable CDSC period has expired. Under current interpretations of applicable federal income tax law by the Internal Revenue Service (the “IRS”), this
voluntary conversion to Class Y shares is not treated as a taxable event. If those laws or the IRS interpretation of those laws should change, this voluntary conversion feature may be suspended.
Shareholder and Trustee Liability;
Shareholder Meetings. Under Delaware law and the Fund’s Declaration of Trust, Fund shareholders are entitled to the same limitation of personal liability extended to shareholders of corporations organized
under Delaware law. Under Delaware law and the Fund’s Declaration of Trust, Trustees are not personally liable to any person for any obligations of the Fund. Therefore a shareholder or Trustee of the Fund
generally will not be subject to personal liability for Fund obligations. The risk that a Fund shareholder or Trustee will incur personal liability for Fund obligations is limited to the circumstances in which a state
court may not apply Delaware law or the terms of the Fund’s Declaration of Trust.
As a Delaware statutory trust,
the Fund is not required to hold regular annual meetings of shareholders and does not plan to do so. The Fund may hold shareholder meetings from time to time.
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 Delaware and Federal law. The Board is led by Brian F. Wruble, an independent trustee, who is not an “interested person”
of the Fund, as that term is defined in the Investment Company Act of 1940. The Board meets periodically throughout the year to oversee the Fund’s activities, review its performance, oversee the potential
conflicts that could affect the Fund, and review the actions of the Manager and Sub-Adviser. With respect to its oversight of risk, the Board, through its committees, relies on reports and information received from
various parties, including the Manager, Sub-Adviser, and any Sub-Sub Advisers, internal auditors, the Fund’s Chief Compliance Officer, the Fund’s outside auditors and Fund counsel. It is important to note
that, despite the efforts of the Board and of the various parties that play a role in the oversight of risk, it is likely that not all risks will be identified or mitigated.
The Board has an Audit
Committee, a Regulatory & Oversight Committee and a Governance Committee. Each Committee is comprised solely of Trustees who are not “interested persons” under the Investment Company Act (the
“Independent Trustees”). The Board has determined that its leadership structure is appropriate in light of the characteristics and circumstances of the Fund because it allocates areas of responsibility
among the committees in a manner that enhances the Board’s oversight.
Prior to June 2013, Joanne Pace
and Edmund P. Giambastiani, Jr. served as members of an Advisory Board that assisted the Board in its oversight. For purposes of the following disclosure, Ms. Pace and Admiral Giambastiani are identified as
Trustees.
During the Fund’s fiscal
year ended March 31, 2016, the Audit Committee held 6 meetings, the Regulatory & Oversight Committee held 5 meetings and the Governance Committee held 4 meetings.
The members of the Audit
Committee are Joanne Pace (Chairman), Elizabeth Krentzman, Mary F. Miller, Daniel Vandivort and Brian F. Wruble. The Audit Committee selects an 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/Directors; (v) reviewing the independence of the
Fund’s Independent Auditors; and (vi) approving in advance 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 Audit Committee also reviews reports concerning the valuation of certain investments.
The members of the Regulatory
& Oversight Committee are Elizabeth Krentzman (Chairman), Beth Ann Brown, Matthew P. Fink, Edmund P. Giambastiani, Jr., Joel W. Motley, Joanne Pace and Brian F. Wruble. The Regulatory & Oversight Committee
evaluates and reports to the Board on the Fund’s contractual arrangements, including the
Investment Advisory, Sub-Advisory and any
Sub-Sub-Advisory Agreements (if applicable, including any with a wholly-owned subsidiary), 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. The Regulatory & Oversight Committee also reviews reports from the Manager’s Risk Management Department
and Chief Compliance Officer among other duties as set forth in the Regulatory & Oversight Committee’s Charter. These reports, and others concerning investment, operational and other risks to the Funds are
shared with, and discussed by, the full Board.
The members of the Governance
Committee are Joel W. Motley (Chairman), Beth Ann Brown, Matthew P. Fink, Edmund P. Giambastiani, Jr., Mary F. Miller and Daniel Vandivort. 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, monitors the Fund’s proxy voting, and coordinates with organizations representing the independent directors of mutual funds among other duties set forth in the Governance
Committee’s Charter.
The Governance Committee’s
functions also include the nomination of Trustees/Directors, including Independent Trustees/Directors, for election to the Board. The full Board elects new Trustees/Directors except for those instances when a
shareholder vote is required.
The Governance Committee will
consider nominees recommended by Independent Trustees/Directors 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., 225 Liberty Street, New York, New York 10281-1008, to the attention of the Board of Trustees/Directors
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 Sub-Adviser) 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, and add to the diversity of, the background, skills, and experience of
other Trustees/Directors, and will contribute to the Board’s deliberations. 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.
Below is a brief discussion of
the specific experience, qualifications, attributes or skills of each Board member that led the Board to conclude that he or she should serve as a Trustee/Director of the Fund.
Each Independent
Trustee/Director has served on the Board for the number of years listed below, during the course of which he or she has become familiar with the Fund’s (and other Oppenheimer funds’) financial, accounting,
regulatory and investment matters and has contributed to the Board’s deliberations. Each Trustee’s/Director’s outside professional experience is outlined in the table of Biographical Information,
below.
Trustees and Officers of the
Funds
Except for Mr. Steinmetz, each
of the Trustees is an Independent Trustee. All of the Trustees are also Trustees of the following Oppenheimer funds (referred to as “New York Board Funds”):
| Oppenheimer Capital Appreciation Fund |
26
Messrs. Cottier,
Willis, DeMitry, Camarella, Pulire, Stein, Edwards, Kennedy, Legg, O’Donnell, Petersen and Steinmetz, and Mss. Bloomberg, Burley, LaFond, Miller, Mossow, Picciotto and Sexton, who are officers of the Fund, hold
the same offices with one or more of the other New York Board 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 Fund and other Oppenheimer funds that offer Class Y shares. Such purchases of Class A
shares or Class Y shares are subject to the requirement to receive Fund documents electronically through eDocs Direct.
As of July 5, 2016,
the Trustees/Directors 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, Sub-Adviser and its subsidiaries, other than the shares beneficially owned under that plan by the
officers of the Fund. In addition, none of the Independent Trustees/Directors (nor any of their immediate family members) owns securities of either the Manager, Sub-Adviser 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 address of each Independent 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 Trustee has served
the Fund in the following capacities from the following dates:
| Independent Trustee | Position(s) | Length of Service |
| Brian F. Wruble | Board Chairman; Trustee | Since 2007; 2006 |
| Beth Ann Brown | Trustee | Since 2016 |
| Matthew P. Fink | Trustee | Since 2006 |
| Edmund P. Giambastiani, Jr. | Trustee | Since 2013 |
| Elizabeth Krentzman | Trustee | Since 2014 |
| Mary F. Miller | Trustee | Since 2006 |
| Joel W. Motley | Trustee | Since 2006 |
| Joanne Pace | Trustee | Since 2013 |
| Daniel Vandivort | Trustee | Since 2014 |
| Interested Trustee | ||
| Arthur P. Steinmetz | Trustee | Since 2015 |
| Independent Trustees | ||
| Name, Year of Birth, Position(s) | Principal Occupation(s) During the Past 5 Years; Other Trusteeship/Directorships Held | Portfolios Overseen in Fund Complex |
| Brian F. Wruble (1943) Chairman of the Board, Trustee | Governor and Vice Chairman of Community Foundation of the Florida Keys (non-profit) (since July 2012); Director of TCP Capital, Inc. (since November 2015); Chairman Emeritus and Trustee (since August 2011) of The Jackson Laboratory (non-profit); Member of Zurich Insurance Group’s Investment Management Advisory Council (insurance) (since 2004); Treasurer (since 2007) and Trustee of the Institute for Advanced Study (non-profit educational institute) (since May 1992); Director of Special Value Opportunities Fund, LLC (registered investment company) (affiliate of the Sub-Adviser’s parent company) (September 2004-June 2015); 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). Mr. Wruble has served on the Boards of certain Oppenheimer funds since April 2001, during which time he has become familiar with the Fund’s (and other Oppenheimer funds') financial, accounting, regulatory and investment matters and has contributed to the Boards’ deliberations. | 55 |
| Beth Ann Brown (1968) Trustee | Advisor, Board of Advisors of Caron Engineering Inc. (since December 2014); Independent Consultant (since September 2012); held the following positions at Columbia Management Investment Advisers LLC: Head of Intermediary Distribution (2008-2012), Managing Director, Strategic Relations (2005-2008), Managing Director, Head of National Accounts (2004-2005); Senior Vice President, National Account Manager (2002-2004), Senior Vice President, Key Account Manager (1999-2002) and Vice President, Key Account Manager (1996-1999) of Liberty Funds Distributor, Inc.; President and Director, of Acton Shapleigh Youth Conservation Corps (non -profit) (2012-2016); and Vice President and Director of Grahamtastic Connection (non -profit) (since May 2013). Ms. Brown has served on the Boards of certain Oppenheimer funds since January 2016, during which time she has become familiar with the Fund’s (and other Oppenheimer funds') financial, accounting, regulatory and investment matters and has contributed to the Boards’ deliberations. | 55 |
| Matthew P. Fink (1941) Trustee | Trustee of the Committee for Economic Development (policy research foundation) (2005-2011); 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); Author of The Rise of Mutual Funds: An Insider’s View published by Oxford University Press (second edition 2011). Mr. Fink has served on the Boards of certain Oppenheimer funds since January 2005, during which time he has become familiar with the Fund’s (and other Oppenheimer funds’) financial, accounting, regulatory and investment matters and has contributed to the Boards’ deliberations. | 55 |
28
| Independent Trustees | ||
| Name, Year of Birth, Position(s) | Principal Occupation(s) During the Past 5 Years; Other Trusteeship/Directorships Held | Portfolios Overseen in Fund Complex |
| Edmund P. Giambastiani, Jr. (1948) Trustee | Advisory Board Member of the Maxwell School of Citizenship and Public Affairs of Syracuse University (since April 2012); Director of Mercury Defense Systems Inc. (information technology) (August 2011-February 2013); Trustee of the U.S. Naval Academy Foundation Athletic & Scholarship Program (since November 2010); Advisory Board Member of the Massachusetts Institute of Technology Lincoln Laboratory (federally-funded research development center) (since May 2010); Director of The Boeing Company (aerospace and defense) (since October 2009); Trustee of MITRE Corporation (federally-funded research development center) (since September 2008); Independent Director of QinetiQ Group Plc (defense technology and security) (February 2008-August 2011); Chairman of Monster Worldwide, Inc. (on-line career services) (since March 2015), Director of Monster Worldwide, Inc. (on-line career services) (February 2008-June 2011); Lead Director (June 2011-March 2015); Chairman of Alenia North America, Inc. (military and defense products) (January 2008-October 2009); Director of SRA International, Inc. (information technology and services) (January 2008-July 2011); President of Giambastiani Group LLC (national security and energy consulting) (since October 2007); United States Navy, career nuclear submarine officer (June 1970-October 2007), Vice Chairman of the Joint Chiefs of Staff (2005-October 2007), Supreme Allied Commander of NATO Commander Transformation (2003-2005), Commander, U.S. Joint Forces Command (2002-2005). Since his retirement from the U.S. Navy in October 2007, Admiral Giambastiani has also served on numerous U.S. Government advisory boards, investigations and task forces for the Secretaries of Defense, State and Interior and the Central Intelligence Agency. He recently completed serving as a federal commissioner on the Military Compensation and Retirement Modernization Commission. Admiral Giambastiani has served on the Boards of certain Oppenheimer funds since February 2013, during which time he has become familiar with the Fund’s (and other Oppenheimer funds') financial, accounting, regulatory and investment matters and has contributed to the Boards’ deliberations. | 55 |
| Elizabeth Krentzman (1959) Trustee | Advisory Board Member of University of Florida Advisory Board, Washington, DC Alumni Group (since 2015); Advisory Board Member of the Securities and Exchange Commission Historical Society (since 2007); held the following positions at Deloitte & Touche LLP: Principal and Chief Regulatory Advisor for Asset Management Services (2007 - 2014) and U.S. Mutual Fund Leader (2011 - 2014); General Counsel of the Investment Company Institute (trade association) (June 2004 - April 2007); held the following positions at Deloitte & Touche LLP: National Director of the Investment Management Regulatory Consulting Practice (1997 - 2004), Principal (2003 - 2004), Director (1998 - 2003) and Senior Manager (1997 - 1998); Assistant Director of the Division of Investment Management - Office of Disclosure and Investment Adviser Regulation (1996 - 1997) and various positions with the Division of Investment Management – Office of Regulatory Policy (1991 - 1996) of the U.S. Securities and Exchange Commission; Associate at Ropes & Gray (1987 - 1991. Ms. Krentzman has served on the Boards of certain Oppenheimer funds since August 2014, during which time she has become familiar with the Fund’s (and other Oppenheimer funds') financial, accounting, regulatory and investment matters and has contributed to the Boards’ deliberations. | 55 |
| Mary F. Miller (1942) Trustee | Trustee of International House (not-for-profit) (since June 2007); Trustee of the American Symphony Orchestra (not-for-profit) (October 1998-November 2011); and Senior Vice President and General Auditor of American Express Company (financial services company) (July 1998-February 2003). Ms. Miller has served on the Boards of certain Oppenheimer funds since August 2004, during which time she has become familiar with the Fund’s (and other Oppenheimer funds’) financial, accounting, regulatory and investment matters and has contributed to the Boards’ deliberations. | 55 |
| Independent Trustees | ||
| Name, Year of Birth, Position(s) | Principal Occupation(s) During the Past 5 Years; Other Trusteeship/Directorships Held | Portfolios Overseen in Fund Complex |
| Joel W. Motley (1952) Trustee | Director of Greenwall Foundation (since October 2013); Member of Board and Investment Committee of The Greenwall Foundation (since April 2013); Member of the Vestry of Trinity Wall Street (since April 2012); Director of Southern Africa Legal Services Foundation (since March 2012); Board Member of Pulitzer Center for Crisis Reporting (non-profit journalism) (since March 2011); 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 and Board of Human Rights Watch (since July 2000) and Member of the Investment Committee and Board of Historic Hudson Valley (since February 2010). Mr. Motley has served on the Boards of certain Oppenheimer funds since October 2002, during which time he has become familiar with the Fund’s (and other Oppenheimer funds’) financial, accounting, regulatory and investment matters and has contributed to the Boards’ deliberations. | 55 |
| Joanne Pace (1958) Trustee | Advisory Board Director of Massey Quick and Company, LLC (since October 2014); Board Director of Horizon Blue Cross Blue Shield of New Jersey (since November 2012); Advisory Board Director of The Alberleen Group LLC (since March, 2012); Board Member (since January 2015), Board Member of 100 Women in Hedge Funds (non-profit) (since January 2015); Advisory Council Member of Morgan Stanley Children’s Hospital (non-profit) (since May, 2012); Board Director of The Komera Project (non-profit) (since April, 2012); New York Advisory Board Director of Peace First (non-profit) (2010-2013); Senior Advisor of SECOR Asset Management, LP (2010-2011); Managing Director and Chief Operating Officer of Morgan Stanley Investment Management (2006-2010); Partner and Chief Operating Officer of FrontPoint Partners, LLC (hedge fund) (2005-2006); held the following positions at Credit Suisse: Managing Director (2003-2005); Global Head of Human Resources and member of Executive Board and Operating Committee (2004-2005), Global Head of Operations and Product Control (2003-2004); held the following positions at Morgan Stanley: Managing Director (1997-2003), Controller and Principal Accounting Officer (1999-2003); Chief Financial Officer (temporary assignment) for the Oversight Committee, Long Term Capital Management (1998-1999). Lead Independent Director and Chair of the Audit and Nominating Committee of The Global Chartist Fund, LLC of Oppenheimer Asset Management (2011-2012); Board Director of Managed Funds Association (2008-2010); Board Director of Morgan Stanley Foundation (2007-2010) and Investment Committee Chair (2008-2010). Ms. Pace has served on the Boards of certain Oppenheimer funds since November 2012, during which time she has become familiar with the Fund’s (and other Oppenheimer funds') financial, accounting, regulatory and investment matters and has contributed to the Boards’ deliberations. | 55 |
30
| Independent Trustees | ||
| Name, Year of Birth, Position(s) | Principal Occupation(s) During the Past 5 Years; Other Trusteeship/Directorships Held | Portfolios Overseen in Fund Complex |
| Daniel Vandivort (1954) Trustee | Chairman and Lead Independent Director/Trustee (March 2010-September 2014), Chairman of the Audit Committee (March 2009-September 2014) and Director/Trustee (December 2008-September 2014) of the Board of Directors/Trustees of Value Line Funds; Trustee, Board of Trustees of Huntington Disease Foundation of America (since January 2015 and June 2007-December 2013): Trustee, Board of Trustees, RIM Retirement Savings Plan (2005-2007); President and Chief Investment Officer, Robeco Investment Management, formerly known as Weiss Peck and Greer (January 2005-June 2007); Member, Management Committee of Robeco Investment Management (2001-2007); Chairman and Trustee of the Board of Trustees of Weiss, Peck and Greer Funds (2004-2005); Managing Director and Head of Fixed Income, Weiss, Peck and Greer (November 1994-January 2005); Managing Director and Head of Fixed Income, CS First Boston Investment Management (January 1992-November 1994); Director, Global Product Development, First Boston Asset Management (November 1989 to January 1992); Vice President, Fixed Income Sales, First Boston Corp. (May 1984-November 1989). Mr. Vandivort has served on the Boards of certain Oppenheimer funds since 2014, during which time he has become familiar with the Fund’s (and other Oppenheimer funds’) financial, accounting, regulatory and investment matters and has contributed to the Boards’ deliberations. | 55 |
Mr. Steinmetz is an “Interested Trustee” because he is affiliated with the Manager and the Sub-Adviser by virtue of his positions as Chairman and director of the
Sub-Adviser and officer and director of the Manager. Both as a Trustee and as an officer, Mr. Steinmetz serves for an indefinite term, or until his resignation, retirement, death or removal. Mr. Steinmetz’s
address is 225 Liberty Street, New York, New York 10281-1008.
| Interested Trustee and Officer | ||
| Name, Year of Birth, Position(s) | Principal Occupation(s) During the Past 5 Years; Other Trusteeships/Directorships Held | Portfolios Overseen in Fund Complex |
| Arthur P. Steinmetz (1958) Trustee, President and Principal Executive Officer | Chairman of the Sub-Adviser (since January 2015); CEO and Chairman of the Manager (since July 2014), President of the Manager (since May 2013), a Director of the Manager (since January 2013), Director of the Sub-Adviser (since July 2014), President, Management Director and CEO of Oppenheimer Acquisition Corp. (the Sub-Adviser’s parent holding company) (since July 2014), and President and Director of OFI SteelPath, Inc. (since January 2013). Chief Investment Officer of the OppenheimerFunds advisory entities from (January 2013-December 2013); Executive Vice President of the Manager (January 2013-May 2013); Chief Investment Officer of the Sub-Adviser (October 2010-December 2012); Chief Investment Officer, Fixed-Income, of the Sub-Adviser (April 2009-October 2010); Executive Vice President of the Sub-Adviser (October 2009-December 2012); Director of Fixed Income of the Sub-Adviser (January 2009-April 2009); and a Senior Vice President of the Sub-Adviser (March 1993-September 2009). | 102 |
The addresses of the officers in
the chart below are as follows: for Messrs. Camarella, Cottier, DeMitry, Pulire, Stein, Willis, Edwards, Sternhell and Steinmetz and Mss. Lo Bessette, Mossow, Picciotto and Sexton, 225 Liberty Street, New York, New
York 10281-1008; for Messrs. Kennedy, Legg, O’Donnell, Petersen and Yoder, and Mss. Burley, LaFond and Miller, 6803 S. Tucson Way, Centennial, Colorado 80112-3924. Each officer serves for an indefinite 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 | |
| Scott S. Cottier | Vice President | Since 2006 |
| Troy E. Willis | Vice President | Since 2006 |
| Mark R. DeMitry | Vice President | Since 2009 |
| Michael L. Camarella | Vice President | Since 2009 |
| Position(s) | Length of Service | |
| Charles S. Pulire | Vice President | Since 2011 |
| Richard A. Stein | Vice President | Since 2007 |
| Elizabeth Mossow | Vice President | Since 2016 |
| Arthur P. Steinmetz | President and Principal Executive Officer | Since 2014 |
| Mary Ann Picciotto | Chief Compliance Officer & Chief Anti-Money Laundering Officer | Since 2014 |
| Jennifer Sexton | Vice President and Chief Business Officer | Since 2014 |
| Brian S. Petersen | Treasurer and Principal Financial & Accounting Officer | Since 2016 |
| Julie Burley | Assistant Treasurer | Since 2013 |
| Jan Miller | Assistant Treasurer | Since 2013 |
| James A. Kennedy | Assistant Treasurer | Since 2011 |
| Mathew O’Donnell | Assistant Treasurer | Since 2012 |
| Cynthia Lo Bessette | Secretary & Chief Legal Officer | Since 2016 |
| Taylor V. Edwards | Assistant Secretary | Since 2008 |
| Randy G. Legg | Assistant Secretary | Since 2008 |
| Michael Sternhell | Assistant Secretary | Since 2016 |
| John Yoder | Assistant Secretary | Since 2016 |
| Gloria J. LaFond | Blue Sky Officer | Since 2011 |
| Other Information about the Officers of the Fund | ||
| Name, Year of Birth, Position(s) | Principal Occupation(s) During the Past 5 Years | Portfolios Overseen in Fund Complex |
| Scott S. Cottier (1971) Vice President | Mr. Cottier has been a Vice President and Senior Portfolio Manager of the Sub-Adviser since September 2002. | 20 |
| Troy E. Willis (1972) Vice President | Mr. Willis has been a Vice President of the Sub-Adviser since July 2009 and a Senior Portfolio Manager of the Sub-Adviser since January 2006. He was an Assistant Vice President of the Sub-Adviser from July 2005 to June 2009 and an Associate Portfolio Manager of the Sub-Adviser from June 2003 to December 2005. | 20 |
| Mark R. DeMitry (1976) Vice President | Mr. DeMitry has been a Vice President and Senior Portfolio Manager of the Sub-Adviser since July 2009. He was an Associate Portfolio Manager with the Sub-Adviser from September 2006 to June 2009. He was a Research Analyst with the Sub-Adviser from June 2003 to August 2006. He was a Credit Analyst with the Sub-Adviser from July 2001 to May 2003. | 20 |
| Michael L. Camarella (1976) Vice President | Vice President and Senior Portfolio Manager of the Sub-Adviser since January 2011. Assistant Vice President (July 2009-December 2010) and Associate Portfolio Manager of the Sub-Adviser (January 2008-December 2010). Research Analyst (April 2006-December 2007) and a Credit Analyst of the Sub-Adviser (June 2003-March 2006). | 20 |
| Charles S. Pulire (1977) Vice President | Vice President of the Sub-Adviser (since February 2013); Senior Portfolio Manager of the Sub-Adviser (since January 2013); Assistant Vice President of the Sub-Adviser (December 2010-January 2013) and Associate Portfolio Manager of the Sub-Adviser (December 2010 –January 2013). Research Analyst with the Sub-Adviser (February 2008-November 2010) and a Credit Analyst with the Sub-Adviser May 2006-January 2008). | 20 |
| Richard Stein (1957) Vice President | Senior Vice President of the Sub-Adviser (since June 2011); Director of the Rochester Credit Analysis team (since March 2004) and Vice President of the Sub-Adviser (1997-May 2011). He has headed Rochester’s Credit Analysis team (since 1993). | 20 |
32
| Other Information about the Officers of the Fund | ||
| Name, Year of Birth, Position(s) | Principal Occupation(s) During the Past 5 Years | Portfolios Overseen in Fund Complex |
| Elizabeth Mossow (1978) Vice President | Vice President of the Sub-Adviser (Since January 2016) and Portfolio Manager of the Sub-Adviser (since June 2013); Assistant Vice President of the Sub-Adviser (January 2011-2016). She was a Portfolio Research Analyst of the Sub-Adviser (from June 2011 to June 2013) and was a Credit Analyst of the Sub-Adviser (from May 2007 to May 2011). She was a Risk Management Analyst at Manning & Napier Associates (from September 2006 to May 2007) and was an Analyst/Trading Assistant at The Baupost Group (from August 2000 to March 2006). | 20 |
| Other Information about the Officers of the Fund | |||
| Name, Year of Birth, Position(s) | Principal Occupation(s) During the Past 5 Years | Portfolios Overseen in Fund Complex | |
| Mary Ann Picciotto (1973) Chief Compliance Officer and Chief Anti-Money Laundering Officer | Senior Vice President and Chief Compliance Officer of the Manager (since March 2014); Chief Compliance Officer of the Sub-Adviser, OFI SteelPath, Inc., OFI Global Trust Company, OFI Global Institutional, Inc., Oppenheimer Real Asset Management, Inc., OFI Private Investments, Inc., Harborview Asset Management Corporation, Trinity Investment Management Corporation, and Shareholder Services, Inc. (since March 2014); Managing Director of Morgan Stanley Investment Management Inc. and certain of its various affiliated entities; Chief Compliance Officer of various Morgan Stanley Funds (May 2010-January 2014); Chief Compliance Officer of Morgan Stanley Investment Management Inc. (April 2007-January 2014). | 102 | |
| Jennifer Sexton (1969) Vice President and Chief Business Officer | Senior Vice President of OppenheimerFunds Distributor, Inc. (since June 2014); Vice President of OppenheimerFunds Distributor, Inc. (April 2006-June 2014); Vice President of the Sub-Adviser (January 1998-March 2006); Assistant Vice President of the Sub-Adviser (October 1991-December 1998). | 102 | |
| Brian S. Petersen (1970) Treasurer and Principal Financial and Accounting Officer | Vice President of the Manager (since January 2013); Vice President of the Sub-Adviser (February 2007-December 2012); Assistant Vice President of the Sub-Adviser (August 2002-2007). | 102 | |
| Julie Burley (1981) Assistant Treasurer | Vice President of the Manager (since October 2013). Previously held the following positions at Deloitte & Touche: Senior Manager (September 2010-October 2013), Manager (September 2008-August 2010), and Audit Senior (September 2005-August 2008). | 102 | |
| James A. Kennedy (1958) Assistant Treasurer | Senior Vice President of the Manager (since January 2013); Senior Vice President of the Sub-Adviser (September 2006-December 2012). | 102 | |
| Jan Miller (1963) Assistant Treasurer | Vice President of the Manager (since January 2014); Assistant Vice President of the Manager (January 2013-January 2014); Assistant Vice President of the Sub-Adviser (2005-December 2012); Assistant Vice President in the Sub-Adviser’s Fund Accounting department (November 2004 to March 2006). | 102 | |
| Mathew O’Donnell (1967) Assistant Treasurer | Vice President of the Manager (since January 2013); Vice President of the Sub-Adviser (January 2008-December 2012); Accounting Policy Director of the Sub-Adviser (May 2007-March 2012). | 102 | |
| Other Information about the Officers of the Fund | |||
| Name, Year of Birth, Position(s) | Principal Occupation(s) During the Past 5 Years | Portfolios Overseen in Fund Complex | |
| Cynthia Lo Bessette (1969) Secretary and Chief Legal Officer | Senior Vice President and Deputy General Counsel (March 2015-February 2016) and Executive Vice President, General Counsel and Secretary of the Manager (since February 2016); Chief Legal Officer of the Sub-Adviser and the Distributor (since February 2016); Vice President, General Counsel and Secretary of Oppenheimer Acquisition Corp. (since February 2016); General Counsel of OFI SteelPath, Inc., VTL Associates, LLC and Index Management Solutions, LLC (since February 2016); Chief Legal Officer of OFI Global Institutional, Inc., HarbourView Asset Management Corporation, OFI Global Trust Company, Oppenheimer Real Asset Management, Inc., OFI Private Investments Inc., Shareholder Services, Inc. and Trinity Investment Management Corporation (since February 2016); Vice President, Corporate Counsel (February 2012-March 2015) and Deputy Chief Legal Officer (April 2013-March 2015) of Jennison Associates LLC; Assistant General Counsel (April 2008-September 2009) and Deputy General Counsel (October 2009-February 2012) of Lord Abbett & Co. LLC. | 102 | |
| Taylor V. Edwards (1967) Assistant Secretary | Vice President and Senior Counsel of the Manager (since January 2013); Vice President (February 2007-December 2012) and Senior Counsel (February 2012-December 2012) of the Sub-Adviser; Associate Counsel (May 2009-January 2012); Assistant Vice President (January 2006-January 2007) and Assistant Counsel (January 2006-April 2009) of the Sub-Adviser. | 102 | |
| Randy G. Legg (1965) Assistant Secretary | Vice President and Senior Counsel of the Manager (since January 2013); Vice President (June 2005-December 2012) and Senior Counsel (March 2011-December 2012) of the Sub-Adviser; Associate Counsel (January 2007-March 2011) of the Sub-Adviser. | 102 | |
| Michael J. Sternhell (1975) Assistant Secretary | Senior Vice President and Senior Counsel of the Manager (since February 2015); Vice President and Associate Counsel of the Manager (January 2013-January 2015); Vice President and Associate Counsel (June 2011-December 2012) of the Sub-Adviser. | 102 | |
| John Yoder (1975) Assistant Secretary | Vice President and Assistant Counsel of the Manager (since January 2013); Vice President and Assistant Counsel (July 2011-December 2012) of the Sub-Adviser. | 102 | |
| Gloria J. LaFond (1945) Blue Sky Officer | Assistant Vice President of the Manager (since January 2013); Assistant Vice President (January 2006-December 2012) of the Sub-Adviser. | 102 | |
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, 2015 | ||
| 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 |
| Beth Ann Brown* | N/A | N/A |
| Matthew P. Fink | None | Over $100,000 |
| Edmond P. Giambastiani, Jr. | None | Over $100,000 |
| Elizabeth Krentzman | None | Over $100,000 |
| Mary F. Miller | None | Over $100,000 |
| Joel W. Motley | None | Over $100,000 |
| Joanne Pace | None | Over $100,000 |
| Daniel Vandivort | None | Over $100,000 |
| Interested Trustee | ||
34
| As of December 31, 2015 | ||
| Dollar Range of Shares Beneficially Owned in the Fund | Aggregate Dollar Range of Shares Beneficially Owned in Supervised Funds | |
| Arthur P. Steinmetz | None | Over $100,000 |
| * | Ms. Brown became an Independent Trustee of the Fund and all New York Board Funds effective January 1, 2016. |
Remuneration of the Officers and
Trustees. The officers and the Interested Trustees of the Fund, who are associated with the Manager, receive no salary or fee from the Fund. The Independent Trustees’ total compensation from
the Fund and fund complex represents compensation 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, 2015.
Oppenheimer Rochester Arizona
Municipal Fund
| Aggregate Compensation From the Fund1 | Total Compensation From the Fund and Fund Complex | |
| Name and Other Fund Position(s) (as applicable) | Fiscal Year Ended March 31, 2016 | Year Ended December 31,2015 |
| Brian F. Wruble Chairman of the Board, Audit Committee Member and Regulatory & Oversight Committee Member | $1012 | $295,000 |
| Beth Ann Brown Regulatory & Oversight Committee Member and Governance Committee Member3 | $19 | NA |
| Matthew P. Fink Regulatory & Oversight Committee Member and Governance Committee Member | $854 | $255,000 |
| Edmund P. Giambastiani, Jr. Governance Committee Member and Regulatory & Oversight Committee Member | $78 | $230,000 |
| Elizabeth Krentzman Audit Committee Member and Regulatory & Oversight Committee Chairman | $80 | $230,000 |
| Mary F. Miller Audit Committee Member and Governance Committee Member | $785 | $230,000 |
| Joel W. Motley Governance Committee Chairman and Regulatory & Oversight Committee Member | $876 | $255,000 |
| Joanne Pace Audit Committee Chairman and Regulatory & Oversight Committee Member | $87 | $248,750 |
| Daniel Vandivort Governance Committee Member and Audit Committee Member | $78 | $210,625 |
| 1. | “Aggregate Compensation From the Fund” includes fees and amounts deferred under the “Compensation Deferral Plan” (described below), if any. |
| 2. | Includes $101 deferred by Mr. Wruble under the Compensation Deferral Plan. |
| 3. | Ms. Brown became an Independent Trustee of the Fund on January 1, 2016. |
| 4. | Includes $43 deferred by Mr. Fink under the Compensation Deferral Plan. |
| 5. | Includes $39 deferred by Ms. Miller under the Compensation Deferral Plan. |
| 6. | Includes $4 deferred by Mr. Motley under the Compensation Deferral Plan. |
Oppenheimer Rochester Maryland Municipal Fund
| Aggregate Compensation From the Fund1 | Total Compensation From the Fund and Fund Complex | |
| Name and Other Fund Position(s) (as applicable) | Fiscal Year Ended March 31, 2016 | Year Ended December 31,2015 |
| Brian F. Wruble Chairman of the Board, Audit Committee Member and Regulatory & Oversight Committee Member | $1122 | $295,000 |
| Beth Ann Brown Regulatory & Oversight Committee Member and Governance Committee Member3 | $22 | NA |
| Matthew P. Fink Regulatory & Oversight Committee Member and Governance Committee Member | $954 | $255,000 |
| Edmund P. Giambastiani, Jr. Governance Committee Member and Regulatory & Oversight Committee Member | $87 | $230,000 |
| Elizabeth Krentzman Audit Committee Member and Regulatory & Oversight Committee Chairman | $90 | $230,000 |
| Mary F. Miller Audit Committee Member and Governance Committee Member | $875 | $230,000 |
| Joel W. Motley Governance Committee Chairman and Regulatory & Oversight Committee Member | $976 | $255,000 |
| Joanne Pace Audit Committee Chairman and Regulatory & Oversight Committee Member | $97 | $248,750 |
| Daniel Vandivort Governance Committee Member and Audit Committee Member | $87 | $210,625 |
| 1. | “Aggregate Compensation from the Fund” includes fees and amounts deferred under the “Compensation Deferral Plan” (described below), if any. |
| 2. | Includes $112 deferred by Mr. Wruble under the Compensation Deferral Plan. |
| 3. | Ms. Brown became an Independent Trustee of the Fund on January 1, 2016. |
| 4. | Includes $48 deferred by Mr. Fink under the Compensation Deferral Plan. |
| 5. | Includes $44 deferred by Ms. Miller under the Compensation Deferral Plan. |
| 6. | Includes $5 deferred by Mr. Motley under the Compensation Deferral Plan. |
Oppenheimer Rochester Massachusetts
Municipal Fund
| Aggregate Compensation From the Fund1 | Total Compensation From the Fund and Fund Complex | |
| Name and Other Fund Position(s) (as applicable) | Fiscal Year Ended March 31, 2016 | Year Ended December 31,2015 |
| Brian F. Wruble Chairman of the Board, Audit Committee Member and Regulatory & Oversight Committee Member | $1152 | $295,000 |
| Beth Ann Brown Regulatory & Oversight Committee Member and Governance Committee Member3 | $24 | NA |
| Matthew P. Fink Regulatory & Oversight Committee Member and Governance Committee Member | $964 | $255,000 |
| Edmund P. Giambastiani, Jr. Governance Committee Member and Regulatory & Oversight Committee Member | $89 | $230,000 |
36
| Aggregate Compensation From the Fund1 | Total Compensation From the Fund and Fund Complex | |
| Name and Other Fund Position(s) (as applicable) | Fiscal Year Ended March 31, 2016 | Year Ended December 31,2015 |
| Elizabeth Krentzman Audit Committee Member and Regulatory & Oversight Committee Chairman | $92 | $230,000 |
| Mary F. Miller Audit Committee Member and Governance Committee Member | $895 | $230,000 |
| Joel W. Motley Governance Committee Chairman and Regulatory & Oversight Committee Member | $996 | $255,000 |
| Joanne Pace Audit Committee Chairman and Regulatory & Oversight Committee Member | $99 | $248,750 |
| Daniel Vandivort Governance Committee Member and Audit Committee Member | $89 | $210,625 |
| 1. | “Aggregate Compensation From the Fund” includes fees and amounts deferred under the “Compensation Deferral Plan” (described below), if any. |
| 2. | Includes $115 deferred by Mr. Wruble under the Compensation Deferral Plan. |
| 3. | Ms. Brown became an Independent Trustee of the Fund on January 1, 2016. |
| 4. | Includes $49 deferred by Mr. Fink under the Compensation Deferral Plan. |
| 5. | Includes $45 deferred by Ms. Miller under the Compensation Deferral Plan. |
| 6. | Includes $5 deferred by Mr. Motley under the Compensation Deferral Plan. |
Oppenheimer Rochester Michigan
Municipal Fund
| Aggregate Compensation From the Fund1 | Total Compensation From the Fund and Fund Complex | |
| Name and Other Fund Position(s) (as applicable) | Fiscal Year Ended March 31, 2016 | Year Ended December 31,2015 |
| Brian F. Wruble Chairman of the Board, Audit Committee Member and Regulatory & Oversight Committee Member | $1012 | $295,000 |
| Beth Ann Brown Regulatory & Oversight Committee Member and Governance Committee Member3 | $21 | NA |
| Matthew P. Fink Regulatory & Oversight Committee Member and Governance Committee Member | $854 | $255,000 |
| Edmund P. Giambastiani, Jr. Governance Committee Member and Regulatory & Oversight Committee Member | $79 | $230,000 |
| Elizabeth Krentzman Audit Committee Member and Regulatory & Oversight Committee Chairman | $81 | $230,000 |
| Mary F. Miller Audit Committee Member and Governance Committee Member | $795 | $230,000 |
| Joel W. Motley Governance Committee Chairman and Regulatory & Oversight Committee Member | $876 | $255,000 |
| Joanne Pace Audit Committee Chairman and Regulatory & Oversight Committee Member | $87 | $248,750 |
| Daniel Vandivort Governance Committee Member and Audit Committee Member | $79 | $210,625 |
| 1. | “Aggregate Compensation From the Fund” includes fees and amounts deferred under the “Compensation Deferral Plan” (described below), if any. |
| 2. | Includes $101 deferred by Mr. Wruble under the Compensation Deferral Plan. |
| 3. | Ms. Brown became an Independent Trustee of the Fund on January 1, 2016. |
| 4. | Includes $42 deferred by Mr. Fink under the Compensation Deferral Plan. |
| 5. | Includes $39 deferred by Ms. Miller under the Compensation Deferral Plan. |
| 6. | Includes $4 deferred by Mr. Motley under the Compensation Deferral Plan. |
Oppenheimer Rochester Minnesota
Municipal Fund
| Aggregate Compensation From the Fund1 | Total Compensation From the Fund and Fund Complex | |
| Name and Other Fund Position(s) (as applicable) | Fiscal Year Ended March 31, 2016 | Year Ended December 31,2015 |
| Brian F. Wruble Chairman of the Board, Audit Committee Member and Regulatory & Oversight Committee Member | $2892 | $295,000 |
| Beth Ann Brown Regulatory & Oversight Committee Member and Governance Committee Member3 | $64 | NA |
| Matthew P. Fink Regulatory & Oversight Committee Member and Governance Committee Member | $2434 | $255,000 |
| Edmund P. Giambastiani, Jr. Governance Committee Member and Regulatory & Oversight Committee Member | $224 | $230,000 |
| Elizabeth Krentzman Audit Committee Member and Regulatory & Oversight Committee Chairman | $232 | $230,000 |
| Mary F. Miller Audit Committee Member and Governance Committee Member | $2245 | $230,000 |
| Joel W. Motley Governance Committee Chairman and Regulatory & Oversight Committee Member | $2506 | $255,000 |
| Joanne Pace Audit Committee Chairman and Regulatory & Oversight Committee Member | $250 | $248,750 |
| Daniel Vandivort Governance Committee Member and Audit Committee Member | $224 | $210,625 |
| 1. | “Aggregate Compensation From the Fund” includes fees and amounts deferred under the “Compensation Deferral Plan” (described below), if any. |
| 2. | Includes $289 deferred by Mr. Wruble under the Compensation Deferral Plan. |
| 3. | Ms. Brown became an Independent Trustee of the Fund on January 1, 2016. |
| 4. | Includes $121 deferred by Mr. Fink under the Compensation Deferral Plan. |
| 5. | Includes $113 deferred by Ms. Miller under the Compensation Deferral Plan. |
| 6. | Includes $12 deferred by Mr. Motley under the Compensation Deferral Plan. |
Oppenheimer Rochester North Carolina
Municipal Fund
| Aggregate Compensation From the Fund1 | Total Compensation From the Fund and Fund Complex | |
| Name and Other Fund Position(s) (as applicable) | Fiscal Year Ended March 31, 2016 | Year Ended December 31,2015 |
| Brian F. Wruble Chairman of the Board, Audit Committee Member and Regulatory & Oversight Committee Member | $1602 | $295,000 |
| Beth Ann Brown Regulatory & Oversight Committee Member and Governance Committee Member3 | $33 | NA |
| Matthew P. Fink Regulatory & Oversight Committee Member and Governance Committee Member | $1344 | $255,000 |
38
| Aggregate Compensation From the Fund1 | Total Compensation From the Fund and Fund Complex | |
| Name and Other Fund Position(s) (as applicable) | Fiscal Year Ended March 31, 2016 | Year Ended December 31,2015 |
| Edmund P. Giambastiani, Jr. Governance Committee Member and Regulatory & Oversight Committee Member | $124 | $230,000 |
| Elizabeth Krentzman Audit Committee Member and Regulatory & Oversight Committee Chairman | $128 | $230,000 |
| Mary F. Miller Audit Committee Member and Governance Committee Member | $1245 | $230,000 |
| Joel W. Motley Governance Committee Chairman and Regulatory & Oversight Committee Member | $1386 | $255,000 |
| Joanne Pace Audit Committee Chairman and Regulatory & Oversight Committee Member | $138 | $248,750 |
| Daniel Vandivort Governance Committee Member and Audit Committee Member | $124 | $210,625 |
| 1. | “Aggregate Compensation From the Fund” includes fees and amounts deferred under the “Compensation Deferral Plan” (described below), if any. |
| 2. | Includes $160 deferred by Mr. Wruble under the Compensation Deferral Plan. |
| 3. | Ms. Brown became an Independent Trustee of the Fund on January 1, 2016. |
| 4. | Includes $67 deferred by Mr. Fink under the Compensation Deferral Plan. |
| 5. | Includes $62 deferred by Ms. Miller under the Compensation Deferral Plan. |
| 6. | Includes $7 deferred by Mr. Motley under the Compensation Deferral Plan. |
Oppenheimer Rochester Ohio Municipal
Fund
| Aggregate Compensation From the Fund1 | Total Compensation From the Fund and Fund Complex | |
| Name and Other Fund Position(s) (as applicable) | Fiscal Year Ended March 31, 2016 | Year Ended December 31,2015 |
| Brian F. Wruble Chairman of the Board, Audit Committee Member and Regulatory & Oversight Committee Member | $1542 | $295,000 |
| Beth Ann Brown Regulatory & Oversight Committee Member and Governance Committee Member3 | $34 | NA |
| Matthew P. Fink Regulatory & Oversight Committee Member and Governance Committee Member | $1294 | $255,000 |
| Edmund P. Giambastiani, Jr. Governance Committee Member and Regulatory & Oversight Committee Member | $119 | $230,000 |
| Elizabeth Krentzman Audit Committee Member and Regulatory & Oversight Committee Chairman | $123 | $230,000 |
| Mary F. Miller Audit Committee Member and Governance Committee Member | $1195 | $230,000 |
| Joel W. Motley Governance Committee Chairman and Regulatory & Oversight Committee Member | $1336 | $255,000 |
| Joanne Pace Audit Committee Chairman and Regulatory & Oversight Committee Member | $133 | $248,750 |
| Aggregate Compensation From the Fund1 | Total Compensation From the Fund and Fund Complex | |
| Name and Other Fund Position(s) (as applicable) | Fiscal Year Ended March 31, 2016 | Year Ended December 31,2015 |
| Daniel Vandivort Governance Committee Member and Audit Committee Member | $119 | $210,625 |
| 1. | “Aggregate Compensation From the Fund” includes fees and amounts deferred under the “Compensation Deferral Plan” (described below), if any. |
| 2. | Includes $154 deferred by Mr. Wruble under the Compensation Deferral Plan. |
| 3. | Ms. Brown became an Independent Trustee of the Fund on January 1, 2016. |
| 4. | Includes $65 deferred by Mr. Fink under the Compensation Deferral Plan. |
| 5. | Includes $60 deferred by Ms. Miller under the Compensation Deferral Plan. |
| 6. | Includes $7 deferred by Mr. Motley under the Compensation Deferral Plan. |
Oppenheimer Rochester Virginia
Municipal Fund
| Aggregate Compensation From the Fund1 | Total Compensation From the Fund and Fund Complex | |
| Name and Other Fund Position(s) (as applicable) | Fiscal Year Ended March 31, 2016 | Year Ended December 31,2015 |
| Brian F. Wruble Chairman of the Board, Audit Committee Member and Regulatory & Oversight Committee Member | $2092 | $295,000 |
| Beth Ann Brown Regulatory & Oversight Committee Member and Governance Committee Member3 | $41 | NA |
| Matthew P. Fink Regulatory & Oversight Committee Member and Governance Committee Member | $1764 | $255,000 |
| Edmund P. Giambastiani, Jr. Governance Committee Member and Regulatory & Oversight Committee Member | $163 | $230,000 |
| Elizabeth Krentzman Audit Committee Member and Regulatory & Oversight Committee Chairman | $167 | $230,000 |
| Mary F. Miller Audit Committee Member and Governance Committee Member | $1635 | $230,000 |
| Joel W. Motley Governance Committee Chairman and Regulatory & Oversight Committee Member | $1816 | $255,000 |
| Joanne Pace Audit Committee Chairman and Regulatory & Oversight Committee Member | $181 | $248,750 |
| Daniel Vandivort Governance Committee Member and Audit Committee Member | $163 | $210,625 |
| 1. | “Aggregate Compensation From the Fund” includes fees and amounts deferred under the “Compensation Deferral Plan” (described below), if any. |
| 2. | Includes $209 deferred by Mr. Wruble under the Compensation Deferral Plan. |
| 3. | Ms. Brown became an Independent Trustee of the Fund on January 1, 2016. |
| 4. | Includes $88 deferred by Mr. Fink under the Compensation Deferral Plan. |
| 5. | Includes $82 deferred by Ms. Miller under the Compensation Deferral Plan. |
| 6. | Includes $9 deferred by Mr. Motley under the Compensation Deferral Plan. |
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
40
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 July 5, 2016 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:
Oppenheimer Rochester Arizona
Municipal Fund
| Name | Address | % Owned | Share Class |
| Arizona Municipal Fund | |||
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 24.30% | A |
| CHARLES SCHWAB & CO INC SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE BENEFIT OF CUSTOMERS | ATTN MUTUAL FUNDS 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4122 | 10.01% | A |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 7.89% | A |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 6.10% | A |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 5.85% | A |
| CHARLES SCHWAB & CO INC SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE BENEFIT OF CUSTOMERS | ATTN MUTUAL FUNDS 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4122 | 34.40% | B |
| RAYMOND JAMES (REGISTERED OWNER) OMNIBUS FOR MUTUAL FUNDS HOUSE ACCT FIRM 92500015 | ATTN: COURTNEY WALLER 880 CARILLON PARKWAY ST PETERSBURG FL 33716 | 27.18% | B |
| RAYMOND JAMES & ASSOC INC (BENEFICIAL OWNER) FBO MICHAEL P SCOTT TTEE MICHAEL P SCOTT TR | 19303 NEW TRADITION RD APT 244 SUN CITY WEST AZ 85375 | 9.41% | B |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 11.06% | B |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 10.30% | B |
| NATIONAL FINANCIAL SERVICES LLC (REGISTERED OWNER) FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 7.19% | B |
| ROBERT B BURNS TTEE (BENEFICIAL OWNER) THE ROBERT B BURNS TRUST FBO AMY E HEILBORN CHRISTOPHER B BURNS | 1559 BRYCE PARK LOOP LYNDEN WA 98264-9060 | 6.33% | B |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 5.78% | B |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 23.76% | C |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 15.16% | C |
| Name | Address | % Owned | Share Class |
| MORGAN STANLEY DW | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA TWO 2ND FLOOR JERSEY CITY NJ 07311 | 13.87% | C |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 9.66% | C |
| UBS WM USA OMNI ACCOUNT M/F | ATTN: DEPARTMENT MANAGER 499 WASHINGTON BLVD FL 9 JERSEY CITY NJ 07310-2055 | 7.71% | C |
| NATIONAL FINANCIAL SERVICES LLC (REGISTERED OWNER) FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 37.33% | Y |
| GERMAINE ONG (BENEFICIAL OWNER) | 112 IRONWOOD RD MORENCI AZ 85540 | 37.33% | Y |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 27.18% | Y |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 15.31% | Y |
| UBS WM USA OMNI ACCOUNT M/F | ATTN: DEPARTMENT MANAGER 499 WASHINGTON BLVD FL 9 JERSEY CITY NJ 07310-2055 | 9.43% | Y |
| LPL FINANCIAL --OMNIBUS CUSTOMER ACCOUNT-- | ATTN: LINDSAY OTOOLE 4707 EXECUTIVE DRIVE SAN DIEGO CA 92121 | 7.37% | Y |
Oppenheimer Rochester Maryland
Municipal Fund
| Name | Address | % Owned | Share Class |
| Maryland Municipal Fund | |||
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 20.23% | A |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 13.87% | A |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 10.77% | A |
| NATIONAL FINANCIAL SERVICES LLC FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 7.45% | A |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 5.99% | A |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 32.24% | B |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 21.55% | B |
| MORGAN STANLEY DW (REGISTERED OWNER) | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA TWO 2ND FLOOR JERSEY CITY NJ 07311 | 12.94% | B |
42
| Name | Address | % Owned | Share Class |
| MICHAEL WAYNE MATTINGLY (BENEFICIAL OWNER) | 41486 AFFIRMED WAY LEONARDTOWN MD 20650 | 9.63% | B |
| FRANCES W KELLERMAN AND CAROL L WILLIAMS AS TTEES OF THE FRANCES W KELLERMAN LIV TR UA DTD 7-6-05 | 19431 MAGGIES CT BOONSBORO MD 21713-1750 | 11.52% | B |
| CHARLES SCHWAB & CO INC SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE BENEFIT OF CUSTOMERS | ATTN MUTUAL FUNDS 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4122 | 8.32% | B |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 7.77% | B |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 33.25% | C |
| MORGAN STANLEY DW | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA TWO 2ND FLOOR JERSEY CITY NJ 07311 | 11.20% | C |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 10.75% | C |
| NATIONAL FINANCIAL SERVICES LLC FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 9.55% | C |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 9.02% | C |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 29.88% | Y |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 28.77% | Y |
| MORGAN STANLEY & CO | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA II 3RD FLOOR JERSEY CITY NJ 07311 | 8.66% | Y |
| UBS WM USA OMNI ACCOUNT M/F | ATTN: DEPARTMENT MANAGER 499 WASHINGTON BLVD FL 9 JERSEY CITY NJ 07310-2055 | 8.19% | Y |
| THOMAS J SCHMITT | 110 SUSSEX DR MANHASSET NY 11030-3516 | 6.62% | Y |
Oppenheimer
Rochester Massachusetts Municipal Fund
| Name | Address | % Owned | Share Class |
| Massachusetts Municipal Fund | |||
| NATIONAL FINANCIAL SERVICES LLC FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 15.29% | A |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 10.89% | A |
| Name | Address | % Owned | Share Class |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 8.02% | A |
| LPL FINANCIAL --OMNIBUS CUSTOMER ACCOUNT-- | ATTN: LINDSAY OTOOLE 4707 EXECUTIVE DRIVE SAN DIEGO CA 92121 | 7.78% | A |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 24.36% | B |
| JONATHAN C WEINMAN AND HOPE J WEINMAN AS TTEES OF THE WEINMAN FAM LIV TR UA DTD 9-13-10 | 43 POWNAL STREET MARSHFIELD MA 02050-5443 | 18.17% | B |
| MARY HELEN MAHONEY TOD | 17 RIDGEWAY STREET WOLLASTON MA 02170-3021 | 10.43% | B |
| NATIONAL FINANCIAL SERVICES LLC (REGISTERED OWNER) FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 9.69% | B |
| CAROLYN S DORVAL (BENEFICIAL OWNER) TOD BRENT L DORVAL | 251 SW MAIN ST DOUGLAS MA 01516 | 6.90% | B |
| RICHARD H BATEMAN AND ELIZABETH BATEMAN JT | 244 DALE ST WALTHAM MA 02451-3775 | 7.04% | B |
| UBS WM USA (REGISTERED OWNER) OMNI ACCOUNT M/F | ATTN: DEPARTMENT MANAGER 499 WASHINGTON BLVD FL 9 JERSEY CITY NJ 07310-2055 | 6.71% | B |
| UBS FINANCIAL SERVICES INC FBO (BENEFICIAL OWNER) ELIZABETH KUDZMA TOD DANIEL KUDZMA | 195 HOLLY RD MARSHFIELD MA 02050-1725 | 5.78% | B |
| RITA Y LEE TOD | 11 REVERE ST UNIT 3 JAMAICA PLAIN MA 02130-2880 | 6.70% | B |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 6.07% | B |
| SEI PRIVATE TRUST COMPANY CO TIAA-CREF ID 765 | 1 FREEDOM VALLEY DR OAKS PA 19456-9989 | 5.40% | B |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 27.05% | C |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 18.14% | C |
| MORGAN STANLEY & CO | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA II 3RD FLOOR JERSEY CITY NJ 07311 | 12.61% | C |
| NATIONAL FINANCIAL SERVICES LLC FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 8.10% | C |
| UBS WM USA OMNI ACCOUNT M/F | ATTN: DEPARTMENT MANAGER 499 WASHINGTON BLVD FL 9 JERSEY CITY NJ 07310-2055 | 7.66% | C |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 6.58% | C |
44
| Name | Address | % Owned | Share Class |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 13.59% | Y |
| NATIONAL FINANCIAL SERVICES LLC FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 12.42% | Y |
| TRISTATE CAPITAL BANK FAO DEBORAH L SHEARER LIVING TRUST DEBORAH L & DANIEL H SHEARER TTEES DTD 4302013 | PO BOX 934 WEST FALMOUTH MA 02574-0934 | 9.68% | Y |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 9.02% | Y |
| UBS WM USA OMNI ACCOUNT M/F | ATTN: DEPARTMENT MANAGER 499 WASHINGTON BLVD FL 9 JERSEY CITY NJ 07310-2055 | 8.82% | Y |
| NANCY S MACMULLEN | 73 HARBOR VIEW LN VINEYARD HVN MA 02568-5344 | 7.10% | Y |
| GEORGE P SMITH & CYNTHIA J SMITH JT-TEN | 51 WIANNO RD BOURNE MA 02532-3503 | 6.09% | Y |
| STEPHEN F MEALY & SANDRA J MEALY JT-TEN | PO BOX 306 SAGAMORE BCH MA 02562-0306 | 5.95% | Y |
Oppenheimer Rochester Michigan
Municipal Fund
| Name | Address | % Owned | Share Class |
| Michigan Municipal Fund | |||
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 33.35% | A |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 15.77% | A |
| NATIONAL FINANCIAL SERVICES LLC FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 6.99% | A |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 6.98% | A |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 25.70% | B |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 22.48% | B |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 16.88% | B |
| OPPENHEIMER & CO INC FBO E DENNIS OCONNOR & MAUREEN OCONNOR JTWROS | 2266 RED APPLE RD MANISTEE MI 49660 | 9.65% | B |
| OPPENHEIMER & CO INC FBO ALICE J SCOTT TRUSTEE ALICE J SCOTT REVOCABLE LIV TRUS UA DTD 122076 RESTATED 1019 | 35300 BLUE SPRUCE DR FARMINGTON HILLS MI 48335 | 7.54% | B |
| Name | Address | % Owned | Share Class |
| OPPENHEIMER & CO INC FBO IRENE DEMBECK (TOD) | 24735 RIVER HTS SOUTHFIELD MI 48033 | 5.04% | B |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 12.06% | C |
| RAYMOND JAMES OMNIBUS FOR MUTUAL FUNDS HOUSE ACCT FIRM 92500015 | ATTN: COURTNEY WALLER 880 CARILLON PARKWAY ST PETERSBURG FL 33716 | 10.93% | C |
| MORGAN STANLEY & CO | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA II 3RD FLOOR JERSEY CITY NJ 07311 | 8.72% | C |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 8.48% | C |
| UBS WM USA OMNI ACCOUNT M/F | ATTN: DEPARTMENT MANAGER 499 WASHINGTON BLVD FL 9 JERSEY CITY NJ 07310-2055 | 6.97% | C |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 5.93% | C |
| TD AMERITRADE INC FBO (REGISTERED OWNER) OUR CUSTOMERS | PO BOX 2226 OMAHA NE 68103-2226 | 23.02% | Y |
| TD AMERITRADE FBO (BENEFICIAL OWNER) MICHAEL J FUHER & MICHELE FUHER JTTEN | 16530 LEVAN ROAD LIVONIA MI 48154-2000 | 23.02% | Y |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 22.35% | Y |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 14.36% | Y |
| UBS WM USA (REGISTERED OWNER) OMNI ACCOUNT M/F | ATTN: DEPARTMENT MANAGER 499 WASHINGTON BLVD FL 9 JERSEY CITY NJ 07310-2055 | 13.91% | Y |
| UBS FINANCIAL SERVICES INC FBO (BENEFICIAL OWNER) DANIEL GOLLES TRACES GOLLES JTWROS | 4861 SURFWOOD DR COMMERCE TWP MI 48382-1347 | 9.47% | Y |
| NATIONAL FINANCIAL SERVICES LLC (REGISTERED OWNER) FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 7.32% | Y |
| JO ANN DAVIS TTEE (BENEFICIAL OWNER) JO ANN DAVIS TRUST U/A 4/5/99 FBO JO ANN DAVIS | 43587 ABBEY CIR CANTON MI 48187-1827 | 5.39% | Y |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 7.03% | Y |
| KEYBANK NA YOERG F J III & R L JTWROS M/AG | PO BOX 94871 CLEVELAND OH 44101-4871 | 6.16% | Y |
| MORGAN STANLEY & CO | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA II 3RD FLOOR JERSEY CITY NJ 07311 | 5.78% | Y |
46
Oppenheimer Rochester Minnesota
Municipal Fund
| Name | Address | % Owned | Share Class |
| Minnesota Municipal Fund | |||
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 28.41% | A |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 6.04% | A |
| NATIONAL FINANCIAL SERVICES LLC FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 5.65% | A |
| LPL FINANCIAL --OMNIBUS CUSTOMER ACCOUNT-- | ATTN: LINDSAY OTOOLE 4707 EXECUTIVE DRIVE SAN DIEGO CA 92121 | 5.60% | A |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 81.67% | B |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 12.79% | C |
| STIFEL NICOLAUS & CO INC EXCLUSIVE BENEFIT OF CUSTOMERS | 501 N BROADWAY ST LOUIS MO 63102 | 11.28% | C |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 8.21% | C |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 5.61% | C |
| LPL FINANCIAL --OMNIBUS CUSTOMER ACCOUNT-- | ATTN: LINDSAY OTOOLE 4707 EXECUTIVE DRIVE SAN DIEGO CA 92121 | 26.94% | Y |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 18.94% | Y |
| NATIONAL FINANCIAL SERVICES LLC FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 16.95% | Y |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 8.62% | Y |
| UBS WM USA OMNI ACCOUNT M/F | ATTN: DEPARTMENT MANAGER 499 WASHINGTON BLVD FL 9 JERSEY CITY NJ 07310-2055 | 7.18% | Y |
| MORGAN STANLEY & CO | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA II 3RD FLOOR JERSEY CITY NJ 07311 | 7.08% | Y |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 6.97% | Y |
Oppenheimer Rochester North
Carolina Municipal Fund
| Name | Address | % Owned | Share Class |
| North Carolina Municipal Fund | |||
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 22.41% | A |
| Name | Address | % Owned | Share Class |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 11.02% | A |
| NATIONAL FINANCIAL SERVICES LLC FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 8.94% | A |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 8.08% | A |
| LPL FINANCIAL --OMNIBUS CUSTOMER ACCOUNT-- | ATTN: LINDSAY OTOOLE 4707 EXECUTIVE DRIVE SAN DIEGO CA 92121 | 6.97% | A |
| MORGAN STANLEY DW | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA TWO 2ND FLOOR JERSEY CITY NJ 07311 | 6.89% | A |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 80.57% | B |
| JACQUELINE L SLOCKETT TOD-SUBJECT TO STA TOD RULES NC | 326 JOAN DR BEAR DE 19701-1348 | 5.26% | B |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 20.11% | C |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 19.22% | C |
| LPL FINANCIAL --OMNIBUS CUSTOMER ACCOUNT-- | ATTN: LINDSAY OTOOLE 4707 EXECUTIVE DRIVE SAN DIEGO CA 92121 | 17.04% | C |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 8.49% | C |
| MORGAN STANLEY DW | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA TWO 2ND FLOOR JERSEY CITY NJ 07311 | 8.07% | C |
| UBS WM USA (REGISTERED OWNER) OMNI ACCOUNT M/F | ATTN: DEPARTMENT MANAGER 499 WASHINGTON BLVD FL 9 JERSEY CITY NJ 07310-2055 | 21.94% | Y |
| UBS FINANCIAL SERVICES INC FBO (BENEFICIAL OWNER) CYNTHIA STRICKLAND GRAHAM | 175 WARWICK GREEN RD WINSTON SALEM NC 27104-1945 | 10.68% | Y |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 21.63% | Y |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 18.64% | Y |
| NATIONAL FINANCIAL SERVICES LLC (REGISTERED OWNER) FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 11.67% | Y |
| REGIONS BANK (BENEFICIAL OWNER) | 201 MILAN PKWY BIRMINGHAM AL 35211-6946 | 9.54% | Y |
| LPL FINANCIAL --OMNIBUS CUSTOMER ACCOUNT-- | ATTN: LINDSAY OTOOLE 4707 EXECUTIVE DRIVE SAN DIEGO CA 92121 | 8.59% | Y |
48
| Name | Address | % Owned | Share Class |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 8.00% | Y |
Oppenheimer Rochester Ohio
Municipal Fund
| Name | Address | % Owned | Share Class |
| Ohio Municipal Fund | |||
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 12.74% | A |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 11.73% | A |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 10.89% | A |
| NATIONAL FINANCIAL SERVICES LLC FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 7.20% | A |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 6.25% | A |
| LPL FINANCIAL --OMNIBUS CUSTOMER ACCOUNT-- | ATTN: LINDSAY OTOOLE 4707 EXECUTIVE DRIVE SAN DIEGO CA 92121 | 5.05% | A |
| GEORGE M KOLMAN TOD-SUBJECT TO STA TOD RULES OH | 3388 MCCARTNEY RD YOUNGSTOWN OH 44505-5002 | 22.30% | B |
| NATIONAL FINANCIAL SERVICES LLC (REGISTERED OWNER) FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 19.60% | B |
| CARL F BILLHARDT (BENEFICIAL OWNER) BARBARA J BILLHARDT | 7528 HOLLANDIA DR WESTERVILLE OH 43081-9319 | 8.36% | B |
| RICHARD KYLE JR (BENEFICIAL OWNER) DOROTHY KYLE | 478 SHADYDALE DR CANFIELD OH 44406 | 6.79% | B |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 12.43% | B |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 11.63% | B |
| LPL FINANCIAL --OMNIBUS CUSTOMER ACCOUNT-- | ATTN: LINDSAY OTOOLE 4707 EXECUTIVE DRIVE SAN DIEGO CA 92121 | 7.72% | B |
| MORGAN STANLEY & CO | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA II 3RD FLOOR JERSEY CITY NJ 07311 | 7.09% | B |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 7.05% | B |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 15.31% | C |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 10.28% | C |
| Name | Address | % Owned | Share Class |
| MORGAN STANLEY & CO | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA II 3RD FLOOR JERSEY CITY NJ 07311 | 9.23% | C |
| UBS WM USA OMNI ACCOUNT M/F | ATTN: DEPARTMENT MANAGER 499 WASHINGTON BLVD FL 9 JERSEY CITY NJ 07310-2055 | 7.55% | C |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 7.36% | C |
| NATIONAL FINANCIAL SERVICES LLC FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 7.09% | C |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 5.78% | C |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 27.94% | Y |
| UBS WM USA OMNI ACCOUNT M/F | ATTN: DEPARTMENT MANAGER 499 WASHINGTON BLVD FL 9 JERSEY CITY NJ 07310-2055 | 21.25% | Y |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 16.54% | Y |
| NATIONAL FINANCIAL SERVICES LLC (REGISTERED OWNER) FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 11.94% | Y |
| DONALD P KRAHEL TTEE (BENEFICIAL OWNER) DONALD P KRAHEL LIVING TRUST U/A 2/11/13 | 51986 WHITE PINE DR ST CLAIRSVILLE OH 43950 | 5.25% | Y |
| MORGAN STANLEY & CO | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA II 3RD FLOOR JERSEY CITY NJ 07311 | 5.43% | Y |
Oppenheimer Rochester Virginia
Municipal Fund
| Name | Address | % Owned | Share Class |
| Virginia Municipal Fund | |||
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 19.59% | A |
| NATIONAL FINANCIAL SERVICES LLC FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 13.77% | A |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 13.23% | A |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 9.37% | A |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 66.36% | B |
50
| Name | Address | % Owned | Share Class |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 11.72% | B |
| LPL FINANCIAL --OMNIBUS CUSTOMER ACCOUNT-- | ATTN: LINDSAY OTOOLE 4707 EXECUTIVE DRIVE SAN DIEGO CA 92121 | 5.90% | B |
| NATIONAL FINANCIAL SERVICES LLC FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 5.38% | B |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 13.84% | C |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 12.95% | C |
| NATIONAL FINANCIAL SERVICES LLC FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 12.72% | C |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 8.90% | C |
| MORGAN STANLEY & CO | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA II 3RD FLOOR JERSEY CITY NJ 07311 | 7.69% | C |
| EDWARD D JONES & CO FOR THE BENEFIT OF CUSTOMERS | 12555 MANCHESTER RD ST LOUIS MO 63131-3710 | 6.08% | C |
| STIFEL NICOLAUS & CO INC EXCLUSIVE BENEFIT OF CUSTOMERS | 501 N BROADWAY ST LOUIS MO 63102 | 5.45% | C |
| UBS WM USA OMNI ACCOUNT M/F | ATTN: DEPARTMENT MANAGER 499 WASHINGTON BLVD FL 9 JERSEY CITY NJ 07310-2055 | 5.05% | C |
| MLPF&S FOR THE SOLE BENEFIT OF ITS CUSTOMERS | ATTN FUND ADMN 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 | 26.88% | Y |
| NATIONAL FINANCIAL SERVICES LLC (REGISTERED OWNER) FOR EXCLUSIVE BEN OF CUSTOMERS | 200 LIBERTY STREET ONE WORLD FINANCIAL CENTER ATTN: MUTUAL FUNDS 5TH FLOOR NEW YORK NY 10281-1003 | 16.18% | Y |
| NEAL C NICHOLS TTEE (BENEFICIAL OWNER) NEAL C NICHOLS TRUST U/A 9/5/06 | 3251 WASHINGTON BLVD ARLINGTON VA 22201 | 6.87% | Y |
| FIRST CLEARING LLC SPECIAL CUSTODY ACCT FOR THE EXCLUSIVE BENEFIT OF CUSTOMER | 2801 MARKET STREET ST LOUIS MO 63103 | 14.69% | Y |
| MORGAN STANLEY & CO | ATTN MUTUAL FUNDS OPERATIONS HARBORSIDE FINANCIAL CENTER PLAZA II 3RD FLOOR JERSEY CITY NJ 07311 | 11.09% | Y |
| PERSHING LLC | 1 PERSHING PLAZA JERSEY CITY NJ 07399-0001 | 10.54% | Y |
| UBS WM USA OMNI ACCOUNT M/F | ATTN: DEPARTMENT MANAGER 499 WASHINGTON BLVD FL 9 JERSEY CITY NJ 07310-2055 | 6.50% | Y |
The Manager and the Sub-Adviser
The Manager is a wholly-owned
subsidiary of OppenheimerFunds, Inc., the Sub-Adviser. The Sub-Adviser 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, the Sub-Adviser 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 Sub-Adviser and the Distributor.
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.
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 has retained the
Sub-Adviser pursuant to a separate sub-advisory agreement, described below, under which the Sub-Adviser chooses the Fund’s investments and provides related advisory services to the Fund. Prior to January 1,
2013, OppenheimerFunds, Inc. was the Manager of the Fund.
The advisory 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 investment advisory agreement. The investment advisory agreement lists examples of expenses paid by the Fund. The major categories relate to interest, taxes, brokerage
commissions, fees to certain Board members, 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:
Oppenheimer Rochester Arizona
Municipal Fund
| Fiscal Year Ended 03/31 | Management Fees Paid to the Manager |
| 2014 | $412,474 |
| 2015 | $355,084 |
| 2016 | $265,283 |
Oppenheimer Rochester Maryland
Municipal Fund
| Fiscal Year Ended 03/31 | Management Fees Paid to the Manager |
| 2014 | $479,471 |
| 2015 | $364,256 |
| 2016 | $295,388 |
Oppenheimer Rochester Massachusetts
Municipal Fund
| Fiscal Year Ended 03/31 | Management Fees Paid to the Manager |
| 2014 | $400,245 |
| 2015 | $326,420 |
| 2016 | $299,117 |
52
Oppenheimer Rochester Michigan
Municipal Fund
| Fiscal Year Ended 03/31 | Management Fees Paid to the Manager |
| 2014 | $347,057 |
| 2015 | $277,426 |
| 2016 | $262,619 |
Oppenheimer Rochester Minnesota
Municipal Fund
| Fiscal Year Ended 03/31 | Management Fees Paid to the Manager |
| 2014 | $733,780 |
| 2015 | $684,093 |
| 2016 | $742,083 |
Oppenheimer Rochester North Carolina
Municipal Fund
| Fiscal Year Ended 03/31 | Management Fees Paid to the Manager |
| 2014 | $618,995 |
| 2015 | $481,647 |
| 2016 | $417,831 |
Oppenheimer Rochester Ohio Municipal
Fund
| Fiscal Year Ended 03/31 | Management Fees Paid to the Manager |
| 2014 | $444,192 |
| 2015 | $374,574 |
| 2016 | $397,011 |
Oppenheimer Rochester Virginia
Municipal Fund
| Fiscal Year Ended 03/31 | Management Fees Paid to the Manager |
| 2014 | $792,802 |
| 2015 | $680,055 |
| 2016 | $552,516 |
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 an 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.
The Sub-Advisory Agreement. Under the sub-advisory agreement between the Manager and the Sub-Adviser, the Sub-Adviser shall regularly provide investment advice with respect to the Fund and invest and reinvest cash,
securities, commodity interests and the property comprising the assets of the Fund. The Sub-Adviser selects securities and/or commodity interests for the Fund’s portfolio and provides related advisory services.
The portfolio manager(s) of the Fund is employed by the Sub-Adviser and is principally responsible for the provision of advisory services to the Fund’s portfolio. Other members of the Sub-Adviser’s
investment teams provide the portfolio manager(s) with counsel and support in managing the Fund’s portfolio.
Under the sub-advisory
agreement, the Manager pays the Sub-Adviser a percentage of the net investment advisory fee (after all applicable waivers) that it receives from the Fund as compensation for the provision of investment advisory
services. The fee paid to the Sub-Adviser under the sub-advisory agreement is paid by the Manager, not by the Fund.
The sub-advisory agreement
states that in the absence of willful misfeasance, bad faith, negligence or reckless disregard of its duties or obligations, the Sub-Adviser shall not be liable to the Manager for any act or omission in the course of
or connected with rendering services under the Sub-Advisory Agreement or for any losses that may be sustained in the purchase, holding or sale of any security.
Pending Litigation. In 2009, several putative class action lawsuits were filed and later consolidated before the U.S. District Court for the District of Colorado against OppenheimerFunds, Inc., the Sub-Adviser
(“OFI”), the Distributor and Oppenheimer Rochester California Municipal Fund, a fund advised by OFI Global Asset Management, Inc. and distributed by the Distributor (the “California Fund”) in
connection with the investment performance of the California Fund. The plaintiffs asserted claims against OFI, the Distributor and certain present and former trustees and officers of the California Fund under the
federal securities laws, alleging, among other things, that the disclosure documents of the California Fund contained misrepresentations and omissions and the investment policies of the California Fund were not
followed. Plaintiffs in the suit filed an amended complaint and defendants filed a motion to dismiss. In 2011, the court issued an order which granted in part and denied in part the defendants’ motion to
dismiss. In 2012, plaintiffs filed a motion, which defendants opposed, to certify a class and appoint class representatives and class counsel. In March 2015, the court granted plaintiffs’ motion for class
certification. In May 2015, the U.S. Court of Appeals for the Tenth Circuit vacated the class certification order and remanded the matter to the district court for further proceedings. In October 2015, the district
court reaffirmed its order and determined that the suit will proceed as a class action. In December 2015, the Tenth Circuit denied defendants’ petition to appeal the district court’s reaffirmed class
certification order.
OFI and the Distributor believe
the suit is without merit; that it is premature to render any opinion as to the likelihood of an outcome unfavorable to them in the suit; and that no estimate can yet be made as to the amount or range of any potential
loss. Furthermore, OFI believes that the suit should not impair the ability of OFI or OFDI to perform their respective duties to the Fund and that the outcome of the suit should not have any material effect on the
operations of any of the Oppenheimer funds.
| • | Other Accounts Managed. In addition to managing the Fund’s investment portfolio, the members of the portfolio management team also manage other investment portfolios and other accounts on behalf of the Manager or its affiliates. The following table provides information regarding those other portfolios and accounts as of March 31, 2016. |
| Portfolio Manager | Registered Investment Companies Managed1 | Total Assets in Registered Investment Companies Managed2 | Other Pooled Investment Vehicles Managed | Total Assets in Other Pooled Investment Vehicles Managed | Other Accounts Managed | Total Assets in Other Accounts Managed3,4 |
| Scott S. Cottier | 12 | $23.08 | 0 | $0 | 2 | $726.76 |
| Troy E. Willis | 12 | $23.08 | 0 | $0 | 2 | $726.76 |
| Mark R. DeMitry | 12 | $23.08 | 0 | $0 | 2 | $726.76 |
| Michael L. Camarella | 12 | $23.08 | 0 | $0 | 2 | $726.76 |
| Charles S. Pulire | 12 | $23.08 | 0 | $0 | 2 | $726.76 |
| Elizabeth S. Mossow | 12 | $23.08 | 0 | $0 | 2 | $726.76 |
| 1. | The Portfolio Managers manage 20 registered investment companies, including the 8 funds covered in this SAI. As of 3/31/16, those funds had the following total assets (in millions, approximate): AZ ($41.91), MD ($46.51), MA ($51.99), MI ($46.01), MN ($142.49), NC ($72.45), OH ($74.40), and VA ($89.48). |
| 2. | In billions. |
| 3. | In millions. |
| 4. | Does not include personal accounts of portfolio managers and their families, which are subject to the Code of Ethics. |
As indicated above, a portfolio
manager may also manage other funds and accounts. At different times, a portfolio manager may manage other funds or accounts with investment objectives and strategies similar to, or different from, those of the Fund.
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, a portfolio manager may need to allocate investment opportunities between the Fund and another fund or account having similar objectives or
strategies, or 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 Sub-Adviser have the
same management fee. If the management fee structure of another fund or account is more advantageous to the Sub-Adviser than the fee structure of the Fund, the Sub-Adviser could have an incentive to favor the other
fund or account. However, the Sub-Adviser’s compliance procedures and Code of Ethics recognize the Sub-Adviser’s obligation to treat all of its clients, including the Fund, fairly and equitably, and are
designed to preclude a portfolio manager 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 Portfolio
Managers. Portfolio managers are employed and compensated by the Sub-Adviser or an affiliate, not by the Fund. Under the compensation program for portfolio managers and portfolio analysts,
compensation is based primarily on the relative investment performance results of the funds or accounts they manage, rather than on the financial success of the Sub-Adviser. This is intended to align the interests of
the portfolio managers and analysts with the success of the funds and accounts of their shareholders. The compensation structure is designed to attract and retain highly qualified investment management professionals
and to reward individual and team contributions toward creating shareholder value. A portfolio manager’s compensation is not directly based on the total value of assets they manage;
54
however, higher total compensation potential is
likely to align with greater assets under management. The compensation structure is intended to be internally and externally equitable and serve to reduce potential conflicts of interest arising from a portfolio
manager’s responsibilities managing different funds or accounts.
Portfolio manager compensation
generally consists of three components: a base salary, an annual bonus, and eligibility to participate in long-term awards. In general, the average proportion of total compensation among these three components is as
follows: base salary is 15%, annual bonus is 65%, and long-term awards are 20%.
The base pay component for 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 bonus is calculated
based on two factors: a formulaic performance portion and a discretionary portion. In general, the formulaic performance portion is a much larger part of the annual bonus than the discretionary portion. The formulaic
performance portion of the annual bonus is measured against the one, three and five year performance, or performance since inception, as applicable, of the fund(s) relative to an appropriate Morningstar peer group
category selected by senior management. Performance is measured on a pre-tax basis. The compensation structure is weighted towards long-term performance of the funds, with one year performance weighted at 20%, three
year performance rated at 30%, and five year performance weighted at 50%. This formula has the effect of rewarding consistently above median performance, which best aligns the interests of the portfolio manager and
the shareholder. Below median performance in all three periods results in an extremely low, and in some cases no, formulaic performance based bonus.
The discretionary portion of the
annual bonus is determined by senior management of the Sub-Adviser and is based on a number of factors, including, management quality (such as style consistency, risk management, sector coverage, team leadership and
coaching), contributions to marketing efforts and organizational development.
Finally, the long-term award
component consists of grants in the form of appreciation rights in regard to the common stock of the Sub-Adviser’s holding company parent, restricted shares of such common stock, as well as deferred cash
investments in the fund(s) managed by a portfolio manager. Portfolio managers must elect to receive between 20% and 50% of their annual long-term award component in the form of a deferred cash award indexed to the
portfolio(s) and fund(s) managed. These awards settle in cash at the end of a three-year vesting period. Through this long-term award component, the interests of the portfolio managers are further aligned with those
of fund shareholders.
The compensation structure of
other funds and/or accounts managed by a portfolio manager, if any, is generally the same as the compensation structure described above. A portfolio manager’s compensation with regard to other portfolios may be
based on the performance of those portfolios compared to a peer group category that may be different from that described below.
The Morningstar peer group
categories with respect to the Funds are listed below.
| Fund Name and Portfolio Managers | Peer Group Category |
| Oppenheimer Rochester Arizona Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | Morningstar Muni Single State Long |
| Oppenheimer Rochester Maryland Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | Morningstar Muni Single State Long |
| Oppenheimer Rochester Massachusetts Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | Morningstar Muni Massachusetts |
| Oppenheimer Rochester Michigan Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | Morningstar Muni Single State Long |
| Oppenheimer Rochester Minnesota Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | Morningstar Muni Minnesota |
| Oppenheimer Rochester North Carolina Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | Morningstar Muni Single State Long |
| Oppenheimer Rochester Ohio Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | Morningstar Muni Ohio |
| Oppenheimer Rochester Virginia Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | Morningstar Muni Single State Long |
Ownership of Fund Shares. As of March 31, 2016, the Portfolio Manager(s) beneficially owned shares of the Fund as follows:
| Fund Name and Portfolio Managers | Range of Shares Beneficially Owned in Fund |
| Oppenheimer Rochester Arizona Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | None None None $1-$10,000 None None |
| Oppenheimer Rochester Maryland Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | None None None None None None |
| Oppenheimer Rochester Massachusetts Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | None None None None None None |
56
| Oppenheimer Rochester Michigan Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | None None None None None None |
| Oppenheimer Rochester Minnesota Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | None None None None None None |
| Oppenheimer Rochester North Carolina Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | None None $10,001-$50,000 None None None |
| Oppenheimer Rochester Ohio Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | None None $10,001-$50,000 None None None |
| Oppenheimer Rochester Virginia Municipal Fund Scott S. Cottier Troy E. Willis Mark R. DeMitry Michael L. Camarella Charles S. Pulire Elizabeth S. Mossow | None None None $10,001-$50,000 $10,001-$50,000 None |
Brokerage Policies of the Fund
Brokerage Provisions of the
Investment Advisory Agreement and the Sub-Advisory Agreement. One of the duties of the Sub-Adviser under the sub-advisory agreement is to arrange the portfolio transactions for the Fund. The sub-advisory agreement contains provisions relating to the
employment of broker-dealers for that purpose. The sub-advisory agreement authorizes the Sub-Adviser to employ broker-dealers, including “affiliated brokers,” as that term is defined in the Investment
Company Act, that the Sub-Adviser 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 such that the total costs or proceeds are 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 Sub-Adviser need not seek
competitive commission bidding. However, the Sub-Adviser 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 and sub-advisory agreements, in choosing brokers to execute portfolio
transactions for the Fund, the Manager and the Sub-Adviser 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 or the Sub-Adviser makes a good faith determination that the commission is fair and reasonable in relation to the services provided.
Brokerage Practices Followed by
the Sub-Adviser. The Sub-Adviser allocates brokerage for the Fund subject to the provisions of the sub-advisory agreement and other applicable rules and procedures described below.
The Sub-Adviser’s
portfolio managers directly place trades and allocate brokerage based upon their judgment as to the execution capability of the broker or dealer. The Sub-Adviser’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 Sub-Adviser 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
Sub-Adviser 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 Sub-Adviser tries to combine concurrent orders to purchase or sell the same security by more than one of the funds managed by the Sub-Adviser 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 and the Sub-Adviser have 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 Sub-Adviser’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, the Sub-Adviser and the Distributor from entering into agreements or understandings under which the Sub-Adviser 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 and
sub-advisory agreements permit the Manager and the Sub-Adviser 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 or Sub-Adviser 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 or Sub-Adviser in a non-research capacity (such as bookkeeping or other administrative functions), then only the percentage or component that
provides assistance to the Manager or Sub-Adviser in the investment decision making process may be paid in commission dollars.
Although the Manager and
Sub-Adviser currently do not do so, the Board may permit the Manager and Sub-Adviser to use stated commissions on secondary fixed-income agency trades to obtain research if the broker represents to the Manager or
Sub-Adviser 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 and Sub-Adviser 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 and Sub-Adviser. That research provides additional views and comparisons for consideration, and helps the Manager and Sub-Adviser 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 and Sub-Adviser provide information to the Board about the
commissions paid to brokers furnishing such services, together with the Manager’s and Sub-Adviser’s representation that the amount of such commissions was reasonably related to the value or benefit of such
services.
During the fiscal years ended
March 31, 2014, 2015 and 2016, none of the Funds covered in this SAI executed transactions or paid commissions to firms that provide research services, except for Oppenheimer Rochester Massachusetts Municipal Fund,
Oppenheimer Rochester Michigan Municipal Fund, Oppenheimer Rochester North Carolina Municipal Fund and Oppenheimer Rochester Ohio Municipal Fund which paid the following amounts:
58
Oppenheimer
Rochester Massachusetts Municipal Fund
| Fiscal Year ended 03/31 | Total Brokerage Commissions Paid by the Fund* |
| 2014 | $255 |
| 2015 | $173 |
| 2016 | $0 |
Oppenheimer Rochester Michigan
Municipal Fund
| Fiscal Year ended 03/31 | Total Brokerage Commissions Paid by the Fund* |
| 2014 | $7 |
| 2015 | $5 |
| 2016 | $0 |
Oppenheimer Rochester North
Carolina Municipal Fund
| Fiscal Year ended 03/31 | Total Brokerage Commissions Paid by the Fund* |
| 2014 | $55 |
| 2015 | $110 |
| 2016 | $0 |
Oppenheimer Rochester Ohio
Municipal Fund
| Fiscal Year ended 03/31 | Total Brokerage Commissions Paid by the Fund* |
| 2014 | $43 |
| 2015 | $29 |
| 2016 | $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.
Oppenheimer Rochester Arizona
Municipal Fund
| Class A Front-End Sales Charges | ||
| Fiscal Year Ended 03/31 | Aggregate Front-End Sales Charges on Class A Shares | Class A Front-End Sales Charges Retained by Distributor1 |
| 2014 | $200,196 | $20,759 |
| 2015 | $83,250 | $12,189 |
| 2016 | $50,046 | $14,537 |
| Concessions Advanced by Distributor | |||
| Fiscal Year Ended 03/31 | Concessions on Class A Shares Advanced by Distributor2 | Concessions on Class B Shares Advanced by Distributor2 | Concessions on Class C Shares Advanced by Distributor2 |
| 2014 | $63,040 | $0 | $18,141 |
| 2015 | $2,441 | $0 | $19,876 |
| 2016 | $3,623 | $0 | $8,094 |
| Contingent Deferred Sales Charges | |||
| Fiscal Year Ended 03/31 | 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 |
| 2014 | $6,266 | $12,614 | $6,210 |
| 2015 | $324 | $2,720 | $786 |
| 2016 | $1,962 | $1,524 | $1,236 |
Oppenheimer Rochester Maryland
Municipal Fund
| Class A Front-End Sales Charges | ||
| Fiscal Year Ended 03/31 | Aggregate Front-End Sales Charges on Class A Shares | Class A Front-End Sales Charges Retained by Distributor1 |
| 2014 | $100,005 | $14,196 |
| 2015 | $32,472 | $5,512 |
| 2016 | $10,279 | $1,722 |
| Concessions Advanced by Distributor | |||
| Fiscal Year Ended 03/31 | Concessions on Class A Shares Advanced by Distributor2 | Concessions on Class B Shares Advanced by Distributor2 | Concessions on Class C Shares Advanced by Distributor2 |
| 2014 | $1,991 | $0 | $35,181 |
| 2015 | $263 | $0 | $26,741 |
| 2016 | $0 | $0 | $10,298 |
| Contingent Deferred Sales Charges | |||
| Fiscal Year Ended 03/31 | 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 |
| 2014 | $2,209 | $4,792 | $11,225 |
| 2015 | $2,421 | $1,005 | $270 |
| 2016 | $0 | $2,940 | $3,717 |
Oppenheimer Rochester Massachusetts
Municipal Fund
| Class A Sales Charges | ||
| Fiscal Year Ended 03/31 | Aggregate Front-End Sales Charges on Class A Shares | Class A Front-End Sales Charges Retained by Distributor1 |
| 2014 | $95,560 | $16,720 |
| 2015 | $75,823 | $9,946 |
| 2016 | $46,510 | $6,665 |
| Concessions Advanced by Distributor | |||
| Fiscal Year Ended 03/31 | Concessions on Class A Shares Advanced by Distributor2 | Concessions on Class B Shares Advanced by Distributor2 | Concessions on Class C Shares Advanced by Distributor2 |
| 2014 | $11,250 | $0 | $18,102 |
| 2015 | $3,120 | $0 | $13,843 |
| 2016 | $0 | $0 | $10,556 |
60
| Contingent Deferred Sales Charges | |||
| Fiscal Year Ended 03/31 | 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 |
| 2014 | $195 | $4,874 | $9,981 |
| 2015 | $9,119 | $973 | $1,806 |
| 2016 | $0 | $664 | $1,554 |
Oppenheimer Rochester Michigan
Municipal Fund
| Class A Front-End Sales Charges | ||
| Fiscal Year Ended 03/31 | Aggregate Front-End Sales Charges on Class A Shares | Class A Front-End Sales Charges Retained by Distributor1 |
| 2014 | $157,188 | $22,623 |
| 2015 | $62,515 | $9,741 |
| 2016 | $49,435 | $7,242 |
| Concessions Advanced by Distributor | |||
| Fiscal Year Ended 03/31 | Concessions on Class A Shares Advanced by Distributor2 | Concessions on Class B Shares Advanced by Distributor2 | Concessions on Class C Shares Advanced by Distributor2 |
| 2014 | $11,327 | $0 | $19,256 |
| 2015 | $1,337 | $0 | $30,116 |
| 2016 | $1,477 | $0 | $23,258 |
| Contingent Deferred Sales Charges | |||
| Fiscal Year Ended 03/31 | 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 |
| 2014 | $316 | $18,816 | $8,512 |
| 2015 | $4,465 | $7,480 | $1,060 |
| 2016 | $105 | $3,186 | $1,594 |
Oppenheimer Rochester Minnesota
Municipal Fund
| Class A Front-End Sales Charges | ||
| Fiscal Year Ended 03/31 | Aggregate Front-End Sales Charges on Class A Shares | Class A Front-End Sales Charges Retained by Distributor1 |
| 2014 | $193,619 | $30,352 |
| 2015 | $116,528 | $19,317 |
| 2016 | $159,619 | $26,805 |
| Concessions Advanced by Distributor | |||
| Fiscal Year Ended 03/31 | Concessions on Class A Shares Advanced by Distributor2 | Concessions on Class B Shares Advanced by Distributor2 | Concessions on Class C Shares Advanced by Distributor2 |
| 2014 | $4,084 | $0 | $28,104 |
| 2015 | $14,316 | $0 | $46,325 |
| 2016 | $7,125 | $0 | $49,914 |
| Contingent Deferred Sales Charges | |||
| Fiscal Year Ended 03/31 | 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 |
| 2014 | $9,223 | $5,837 | $6,019 |
| 2015 | $869 | $3,961 | $1,706 |
| 2016 | $70 | $1,555 | $3,851 |
Oppenheimer Rochester North Carolina
Municipal Fund
| Class A Front-End Sales Charges | ||
| Fiscal Year Ended 03/31 | Aggregate Front-End Sales Charges on Class A Shares | Class A Front-End Sales Charges Retained by Distributor1 |
| 2014 | $131,758 | $20,136 |
| 2015 | $66,441 | $16,314 |
| 2016 | $46,573 | $8,290 |
| Concessions Advanced by Distributor | |||
| Fiscal Year Ended 03/31 | Concessions on Class A Shares Advanced by Distributor2 | Concessions on Class B Shares Advanced by Distributor2 | Concessions on Class C Shares Advanced by Distributor2 |
| 2014 | $947 | $0 | $21,384 |
| 2015 | $1,275 | $0 | $26,559 |
| 2016 | $1,200 | $0 | $12,546 |
| Contingent Deferred Sales Charges | |||
| Fiscal Year Ended 03/31 | 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 |
| 2014 | $0 | $13,249 | $4,312 |
| 2015 | $1,489 | $13,655 | $945 |
| 2016 | $0 | $1,319 | $1,552 |
Oppenheimer Rochester Ohio Municipal
Fund
| Class A Front-End Sales Charges | ||
| Fiscal Year Ended 03/31 | Aggregate Front-End Sales Charges on Class A Shares | Class A Front-End Sales Charges Retained by Distributor1 |
| 2014 | $103,274 | $52,128 |
| 2015 | $115,816 | $22,868 |
| 2016 | $155,455 | $21,442 |
| Concessions Advanced by Distributor | |||
| Fiscal Year Ended 03/31 | Concessions on Class A Shares Advanced by Distributor2 | Concessions on Class B Shares Advanced by Distributor2 | Concessions on Class C Shares Advanced by Distributor2 |
| 2014 | $538 | $0 | $18,069 |
| 2015 | $642 | $0 | $23,272 |
| 2016 | $9,923 | $0 | $19,490 |
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| Contingent Deferred Sales Charges | |||
| Fiscal Year Ended 03/31 | 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 |
| 2014 | $3,097 | $5,988 | $4,618 |
| 2015 | $7,500 | $3,104 | $3,030 |
| 2016 | $139 | $6,752 | $932 |
Oppenheimer Rochester Virginia
Municipal Fund
| Class A Front-End Sales Charges | ||
| Fiscal Year Ended 03/31 | Aggregate Front-End Sales Charges on Class A Shares | Class A Front-End Sales Charges Retained by Distributor1 |
| 2014 | $235,957 | $62,404 |
| 2015 | $150,609 | $22,115 |
| 2016 | $84,459 | $10,896 |
| Concessions Advanced by Distributor | |||
| Fiscal Year Ended 03/31 | Concessions on Class A Shares Advanced by Distributor2 | Concessions on Class B Shares Advanced by Distributor2 | Concessions on Class C Shares Advanced by Distributor2 |
| 2014 | $36,230 | $0 | $44,870 |
| 2015 | $18,143 | $0 | $39,995 |
| 2016 | $5,916 | $0 | $12,456 |
| Contingent Deferred Sales Charges | |||
| Fiscal Year Ended 03/31 | 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 |
| 2014 | $11,166 | $14,383 | $11,097 |
| 2015 | $8,204 | $19,288 | $5,945 |
| 2016 | $4,164 | $4,696 | $3,085 |
| 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. |
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 Sub-Adviser
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 Sub-Adviser 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/Directors 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/Directors 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/Directors 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.
While each plan is in effect,
the Independent Trustees/Directors of the Fund will select and nominate any other Independent Trustees/Directors. 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/Directors.
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/Directors 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. For Class A purchases with no front-end sales charge imposed due to the qualifying breakpoint, the Distributor normally
makes payments to recipients in advance for the first year after shares are purchased and then makes payments 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 its 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.
The table below shows the dollar
amount which was retained by the Distributor under the arrangement described above, regarding grandfathered retirement accounts, including money 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. For the fiscal year ended March 31, 2016 payments under the Class A service plan were as follows:
| Fund | Total Payments Under the Plan | Amount Retained by the Distributor1 |
| Oppenheimer Rochester Arizona Municipal Fund2 | $72,382 | $470 |
| Oppenheimer Rochester Maryland Municipal Fund3 | $57,858 | $0 |
| Oppenheimer Rochester Massachusetts Municipal Fund4 | $79,290 | $0 |
| Oppenheimer Rochester Michigan Municipal Fund5 | $70,036 | $72 |
| Oppenheimer Rochester Minnesota Municipal Fund6 | $204,603 | $425 |
| Oppenheimer Rochester North Carolina Municipal Fund7 | $99,230 | $0 |
| Oppenheimer Rochester Ohio Municipal Fund8 | $106,149 | $770 |
| Oppenheimer Rochester Virginia Municipal Fund9 | $150,361 | $947 |
1. Amounts were retained by the
Distributor under the arrangement described above regarding grandfathered retirement accounts.
2. Includes $316 paid to an affiliate
of the Distributor’s parent company.
3. Includes $32 paid to an affiliate
of the Distributor’s parent company.
4. Includes $1,766 paid to an
affiliate of the Distributor’s parent company.
5. Includes $437 paid to an affiliate
of the Distributor’s parent company.
6. Includes $1,937 paid to an
affiliate of the Distributor’s parent company.
7. Includes $1,067 paid to an
affiliate of the Distributor’s parent company.
8. Includes $1,819 paid to an
affiliate of the Distributor’s parent company.
9. Includes $9,561 paid to an
affiliate of the Distributor’s parent company.
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:
| • | pays sales concessions to authorized brokers and dealers at the time of sale or as an ongoing concession, |
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| • | pays the service fees in advance or periodically, as described below, |
| • | may finance payment of sales concessions or the advance of the service fee payments to recipients under the Plans, or may provide such financing from its own resources or from the resources of an affiliate, |
| • | employs personnel to support distribution of Class B and Class C shares, |
| • | bears the costs of sales literature, advertising and prospectuses (other than those furnished to current shareholders) and certain other distribution expenses, |
| • | may not be able to adequately compensate dealers that sell Class B and Class C shares without receiving payment under the Plans and therefore may not be able to offer such Classes for sale absent the Plans, |
| • | receives payments under the Plans consistent with the service and distribution fees paid by other non-proprietary funds that charge 12b-1 fees, |
| • | may use the payments under the Plan to include the Fund in various third-party distribution programs that might increase sales of Fund shares, |
| • | may experience increased difficulty selling the Fund’s shares if Plan payments were discontinued, because most competitor funds have plans that pay dealers as much or more for distribution services than the amounts currently being paid by the Fund, and |
| • | may not be able to continue providing the same quality of distribution efforts and services, or to obtain such services from brokers and dealers, if Plan payments were discontinued. |
Distribution fees on Class B
shares are generally retained by the Distributor. If a dealer has an 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 an 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 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 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% and increase the annual Class R expenses by 0.50% of net assets.
Oppenheimer Rochester Arizona Municipal Fund
| Distribution and Service Fees Paid to the Distributor for the Fiscal Year Ended 03/31/16 | |||||
| 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 | $13,827 | $10,443 | 0 | $38,795 | 3.86% |
| Class C Plan | $130,969 | $23,462 | $176 | $242,136 | 1.97% |
Oppenheimer Rochester Maryland
Municipal Fund
| Distribution and Service Fees Paid to the Distributor for the Fiscal Year Ended 03/31/16 | |||||
| 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 | $5,362 | $4,038 | $1 | $508 | 0.11% |
| Class C Plan | $265,623 | $20,949 | $913 | $469,649 | 2.15% |
Oppenheimer Rochester Massachusetts
Municipal Fund
| Distribution and Service Fees Paid to the Distributor for the Fiscal Year Ended 03/31/16 | |||||
| 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 | $6,348 | $4,792 | 0 | N/A | N/A |
| Class C Plan | $164,659 | $16,797 | $63 | $346,376 | 2.25% |
Oppenheimer Rochester Michigan
Municipal Fund
| Distribution and Service Fees Paid to the Distributor for the Fiscal Year Ended 03/31/16 | |||||
| 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 | $12,945 | $9,723 | 0 | $32,506 | 3.69% |
| Class C Plan | $170,279 | $38,912 | $239 | $362,577 | 2.16% |
Oppenheimer Rochester Minnesota
Municipal Fund
| Distribution and Service Fees Paid to the Distributor for the Fiscal Year Ended 03/31/16 | |||||
| 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 | $21,158 | $15,927 | 0 | $26,139 | 1.42% |
| Class C Plan | $343,827 | $65,728 | $170 | $531,992 | 1.41% |
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Oppenheimer Rochester North Carolina
Municipal Fund
| Distribution and Service Fees Paid to the Distributor for the Fiscal Year Ended 03/31/16 | |||||
| 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 | $7,768 | $5,873 | 0 | $14,886 | 2.99% |
| Class C Plan | $278,471 | $23,285 | $267 | $506,923 | 1.93% |
Oppenheimer Rochester Ohio Municipal
Fund
| Distribution and Service Fees Paid to the Distributor for the Fiscal Year Ended 03/31/16 | |||||
| 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 | $7,866 | $5,921 | 0 | N/A | N/A |
| Class C Plan | $194,234 | $27,472 | $6 | $423,078 | 2.14% |
Oppenheimer Rochester Virginia
Municipal Fund
| Distribution and Service Fees Paid to the Distributor for the Fiscal Year Ended 03/31/16 | |||||
| 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 | $25,990 | $19,690 | 0 | $37,301 | 2.40% |
| Class C Plan | $273,801 | $27,033 | $2,575 | $464,588 | 1.93% |
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 Financial
Intermediaries
Financial intermediaries may
receive various forms of compensation or reimbursement in the form of 12b-1 distribution and service plan payments as described in the preceding section. They may also receive payments or concessions from the
Distributor, derived from sales charges paid by the financial intermediary’s clients, also described in this SAI. In addition, the Sub-Adviser, the Transfer Agent, Sub-Transfer Agent and the Distributor may make
payments to broker-dealers, other financial intermediaries or to service providers for some or all of the following services: distribution, promotional and marketing support, operational and recordkeeping,
sub-accounting, networking and administrative services.
The types of financial
intermediaries that may receive compensation for providing such services include, but are not limited to, broker-dealers, financial advisors, registered investment advisers, sponsors of fund
“supermarkets,” sponsors of fee-based advisory or wrap fee-based programs, sponsors of college and retirement savings programs, banks, trust companies, retirement plan or qualified tuition program
administrators, third party administrators, financial intermediaries that offer products that hold Fund shares, and insurance companies that offer variable annuity or variable life insurance products.
Types of payments to financial
intermediaries may include, without limitation, all or portions of the following:
| 1. | Payments made by the Fund, or by an investor buying or selling shares of the Fund, including: |
| • | an initial front-end sales charge, all or a portion of which is payable by the Distributor to financial intermediaries (see the “More About Your Account” section in the Prospectus); and |
| • | ongoing asset-based distribution and/or service fees (described in the section “Distribution and Service Arrangements - Distribution and Service (12b-1) Plans” above). |
| 2. | Payments made by the Transfer Agent or Sub-Transfer Agent to financial intermediaries, to compensate or reimburse them for services provided, such as sub-transfer agency services for shareholders or retirement plan participants, omnibus accounting or sub-accounting, participation in networking arrangements, operational and recordkeeping |
| and other administrative services. These payments are made out of the Transfer Agent’s or Sub-Transfer Agent’s own resources and/or assets, including from the revenues or profits derived from the transfer agency fees the Transfer Agent receives from the Fund. |
Financial
intermediaries will not receive any transfer agent fees, operational and recordkeeping, networking or sub-accounting fees, administrative fees, 12b-1 fees, commission payments, or so called “finder’s
fees” for Class I shares.
| 3. | In addition, the Sub-Adviser or Distributor may, at their discretion, make the following types of payments from their own resources and/or assets, including from the revenues or profits derived from the advisory fees the Sub-Adviser receives from the Manager for sub-advisory services on behalf of the Fund. Payments are made based on the guidelines established by the Sub-Adviser and Distributor, subject to applicable law. These payments are often referred to as “revenue sharing” payments, and may include, but are not limited to: |
| • | compensation for marketing or promotional support, support provided in offering shares in the Fund or other Oppenheimer funds through certain trading platforms and programs, and other promotional or marketing services; and |
| • | other compensation, to the extent the payment is not prohibited by law or by any self-regulatory agency, such as FINRA. |
| 4. | The Distributor may also provide, accept and/or cover the cost of certain non-cash compensation items, subject to internal policies and applicable FINRA regulations. |
Although an intermediary that
sells 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, neither the Manager, the Sub-Adviser nor any advisory
affiliate considers 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:
| • | charges for setting up access for the Fund or other Oppenheimer funds on particular trading systems; |
| • | marketing, promotional support and program support, such as expenses related to including the Oppenheimer funds in retirement plans, college savings plans, fee-based advisory or wrap fee-based programs, fund “supermarkets,” bank or trust company products or insurance companies’ variable annuity or variable life insurance products; |
| • | placement on the dealer’s list of offered funds; |
| • | providing representatives of the Distributor with access to a financial intermediary’s sales meetings, sales representatives and management representatives; or |
| • | firm support, which may include, but is not limited to, business planning assistance, “due diligence” or training meetings, advertising, or educating a financial intermediary’s sales personnel about the Oppenheimer funds. |
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 Transfer Agent, Sub-Transfer Agent, Sub-Adviser or the Distributor and any services it provides, as well as the fees and commissions it
charges.
For the year ended December 31,
2015, 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 (of at least $5,000) from the Sub-Adviser or the Distributor for marketing or program support:
68
For the year ended
December 31, 2015, the following financial intermediaries and/or their affiliates (which in some cases are broker-dealers) received payments from the Transfer Agent or Sub-Transfer Agent (of at least $2,500) for
operational and recordkeeping, networking, sub-accounting or administrative services provided:
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, or “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 calculated based on the value of the Fund’s portfolio determined as of 4 p.m., Eastern time, on each day that the New York Stock Exchange (the
“NYSE”) is open, except in the case of a NYSE scheduled early closing, in which case the Fund will calculate the net asset value of each class of shares based on the value of the Fund’s portfolio
determined as of the NYSE scheduled early closing time (the “Valuation 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:
| • | Long-term debt securities having a remaining maturity of more than 60 days are valued based on the mean between the “bid” and “asked” prices determined by a portfolio pricing service approved by the Fund’s Board or obtained by the investment adviser from two active market makers in the security on the basis of reasonable inquiry. |
| • | The following securities are valued at the mean between the “bid” and “asked” prices determined by a pricing service approved by the Fund’s Board or obtained by the investment adviser from two active market makers in the security on the basis of reasonable inquiry: |
| 1. | debt instruments that have a maturity of more than 397 days when issued, |
| 2. | debt instruments that had a maturity of 397 days or less when issued and have a remaining maturity of more than 60 days, and |
| 3. | non-money market debt instruments that had a maturity of 397 days or less when issued and which have a remaining maturity of 60 days or less. |
| • | The following securities are valued at cost, adjusted for amortization of premiums and accretion of discounts: |
| 1. | money market debt securities held by a non-money market fund that had a maturity of less than 397 days when issued and that have a remaining maturity of 60 days or less, and |
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| 2. | debt instruments held by a money market fund that have a remaining maturity of 397 days or less. |
| • | Securities not having readily-available market quotations are valued at fair value determined under the Board’s procedures. If the Sub-Adviser is unable to locate two market makers willing to give quotes, a security may be priced at the mean between the “bid” and “asked” prices provided by a single active market maker, or the “bid” price if no “asked” price is available. |
In the case of municipal
securities the Sub-Adviser uses pricing services who 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 Sub-Adviser 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.
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 allocated 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:
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 each class of shares and the dividends payable on each class of shares will be reduced by incremental expenses borne solely by that class. Those expenses include the asset-based sales charges to
which some share classes 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 of the Oppenheimer funds normally are sold subject to an initial sales charge (except Oppenheimer Cash Reserves, Oppenheimer Institutional Money
Market Fund, Oppenheimer Money Market Fund and Oppenheimer Ultra-Short Duration Fund). The purpose of the deferred sales charge and asset-based sales charge that are applicable to some other share classes is the same
as that of the initial sales charge on Class A shares of many of the Oppenheimer funds—to compensate the Distributor and brokers, dealers and financial institutions that sell shares of those funds. A salesperson
who is entitled to receive compensation from his or her firm for selling shares of the Oppenheimer funds may receive different levels of compensation for selling one class of shares rather than another.
Class B shares are no
longer offered for new purchases. See the Prospectus section “More About Your Account” for details.
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, or when a financial intermediary has entered into an agreement with the Distributor and has been approved by the Distributor to offer shares to self-directed brokerage accounts
that may or may not charge transaction fees to customers. 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 most Oppenheimer funds (including the Fund) or Class A, Class B, Class C, Class G and Class H units of advisor sold college savings programs, for which an affiliate of 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
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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 That Apply to Letters of Intent” 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 college savings program 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 R, Class Y or Class I 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 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 subsequent eligible purchases
during the Letter period cause the amount of total eligible purchases to 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 on those subsequent purchases will be charged at the lower rate as permitted under the Fund’s Right of Accumulation policy.
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 “The Oppenheimer Exchange Privilege”), 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.
Class B Conversion. Under current interpretations of applicable federal income tax law by the Internal Revenue Service (the “IRS”), the conversion of Class B shares to Class A shares is not
treated as a taxable event for the shareholder. If those laws or the IRS’ interpretation of those laws should change, the automatic conversion feature may be suspended. In that event, no further conversions of
Class B shares would occur while that suspension remained in effect. Although Class B shares could then be exchanged for Class A shares on the basis of relative net asset value of the two classes,
without the imposition of a sales charge or
fee, such exchange could constitute a taxable event for the shareholder, and absent such exchange, Class B shares might continue to be subject to the asset-based sales charge for longer than six years.
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 Valuation Time. If the Distributor is instructed to initiate the ACH transfer after the Valuation Time, 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 next regular business day after the purchase date. 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.
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. 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 register for online access to your account(s) through the website at www.oppenheimerfunds.com, or call
1.888.470.0862 for information and instructions. Once registered, you can select your preferences for electronic document delivery of account documents.
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 Valuation Time.
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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. A
redemption in kind may result in a taxable gain or loss to a shareholder, based on the value of the securities received, to the same extent as a redemption for cash. Additional taxable gain or loss may be realized
upon a later sale or disposition of such securities.
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 or Class C 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 Account Balance. The minimum account balance is $500.
Involuntary Redemptions. The Fund has the right to redeem shares held in any account with a value of less than $500. If the Fund exercises this right, a minimum of 30 days notice will be provided. Alternatively,
the Transfer Agent may set requirements for shareholders so that the shares would not be involuntarily redeemed.
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 the minimum balance policies in its discretion.
Reinvestment Privilege. Within three months after redeeming Class A or Class B shares, a shareholder may reinvest all or part of the redemption proceeds in Class A shares without a sales charge if:
| • | An initial sales charge was paid on the redeemed Class A shares or a Class A CDSC was paid when the shares were redeemed; or |
| • | The Class B CDSC was paid on the redeemed Class B shares. |
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 any other
share class 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, in certain
circumstances, 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) 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. 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
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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. If shares acquired by exchange are later redeemed within the CDSC holding period applicable to those acquired shares, the CDSC applicable to the share class of the Oppenheimer fund you are
exchanging into will apply to the acquired shares, except in the case of Class R shares of an Oppenheimer fund purchased prior to July 1, 2014 that are subject to a contingent deferred sales charge, in which case the
contingent deferred sales charge applicable to the shares of the Oppenheimer fund you exchange from will continue to apply. This includes the redemption of shares of Oppenheimer Cash Reserves and Oppenheimer Money
Market Fund that were acquired by exchange.
When shares that are subject to
a CDSC are exchanged, the priorities for the imposition of the CDSC described in “About Your Account” 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 any remaining shares.
For circumstances in which a
CDSC on shares acquired by exchange may be waived, see Appendix A “Special Sales Charge Arrangements and Waivers.”
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 “The Oppenheimer Exchange Privilege” section 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 Valuation Time
(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 and/or the Sub-Adviser 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.
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 and Class Y shares because of the effect of the asset-based sales charge on Class B and Class C shares. 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 Oppenheimer 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. 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, local and non-U.S. 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 intends to qualify each year 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 would (unless certain cure provisions apply) be treated for tax purposes as an ordinary corporation and would 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
78
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 “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 U.S.
government securities, securities of other RICs, securities of other issuers (“Other Issuers”) 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, including through corporations in which the Fund owns a 20% or greater stock interest, in (1) the securities of any one
issuer (other than U.S. government securities and the securities of other RICs), (2) the securities of two or more issuers (other than the securities of other RICs) 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 over its net long-term capital loss.
Failure to Qualify. If the Fund failed to qualify as a RIC, it would (unless certain cure provisions apply) then be unable to deduct from its taxable income the dividend distributions made
to its shareholders and therefore those amounts would be subject to a Fund-level corporate income tax. In addition, the Fund would not be able to characterize the distributions made to its shareholders as anything
other than ordinary corporate distributions. To the extent the Fund had “earnings and profits” (as determined for tax purposes), distributions to its shareholders would be taxable as ordinary dividend
income. In the case of individuals, those distributions might qualify for the maximum 15% or 20% tax rate on qualified dividend income and, in the case of corporations, they might qualify for the dividends-received
deduction.
As discussed above, the Fund
needs to satisfy certain requirements relating to the source of its income, diversification of assets, and distribution of income, in order to qualify for favorable U.S. federal tax treatment as a RIC. If the Fund
enters into derivative financial instruments or similar transactions, it will consider the requirements for qualification as a RIC, the expected tax treatment of such transactions, as well as the applicable regulatory
rules and authorities. However, there may be no direct authority specifically addressing the application of the rules applicable to RICs to certain potential derivative financial instrument activities, including for
instance securities lending activities, that may be entered into by the Fund. As a result, in certain cases, the tax treatment of an activity entered into by the Fund may be uncertain and there can be no assurance
that the tax authorities in question or a court of law, will agree with the Fund’s characterization of a transaction in applying the qualification requirements for tax treatment as a RIC, or with respect to the
recognition of income, deductions, gain, or loss, or any liability for taxes arising from such transaction.
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) 98.2% 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 and/or OFI 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 shareholder total returns from the Fund.
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 by 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,
or one of the other Oppenheimer funds, 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 reported as “exempt-interest dividends” in a written notice sent by the Fund to its shareholders 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 determined 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 generally will be treated as ordinary income to the shareholder:
| • | income from certain taxable investments (such as certificates of deposit, repurchase agreements, commercial paper and obligations of the U.S. government, or its agencies and instrumentalities) or from bonds or other debt obligations; |
| • | income from loans of portfolio securities; |
| • | income or gains from certain options or futures; |
| • | any net short-term capital gain; |
| • | any market discount accrual on tax-exempt bonds; and |
| • | certain foreign currency gains. |
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 reported will be taxable to the Fund’s shareholders as long-term capital gain. The amount of distributions reported 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 all
or a portion of its net capital gain for a taxable year, the Fund will be subject to tax on such gain at the highest corporate tax rate. If the Fund so elects, 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 that portion of the gain as long-term capital gain, will be able to claim that portion of 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.
80
3.8% Medicare
Tax. An additional 3.8% tax applies to certain net investment income (including ordinary dividends and capital gain distributions received from the Fund and net gains from redemptions or other
taxable dispositions of Fund shares) of U.S. individuals, estates and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross
income” (in the case of an estate or trust) exceeds a threshold amount.
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 after the end of each calendar 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 generally 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 unless the Fund declares exempt-interest dividends daily in an amount equal to at least 90% of its net tax-exempt interest and pays such
dividends at least monthly. If a shareholder exercises the exchange privilege within 90 days after acquiring Fund shares, and no later than January 31 of the following calendar year, in certain circumstances, any loss
that the shareholder recognizes on the exchange will be reduced, or any gain will be increased, to the extent that any 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. A “foreign shareholder” includes, but is 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 (using the applicable IRS Form W-8), 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 shareholder’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.
Properly reported dividends will
generally be 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 report 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 a financial intermediary, the intermediary may withhold even if the Fund reports 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 and the possible applicability of U.S. estate tax.
Under legislation known as
“FATCA” (the Foreign Account Tax Compliance Act), ordinary dividends the Fund pays and, after December 31, 2018, the gross proceeds of share redemptions and certain capital gains dividends it pays to
“foreign financial institutions” and certain other foreign entities will be subject to U.S. withholding tax at a rate of 30% unless various certification, information reporting, due diligence and other
applicable requirements (different from, and in addition to, those described above) are satisfied. In general, no such withholding will occur with respect to a U.S. person or non-U.S. individual that timely provides
the Fund with a valid IRS Form W-9 or IRS Form W-8BEN, respectively. No such withholding will occur with respect to a non-U.S. entity that timely provides the Fund with a valid IRS Form W-8BEN-E (or other applicable
Form W-8) indicating the entity’s compliance with, or exemption from, FATCA. Payments that are taken into account as effectively connected income are not subject to these withholding rules. Foreign shareholders
should consult their own tax advisors as to the applicability and consequences of this legislation to them.
Tax Shelter and Other Reporting
Requirements. If a shareholder realizes a loss on the disposition of Fund shares of at least $2 million in any single taxable year or $4 million in any combination of taxable years (for an individual
shareholder); or at least $10 million in any single taxable year or $20 million in any combination of taxable years (for a corporate shareholder), the shareholder must file with the IRS a disclosure statement on Form
8886. Shareholders should consult their tax advisers to determine the applicability of this requirement in light of their individual circumstances. Some states may similarly require such transactions to be reported
separately with the appropriate state taxing authorities.
Additional Information About the
Funds
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
Sub-Adviser that acts as the Fund’s Distributor. The Distributor also distributes shares of the other Oppenheimer funds.
The Transfer Agent. OFI Global Asset Management, Inc. is the Fund’s Transfer Agent. It serves as the Transfer Agent for a fee based on annual net assets. Shareholder Services, Inc., an affiliate of the
Transfer Agent, doing business as OppenheimerFunds Services, is the Fund’s Sub-Transfer Agent. OppenheimerFunds Services 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 also acts as shareholder servicing agent for the other Oppenheimer
funds. Shareholders should direct inquiries about their accounts to OppenheimerFunds Services at the address and toll-free numbers shown on the back cover.
Under the Sub-Transfer Agency
Agreement, the Transfer Agent pays the Sub-Transfer Agent an annual fee in monthly installments, equal to a percentage of the transfer agent fee collected by the Transfer Agent from the Fund, which shall be calculated
after any applicable fee waivers. The fee paid to the Sub-Transfer Agent is paid by the Transfer Agent, not by the Fund.
The Custodian. Citibank, N.A. is the custodian of the Fund’s cash balances and portfolio securities, except affiliated mutual fund shares. 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 Sub-Transfer Agent records the Fund’s positions in affiliated mutual fund shares that may be held by the Fund.
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, the Sub-Adviser 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.
82
Appendix A
Special Sales Charge Arrangements and Waivers
In certain cases, the initial
sales charge that applies to purchases of Class A shares of the Oppenheimer funds or the contingent deferred sales charge (“CDSC”) that may apply to Class A, Class B, Class C or Class R shares may be
waived. Not all Oppenheimer funds offer all of the share classes described and not all waivers apply to all Oppenheimer funds.
The interpretation of these
provisions as to the applicability of an agreement or waiver in a particular case is in the sole discretion of the Distributor or the transfer agent (referred to in this document as the “Transfer Agent”)
of the particular Oppenheimer fund. These waivers and special arrangements may be amended or terminated at any time by a particular fund, the Distributor, OFI Global Asset Management, Inc., and/or OppenheimerFunds,
Inc. (referred to in this Appendix as the “Manager”).
Waivers that apply at the time
shares are redeemed must be requested by the shareholder and/or dealer in the redemption request.
I. Applicability of Class A Contingent Deferred Sales Charges and Concession Payments in Certain Cases
Class A shares acquired by
conversion from another share class are not considered a “purchase” for any purpose.
There is no initial sales charge
on purchases of Class A shares of any of the Oppenheimer funds in the cases listed below. However, these purchases are subject to the Class A CDSC if redeemed within 18 months (12 months in the case of shares of
Oppenheimer Rochester Short Term Municipal Fund), as described in the Prospectus (unless a waiver described elsewhere in this Appendix applies to the redemption). Additionally, on shares purchased under these waivers
that are subject to the Class A CDSC, the Distributor will pay the applicable concession described in the Prospectus under “Class A Contingent Deferred Sales Charge.”1 This waiver provision applies to:
| • | Purchases of Class A shares aggregating $1 million or more ($500,000 or more for certain Funds). |
| • | Purchases in an OppenheimerFunds-sponsored Rollover IRA held directly with the Transfer Agent, if the purchases are made: |
| 1. | through a broker, dealer, bank or registered investment adviser that has an agreement with the Distributor for those purchases, or |
| 2. | by a direct rollover of a distribution from a qualified retirement plan if the administrator of that plan has an agreement with the Distributor for those purchases. |
| • | Purchases of Class A shares by retirement plans that have any of the following record-keeping arrangements: |
| 1. | The record keeping is performed by Merrill Lynch Pierce Fenner & Smith, Inc. (“Merrill Lynch”) on a daily valuation basis for the retirement plan. On the date the plan sponsor signs the record-keeping service agreement with Merrill Lynch, the Plan must have $3 million or more of its assets invested in (a) mutual funds, other than those advised or managed by Merrill Lynch Investment Management, L.P. (“MLIM”), that are made available under a Service Agreement between Merrill Lynch and the mutual fund’s principal underwriter or distributor, and (b) funds advised or managed by MLIM (the funds described in (a) and (b) are referred to as “Applicable Investments”). |
| 2. | The record keeping for the retirement plan is performed on a daily valuation basis by a record keeper whose services are provided under a contract or arrangement between the Retirement Plan and Merrill Lynch. On the date the plan sponsor signs the record keeping service agreement with Merrill Lynch, the plan must have $5 million or more of its assets (excluding assets invested in money market funds) invested in Applicable Investments. |
| 3. | The record keeping for a retirement plan is handled under a service agreement with Merrill Lynch and on the date of the plan sponsor signs that agreement, the plan has 500 or more eligible employees (as determined by the Merrill Lynch plan conversion manager). |
II. Waivers of Class A Sales Charges
A. Waivers of the Class A Initial
and Contingent Deferred Sales Charges for Certain Purchasers and Transactions.
Class A shares purchased in
certain circumstances described below are not subject to Class A sales charges (and no concessions are paid by the Distributor on such purchases):
| • | Purchases by the Manager or its affiliates. |
| • | Subject to the requirement to receive Fund documents electronically through eDocs Direct, purchases by present or former officers, directors, trustees and employees (and their “immediate families”) of the Fund, the Manager and its affiliates, and retirement plans established by them for their employees. The term “immediate family” refers to one’s spouse, children, grandchildren, grandparents, parents, parents in law, brothers and sisters, sons and daughters in law, a sibling’s spouse, a spouse’s siblings, aunts, uncles, nieces and nephews; relatives by virtue of a remarriage (step-children, step-parents, etc.) are included. Paper copies of Fund documents are available, free of charge, upon request. |
| • | Purchases by employees and registered representatives (and their spouses) of financial intermediaries that have entered into a sales agreement with the Distributor. The purchaser must certify to the Distributor at the time of purchase that the purchase is for the purchaser’s own account (or for the benefit of such employee’s spouse or minor children).2 |
| • | Purchases by separate accounts of insurance companies having an agreement with the Manager or the Distributor for that purpose. |
| • | Purchases by dealers, broker, banks, registered investment advisers and other financial intermediaries that have entered into an agreement with the Distributor to offer the Fund on an advisory fee or wrap fee-based platform. |
| • | Purchases by unit investment trusts that have entered into an agreement with the Distributor. |
| • | Purchases by financial intermediaries that have entered into an agreement with the Distributor to sell shares to retirement plans and accounts and deferred compensation plans for which the financial intermediary provides administration services. |
| • | Purchases by group omnibus retirement plans under section 401(a), 401(k), 403(b) and 457 of the Internal Revenue Code. |
| • | Purchases by taxable accounts held directly with the Transfer Agent that are established with the proceeds of Required Minimum Distributions from retirement plans and accounts. |
| • | Rollover purchases in an OppenheimerFunds-sponsored IRA held directly with the Transfer Agent made with the proceeds of a retirement plan distribution that was previously invested in an Oppenheimer fund. |
| • | Purchases by former shareholders of Atlas Strategic Income Fund for any Oppenheimer fund into which shareholders of Oppenheimer Global Strategic Income Fund may exchange.2 |
| • | Purchases by former shareholders of Oppenheimer Total Return Fund Periodic Investment Plan for any Oppenheimer fund into which shareholders of Oppenheimer Equity Fund may exchange.2 |
| • | Purchases within retirement plans that were converted to Class A shares from Class B shares on July 1, 2011.2 |
| • | Purchases made by clients of financial intermediaries who have entered into an agreement with the Distributor and have been approved by the Distributor to offer Class A shares to self-directed brokerage accounts that may or may not charge transaction fees to customers. |
B. Waivers of the Class A Initial
and Contingent Deferred Sales Charges in Certain Transactions.
Class A shares issued or
purchased in the following transactions are not subject to sales charges (and no concessions are paid by the Distributor on such purchases):
| • | Shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the Fund is a party. |
| • | Shares purchased by the reinvestment of dividends or other distributions reinvested from the Fund or other Oppenheimer funds. |
| • | Shares purchased by the reinvestment of loan repayments by a participant in a retirement plan.3 |
| • | Shares purchased in amounts of less than $5 for accounts held directly with the Transfer Agent. |
C. Waivers of the Class A
Contingent Deferred Sales Charge for Certain Redemptions.
The Class A CDSC is also waived
if shares that would otherwise be subject to the CDSC are redeemed in the following cases:
| • | Involuntary redemptions of small accounts (please refer to “Minimum Account Balance,” in the applicable fund Prospectus). |
| • | For distributions from retirement plans and accounts, deferred compensation plans or other employee benefit plans for any of the following reasons, as applicable: |
| 1. | Following the death or disability (as defined in the Internal Revenue Code) of the participant or beneficiary. The death or disability must occur after the participant’s account was established in an Oppenheimer fund. |
| 2. | To return excess contributions. |
| 3. | To return contributions made due to a mistake of fact. |
| 4. | To make hardship withdrawals, as defined in the plan.4 |
| 5. | To make distributions required under a Qualified Domestic Relations Order, or, in the case of an IRA, a divorce or separation agreement described in Section 71(b) of the Internal Revenue Code. |
| 6. | To meet the minimum distribution requirements of the Internal Revenue Code. |
| 7. | To make “substantially equal periodic payments” as described in Section 72(t) of the Internal Revenue Code. |
| 8. | For loans to participants or beneficiaries. |
| 9. | On account of the participant’s separation from service.5 |
| 10. | Participant-directed redemptions to purchase shares of a mutual fund (other than a fund managed by the Manager or a subsidiary of the Manager) if the plan has made an agreement with the Distributor. |
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| 11. | Distributions made on account of a plan termination or “in-service” distributions, if the redemption proceeds are rolled over directly to an OppenheimerFunds-sponsored IRA held directly with the Transfer Agent.6 |
| 12. | Distributions from a participant’s account under an Automatic Withdrawal Plan after the participant reaches aged 59½, as long as the aggregate value of the distributions does not exceed 12% of the account’s value annually. |
| • | Redemptions of shares under an Automatic Withdrawal Plan for an account (other than a retirement plan) if the aggregate value of the redeemed shares does not exceed 12% of the account’s value annually. |
| • | Distributions from retirement plans which are part of a retirement plan product or platform offered by certain banks, broker-dealers, financial advisors, insurance companies or record keepers which have entered into an agreement with the Distributor. |
| • | At the sole discretion of the Distributor, the CDSC may be waived for redemptions of shares requested by the shareholder of record for accounts held directly with the Transfer Agent within 60 days following the termination by the Distributor of the selling agreement between the Distributor and the shareholder of record’s broker-dealer of record for the account. |
III. Waivers of Class B, Class C and Class R Sales Charges
The Class B, Class C and Class R
CDSCs will be waived for redemptions of shares in the following cases. Class C or Class R shares acquired by conversion from another share class are not considered a “purchase” for any purpose.
| • | Involuntary redemptions of small accounts (please refer to “Minimum Account Balance,” in the applicable fund Prospectus). |
| • | Redemptions from accounts other than retirement plans following the death or disability of the last surviving shareholder or sole beneficiary of a Trust. The death or disability must have occurred after the account was established, and for disability you must provide evidence of a determination of disability by the Internal Revenue Code. |
| • | At the sole discretion of the Distributor, the CDSC may be waived for redemptions of shares requested by the shareholder of record for accounts held directly with the Transfer Agent within 60 days following the termination by the Distributor of the selling agreement between the Distributor and the shareholder of record’s broker-dealer of record for the account. |
| • | Redemptions of Class B shares held by retirement plans whose records are maintained on a daily valuation basis by Merrill Lynch or an independent record keeper under a contract with Merrill Lynch. |
| • | Redemptions of Class B shares purchased after June 30, 2008 by OppenheimerFunds Single K plans held directly with the Transfer Agent. |
| • | Redemptions of Class C shares of an Oppenheimer fund, requested in writing by a retirement plan sponsor and submitted more than 12 months after the retirement plan’s first purchase of Class C shares, if the redemption proceeds are invested to purchase Class R shares of one or more Oppenheimer funds. |
| • | Distributions from retirement plans and accounts, deferred compensation plans or other employee benefit plans for any of the following reasons, as applicable: |
| 1. | Following the death or disability (as defined in the Internal Revenue Code) of the participant or beneficiary. The death or disability must occur after the participant’s account was established in an Oppenheimer fund. |
| 2. | To return excess contributions. |
| 3. | To return contributions made due to a mistake of fact. |
| 4. | To make hardship withdrawals, as defined in the plan.4 |
| 5. | To make distributions required under a Qualified Domestic Relations Order or, in the case of an IRA, a divorce or separation agreement described in Section 71(b) of the Internal Revenue Code. |
| 6. | To meet the minimum distribution requirements of the Internal Revenue Code. |
| 7. | To make “substantially equal periodic payments” as described in Section 72(t) of the Internal Revenue Code. |
| 8. | For loans to participants or beneficiaries.3 |
| 9. | On account of the participant’s separation from service.5 |
| 10. | Participant-directed redemptions to purchase shares of a mutual fund (other than a fund managed by the Manager or a subsidiary of the Manager) offered as an investment option in a retirement plan if the plan has an agreement with the Distributor. |
| 11. | Distributions made on account of a plan termination or “in-service” distributions, if the redemption proceeds are rolled over directly to an OppenheimerFunds-sponsored IRA held directly with the Transfer Agent.6 |
| 12. | For distributions from a participant’s account under an Automatic Withdrawal Plan after the participant reaches age 59½, as long as the aggregate value of the distributions does not exceed 10% of the account’s value annually. |
| 13. | For distributions from 401(k) plans sponsored by broker-dealers that have entered into an agreement with the Distributor allowing this waiver. |
| • | Redemptions of Class B shares or Class C shares under an Automatic Withdrawal Plan from an account other than a retirement plan if the aggregate value of the redeemed shares does not exceed 10% of the account’s value annually. |
| • | Redemptions of shares sold to the Manager or its affiliates. |
| • | Redemptions of shares sold to registered management investment companies or separate accounts of insurance companies having an agreement with the Manager or the Distributor for that purpose. |
| • | Redemptions of shares sold to present or former officers, directors, trustees or employees (and their “immediate families” as defined above) of the Fund, the Manager and its affiliates and retirement plans established by them for their employees. |
| • | Redemptions of shares issued in plans of reorganization to which the Fund is a party. |
Footnotes to Appendix A:
| 1. | However, that concession will not be paid on purchases of shares in amounts of $1 million or more (including any right of accumulation) by a retirement plan that pays for the purchase with the redemption proceeds of Class C shares of one or more Oppenheimer funds held by the Plan for more than one year. |
| 2. | The availability of this Class A shares sales charge waiver may depend upon the policies, procedures and trading platforms of your financial intermediary; consult your financial adviser. |
| 3. | This provision does not apply to loans from OppenheimerFunds-sponsored 403(b)(7) custodial plans or from OppenheimerFunds Single K plans. |
| 4. | This provision does not apply to IRAs. |
| 5. | This provision only applies to qualified retirement plans and 403(b)(7) custodial plans after separation from service in or after the year age 55 is attained. |
| 6. | The distribution must be requested prior to plan termination or the elimination of the Oppenheimer funds as an investment option under the plan. |
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Appendix B
Special Considerations Relating to
State Municipal Obligations and U.S. Territories, Commonwealths and Possessions. As explained in each Fund’s Prospectus, the Funds’ investments are highly sensitive to the fiscal stability of the jurisdictions in which the Funds principally invest,
including the subdivisions, agencies, instrumentalities or authorities of those jurisdictions that issue municipal securities contained in the Funds’ portfolios. Because each Fund invests primarily in securities
issued by a single state or entities within a single state, an investment in a Fund may involve greater risk than investments in certain other types of municipal bond funds. You should consider carefully the special
risks inherent in each Fund’s investments in municipal securities.
The Funds also invest 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 state personal income tax. Therefore, each Fund’s investments could be affected by the fiscal stability of, for example, Puerto Rico, Guam, the U.S. Virgin Islands, or the Northern
Mariana Islands. Additionally, a Fund’s investments could be affected by economic, legislative, regulatory or political developments affecting issuers in those territories, commonwealths or possessions.
The following information
represents a summary of the risks associated with the concentration of a Fund’s investments in the municipal securities of these jurisdictions. This information is intended to supplement the information
contained in each Fund’s Prospectus, and does not purport to be a complete analysis of every risk factor that may affect the obligations of the issuers of these municipal securities.
The following information is
based on publicly available reports prepared by officials of each jurisdiction’s government or their designees. The information is also be based on official statements and other offering documents relating to
securities issued by or on behalf of these jurisdictions, their agencies, instrumentalities and political subdivisions, as available on the date of this Statement of Additional Information. Although this information
is generally compiled from government resources, the Funds do not make any representation as to the accuracy of the information contained herein. Municipal bond issuers may not be subject to the same disclosure
obligations as other bond issuers, which may impact the reliability of the information provided by municipal issuers that is used to determine fund investments and can potentially make investments in municipal
securities riskier than other investment. The Funds have not independently verified this information and the Funds do not have any obligation to update this information throughout the year.
In addition, this information is
subject to change rapidly, substantially and without notice. Such changes may negatively impact the fiscal condition of the jurisdictions in which a Fund invests, which could harm the performance of a Fund.
Accordingly, inclusion of the information herein shall not create an implication that there has not been any change in the affairs of the relevant jurisdictions since the date of this Statement of Additional
Information. More information about the specific risks facing each jurisdiction may be available from official resources published by those jurisdictions.
The bond ratings provided below
are current as of the date specified. Unless otherwise stated, the ratings indicated are for obligations of the state, commonwealth or territory referenced below. The political subdivisions of a given jurisdiction may
have different ratings that are unrelated to the ratings assigned to the obligations of the state, commonwealth or territory. Investors should note that the creditworthiness of obligations issued by a
jurisdiction’s local municipal issuers may be unrelated to the creditworthiness of obligations issued by the jurisdiction itself, and that there may be no obligation on the part of the jurisdiction to make
payment on such local obligations in the event of default.
To the extent that any
statements made below involve matters of forecasts, projections, opinions, assumptions or estimates, whether or not expressly stated to be such, they are made as such and not as representations of fact or certainty,
and no representation is made that any of these statements have been or will be realized. All forecasts, projections, assumptions, opinions or estimates are “forward looking statements,” which must be read
with an abundance of caution because they may not be realized or may not occur in the future.
In addition, investors should
note that municipal securities may be more susceptible to being downgraded, and issuers of municipal securities may be more susceptible to default, insolvency or bankruptcy, during recessions or similar periods of
economic stress. Factors contributing to the economic stress on municipalities may include lower property tax collections, lower sales tax revenue and lower income tax revenue, among others. In addition, as certain
municipal obligations may be secured or guaranteed by banks and other institutions, the risk to a Fund could increase if the banking or financial sector suffers an economic downturn or if the credit ratings of the
institutions issuing the guarantee are downgraded or at risk of being downgraded by a national rating organization. Such a downward revision or risk of being downgraded may have an adverse effect on the market prices
of the municipal securities and thus the value of a Fund’s investments in those securities.
Recent downgrades of certain
municipal securities insurers have negatively impacted the price of certain insured municipal securities. Given the large number of potential claims against municipal securities insurers, there is a risk that they
will be unable to meet all future claims. Certain municipal issuers either have been unable to issue securities or access the market to sell their issues. For some issuers that have been able to access the market,
they have had to issue securities at much higher rates, which may reduce revenues available for the municipal issuers to pay existing obligations. Should a State, Puerto Rico, Guam, the U.S. Virgin Islands or the
Northern Mariana Islands, or their applicable
municipalities or subdivisions, fail to sell
their securities when and at the rates projected, these jurisdictions or their subdivisions could experience a weakened overall cash position in the current fiscal year.
An insolvent municipality may
take steps to reorganize its debt, which might include extending debt maturities, reducing the amount of principal or interest, refinancing the debt or taking other measures that may significantly affect the rights of
creditors and the value of the securities issued by the municipality and the value of a Fund’s investments in those securities. Pursuant to Chapter 9 of the U.S. Bankruptcy Code, certain municipalities that meet
specific conditions may be provided protection from creditors while they develop and negotiate plans for reorganizing their debts. The U.S. Bankruptcy Code provides that individual U.S. states are not permitted to
pass their own laws purporting to bind non-consenting creditors to a restructuring of a municipality’s indebtedness, and thus all such restructurings must be pursuant to Chapter 9 of the Bankruptcy Code.
In June 2014, Puerto Rico
enacted the Puerto Rico Public Corporations Debt Enforcement and Recovery Act (the “Debt Enforcement Act”), which permits certain public corporations in Puerto Rico to restructure their outstanding
obligations in a manner that may provide less protection for creditors than under Chapter 9 of the U.S. Bankruptcy Code. The Debt Enforcement Act has been challenged in U.S. federal court. In February 2015, a federal
district court held that the Debt Enforcement Act was preempted by the U.S. Bankruptcy Code and permanently enjoined its enforcement. In July 2015, a federal court of appeals affirmed the district court’s
injunction. The Puerto Rican government may seek review of the court of appeals decision from the U.S. Supreme Court. Although it is not presently possible to predict the ultimate outcome of these proceedings, if the
U.S. Supreme Court reverses the court of appeals decision, permitted public corporations may seek to restructure certain of their outstanding obligations pursuant to the Debt Enforcement Act. Any efforts by a
municipality, or a public corporation in Puerto Rico, to restructure its outstanding obligations could have a negative impact on the marketability, liquidity or value of certain investments held by a fund, which could
reduce a fund’s performance.
Arizona
Introduction. With a population of 6.8 million, the State of Arizona (“State”) is the fifteenth most populous state in the United States. Although its economy is diverse, it has major
components in the trade, transportation, and utilities sectors, education and health services, and professional and business services. Combined, these sectors employ approximately 50% of the State’s workers. As
these sectors represent the largest share of employment in the State, economic problems or factors that adversely impact these sectors may have a negative effect on the value of the State’s municipal securities,
which may reduce the performance of a fund.
The State faces significant
fiscal challenges including a high unemployment rate, a stalled construction sector, and substantial unfunded liabilities in the State’s public retirement systems. An economic downturn could significantly impact
the State’s finances and, therefore, its municipal securities. Moreover, the level of public debt in the State may affect long-term growth prospects and could cause some municipalities to experience financial
hardship. As a result of these and other factors, the State has faced fiscal stress in recent years.
Furthermore there can be no
guarantee that the State’s economic and fiscal conditions will improve or that future developments will not have a materially adverse impact on the State’s finances. Any deterioration in the State’s
financial condition may have a negative effect on the marketability, liquidity or value of the securities issued by the State and its municipalities, which could reduce the performance of a fund.
Economic Climate. According to the U.S. Department of Commerce, residents of Arizona received approximately $267 billion in estimated personal income in 2015. As a result, residents of Arizona had a per
capita income of $39,060, which was below the national average of $47,669 during that period.
Arizona’s civilian labor
force consists of approximately 3.2 million individuals. As of May 2016, Arizona had an unemployment rate of 5.6%, which was down from 5.8% in May 2015. Arizona’s unemployment rate was higher than the national
average of 4.7% in May 2016.
Between May 2015 and May 2016,
the State’s employment growth was driven primarily by an increase of approximately 16,600 jobs (a 4.2% increase) in the education and health services sector, approximately 14,200 jobs (a 2.8% increase) in the
trade, transportation, and utilities sector, approximately 12,600 jobs (a 3.2% increase) in the professional and business services sector, and approximately 11,500 jobs (a 6.0% increase) in the financial activities
sector. State employment growth was weakened by a decrease of 4,200 jobs (a 1.0% decrease) in the government sector over the same period.
Recent forecasts project that
Arizona could add approximately 156,535 jobs over a two year period between 2016 and 2017, which represents an increase of 2.84%. In addition, real personal income growth in the State is projected to continue. Between
the fourth quarter of FY2014 and the fourth quarter of FY2015, Arizona’s total personal income grew by 4.8%. Recent forecasts project that the State will continue to experience growth as the employment numbers
further improve. However, this is highly uncertain.
Immigration for Arizona has been
an important driver for the economy. The State has experienced declining immigration over time, both domestically and internationally. Recent data suggests that the lack of significant domestic immigration
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was an impediment to economic growth in the
State in 2016. Although the State has experienced signs of improvement for immigration, the pace of that resurgence will be important for Arizona’s future growth.
Although the overall economic
situation in Arizona is expected to improve, the lingering effects of the federal sequester on aerospace and defense spending as well as a struggling electronics manufacturing sector may delay any improvement. The
most significant risk to Arizona’s economy is the threat of the United States falling into a recession, which could negatively impact cyclically sensitive sectors and further constrain immigration.
Budget. Arizona has recently faced a prolonged structural deficit, massive job losses, and a downgrading of its credit rating. Arizona’s FY2016 budget sought to rebalance its spending and
streamline its structure and operations.
In January 2016, the Governor
presented the proposed budget for FY2017 (“Proposed Budget”). The Proposed Budget called for $9.48 billion in General Fund expenditures. The Proposed Budget recommendations contained a stated goal of
maintaining long-term fiscal stability. Appropriations to the Department of Education were the largest expenditure in the Proposed Budget. These expenditures totaled $4.0 billion, which would represent a $200 million
increase from the budget proposed for FY2016. The Proposed Budget would also allocate $1.75 billion to the State’s Medicaid system, an approximately $560 million increase from the FY2016 proposal. In addition,
the Proposed Budget would also allocate a combined total of approximately $1.0 billion to the Department of Corrections, an increase of approximately $61 million from the FY2016 proposal.
The Proposed Budget forecasts
$9.6 billion in General Fund revenue for FY2017, which represents a 7.9% increase from FY2016. The majority of State revenue would derive from the State’s sales and use tax and the State’s income tax. For
FY2017, the Proposed Budget projected sales and use tax revenue of $4.5 billion (a 4.7% increase from FY2016) and individual income tax revenue of $4.1 billion (a 10.8% increase from FY2016).
The Proposed Budget forecasted a
structural balance of $173 million and an ending cash balance of $484 million. It allows for General Fund spending to grow by less than 2%. The Proposed Budget would also deposit $10 million into the State’s
“rainy day” fund.
On March 12, 2016, the Arizona
state legislature enacted the General Fund budget for FY2017 (“Enacted Budget”). The Enacted Budget largely reflects the Governor’s proposal by appropriating $9.61 billion in General Fund
expenditures for FY2017, with expected General Fund revenues of $9.73 billion. The Enacted Budget provided the State with an ending balance of $126 million for FY2017.
Underfunded retirement and
pension plans may present a risk to the State’s finances. The Arizona State Retirement System (“ASRS”) is a cost-sharing system, requiring both employees and employers to contribute equally to the
fund. Employers include public schools, public charter schools, colleges, universities, municipal and county governments, and various departments. Participants in the ASRS consist of 577 employers and more than
578,000 members. As of June 30, 2014, ASRS had an unfunded actuarial liability of $9.9 billion and a funding ratio of 76.9%. As of June 30, 2015, the three other state-sponsored retirement plans, the Corrections
Officer Retirement Plan, Elected Officials Retirement Plan, and Public Safety Personnel Retirement Plan, had funding ratios of 59.2%, 41.1%, and 50.3%, respectively.
Debt. The Arizona Constitution limits debt backed by General Fund revenue to $350,000. Therefore, most bonds are secured by lottery revenue, highway user fees, and university tuition. Total
FY2015 outstanding bond, lease-purchase and payments deferral balances were $9.23 billion. Excluding payments deferrals, the outstanding FY2015 balance was $8.07 billion, a 2.3% decrease from FY2014. The General Fund
share of the debt totaled $2.92 billion for FY2015. Should the State fail to meet its projected revenue requirements, there is an increased risk that the State may fail to satisfy its obligations on its outstanding
debt. During FY2015, the State paid $370 million to service its outstanding debt.
Litigation. The State, its officials, and its employees are named as defendants in legal proceedings that occur in the normal course of governmental operations. Some of these proceedings involve
claims for substantial amounts, which if decided against the State might require the State to make significant future expenditures or substantially impair future revenue sources. Because of the prospective nature of
these proceedings, it is not presently possible to predict the ultimate outcome of such proceedings, estimate the potential impact on the ability of the State to pay debt service costs on its obligations, or determine
what impact, if any, such proceedings may have on a fund’s investments.
Credit Rating. As of July 15, 2016, Arizona was assigned an issuer rating of Aa2 by Moody’s Investors Service, Inc. and Arizona’s general obligation bonds were assigned a credit rating of AA
by Standard & Poor’s Rating Services. These ratings reflect only the views of the respective rating agency, an explanation of which may be obtained from each such rating agency. There is no assurance that
these ratings will continue for any given period of time or that they will not be revised or withdrawn entirely by the rating agency if, in the judgment of such rating agency, circumstances so warrant. A downward
revision or withdrawal of any such rating may have an adverse effect on the market prices of the securities issued by the State, its municipalities, and their political subdivisions, instrumentalities, and
authorities.
Maryland
Introduction. With a population of approximately 6.0 million, the State of Maryland (“State”) is the nineteenth most populous state in the country. Employment is based largely in the trade,
transportation and utilities sectors, the education and health services sectors and the professional and business services sectors. In addition, government agencies at the
federal, state, and local levels employ a
significant portion of Maryland’s population. As these sectors represent a significant share of employment in the State, economic problems or factors that adversely impact these sectors may have a negative
effect on the value of the State’s municipal securities, which may reduce the performance of a fund.
The State faces serious fiscal
challenges including substantial unfunded liabilities in the State’s pension and retirement systems. A future economic downturn could significantly impact the State’s finances and, consequently, its
municipal securities. Moreover, the level of public debt in the State may affect long-term growth prospects and could cause some municipalities to experience financial hardship. As a result of these and other factors,
the State has faced fiscal stress in recent years.
There can be no guarantee that
the State’s current economic and fiscal conditions will improve or that future developments will not have a materially adverse impact on the State’s finances. Any deterioration in the State’s
financial condition may have a negative effect on the marketability, liquidity or value of the securities issued by the State and its municipalities, which could reduce the performance of a fund.
Economic Climate. According to the U.S. Department of Commerce, residents of Maryland received approximately $337.2 billion in estimated personal income in 2015. As a result, residents of Maryland had a per
capita income of $56,127, which compared favorably to the national average of $47,669 during that period.
Maryland’s civilian labor
force consists of approximately 3.2 million individuals. As of April 2016, Maryland had an unemployment rate of approximately 4.6%, which is down from the April 2015 unemployment rate of 5.2%. Maryland’s
unemployment rate was below the national average of 5.0% in April 2016.
In recent years, Maryland
experienced personal income growth lower than national averages. Between 2010 and 2015, total personal income in Maryland grew on average by 2.1% annually, compared to a national growth rate of 4.2%. In 2015, personal
income in Maryland grew by 4.1%, which was slightly lower compared to the national average of 4.4%.
Relative to the nation as a
whole, Maryland’s economy has been disproportionately affected by federal budget uncertainty, federal budget sequestration, and higher income tax rates. In 2015, federal employment directly accounted for 5.4% of
payroll jobs in Maryland versus 1.9% of jobs nationwide. In 2015, Maryland’s total personal income increased by 4.1%, which was below the national average of 4.4%. Wages and salaries in Maryland grew by 4.0% in
2015, which was higher compared to the national average of 4.6%. Similarly, total employment in Maryland grew by 1.5% in 2015, which was below the national average of 2.1% during the same period.
Total non-agricultural
employment in Maryland is expected to grow by 1.3% and 1.0% in 2016 and 2017, respectively. Total personal income in Maryland is projected to rise by 4.6% in 2016 and 5.1% in 2017, while wages and salaries are
expected to increase by 4.2% and 41% in 2016 and 2017, respectively.
Although recent estimates
project sustained economic growth in Maryland, the State faces significant uncertainties that may undermine these estimates. Perhaps most important among these potential challenges is the impact that federal budgetary
disruptions may have on the State. In addition to the portion of the State’s population that is directly employed by the federal government, many of the State’s businesses rely on contractual outlays from
the federal government. As a result, cuts in federal spending and federal government shutdowns may result in increased unemployment and fiscal stress in the State, which could negatively impact the ability of the
State to satisfy its outstanding debt obligations. Any failure to make timely payments of interest or principal on the State’s outstanding obligations could harm the value of the State’s municipal
securities, which could impact the performance of a fund.
Budget. The State ended FY2015 with a $320.4 million General Fund balance on a budgetary basis. For FY2016, the total budget is $40.3 billion, a $1.6 billion increase over FY2015.
On January 20, 2016, the
Governor presented his proposed budget for FY2017 (“Proposed Budget”). The Proposed Budget assumed that the State would receive total revenues of $42.2 billion during FY2017, which would represent an
increase of 4.0% from FY2016 revenues. Of this total, the Proposed Budget forecasted that the State would receive $9.27 billion from individual income taxes (an increase of 6% from FY2016), $1.10 billion from
corporate income taxes (an increase of 3% from FY2016), and $4.73 billion from sales taxes (an increase of 3% from FY2016). The Proposed Budget also forecasted that the State would receive federal fund revenues
(excluding transportation) of $12.10 billion in FY2017, which would be an increase of 5% from FY2016.
Against these revenues, the
Proposed Budget included total expenditures of $42.27 billion, which represented an increase of 5% from FY2016. The major drivers of State spending under the Proposed Budget included $13.03 billion for health programs
(a 4% increase from FY2016), $7.81 billion for elementary and secondary education (a 3% increase from FY2016), $6.26 billion for higher education (a 3% increase from FY2016), and $5.21 billion for transportation (an
11% increase from FY2016). Combined, these areas accounted for approximately 76% of total expenditures included in the Proposed Budget. After accounting for required transfers and a $235 million deposit in the
State’s “rainy day” fund, the Proposed Budget would have left the State with a General Fund balance of $449.5 million at the end of FY2017.
General obligation debt is one
of several sources of funds used to finance capital assets of the State and to provide State capital grants and repayable loans to local governments and the private sector. The State’s proposed capital
improvement program for FY2017 through FY2021 includes $4.98 billion in general obligation bond sale revenue.
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On April 12, 2016, the General
Assembly enacted the State’s operating budget for FY2017 (“Enacted Budget”). The Enacted Budget assumes total revenues of $42 billion and total operating budget appropriations of $42.3 billion.
Although the Enacted Budget largely follows the recommendations contained in the Proposed Budget (including a $155.4 million deposit into the “rainy day” fund), it leaves the General Fund with an expected
balance of $364.8 million at the end of FY2016.
As evidenced by the substantial
governmental outlays in recent years, the State’s underfunded retirement and pension plans continue to add spending pressure to the State’s budget. The Maryland State Retirement and Pension System
(“System”) is made up of two costsharing employer pools (the “State Pool” and the “Municipal Pool”). The State Pool is comprised of State agencies, boards of education,
community colleges and libraries. The Municipal Pool consists of the participating governmental units that elect to join the System. The State Pool comprises the following five distinct systems: the Teachers’
Retirement and Pension System, the Employees’ Retirement and Pension System, the State Police Retirement System, the Judges’ Retirement System, and the Law Enforcement Officers’ Pension System. As of
June 30, 2015, total membership in the System consisted of approximately 168,000 active members, 46,000 vested former members, and 131,000 retirees and beneficiaries. Together, the Teachers’ Retirement and
Pension System and the Employees’ Retirement and Pension System’ account for 98.1% of membership in the State Pool. As of June 30, 2015, the System had a total unfunded actuarial accrued liability of
$19.26 billion, resulting in a total funded ratio of 68.6%.
In an attempt to address this
substantial unfunded liability, Maryland enacted significant pension reforms in 2011. These pension reforms increased employee contributions from 5% to 7% of annual earnable compensation, decreased future annual cost
of living adjustments from a 3% cap to a 2.5% cap and linked the cap to the System’s achievement of annual return on investments, among other initiatives. After enactment of these reforms, the System’s
actuary projected that the State Pool portion of the System would reach approximately 80.0% funding by FY2025, and would reach full funding in FY2039. These projections were based on the System achieving its assumed
investment return of 7.55% to more accurately reflect the pension fund’s expected long-term future investment gains. The Funded Ratio (Assets/Liabilities) for all plans dropped 0.1% from FY2014 to FY2015 from
68.7% to 68.6% respectively. However, future investment returns may affect the actuary’s projections of the System’s future funding status.
Debt. The State issues general obligation bonds for capital improvements and for various Statesponsored projects. In addition, the Maryland Department of Transportation issues for
transportation purposes its limited, special obligation bonds payable primarily from specific, fixedrate excise taxes and other revenues related mainly to highway use. Likewise, other agencies and
instrumentalities of the State are authorized to issue bonds backed by specific revenues. There is no general debt limit imposed by the State Constitution or public general laws. The State has the authority to make
shortterm borrowings in anticipation of taxes and other receipts up to a maximum of $100.0 million. As of March 31, 2016, the State had outstanding bonds totaling $11.7 billion. Of this amount, $8.4 billion were
general obligation bonds backed by the full faith and credit of the State. The remaining $3.3 billion were secured solely by the specified revenue sources associated with the bond issues. As of March 31, 2016, the
State was expected to incur general obligation bond debt service requirements of $1.14 billion and $1.16 billion in FY2017 and FY2018, respectively.
Litigation. The State, its officials and employees are named as defendants in legal proceedings that occur in the normal course of governmental operations. Some of these proceedings involve claims for
substantial amounts, which if decided against the State might require the State to make significant future expenditures or substantially impair future revenue sources. Because of the prospective nature of these
proceedings, it is not presently possible to predict the ultimate outcome of such proceedings, estimate the potential impact on the ability of the State to pay debt service costs on its obligations, or determine what
impact, if any, such proceedings may have on a fund’s investments.
Credit Rating. As of July 15, 2016, Maryland’s general obligation debt was assigned a rating of Aaa by Moody’s Investors Service, Inc. and AAA by both Standard & Poor’s Rating
Services and Fitch, Inc. These ratings reflect only the views of the respective rating agency, an explanation of which may be obtained from each such rating agency. There is no assurance that these ratings will
continue for any given period of time or that they will not be revised or withdrawn entirely by the rating agency if, in the judgment of such rating agency, circumstances so warrant. A downward revision or withdrawal
of any such rating may have an adverse effect on the market prices of the securities issued by the State, its municipalities, and their political subdivisions, instrumentalities, and authorities.
Massachusetts
Introduction. With a population of over 6.7 million, the Commonwealth of Massachusetts (“Commonwealth”) is the fifteenth most populous state in the country. Although its economy is diverse,
it has major components in the finance, insurance, real estate, rental and leasing sectors, the professional and business services sectors, the educational services, health care and social assistance sectors, the
government sector. Together these sectors contributed to approximately 60% of the Commonwealth’s GDP in 2014. As these sectors represent the largest share of GDP in the Commonwealth, economic problems or factors
that adversely impact these sectors may have a negative effect on the value of the Commonwealth’s municipal securities, which may reduce the performance of a fund.
The Commonwealth faces
significant fiscal challenges including substantial expenditures on health care and sizeable debt service requirements. Furthermore, the economic outlook in the rest of the United States remains uncertain. An
economic downturn could significantly impact
the Commonwealth’s finances and, therefore, its municipal securities. Moreover, the level of public debt in the Commonwealth may affect long-term growth prospects and could cause some municipalities to
experience financial hardship. As a result of these and other factors, the Commonwealth has faced fiscal stress in recent years.
Although the
Commonwealth’s economy has outperformed the nation’s economy as a whole and has exhibited signs of growth, the Commonwealth’s Stabilization Fund (rainy day fund) balance may leave the Commonwealth
vulnerable in the event of a future economic downturn. Moreover, there can be no guarantee that the Commonwealth’s economic and fiscal conditions will continue to improve or that future developments will not
have a materially adverse impact on the Commonwealth’s finances. Any deterioration in the Commonwealth’s financial condition may have a negative effect on the marketability, liquidity, or value of the
securities issued by the Commonwealth and its municipalities, which could reduce the performance of a fund.
Economic Climate. According to the U.S. Department of Commerce, residents of Massachusetts received over $414.7 billion in estimated personal income in 2015. As a result, residents of Massachusetts had a
per capita income of $61,032, which compared favorably to the national average of 47,669 during that period.
As of May 2016,
Massachusetts’s civilian labor force consisted of 3.6 million individuals, and the Commonwealth had an unemployment rate of approximately 4.2%, which was down from the Commonwealth’s May 2015 unemployment
rate of 4.9%. The Commonwealth’s May 2016 unemployment rate was also below the national May 2016 unemployment rate of 4.7%.
Like many industrial states,
Massachusetts has seen a steady decline in its manufacturing jobs base over the last two decades, not only as a share of total employment, but also in the absolute number of jobs. Between December 2014 and December
2015, remained stagnant, while several service sectors, including the education and health services sectors, the professional and business services sectors, and the leisure and hospitality sectors, have grown to take
the place of manufacturing in driving the Massachusetts economy. These sectors now account for nearly half of total payroll employment, while the financial activities sector, government sector, information sector, and
trade, transportation, and utilities sector have remained relatively level or declined in share. Overall, non-farm employment has grown steadily, increasing 2.1% in 2015. 2015 also had the highest non-farm employment
numbers to date with an annual average of just under 3.5 million.
Recent estimates project
employment in the Commonwealth to grow 1.2-1.6% in FY2017, compared to an estimated growth rate of 1.7%-2.0% in FY2016. Although employment growth is projected to remain slow, personal income in the Commonwealth is
expected to grow by 4.9%-5.6% in FY2017, compared to an estimated growth rate of 3.9%-5.5% in FY2016. Massachusetts wages and salaries are also projected to increase by 4.7%5.5% in FY2017, compared to an
estimated growth rate of 3.7%-4.8% in FY2016.
Budget. On January 14, 2016, a consensus tax revenue estimate of $26.9 billion for FY2017 was agreed upon by the Secretary of Administration and Finance and the chairs of the House and Senate
Committees on Ways and Means. This revenue estimate represents an increase of 4.3% from the revised FY2016 estimate of $25.8 billion. However, due to statutory requirements, certain portions of this estimated revenue
must be dedicated to specific appropriations in FY2017. For example, $2.2 billion would be directed to the Commonwealth’s pension obligations. More than $1.0 billion of these projected revenues would be
allocated to the Massachusetts Bay Transportation Authority, with an additional $867.1 million dedicated to the Massachusetts School Building Authority. After taking into account these nondiscretionary
appropriations, the Commonwealth would be left with $22.7 billion in tax revenues to spend as part of its FY2017 budget. Furthermore, the parties also agreed on a potential gross state product increase of 2.7% for
calendar year 2017, which is lower than the potential gross state product increase of 3.6% that was adopted for calendar year 2016.
On January 27, 2016, the
Governor proposed his budget for FY2017 (“Proposed Budget”). The $39.6 billion proposal (excluding the state’s annual contribution for employee pension costs) represents an increase of 3.5% from the
FY2016 Budget. The Proposed Budget relies heavily on income tax and federal reimbursement revenues, which contribute $15.5 billion and $10.8 billion to General Fund revenues for FY2017, respectively. The Proposed
Budget does not include a withdrawal from the Commonwealth Stabilization Fund. The Proposed Budget also provides for $187.0 million in direct aid to the Massachusetts Bay Transportation Authority, maintaining the
FY2016 level. Health care costs continue to be the largest driver of government spending. The Proposed Budget allocates $21.9 billion (55% of the budget) to the area of Health and Human Services (as compared to $21.0
billion and 53% of the proposed budget in FY2016). The Proposed Budget reduces the growth of MassHealth, the Commonwealth’s Medicaid program, to 5.0% in FY2017, which will amount to over a third of the entire
state budget.
On April 27, 2016, the
Massachusetts House of Representatives approved its version of the FY2017 budget (“House Budget”). The House Budget calls for $19 million less in spending. On June 30, 2016, the Massachusetts General Court
(i.e., both Houses of the state legislature) passed the FY2017 budget. It called for $39.1 billion in spending, a reduction of nearly $500 million from Governor’s proposed budget.
On July 8, 2016, the Governor
signed the FY2017 budget into law (“Enacted Budget”). The $38.92 billion budget represents a 1.3% increase in spending from FY2016. The Enacted Budget addresses a projected FY2017 deficit of
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$650 million to $950 million partly due to a
projected tax revenue shortfall of $425 million to $475 million compared to benchmark performance in FY 2016 state tax revenue collections. Approximately $21.0 billion, 53% of the total budget, is allocated to health
and human services. This represents a $0.5 billion (2.5%) increase from projected FY2016 spending. Appropriations for public education are the next largest driver of the spending in the Enacted Budget, totaling
approximately $6.9 billion (18%) of the Enacted Budget. The budgeted spending on public education represents an increase of $43.1 million from projected FY2016 spending. On July 8, 2016, the Governor also filed a
year-end supplemental funding request for FY2017, which requested $279 million ($177 million net) to fund obligations, including $42 million for the representation of indigent defendants, $30 million for snow and ice
removal, and $8 million in legal settlements and judgments.
Although the Enacted Budget is
balanced, there are risks to its revenue estimates. The Enacted Budget assumes that the Commonwealth will continue to experience moderate economic growth. However, future developments, including United States and
international economic developments, reductions in federal spending, and other political actions, could undermine the Governor’s revenue estimates. If revenues fall short of estimates, the Commonwealth could
face future budget deficits. Any such deterioration in the Commonwealth’s fiscal condition could reduce the value of the securities issued by the Commonwealth and its municipalities.
Debt. The Commonwealth is authorized to issue three types of direct debt: general obligation debt, special obligation debt, and federal grant anticipation notes. General obligation debt is
secured by a pledge of the full faith and credit of the Commonwealth. Special obligation debt may be secured with a pledge of receipts credited to the Commonwealth Transportation Fund (formerly the Highway Fund),
gasoline taxes or the Convention Center Fund. Federal grant anticipation notes are secured by a pledge of federal highway construction reimbursements. As of April 30, 2016, the Commonwealth had approximately $20.9
billion in general obligation bonds outstanding. Of the $20.9 billion, $17.3 billion (83%) was fixed rate debt and approximately $3.6 billion (17%) was variable rate debt. Additionally, the Commonwealth had
approximately $808.3 million in outstanding special obligation notes and approximately $688.5 million in outstanding federal grant anticipation notes. Finally, the Commonwealth was expected to incur debt service
requirements of $216.0 million and $2.3 billion on outstanding general obligation bonds in FY2016 and FY2017, respectively. These figures may not represent the actual amounts appropriated by the Commonwealth for debt
service during these fiscal years.
Further, the
Commonwealth’s five-year capital investment plan, which is reviewed annually, calls for a bond cap of approximately $2.125 billion in FY2016 and $2.19 billion for each of FY2017, FY2018, FY2019, FY2020, and
FY2021. For cash flow needs, the Commonwealth’s Treasurer issued $1.2 billion in Revenue Anticipation Notes on September 29, 2015. These notes were due before the end of FY2016.
Litigation. The Commonwealth, its officials and employees are named as defendants in legal proceedings that occur in the normal course of governmental operations. Some of these proceedings involve
claims for substantial amounts, which if decided against the Commonwealth might require the Commonwealth to make significant future expenditures or substantially impair future revenue sources. Because of the
prospective nature of these proceedings, it is not presently possible to predict the ultimate outcome of such proceedings, estimate the potential impact on the ability of the Commonwealth to pay debt service costs on
its obligations, or determine what impact, if any, such proceedings may have on a fund’s investments.
Credit rating. As of July 15, 2016, the general obligation debt of Massachusetts was assigned a rating of Aa1 by Moody’s Investors Service, Inc. and AA+ by both Standard & Poor’s Rating
Services and Fitch, Inc. These ratings reflect only the views of the respective rating agency, an explanation of which may be obtained from each such rating agency. There is no assurance that these ratings will
continue for any given period of time or that they will not be revised or withdrawn entirely by the rating agency if, in the judgment of such rating agency, circumstances so warrant. A downward revision or withdrawal
of any such rating may have an adverse effect on the market prices of the securities issued by the Commonwealth, its municipalities, and their political subdivisions, instrumentalities, and authorities.
Michigan
Introduction. With a population of approximately 9.9 million, Michigan (“State”) is the tenth most populous state in the United States. Although its economy is diverse, the State has major
components in the manufacturing sector, particularly in the automotive industry, the agricultural sector and the technology sector. As these sectors represent a significant share of employment in the State, economic
problems or factors that adversely impact these sectors may have a negative effect on the value of the State’s municipal securities, which may reduce the performance of a fund.
In recent years, adverse
economic conditions resulted in a drastic downturn in the State’s economy. Moreover, in 2013, the city of Detroit, struggling with increasing public debt and a reduced tax base, became the largest municipality
in U.S. history to file for bankruptcy. With the help of emergency federal funding, General Motors and Chrysler have once again achieved positive profit margins, and the city of Detroit exited its historic bankruptcy
in December 2014. However, long-term growth may be slow as the State continues to face significant fiscal challenges, including volatile exports and uncertain fiscal conditions in the city of Detroit, a traditional
source of economic power for the State. Moreover, the level of public debt in the State may affect long-term growth prospects and could cause some municipalities to experience financial hardship. A future economic
downturn could significantly impact the State’s finances and, therefore, its municipal securities. As a result of those and other factors, the State has faced fiscal stress in recent years.
There can be no guarantee that the
State’s current economic and fiscal conditions will improve or that future developments will not have a materially adverse impact on the State’s finances. Any deterioration in the State’s financial
condition may have a negative effect on the marketability, liquidity or value of the securities issued by the State and its municipalities, which could reduce the performance of a fund.
Economic Climate. According to the U.S. Department of Commerce, residents of Michigan received approximately $421.0 billion in estimated personal income in 2015. As a result, residents of Michigan had a per
capita income of $42,427, which was below the national average of $47,669 during that period.
Michigan’s civilian labor
force consists of approximately 4.9 million individuals. As of April 2016, Michigan had an unemployment rate of approximately 4.8%, which was down from 5.6% in April 2015. Michigan’s unemployment rate was below
the national average of 5.0% in April 2016.
Sustained economic improvement
in Michigan is closely related to growth in Michigan’s automotive industry. The level and composition of automobile sales is a key component of Michigan’s economy. To the extent that demand for such
vehicles weakens or competition from foreign manufacturers increases, Michigan’s economic performance could falter. Similarly, political activity that jeopardizes State or national economic growth could also
reduce demand for automobiles produced in the State. If Michigan’s economy fails to perform as expected, municipal issuers at the State and local level could face additional fiscal pressure, which could impact
the value of their municipal securities and the performance of a fund.
Recent data suggests measured
improvement in vehicle production in the State. In 2013, the State produced 2.47 million automobile units, the highest production level since 2005. Vehicle production fell 4.7% and 1.3% in 2014 and 2015, respectively.
Light vehicle sales in the United States rose to 17.4 million units in May 2016, the highest level reached since 2006.
In line with increased motor
vehicle production, Michigan’s manufacturing employment rose by 2.7% in 2015. This was the fifth straight year of year-over-year manufacturing employment growth in the State. Between 2010 and 2015, manufacturing
employment has added approximately 121,300 jobs in the State, accounting for 31.9% of the State’s overall employment increase. The State’s manufacturing employment growth is forecast to slow substantially
in 2016 to 1.6%. State manufacturing employment is then projected to essentially remain flat in 2017 and 2018. As a result, wage and salary employment in the State also rose for a fifth year straight at a rate of 1.5%
in 2015, reaching over 4.2 million jobs in 2014.
Michigan’s personal income
is expected to rise 4.1% in 2016, 4.5% in 2017, and 4.8% in 2018. Moreover, recent forecasts project that Michigan wage and salary employment will increase by 4.1% in 2016, 4.2% in 2017, and 4.2% in 2018.
Nevertheless, there are
significant risks to the State’s economy that could undermine these projections. Michigan’s largest city, Detroit (“City”) just recently emerged from Chapter 9 bankruptcy in December 2014.
While the bankruptcy process allowed the City to save and reorganize certain of its debt obligations, sustained improvement depends on increasing revenues. If actual revenues were to fall short of projections, the
City could face severe financial strain. Even having undergone the bankruptcy process, the City could default on its debt obligations in the near future, which could have a negative effect on the marketability,
liquidity and value of securities issued by the City and other municipalities in the State. As a fund may hold securities that are affected by the City’s financial condition, the fund’s investments in
those securities may lose value, which could cause the fund’s performance to decline.
In addition, because of the
City’s size, future financial downturns in Detroit could have a negative effect on the State’s economy as a whole. If the City were to require additional financial support, the State may be relied upon to
provide additional or emergency services to the City’s residents, some of which may not be covered under the State’s current budget. Such measures could reduce revenues received by the State from income
taxes and other sources. Should the State’s revenues fall below budgeted forecasts, the State could face future budget deficits. Any such deterioration in the State’s fiscal condition could reduce the
value of the securities issued by the State and its municipalities, which may harm the performance of a fund.
Budget. The State constitution limits the amount of total State revenues that can be raised from taxes and certain other sources. State revenues (excluding federal aid and revenues for payment of
principal and interest on general obligation bonds) are limited in a fiscal year to 9.49% of State personal income in the prior calendar year or the average of the prior three calendar years, whichever is greater. The
State may raise taxes in excess of the limit for emergencies when deemed necessary by the Governor and two-thirds of the members of each house of the State Legislature. This limit is intended to ensure that the
State’s overall revenues, including tax and non-tax revenues, do not grow faster than the incomes of Michigan’s citizens. Michigan’s constitution also requires that a large portion of total State
spending must be paid to units of local government. Moreover, the State is required to finance any new or expanded local government activity mandated by State law. Any restriction on the State’s ability to raise
or utilize revenues could negatively impact the State’s financial condition, making it more difficult for the State to meet its outstanding debt obligations.
On February 10, 2016, the
Governor presented his proposed budget for FY2017 (“Proposed Budget”). The Proposed Budget assumed that the State would receive total General Fund revenues of approximately $10.2 billion during FY2017,
which would represent an increase of 3.8% from FY2016 General Fund revenues. Of this total, the Proposed Budget
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projected that the State would receive net
revenues of $6.82 billion from individual income taxes (an increase of 3.4% from FY2016 estimates), $1.15 billion from corporate income taxes (an increase of 2.8% from FY2016 estimates), $1.22 billion from sales taxes
(an increase of 1.7% from FY2016 estimates), and $650.2 million from use taxes (a decrease of 25% from FY2016 estimates). The Proposed Budget also forecasted that the State would receive non-tax revenues of $170.1
million in FY2017, which would be a decrease of 9.4% from FY2016 estimates.
Against these revenues, the
Proposed Budget included total General Fund expenditures of $10.0 billion, which represented an increase of 1.5% from FY2016 budgeted expenditures. The major drivers of State spending under the Proposed Budget
included $4.4 billion for health and human services (a 5.0% increase from FY2016), $1.98 billion for corrections (a 4.0% increase from FY2016), and $1.40 billion for higher education (a 2.8% increase from FY2016). The
State funds its public education systems primarily from the State’s School Aid Fund, which derives revenues primarily from sales taxes, use taxes, earmarked income taxes, and transfers from lottery sales. The
Proposed Budget estimated total School Aid expenditures of $14.2 billion in FY2017, which would be an increase of 2.0% from FY2016. While the Proposed Budget does not propose a deposit in the State’s Budget
Stabilization Fund, after accounting for required transfers the Proposed Budget projected that the General Fund would end FY2017 with a balance of $14.9 million.
On June 29, 2016, the Governor
signed into law the State’s budget for FY2017 (“Enacted Budget”). The Enacted Budget largely follows recommendations included in the Governor’s Proposed Budget, with more than 75% of the
Enacted Budget devoted to education and health and human services.
Debt. The State Constitution limits State general obligation debt to: (i) short-term debt for State operating purposes, (ii) short and long-term debt for the purpose of making loans to school
districts, and (iii) long-term debt for voter approved purposes. Short-term debt for operating purposes is limited to an amount not to exceed 15% of undedicated revenues received during the preceding fiscal year.
Under the State Constitution as implemented by statutory provisions, such debt must be authorized by the State Administrative Board and issued only to meet obligations incurred pursuant to appropriation and must be
repaid during the fiscal year in which incurred.
The amount of debt incurred by
the State for the purpose of making loans to school districts is recommended by the State Treasurer, who certifies the amounts necessary for loans to school districts. The bonds may be issued in whatever amount is
required without voter approval. All other general obligation bonds issued by the State must be approved as to amount, purpose and method of repayment by a two-thirds vote of each house of the State Legislature and by
a majority vote of the public at a general election. There is no limitation as to number or size of such general obligation issues.
As of September 30, 2015, the
State had outstanding general obligation bonds totaling approximately $1.73 billion. Based on the amount of general obligation bonds outstanding, the State is expected to incur debt service requirements of
approximately $274 million in FY2016 and $253 million in FY2017. These figures may not represent the actual amount appropriated for debt service by the State in a given fiscal year.
Litigation. The State, its officials and employees are named as defendants in legal proceedings that occur in the normal course of governmental operations. Some of these proceedings involve claims for
substantial amounts, which if decided against the State might require the State to make significant future expenditures or substantially impair future revenue sources. Because of the prospective nature of these
proceedings, it is not presently possible to predict the ultimate outcome of such proceedings, estimate the potential impact on the ability of the State to pay debt service costs on its obligations, or determine what
impact, if any, such proceedings may have on a fund’s investments.
As of June 23, 2016, there are
numerous cases currently pending and hundreds of notices of intent to sue, in various state and federal courts related to the drinking water in the City of Flint. The State, certain State agencies, local governments
and various individuals including the Governor have been named as defendants in varying combinations within some of the cases. No rulings have been issued in any of the cases yet and the cases will likely take some
time to resolve. However, resolution could involve material expenditures by the State.
Credit Rating. As of July 15, 2016, Michigan’s general obligation debt was assigned a rating of Aa1 by Moody’s Investors Service, Inc., AA- by Standard & Poor’s Rating Services and
AA by Fitch, Inc. These ratings reflect only the views of the respective rating agency, an explanation of which may be obtained from each such rating agency. There is no assurance that these ratings will continue for
any given period of time or that they will not be revised or withdrawn entirely by the rating agency if, in the judgment of such rating agency, circumstances so warrant. A downward revision or withdrawal of any such
rating may have an adverse effect on the market prices of the securities issued by the State, its municipalities, and their political subdivisions, instrumentalities, and authorities.
Minnesota
Introduction. With a population of over 5.5 million, the State of Minnesota (“State”) is the twentyfirst most populous state in the United States. Although its economy is diverse,
Minnesota has major components in the education and health services sectors, the professional and business services sectors, the construction sector, the wholesale and retail trade sector and the financial activities
sector. In addition, a substantial portion of Minnesota’s residents are employed by government agencies at the federal, state and local levels. Combined, these sectors employ over half of the
State’s
workers. As these sectors represent a
significant share of employment in the State, economic problems or factors that adversely impact these sectors may have a negative effect on the value of the State’s municipal securities, which may reduce the
performance of a fund.
While the Minnesota’s
economy has exhibited signs of improvement, this growth may be slow as the State continues to face fiscal challenges, including falling commodity prices and considerable underfunding of the State’s pension and
retirement systems. Furthermore, the economic outlook in the rest of the United States remains uncertain. Another economic downturn could significantly impact the State’s finances and, therefore, its municipal
securities. Moreover, the level of public debt in the State may affect long-term growth prospects and could cause some municipalities to experience financial hardship. As a result of these and other factors, the State
has faced fiscal stress in recent years.
There can be no guarantee that
the State’s current economic and fiscal conditions will continue to improve or that future developments will not have a materially adverse impact on the State’s fiscal position. Any deterioration in the
State’s financial condition may have a negative effect on the marketability, liquidity or value of the securities issued by the State and its municipalities, which could reduce the performance of a fund.
Economic Climate. According to the U.S. Department of Commerce, residents of Minnesota received about $277.4 billion in estimated personal income in 2015. As a result, Minnesota had a per capita income of
$50,541, which compared favorably to the national average of $47,669 during that year.
Minnesota’s civilian labor
force consists of approximately 3.0 million individuals. As of May 2016, Minnesota had an unemployment rate of approximately 3.3%, which was down from 3.5% in May 2015. Minnesota’s unemployment rate was below
the national average of 4.5% in May 2016.
The State’s real GDP grew
by 2.4% in 2015, which was the same pace of GDP growth in 2014. The Minnesota Office of Management and Budget (“MMB”) projects annualized real GDP growth to decrease to about 1.2% in the first quarter of
2016 due to increased inventories and energy-sector capital spending. The MMB expects these expenditures to ease by mid-2016, resulting in an expected increase in GDP growth to 2.8% in the second half of the year.
Real GDP is projected to grow by an average of 2.1% and 2.8% in 2016 and 2017, respectively.
In 2015, Minnesota’s total
non-farm employment increased 1.4%, following a similar 1.4% increase in 2014. The State added 27,200 net new jobs in 2015, down from 37,200 in 2014. As of February 2016, the State expects relatively weak employment
growth in 2016 and 2017. Recent estimates project growth rates for non-farm employment of 1.0% in 2016 and 0.9% in 2017, which are lower than forecasted growth rates at the national level of 1.8% and 1.1% over the
same periods.
Personal income growth in the
State is forecast to increase 3.7% in 2015, after previously experiencing growth rates of 1.0% and 4.0%, in 2013 and 2014, respectively. Recent forecasts expect personal income in the State to grow in 2016, 2017 and
2018, growing by 3.2%, 4.5% and 4.9%, respectively, which would generally follow the projected growth rates for personal income nationally.
Budget. The State operates on the basis of a fiscal biennium for its appropriations and expenditures, which expires on June 30 of odd number years. The major operating budget appropriations for
each biennium are enacted during the final legislative session of the immediately preceding biennium in oddnumbered calendar years. Supplemental appropriations and changes in revenue and expenditure measures are
usually adopted during legislative sessions in evennumbered calendar years. The General Fund accounts for all financial resources except those required to be accounted for in another fund. The State forecasts
regarding revenues and expenditures are performed in February and November of each calendar year for the then current biennium and for the next succeeding biennium. As a result of these state forecasts and other
changes, it has become common for the Legislature to enact annual revisions to the state’s biennial budget in the “off-year” legislation session, referred to as supplemental budgets. The
State’s constitution prohibits borrowing for operating expenses beyond the end of a biennium.
The previous FY2014-15 biennium
(“Previous Biennium”) officially closed in August 2015. Actual revenues for FY2015 were $20.51 billion, $564 million higher than end of session estimates, including $516 million in higher tax collections.
Spending in FY2015 was $20.29 billion, $118 below previous forecasts; however, $94 million of unspent appropriations in 2015 were authorized to carryforward into FY2016. The budgetary balance for FY2015 was $632
million, which was $585 million higher than end of session estimates.
In June of 2015, the Governor
signed into law the State’s budget for FY201617 (“Enacted Budget”). The Enacted Budget assumes that the State will receive total General Fund resources of $44.05 billion during the biennium.
This estimate represents an increase of approximately $2.90 billion from the amount included in the budget for the Previous Biennium. The Enacted Budget provides for expenditures and transfers of $41.83 billion,
representing an increase of $2.10 billion from the Previous Biennium. Significant appropriations were provided to K-12 education ($17.24 billion), higher education ($3.07 billion), public safety and judiciary ($2.12
billion), environment and agriculture ($377 million), and economic development ($402 million). One time cost shifting in health and human services partially offset increases in other areas of the budget –
reductions of $291 million set spending at approximately $12.48 billion for the Previous Biennium.
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In February 2016, the MMB
released its revised forecast for General Fund revenues and expenditures during the current FY2016-2017 biennium (“Current Biennium). General Fund revenues for the Current Biennium are expected to be $42.29
billion, including total tax revenues of $40.44 billion. The General Fund spending estimates for the Current Biennium are expected to be $41.52 billion. The General Fund reserves are forecasted to total $1.95 billion,
representing 3.8% of total General Fund revenue estimated for the Current Biennium. The reserves include $350 million in the Cash Flow Account and $994 million in the Budget Reserve Account. The February forecasts
project a $900 million balance for the remainder of the Current Biennium.
In March 2016, the Governor
submitted several supplemental budget recommendations for the Current Biennium (”Supplemental Budget“), which have been officially enacted as of April 27, 2016. The Supplemental Budget projects total
General Fund revenues of $42.25 billion, a $37.07 million decrease from the February forecast. Against these revenues, the Supplemental Budget would include General Fund expenditures of $42.18 billion, a $661.07
million increase from previous estimates. The Supplemental Budget’s expenditure difference was primarily driven by the reallocation between the education and debt service budget areas. After the Governor’s
changes, the Supplemental Budget would leave an available balance of $202.11 million.
In January 2015, the Governor
submitted his proposed budget for the FY2018-19 biennium, to which the Governor submitted multiple amendments thereafter (”Proposed Budget“). The Proposed Budget projects total General Fund revenues of
$47.12 billion. Against these revenues, the Proposed Budget would include General Fund expenditures of $44.50 billion. The Proposed Budget’s expenditures were primarily driven by $17.9 billion on K-12 education,
$14.5 billion on health and human services, and $3.0 billion on higher education spending. After the Governor’s changes, the Proposed Budget would leave an available balance of $1.28 billion.
Minnesota’s fiscal health
may be affected by the State’s continued underfunding of its public retirement and pension plans. The State contributes to three statewide retirement systems that cover most of the public employees of the State,
its counties, municipalities and school districts. These systems are the Minnesota State Retirement System (”MSRS“), the Public Employees’ Retirement Association (”PERA“) and the State
Teachers’ Retirement Association (”TRA“). MSRS consists of nine pension funds, five of which are defined benefit plans where the State participates as a primary employer or otherwise provides general
government contributions. PERA is comprised of six pension funds, five of which are defined benefit pension funds and one of which is a defined contribution plan. The State does not make employer contributions to PERA
other than for a small number of specific individuals. TRA consists of a single pension fund into which the State does not make employer contributions except for a relatively small number of defined individuals. As of
June 30, 2014, MSRS, PERA and TRA had over 290,000 active members and approximately 439,000 other members. These systems’ funds, combined with several smaller retirement funds to which the State contributes, had
an unfunded actuarial accrued liability of $17.6 billion as of June 30, 2014. To address this liability, the State Legislature passed significant pension legislation in 2010 that increased employee and employer
contribution rates, altered postretirement benefit adjustments, changed interest on refunds and made other adjustments to reduce the funding deficiencies of the State’s pension and retirement systems. Subsequent
legislation was passed in 2012 that modified the investment earnings assumption for determining employee and employer contribution rates such that contributions plus expected investment earnings will cover the
projected cost of promised pension benefits. The State Legislature passed additional pension legislation in 2013 that modified contribution rates, benefits formulas, and direct state aid to various pension funds and
in 2014 that modified the trigger mechanism for post-retirement benefit adjustments from one year to two years for certain pension funds. The State Legislature also passed pension legislation in 2015 that reduced the
interest rate actuarial assumption of certain pension funds, revised the financial sustainability triggers for post-retirement adjustment mechanisms, and reduced annual state aid contributions to some pension funds by
$18 million per year for the Current Biennium and $8 million per year for future fiscal years. There can be no guarantee that these modifications will have their intended effect. Consequently, the State could be
liable for future pension obligations that may impact the State’s ability to satisfy its outstanding debt obligations.
Debt. Article XI, Section 5 of the Minnesota Constitution authorizes public debt to be incurred for certain purposes. Article XI requires all such debt to be evidenced by the issuance of State
bonds maturing within 20 years of their date of issue, for which the full faith and credit and taxing powers of the State are irrevocably pledged. Public debt is defined to include any obligation payable directly, in
whole or in part, from a tax of statewide application on any class of property, income, transaction or privilege, but does not include any obligation which is payable from revenues other than taxes. The Minnesota
Constitution places no limitation on the interest rate of bonds that may be authorized for these purposes. As of June 30, 2015, the State had $6.44 billion in general obligation bonds outstanding. In addition, the
State had $1.96 billion of general obligation bonds authorized but unissued at that time. As of February 2015, the State is expected to incur debt service requirements on its taxsupported debt of $609 million
and $630 million in FY2016 and FY2017, respectively. These figures may not represent the total amounts appropriated in each fiscal year for such obligations.
Litigation. The State, its officials and employees are named as defendants in legal proceedings that occur in the normal course of governmental operations. Some of these proceedings involve claims for
substantial amounts, which if decided against the State might require the State to make significant future expenditures or substantially impair future revenue sources. Because of the prospective nature of these
proceedings, it is not presently possible to predict the ultimate outcome of such proceedings, estimate the potential impact on the ability of the State to pay debt service costs on its obligations, or determine what
impact, if any, such proceedings may have on a fund’s investments.
In June 2015, a plaintiff taxpayer appealed to
the Minnesota Supreme Court for the reconsideration of the Minnesota Tax Court’s grant of summary judgment to the State Commissioner of Revenue (“Commissioner”) in a case concerning the
taxpayer’s refund claims. The plaintiff alleged that it was entitled to elect a corporate tax apportionment formula set forth in the Multistate Tax Compact, even though the Minnesota Legislature repealed that
provision from the Minnesota Statutes in 1987. Resolution of this case may impact the Commissioner’s assessments against other multistate tax filers and may impact refund claims corporate taxpayers have or may
file with the Commissioner. As of February 2015, multiple corporate taxpayers had filed about $180 million in refund claims, with estimated potential total refunds of $700 million. It is not possible to predict the
amount of any judgment or settlement that the State may have to pay in relation to this proceeding or related proceedings that follow, if any. However, if the amounts are significant, they may have a negative impact
on the State’s financial condition, which could harm the value of the State’s municipal securities.
Credit Rating. As of July 15, 2016, Minnesota’s general obligation debt was assigned a rating of Aa1 by Moody’s Investors Service, Inc. and AA+ by both Standard & Poor’s Rating
Services and Fitch, Inc. These ratings reflect only the views of the respective rating agency, an explanation of which may be obtained from each such rating agency. There is no assurance that these ratings will
continue for any given period of time or that they will not be revised or withdrawn entirely by the rating agency if, in the judgment of such rating agency, circumstances so warrant. A downward revision or withdrawal
of any such rating may have an adverse effect on the market prices of the securities issued by the State, its municipalities, and their political subdivisions, instrumentalities, and authorities.
North Carolina
Introduction. With a population of approximately 10.0 million, North Carolina (“State”) is the ninth most populous state in the country. Although its economy is diverse, the State’s
major industry sectors are services, agriculture, trade, manufacturing, exports, and tourism, with military presence and residential construction also being important economic drivers. As these sectors represent the
largest share of employment in the State, economic problems or factors that adversely impact these sectors may have a negative effect on the value of the State’s municipal securities, which may reduce the
performance of a fund.
The State faces significant
fiscal challenges including weakened manufacturing and construction sectors and an underfunded Medicaid program. A future economic downturn could significantly impact the State’s finances and, therefore, its
municipal securities. Moreover, the level of public debt in the State may affect long-term growth prospects and could cause some municipalities to experience financial hardship. As a result of these and other factors,
North Carolina has faced fiscal stress in recent years.
There can be no guarantee that
the State’s current economic and fiscal conditions will continue to improve or that future developments will not have a materially adverse impact on the State’s finances. Any deterioration in the
State’s financial condition may have a negative effect on the marketability, liquidity, or value of the securities issued by the State and its municipalities, which could reduce the performance of a fund.
Economic Climate. According to the U.S. Department of Commerce, residents of North Carolina received approximately $408 billion in estimated personal income in 2015. As a result, residents of North Carolina
had a per capita income of $40,656, which was below the national average of $47,669 during the same period.
North Carolina’s civilian
labor force consists of approximately 4.9 million individuals. As of April 2016, North Carolina had an unemployment rate of 5.4%, which was down from 5.8% in April 2015. North Carolina’s unemployment rate was
higher than the national average of 5.0% in April 2016.
As of November 2015, the
manufacturing sector employed approximately 462,900 individuals. While manufacturing has historically been a major sector of the State’s economy, the industry has drastically changed over the past two decades
due to globalization and technological advancements. In November 2015, the State’s largest manufacturing employment sectors were: food (11%), chemical (9%), fabricated metal product (8%), and furniture and
related product (8%), and plastics and rubber (7%). Although manufacturing jobs continue to grow, service providing jobs, including information, education, health, and professional services, account for 85% of the
labor force in North Carolina, or 3.6 million jobs.
In addition, North Carolina has
the fourth largest military population in the United States. The military supports approximately 578,000 jobs in the State. As a result, federal revenues related to the defense sector contribute heavily to the
State’s economy. Therefore, cuts in federal government spending, or military base closures or realignments, may result in increased unemployment in North Carolina or otherwise result in increased fiscal stress
in the State, which could negatively impact the ability of the State to satisfy its outstanding debt obligations. Any failure to make timely payments of interest or principal on the State’s outstanding
obligations could harm the value of the State’s municipal securities, which could impact the performance of a fund.
Budget. Under the North Carolina budget process, in odd numbered years the General Assembly enacts a State budget for the next biennium, consisting of an annual budget for each of the two fiscal
years in the biennium. The General Assembly customarily convenes in the second year of the biennium and makes adjustments to the budget previously enacted for that second fiscal year. The State is currently in the
biennium that began July 1, 2015 and will end on June 30, 2017.
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In September 2015, the General
Assembly enacted the budget for FY2016 and FY2017 (“Initial Budget”). The Initial Budget included estimated general fund spending of $21.5 billion in FY2016 and $22.2 billion in FY2017, with a balance of
approximately $480,000 at the end of FY2016 and $4.4 million at the end of FY2017. In FY2016 and FY2017, over 54% of funds would be spent on programs to enhance education in the State, over 24% would be spent on
programs supporting the health and well-being of State citizens, and over 11% would be spent on ensuring public safety and the adequacy of the State’s judicial system. The Initial Budget would devote more than
$10.8 billion to the Department of Health and Human Services and more than $7.8 billion for Medicaid. The Initial Budget would commit nearly $4.8 billion to lay the foundation for the State’s 25-year
transportation vision, which focuses on connecting small towns and economic centers.
In April 2016, the Governor
proposed amendments to the Initial Budget, which affect the remainder of the biennium (“Budget Amendments”). In April 2016, the State’s consensus revenue forecast for the biennium was revised upward
by $179.2 million (0.8%) for FY2016-17. In addition, the consensus forecast projects net General Fund revenue of $21.96 billion in FY2015-16, which is 2.4% over the $21.45 billion collected in FY2014-15.
Adjustments to revenue are
projected to increase budget availability by $104 million in FY2017. Individual income tax collections, the State’s single largest source of revenue, are expected to decline by 0.1% in FY2017. The phasing in of
previously enacted tax reductions during FY2016-17 will offset the modest projected year-over-year growth in individual income tax revenues. Additionally, sales and use tax collections, which comprise nearly one-third
of General Fund revenue, are estimated to increase by 5.7% in FY2017 due primarily to growth in consumer spending and growth from recently enacted revenue changes. Corporate collections are projected to decline 10.3%
during FY2017. However, as compared to revenue projections in the Initial Budget for FY2017, corporate collections were adjusted upward by $93 million.
Although the Budget Amendments
are projected to leave a General Fund balance of $619.5 million for FY2017, State revenue volatility and responsiveness to economic changes has increased in recent years. In addition, recent tax law changes may have
major impacts on income and sales and use tax collections, resulting in more increased volatility for the remainder of the biennium than normally associated with a revenue forecast.
Debt. The State issues two types of taxsupported debt: general obligation bonds and various types of “special indebtedness.” General obligation bonds are secured by the full
faith, credit, and taxing power of the State and require approval by a majority of voters. The payments on special indebtedness are subject to appropriation by the State General Assembly and may also be secured by a
lien on facilities or equipment. As of June 30, 2015, the State had long term debt outstanding (bonds, special indebtedness, and notes payable) of approximately $7.91 billion. In FY2015, the State issued approximately
$231.4 million in general obligation bonds. In addition, the State refinanced $309.2 million of its existing bonds to take advantage of lower interest rates. The refinancing is expected to reduce future debt service
payments by approximately $21 million.
Litigation. The State, its officials, and its employees are named as defendants in legal proceedings that occur in the normal course of governmental operations. Some of these proceedings involve
claims for substantial amounts, which if decided against the State might require the State to make significant future expenditures or substantially impair future revenue sources. Because of the prospective nature of
these proceedings, it is not presently possible to predict the ultimate outcome of such proceedings, estimate the potential impact on the ability of the State to pay debt service costs on its obligations, or determine
what impact, if any, such proceedings may have on a fund’s investments.
Credit rating. As of July 15, 2016, North Carolina’s general obligation debt was assigned a rating of Aaa by Moody’s Investors Service, Inc. and AAA by both Standard & Poor’s Rating
Services and Fitch, Inc. These ratings reflect only the views of the respective rating agency, an explanation of which may be obtained from each such rating agency. There is no assurance that these ratings will
continue for any given period of time or that they will not be revised or withdrawn entirely by the rating agency if, in the judgment of such rating agency, circumstances so warrant. A downward revision or withdrawal
of any such rating may have an adverse effect on the market prices of the securities issued by the State, its municipalities, and their political subdivisions, instrumentalities, and authorities.
Ohio
Ohio
Introduction. With a population of 11.5 million, Ohio (“State”) is the seventh most populous state in the country. While diversifying more into service and other nonmanufacturing
areas, the Ohio economy continues to rely in part on durable goods manufacturing, largely concentrated in motor vehicles, aircraft/spacecraft, and machinery, including electrical machinery. As a result, general
economic activity, as in many other industrially developed states, tends to be more cyclical than in some other states and in the nation as a whole. Agriculture is also an important segment of the economy, with over
half the State’s area devoted to farming and a significant portion of total employment in agribusiness. As these sectors represent a significant share of employment in the State, economic problems or factors
that adversely impact these sectors may have a negative effect on the value of the State’s municipal securities, which may reduce the performance of a fund.
The State faces serious fiscal
challenges including significant unfunded liabilities in the State’s public retirement systems. A future economic downturn could significantly impact the State’s finances and, consequently, its municipal
securities.
Moreover, the level of public debt in the State
may affect long-term growth prospects and could cause some municipalities to experience financial hardship. As a result of these and other factors, the State continues to face fiscal stress.
There can be no guarantee that
the State’s current economic and fiscal conditions will continue to improve or that future developments will not have a materially adverse impact on the State’s finances. Any deterioration in the
State’s financial condition may have a negative effect on the marketability, liquidity or value of the securities issued by the State and its municipalities, which could reduce the performance of a fund.
Economic Climate. According to the U.S. Department of Commerce, residents of Ohio received over $505.0 billion in estimated personal income in 2015. As a result, residents of Ohio had a per capita income of
$43,478, which was below the national average of $47,669 over the same period.
Ohio’s civilian labor
force consists of approximately 5.8 million individuals. As of April 2016, Ohio had an unemployment rate of 5.2%, which was down from 5.0% in April 2015. Ohio’s unemployment rate was above the national average
of 5.0% in April 2016.
The State’s real GDP grew
by 2.0% in 2015. In addition, recent data reviewed by the Ohio Office of Budget and Management (“OBM”) estimates that Ohio gained 71,900 jobs between April 2015 and April 2016. Most employment gains were
in education and health services (24,000), leisure and hospitality (15,500), trade, transportation and utilities (11,200), construction (10,200), and financial activities (9,800). Meanwhile, State wage and salary
income increased by 4.7% from the prior year.
As of June 2016, industrial
production increased by 0.7% compared with a year earlier. Manufacturing output was also higher by 0.3% compared with a year earlier. In addition, personal income in the State increased by 4.2% in 2016 compared with a
year earlier, slightly below the national average for the same time period, 4.4%.
The State economy’s growth
during the six month period ending May 2016 has decelerated to the slowest pace since the first quarter of 2013. According to OBM, this deceleration was due, in part, to deceleration in consumption expenditures, a
drop in nonresidential fixed investment, and a decrease in government expenditures.
Budget. The State operates on the basis of a fiscal biennium for its appropriations and expenditures. Most State operations are financed through the General Revenue Fund (“GRF”), for
which personal income taxes and sales and use taxes are the major sources of revenue. Growth and depletion of GRF ending fund balances show a consistent pattern related to national economic conditions, with the ending
fiscal year balance reduced during less favorable economic periods and increased during more favorable economic periods. The State is effectively precluded by law from ending a fiscal year or a biennium in a deficit
position. The State is also prohibited from borrowing more than $750,000 to meet casual deficits or failures in revenue or to meet expenses not otherwise provided for in the State’s budget.
In February 2015, the Governor
submitted his proposed budget for the FY201617 biennium (“Proposed Budget”). The Proposed Budget contained estimated GRF revenues for the FY201617 biennium of $72.2 billion, of which $35.2
billion would be available in FY2016 and $37.0 billion would be available in FY2017. Based on these revenues, the Proposed Budget recommended GRF appropriations totaling $72.3 billion for the biennium, of which $35.3
billion would be appropriated in FY2016 and $37.0 billion would be appropriated in FY2017. The largest drivers of the Proposed Budget’s GRF spending are appropriations to support the Medicaid and the
State’s primary and secondary education systems. The Proposed Budget recommends GRF spending of $38.2 billion on Medicaid during the biennium (52.8% of the State’s FY2016-17 spending) and $21.60 billion on
primary, secondary, higher and other education systems during the biennium (29.9% of the State’s FY2016-17 spending).
The Proposed Budget estimated a
GRF ending balance of $189.6 million and $213.0 million for FY2016 and FY2017, respectively.
On June 30, 2015, the Governor
signed the FY201617 biennium budget into law (“FY201617 Budget”). The FY2016-17 Budget included all necessary appropriations for debt service on State obligations. The FY201617 Budget
largely follows the Governor’s recommendations in the Proposed Budget. The FY2016-17 Budget provided for total GRF biennial appropriations of approximately $45.9 billion ($22.6 billion in FY2016 and $23.4
billion in FY2017) and total GRF biennial revenue of approximately $71.4 billion (a 14.4% increase from FY2014-15 GRF biennial revenues). GRF appropriations for major program categories compared to FY2014-15 actual
GRF spending reflected increases of 30.6% for Medicaid; 10.9% for elementary and secondary education; 7.5% for higher education; 13.1% for mental health and developmental disabilities; and 6.6% for corrections and
youth services. The appropriations acts for FY2016-17 Budget modified the school funding formula to distribute new resources to districts with less capacity to raise revenues locally and freezes tuition and fees for
two- and four-year higher education institutions.
FY2015 ended with a GRF fund
balance of $1.29 billion. As of May 2016, OBM projected a $469 million GRF fund balance at the end of FY2016. The State’s Budget Stabilization Fund ended FY2015 with a balance of $1.48 billion.
Between February and May of
2016, eight Mid-Biennium Review (“MBR”) bills were introduced in the Ohio House of Representatives and Senate. As of the date of this SAI, none of the MBR bills have passed.
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As of June 2016, actual revenue
for FY2016 was $31.1 billion and actual spending was $32.4 billion. Tax receipts were $503.3 million below the FY2016-17 Budget estimate at a total of $19.7 billion, and GRF net income tax collections were $687.0
million. Actual spending as of June 2016 was $328.6 million below estimates, with actual spending in primary and secondary, higher education, , Medicaid, and many other spending categories falling below initial
estimates. For example, Medicaid spending, at a total of $16.6 million, was $270.9 million (1.6%) below estimates.
Unfunded liabilities in the
State’s public retirement systems present a significant risk to the State’s fiscal condition. The State has established five public retirement systems to provide retirement, disability retirement and
survivor benefits, and other post-employment benefits such as retiree health care benefits to over 1.1 million active and retired members combined. None of these benefits are guaranteed by the State or subject to
bargaining under the State’s current public employee collective bargaining law. Funding for the retirement systems is provided by a combination of public employer and employee contributions based on percentages
of each employee’s compensation, with the employees’ contributions being deducted from their paychecks. Those contribution percentages are either established in State law or by the retirement system board
subject to a maximum contribution amount established in State law. Recent valuations of the State’s retirement systems showed that the retirement systems had $55.5 billion in unfunded liabilities and $15.9
billion in unfunded liability for postemployment healthcare benefits.
Debt. The incurrence or assumption of debt by the State without a popular vote is, with limited exceptions, prohibited by the State Constitution. The State may incur debt to cover casual
deficits or to address failures in revenues or to meet expenses not otherwise provided for, but limited in amount to $750,000. The Constitution expressly precludes the State from assuming the debts of any county,
city, town or township, or of any corporation. Additionally, the State Constitution caps annual debt service applicable to future issuances of state direct obligations payable from the GRF or net State lottery
proceeds to 5% of the total estimated GRF revenues plus net state lottery proceeds for the fiscal year of issuance.
By various constitutional
amendments, Ohio voters have authorized the incurrence of State general obligation debt and the pledge of taxes or excises to its payments. Currently, tax supported general obligation debt of the State is authorized
to be incurred for the following purposes: highways, local infrastructure, coal development, natural resources and parks, higher education, common schools, conservation, research and development, site development and
veterans compensation. Although supported by the general obligation pledge, highway debt is also backed by a pledge of, and has always been paid from, the State’s motor fuel taxes and other highway user receipts
that are constitutionally restricted in use to highway related purposes.
As of June 30, 2016, the State
had $7.60billion in outstanding general obligation indebtedness and $1.68 billion in outstanding special obligation indebtedness, for a total of $9.28 billion payable from the GRF. The State also had $991 million in
debt obligations payable from nonGFR sources, including highway user receipts.
Actual annual GRF debt service
in FY2016 was $1.33 billion, $24.3 million (1.8%) below the initial estimate. Future annual GRF debt service requirements are projected to be $1.33 billion in FY2017, $1.26 billion in FY2018, and $1.20 billion in
FY2019. These figures may not represent the actual amount appropriated for debt service in a given fiscal year.
Litigation. The State, its officials and employees are named as defendants in legal proceedings that occur in the normal course of governmental operations. Some of these proceedings involve claims for
substantial amounts, which if decided against the State might require the State to make significant future expenditures or substantially impair future revenue sources. Because of the prospective nature of these
proceedings, it is not presently possible to predict the ultimate outcome of such proceedings, estimate the potential impact on the ability of the State to pay debt service costs on its obligations, or determine what
impact, if any, such proceedings may have on a fund’s investments.
Credit Rating. As of July 15, 2016, Ohio’s general obligation debt was assigned a rating of Aa1 by Moody’s Investors Service, Inc. and AA+ by both Standard & Poor’s Rating Services
and Fitch, Inc. These ratings reflect only the views of the respective rating agency, an explanation of which may be obtained from each such rating agency. There is no assurance that these ratings will continue for
any given period of time or that they will not be revised or withdrawn entirely by the rating agency if, in the judgment of such rating agency, circumstances so warrant. A downward revision or withdrawal of any such
rating may have an adverse effect on the market prices of the securities issued by the State, its municipalities, and their political subdivisions, instrumentalities, and authorities.
Virginia
Introduction. With a population of approximately 8.4 million, the Commonwealth of Virginia (“Commonwealth”) is the twelfth most populous state in the country. Although its economy is
diverse, it has major components in the education and health services sectors, the retail trade sector, and the professional and business services sector. In addition, government agencies at the federal, state and
local levels employ a large portion of Virginia’s population. As these sectors represent a significant share of employment in the Commonwealth, economic problems or factors that adversely impact these sectors
may have a negative effect on the value of the Commonwealth’s municipal securities, which may reduce the performance of a fund.
The Commonwealth faces serious
significant fiscal challenges including the underfunding of the Commonwealth’s pension funds. A future economic downturn could significantly impact the Commonwealth’s finances and, consequently,
its municipal securities. Moreover, the level
of public debt in the Commonwealth may affect long-term growth prospects and could cause some municipalities to experience financial hardship. As a result of these and other factors, the Commonwealth has faced fiscal
stress in recent years.
There can be no guarantee that
the Commonwealth’s current economic and fiscal conditions will continue to improve or that future developments will not have a materially adverse impact on the Commonwealth’s finances. Any deterioration in
the Commonwealth’s financial condition may have a negative effect on the marketability, liquidity or value of the securities issued by the Commonwealth and its municipalities, which could reduce the performance
of a fund.
Economic Climate. According to the U.S. Department of Commerce, residents of Virginia received over $437 billion in estimated personal income in 2015. As a result, residents of Virginia had a per capita
income of $52,136, compared to the national average of $47,669 during that period.
Virginia’s civilian labor
force consists of approximately 4.2 million individuals. As of April 2016, Virginia had an unemployment rate of approximately 3.9%, which was down from 4.6% in April 2015. Virginia’s unemployment rate was below
the national average of 5.0% in April 2016.
During FY2015, the
Commonwealth’s nonfarm employment growth rate increased moderately, at a rate of 1.7%. The largest growth rates in FY2015 occurred in the wholesale trade sector which increased by 46.3% from 102,880 in FY2014 to
150,512 in FY2015. The Commonwealth’s total personal income also rose, increasing at a 3.9% rate during FY2015, an increase from the 1.4% increase in FY2014. In addition, income from wages and salaries, which
accounted for 51% of total personal income in FY2015, grew by 3.0%, lagging behind the forecasted growth of 3.4% during the fiscal year.
Although the Commonwealth has
continued to perform better than in years past, several areas of weakness continue to persist. The Commonwealth is currently experiencing slower job and economic growth than the national average. For example, overall
employment in the NorfolkVirginia BeachNewport News region, which accounts for 20% of the employment in the Commonwealth, fell below expectations in FY2015 by rising only 0.3% compared to the forecast
growth of 1.4%. Northern Virginia, however, which represents 37% of all jobs in the Commonwealth, exceeded expectations and added approximately 14,400 jobs, representing the largest absolute job gain in Virginia in
FY2015. Accordingly, events negatively impacting the economy of Northern Virginia could have a significant impact on the Commonwealth’s economic condition more broadly.
Going forward, employment and
personal income growth in the Commonwealth is expected to be slower than growth at the national level. As of November 2015, personal income in the Commonwealth is projected to grow 3.7% in FY2016 and 3.8% in FY2017.
Wages and salaries are expected to grow 3.9% in FY2016 and 4.3% in FY2017. Employment is expected to increase modestly by 1.5% and 1.3% in FY2016 and FY2017, respectively. Employment in the professional and business
services sector is forecast to increase by 2.7% in FY2016. Construction employment is expected to grow by 3.0% in FY2016. Recent estimates project that the Commonwealth’s real GDP will grow by 2.4% in FY2016 and
3.1% in FY2017.
Due to its proximity to
Washington, DC, and the presence of several significant military installations in Virginia, Virginia’s economy is heavily dependent on federal expenditures in the Commonwealth. Cuts in federal spending, or the
closure or realignment of military bases in Virginia, may result in increased unemployment and fiscal stress in the Commonwealth, which could negatively impact the ability of the Commonwealth to satisfy its
outstanding debt obligations. Any failure to make timely payments of interest or principal on the Commonwealth’s outstanding obligations could harm the value of the Commonwealth’s municipal securities,
which could impact the performance of a fund.
Budget. The Governor is required by statute to present a bill detailing his budget for the next biennium (“Budget Bill”) and a narrative summary of the bill to the General Assembly by
December 20 in the year immediately prior to each evenyear session. The Budget Bill is introduced in both the House of Delegates and the Senate. It is referred to the House Appropriations and Senate Finance
Committees, which hold joint meetings to hear from interested parties and representatives of the Commonwealth’s various agencies. After the bill has passed both houses, differences between the House and Senate
versions are reconciled by a conference committee from both houses. Once the Budget Bill is given to the Governor for signature, Virginia’s constitution grants the Governor the authority to veto the
appropriations contained in the Budget Bill. Once enacted, however, the bill becomes law.
On December 17, 2015, the
Governor presented his proposed budget for FY 2017 and FY2018 (“Proposed Budget”). The approximately $104.3 billion operating budget represents an approximate increase of $10.4 billion (10.9%) from the
previous biennium. Of this total, the Proposed Budget would appropriate nearly $40.5 billion from the Commonwealth’s General Fund, an approximate increase of 7.4% from the previous biennium. If enacted, the
Proposed Budget would leave a projected unappropriated General Fund balance of approximately $21.2 million.
The Proposed Budget projected
total revenues of approximately $105.6 billion. Revenues and transfers attributable to the General Fund for the biennium total more than $39.6 billion. The Proposed Budget forecasted revenue from individual income
taxes to total approximately $13.2 billion in FY2017 and $13.8 billion in FY2018. Revenue from the sales and use tax was forecast to contribute revenues of $3.5 billion in FY2017 and $3.7 billion in FY2018.
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The primary drivers of spending
under the Proposed Budget were education, health and human resources, and transportation. Combined, these areas would constitute the majority of the Proposed Budget’s spending, accounting for approximately 77%
of the total operating budget.
Virginia’s Constitution
requires the Governor to ensure that budgeted expenses do not exceed total revenues anticipated plus fund balances during the period of two years and six months following the end of the General Assembly session in
which the biennial appropriations are made. A Revenue Stabilization Fund was established by constitutional amendment to help offset anticipated shortfalls in revenues in years when revenues are forecast to decline by
more than 2% of the certified tax revenues collected in the most recently ended fiscal year. In those years, the General Assembly may appropriate for transfer up to one half of the Revenue Stabilization Fund balance
to the General Fund. The maximum balance in the Revenue Stabilization Fund cannot exceed 15% of the Commonwealth’s average annual tax revenues derived from income and retail sales taxes for the three immediately
preceding fiscal years. The Proposed Budget would provide additional deposits into the Revenue Stabilization Fund of $605.6 million in FY2017, but based upon recent revenue forecasts, a mandatory deposit would not be
required in FY2018. As of June 30, 2015, the Revenue Stabilization Fund had principal and interest on deposit of $1.1 billion. During FY2015, a withdrawal of $467.7 million was made from the Revenue Stabilization
Fund.
In June 2016, the General
Assembly passed legislation regarding the Commonwealth’s budget for FY2017 and FY2018. The budget largely tracks the Governor’s Proposed Budget.
The Commonwealth contributes to
four defined benefit pension plans, each of which is administered by the Virginia Retirement System (“System”). The System acts as a common investment and administrative agent for the Commonwealth, its
political subdivisions and its local school boards. The largest of these defined benefit pension plans is the Virginia Retirement System (“VRS”). Membership in the VRS consists of Commonwealth employees,
public school teachers and employees of political subdivisions that have voluntarily joined the system. VRS covers over 340,000 active Commonwealth employees, teachers and covered employees of local governments.
During the FY2015, the Commonwealth adopted new accounting standards for certain pension-related information issued pursuant to Governmental Accounting Standards Board (GASB) Statement 68, which eliminates the
requirement that states compute the traditional funded ratio. In addition this accounting-standard change impacts the reporting requirements impacts the measurement and recognition of pension-related liabilities,
deferred outflows of resources, deferred inflows of resources and pension-related expenses in the Commonwealth’s financial statements. As a result of the adoption of GASB Statement 68, certain pension-related
financial information is presented using different valuation measurements than in prior years. As a result of these changes, the State may no longer disclose unfunded accrued actuarial liability and total unfunded
ratio information for its pensions. As of June 30, 2015, VRS faced a total net pension liability of $21.4 billion, resulting in a ratio of fiduciary net position to total pension liability of 72.81%, 70.68%, and
86.70% for employers of state employees, teachers, and political subdivision employees, respectively.
Debt. The Constitution of Virginia provides for the issuance of debt by or on behalf of the Commonwealth. Sections 9(a), (b) and (c) provide for the issuance of debt to which the
Commonwealth’s full faith and credit is pledged and Section 9(d) provides for the issuance of debt not secured by the full faith and credit of the Commonwealth, but which may be supported by and paid from
Commonwealth tax collections subject to appropriations by the General Assembly. In addition, certain authorities and institutions of the Commonwealth may issue debt obligations. As of June 30, 2015, the total
outstanding debt of the Commonwealth was approximately $41.9 billion. Taxsupported debt constitutes roughly $19.8 billion of this total, while the remaining $22.2 billion is not supported by taxes collected by
the Commonwealth. Virginia had total debt service requirements for outstanding taxsupported debt (including principal and interest) of roughly $1.05 billion in FY2016 and $1.06 billion in FY2017.
Litigation. The Commonwealth, its officials and employees are named as defendants in legal proceedings that occur in the normal course of governmental operations. Some of these proceedings involve
claims for substantial amounts, which if decided against the Commonwealth might require the Commonwealth to make significant future expenditures or substantially impair future revenue sources. Because of the
prospective nature of these proceedings, it is not presently possible to predict the ultimate outcome of such proceedings, estimate the potential impact on the ability of the Commonwealth to pay debt service costs on
its obligations, or determine what impact, if any, such proceedings may have on a fund’s investments.
Credit rating. As of July 15, 2016, Virginia’s general obligation debt was assigned a rating of Aaa by Moody’s Investors Service, Inc. and AAA by both Standard & Poor’s Rating
Services and Fitch, Inc. These ratings reflect only the views of the respective rating agency, an explanation of which may be obtained from each such rating agency. There is no assurance that these ratings will
continue for any given period of time or that they will not be revised or withdrawn entirely by the rating agency if, in the judgment of such rating agency, circumstances so warrant. A downward revision or withdrawal
of any such rating may have an adverse effect on the market prices of the securities issued by the Commonwealth, its municipalities, and their political subdivisions, instrumentalities, and authorities.
Commonwealth of Puerto Rico
Introduction. With a population of approximately 3.6 million, the Commonwealth of Puerto Rico (“Commonwealth”) has a larger population than many states in the United States. Although its
economy is diverse, Puerto Rico has major
components in the manufacturing sector and the
services sector, which includes the real estate and rental, retail trade, the finance and insurance, and the education and health services sectors. In addition, governmental agencies at the local and federal levels
employ a significant number of the Commonwealth’s residents. Based on May 2016 data, these sectors combine to employ approximately 69% of the Commonwealth’s workers. Because these sectors represent the
largest share of employment in the Commonwealth, economic problems or factors that adversely impact these sectors may have a negative effect on the value of the Commonwealth’s municipal securities, which may
reduce the performance of a fund.
During the last recession,
Puerto Rico experienced a significant economic downturn. Few signs of improvement have appeared, and any recovery may be slow as the Commonwealth continues to face significant fiscal challenges including substantial
underfunding of the Commonwealth’s retirement systems, sizeable debt service obligations and a high level of unemployment. A future economic downturn in the United States could significantly impact the
Commonwealth’s finances and, consequently, its municipal securities. Moreover, the high level of public debt in the Commonwealth affects long-term growth prospects and could cause the Commonwealth to experience
additional financial hardship. The amount of its outstanding public debt will make it very difficult for Puerto Rico to make full repayment. Certain issuers of Puerto Rico municipal securities have failed to make
payments on obligations that have come due, and additional missed payments and defaults may be likely to occur in the future. As a result of these and other factors, the Commonwealth has faced significant budget
shortfalls and severe fiscal stress in recent years.
There can be no assurances that
the Commonwealth will not continue to face fiscal stress or that such circumstances will not become even more difficult in the future. Furthermore, there can be no guarantee that future developments will not have a
materially adverse impact on the Commonwealth’s finances. Any deterioration in the Commonwealth’s financial condition may have a negative effect on the marketability, liquidity or value of the securities
issued by the Commonwealth, which could reduce the performance of a fund.
Economic Climate. Data show that residents of Puerto Rico received $63.8 billion in estimated personal income in FY2014. As a result, residents of Puerto Rico had an estimated per capita income of $17,855,
far below the national average of $46,049 during the same period.
Puerto Rico’s civilian
labor force consists of approximately 1.14 million individuals. As of May 2016, Puerto Rico had an unemployment rate of approximately 11.3%, which was down from 12.3% in May 2015, but significantly higher than the
national average of 4.7% in May 2016.
Puerto Rico’s high
unemployment continues a trend of high unemployment rates and a shrinking workforce in the Commonwealth spanning more than a decade. From FY2000 to FY2013, total employment in Puerto Rico decreased at an average
annual rate of 0.9%. During the first quarter of FY2016, total employment increased by 2.7% as compared to the same period in the prior fiscal year.
Puerto Rico’s economy is
closely linked to the economy of the United States. In recent years, however, the performance of Puerto Rico’s economy has diverged from the performance of the United States economy. Puerto Rico’s economy
entered into a recession in the fourth quarter of FY2006, two years before the rest of the United States. Puerto Rico’s real gross national product contracted by 2.9% in FY2008, 3.8% in FY2009, 3.6% in FY2010,
and 1.7% in FY2011, but expanded by 0.5% in FY2012. Meanwhile, the real gross national product of the United States grew by 2.2% in FY2008, contracted by 2.9% in FY2009, grew by 0.4% in FY2010, grew by 2.4% in FY2011,
and contracted by 2.2% in FY2012. Puerto Rico’s real gross national product decreased by 0.2% in FY2013 and 0.9% in FY2014, which were below the national rates of growth over those periods.
In April 2016, the Puerto Rico
Planning Board released its updated economic forecast for the Commonwealth. Preliminary data show that Puerto Rico’s real gross national product decreased by 0.7% in FY2014 and increased by 0.1% in FY2015.In May
2015, the Planning Board presented its economic outlook for FY2015 and FY2016, projecting that the Commonwealth’s real gross national product would decrease by 0.9% and 1.2%, respectively, during the periods due
primarily to the high cost of energy, the loss of patent protection of several products manufactured in Puerto Rico, global economic and trade conditions, population decline, and the Commonwealth’s high level of
debt.
Budget. Since 2000, the Commonwealth has faced a number of significant fiscal challenges, including a structural imbalance between its General Fund revenues and expenditures. This imbalance
reached its highest historical level of $3.31 billion in FY2009, when revenues were $7.58 billion and expenditures were $10.89 billion. Through various measures designed to increase revenues and reduce expenses, the
Commonwealth reduced the General Fund deficit between FY2010 and FY2012. The FY2015 Budget faced an expected $740 million deficit.
Despite these structural
imbalances, the Governor proposed a balanced budget for FY2016 (“Proposed Budget”). The Proposed Budget projected total General Fund revenues of $9.8 billion, which would represent an increase of
approximately $235 million from budgeted General Fund revenues for FY2015. The increase in projected General Fund revenues from FY2015 was expected to result primarily from a change to the sales and use tax, enacted
July 1, 2014, that would increase revenues from that tax. Additionally, the Proposed Budget projected total General Fund expenditures of $9.8 billion, which would represent an increase of approximately $235 million
from budgeted General Fund expenditures for FY2015. The increase in projected General Fund expenditures from FY2015 was expected to result primarily from a significant increase in debt service payments and special
pension contributions.
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On July 1, 2015, the Governor
signed the Commonwealth’s budget for FY2016 into law (“Enacted Budget”). The Enacted Budget largely follows the recommendations contained in the Proposed Budget. Under the enacted budget, the
Commonwealth is projected to make appropriations from the General Fund totaling $9.8 billion. Although the Enacted Budget may be balanced for FY2016, there are considerable risks to certain of the assumptions included
in the Enacted Budget. For example, the ability of the Commonwealth to reduce expenditures and raise revenues is dependent on a number of factors, many of which are outside the control of the Commonwealth. If the
Commonwealth is unable to achieve cost savings as planned or actual revenues fall short of estimates, the Commonwealth could be forced to take extraordinary measures to cover any resulting budget gaps, which could add
significant pressure to the Commonwealth’s financial condition.
Moreover, investors should be
aware that Puerto Rico relies heavily on transfers from the federal government related to specific programs and activities in the Commonwealth. These transfers include, among others, entitlements for previously
performed services, or those resulting from contributions to programs such as Social Security, Veterans’ Benefits, Medicare and U.S. Civil Service retirement pensions, as well as grants such as Nutritional
Assistance Program grants and Pell Grant scholarships for higher education. In FY2013, individuals in Puerto Rico received more than $15.6 billion in federal transfers, which was a decrease of 0.6% from FY2012.
Individuals in Puerto Rico are projected to receive total federal transfers of approximately $17.28 billion in FY2014. Due to the Commonwealth’s dependence on federal transfers, any actions that reduce or alter
these transfers may cause increased fiscal stress in Puerto Rico, which could have a negative effect on the value of the Commonwealth’s municipal securities.
Retirement Systems. Growing unfunded pension obligations in the Commonwealth’s three retirement systems continue to add significant stress to the Commonwealth’s fiscal condition. The
Commonwealth’s retirement systems include the Employees Retirement System, the Teachers Retirement System and the Judiciary Retirement System. These systems are funded primarily with budget appropriations from
the Commonwealth’s General Fund, though public corporations and municipalities in the Commonwealth are responsible for approximately 41% of the contributions to the Employees Retirement System. As of June 30,
2014, these plans supported a combined total of more than 165,000 active members and nearly 130,000 retired members.
Before June 2014, the
Commonwealth calculated the retirement systems’ unfunded actuarial accrued liabilities using Governmental Accounting Standards Board (“GASB”) No. 25. As of June 2014, the Commonwealth used GASB No.
67, which eliminates the requirement that states compute the traditional funded ratio. In addition, this accounting-standard change impacts the presentation of the financial statements, notes to the financial
statements and required supplementary information, with considerable modifications in actual calculations of pension liability. As a result of the adoption of GASB No. 67, certain pension-related financial information
is presented using different valuation measurements than in prior years. As a result of these changes, the Commonwealth no longer discloses unfunded accrued actuarial liability and total unfunded ratio information for
its pensions.
As of June 30, 2014, the net
pension liabilities for the Employees Retirement System, the Teachers Retirement System and the Judiciary Retirement System were approximately $30.0 billion, $13.1 billion and $442 million, respectively. Accordingly,
the fiduciary net positions of these systems were 0.42%, 11.5% and 12.3%, respectively. Because the Commonwealth may be responsible for paying portions of the difference between the benefits paid and the contributions
received by the systems, these unfunded liabilities may present a significant risk to the Commonwealth’s fiscal condition. Should the Commonwealth be required to make any additional contributions to these
systems, the Commonwealth would likely have to reduce funding for other priorities, which may include payments on its outstanding debt obligations. Alternatively, the Commonwealth may be forced to raise revenue or
issue additional debt. Either outcome could increase the pressure on the Commonwealth’s budget, which could have an adverse impact on a fund’s investments in Puerto Rico.
On April 4, 2013, the
Commonwealth enacted comprehensive reforms (the “Act”) of the Employees Retirement System (“ERS”), the largest of the three retirement funds primarily funded with budget appropriations from the
Commonwealth’s General Fund. These reforms, which took effect in FY2014, were aimed at combating the systemic funding shortfalls facing the ERS. The Act, which requires additional payments by the Commonwealth
and participating employers into the ERS, is not designed to improve the funding ratio in the near term, but rather to ensure that the ERS remains solvent. Because of the long-term nature of the Act, constant
monitoring and future adjustments will be needed as a result of actual experience to make sure that the ERS remains solvent. However, as a result of continued budget deficits in FY2014 and FY2015, the Commonwealth and
other participating employers have been unable to make the additional payments required under the Act. For FY2014, the Act provided an annual required contribution of $1.8 billion, while actual employer contributions
to the ERS were $742.9 million, or 40.8% of the annual required contribution under the Act. . There can be no guarantee that the Commonwealth will be able to meet its obligations under the Act or that the fiscal
condition of the Commonwealth’s retirement systems will not deteriorate even further in the future.
Debt. As of September 30, 2015, the Commonwealth had approximately $69.9 billion in public sector debt outstanding, of which $22.8 billion was related to the Commonwealth’s General Fund.
Based on the public sector debt outstanding, the Commonwealth is expected to incur debt service requirements of $1.96 billion in FY2016 and $1.67 billion in FY2017. These figures may not represent the amount
appropriated for debt service by the Commonwealth in a given fiscal year.
In June 2014, Puerto Rico enacted the Puerto
Rico Public Corporations Debt Enforcement and Recovery Act (the “Debt Enforcement Act”), which permits certain public corporations in Puerto Rico to restructure their outstanding obligations in a manner
that may provide less protection for creditors than under Chapter 9 of the U.S. Bankruptcy Code. In June 2016, the Supreme Court overturned the Debt Enforcement Act. The Supreme Court determined that only the United
States Congress can pass the kind of debt restructuring law that Puerto Rico pursued with the Debt Enforcement Act.
On June 30, 2016, President
Obama signed the Puerto Rico Oversight, Management, and Economic Stability Act (“PROMESA”) into law. PROMESA allows Puerto Rico to restructure its outstanding debt obligations. It also establishes an
oversight and management board (the “Oversight Board”) that is empowered to approve Puerto Rico’s fiscal plans and budgets. The Oversight Board is comprised of seven members appointed by the
President who are nominated by a bipartisan selection process. Additionally, PROMESA stays creditor litigation until the later of February 15, 2017 or six months after the establishment of the Oversight Board. The
stay also applies retroactively to litigation commenced since December 18, 2015.On April 6, 2016, Governor Padilla signed into law the Puerto Rico Emergency Moratorium and Rehabilitation Act (“Emergency
Moratorium Act”), which enabled the Governor to declare a moratorium on debt payments until at least January 2017. Governor Padilla issued an executive order on June 30, 2016 declaring a moratorium on the
Commonwealth’s obligation to make payments on any bonds or notes issued or guaranteed by the Commonwealth. Accordingly, Puerto Rico did not make its debt payment of $1.9 billion scheduled for July 1, 2016.
Holders of Puerto Rican general obligation bonds brought suit in federal district court challenging the Emergency Moratorium Act. Although it is not presently possible to predict the ultimate outcome of these
proceedings, if the district court upholds the Emergency Moratorium Act, issuers of Puerto Rican debt obligations will be temporarily permitted to suspend payments. Such a suspension of payments could have a negative
impact on the marketability, liquidity or value of certain investments held by a fund, which would reduce its performance.
On June 24, 2016, Fitch Ratings
(“Fitch”) downgraded the Commonwealth’s issuer default rating and related debt ratings to C from CC. On July 5, 2016, Fitch further downgraded the Commonwealth’s issuer default rating to RD
from C and its general obligation bond rating to D from C following the payment default on certain general obligation bonds on July 1, 2016. S&P, Fitch and Moody’s previously lowered their ratings on Puerto
Rico’s general obligation bonds in April, June and July 2015, respectively, citing, among other things, weakening liquidity and economic deterioration. As of July 15, 2016, all three ratings agencies maintained
a negative outlook on Puerto Rico’s credit rating, which means that additional downgrades of securities issued by Puerto Rico are possible in the future.
As stated in the Prospectus,
below-investment-grade securities may be subject to greater price fluctuations than investment-grade securities, increased credit risk and a greater risk that the issuer might not be able to pay interest and principal
when due, especially during times of weakening economic conditions or rising interest rates. The reduction in the credit rating on Puerto Rico’s general obligation bonds could severely weaken the demand for
securities issued by Puerto Rico, its agencies or instrumentalities, which may prevent those issuers from obtaining the financing they need.
Litigation. The Commonwealth, its officials and employees are named as defendants in legal proceedings that occur in the normal course of governmental operations. Some of these proceedings involve
claims for substantial amounts, which if decided against the Commonwealth might require the Commonwealth to make significant future expenditures or substantially impair future revenue sources. Because of the
prospective nature of these proceedings, it is not presently possible to predict the ultimate outcome of such proceedings, estimate the potential impact on the ability of the Commonwealth to pay debt service costs on
its obligations, or determine what impact, if any, such proceedings may have on a fund’s investments. As of June 30, 2015, the Commonwealth estimated that its total liability for awarded and anticipated
litigation is approximately $1.5 billion.
Recovery of Medicaid
Funds. The Commonwealth is a defendant in two lawsuits filed by certain Federally Qualified Health Centers (“FQHCs”) that seek to recover approximately $800 million in Medicaid
payments, which the Commonwealth failed to make. The local court hearing the case ruled that the Commonwealth must make payments to the FQHCs to cover the difference between the reimbursements the FQHCs are owed and
the amounts they are paid by outside managed care organizations. After several appeals, five partial judgments were entered into. Four of these partial judgments are final, and require the Commonwealth to pay $28
million. In accordance with the court’s order, the Commonwealth included $22.5 million of the total in its budget for FY2015. One partial judgment, which would require the Commonwealth to pay approximately $110
million, is still pending on appeal.
Simultaneously, the FQHCs
proceeded in their case against the Commonwealth in federal court. The court has issued various orders requiring the Commonwealth to make Medicaid payments to the health centers. The Commonwealth has already made
approximately $40 million in uncontested payments pursuant to these orders and has $27 million remaining in payments due for reconciliation, of which $9 million has been disbursed. The parties continue to litigate
various issues relating to the calculation of the balance of the payments. As of September 30, 2015, the Commonwealth estimated that its exposure from this legal contingency could be $500 million.
Special Education
Students. The Commonwealth is also a defendant in a class action from 1980 brought by parents of special education students before Commonwealth courts alleging that the Puerto Rico Department of
Education had failed to provide legally required special education and related services. Most recently, in April 2014 the court denied plaintiffs’ petition for consolidation of the damage claims, holding that
each plaintiff must submit evidence of the causal
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link between the Department of
Education’s negligence and plaintiff’s alleged damages. Plaintiffs are appealing this determination. As of September 30, 2015, the Commonwealth estimated its exposure from this legal contingency could be
$650 million if a final judgment is entered against the Commonwealth.
Credit rating. As of July 15, 2016, Puerto Rico’s general obligation debt was assigned a credit rating of Caa3 by Moody’s Investors Service, Inc. (“Moody’s”) and a D by both
Fitch, Inc. (“Fitch”) and Standard & Poor’s Rating Services (“S&P”). As a result, general obligation bonds issued by Puerto Rico are currently considered below-investment-grade
securities. These ratings reflect only the views of the respective rating agency, an explanation of which may be obtained from each such rating agency. There is no assurance that these ratings will continue for any
given period of time or that they will not be revised or withdrawn entirely by the rating agency if, in the judgment of such rating agency, circumstances so warrant. A downward revision or withdrawal of any such
rating may have an adverse effect on the market prices of the securities issued by the Commonwealth and its political subdivisions, instrumentalities, and authorities.
Guam
Introduction. As of the 2010 Census, Guam had a population of approximately 160,000. Guam’s economy is heavily dependent upon revenues from tourism and U.S. federal and military spending. As a
result, economic problems or factors that adversely impact these sources of revenue may have a negative effect on the value of Guam’s municipal securities, which may reduce the performance of a fund.
While Guam’s economy has
experienced growth in recent years, this growth may be slow as Guam continues to face significant fiscal challenges including a high unemployment rate and sluggish growth in the tourism industry. Furthermore, the
economic outlook in the rest of the United States remains uncertain. An economic downturn in the United States or countries such as Japan, China, or Korea, which provide large sources of tourism to the island, could
significantly impact the finances of Guam and, therefore, its municipal securities. Moreover, the level of public debt in Guam may affect long-term growth prospects and could cause Guam to experience financial
hardship. As a result of these and other factors, Guam has faced fiscal stress in recent years.
There can be no guarantee that
Guam’s economic and fiscal conditions will improve or that future developments will not have a materially adverse impact on Guam’s finances. Any deterioration in Guam’s financial condition may have a
negative effect on the marketability, liquidity or value of the securities issued by Guam, which could reduce the performance of a fund.
Economic Climate. Guam’s civilian labor force consists of more than 74,800 individuals. This figure includes citizens of the Federated States of Micronesia, and the Republic of Marshall Islands, who
are authorized by compact to accept employment in the United States and also, citizens of the Republic of Palau who are authorized by covenant to accept employment in the United States. As of December 2014, Guam had
an unemployment rate of approximately 7.7%, which was down from 8.4% in December 2013. Guam’s unemployment rate was above the national average of 5.6% in December 2014.
Approximately 75% of
Guam’s workforce is employed in the private sector, with the remainder employed by the federal and local government. In FY2014, Guam’s private sector added 210 jobs, while the public sector added 250 jobs.
Private sector results were largely due to the addition of 1,260 jobs in services and 130 jobs in retail employment. Federal employment increased by 90 jobs in FY2014, while the local government added 130 jobs during
that period.
According to the United States
Department of Commerce, Guam’s gross domestic product grew from $4.54 billion in 2009 to $4.88 billion in 2013. The 2013 GDP figure consists of approximately $3.1 billion of personal consumption expenditures,
$3.2 billion of government consumption expenditures and gross investment, and $281 million of private fixed investment. This GDP figure is offset by approximately $1.7 billion of net exports. The Department of
Commerce also estimates that Guam’s real per capita GDP, measured in 2005 dollars adjusted for inflation, grew from $23,378 in 2002 to $25,852 in 2013. Additionally, according to the United States Department of
Commerce, the average annual individual income for residents of Guam has increased from $26,730 in 2003 to $32,700 in 2013, a compound growth rate of 2.0%.
Guam’s real GDP increased
0.6% in 2013 after increasing 1.2% in 2012. For comparison, real GDP for the United States increased by 1.9% in 2013 and 2.1% in 2012. The increase in Guam’s real GDP in 2012 resulted primarily from an increase
in private sector industries, including spending by tourists, which was partially offset by decreases in federal and territorial governmental spending, as government construction activity declined and governmental
employee compensation decreased. The increase in Guam’s real GDP in 2013 resulted primarily from an increase of approximately 34.4% in private fixed investment, which includes spending by business on
construction and equipment. This growth was partly offset by a decrease in exports in services, consisting primarily of spending by tourists, which decreased by 4.6%.
Tourism has represented the
primary source of income for Guam’s economy for over twenty-five years. Visitor arrivals rose to over 1,000,000 travelers for the first time in 1994 and have remained near or above that level ever since. The
number of annual visitors to Guam increased from approximately 1,171,000 in FY2010 to over 1,341,000 in FY2014.
Historically, Japanese tourists
have accounted for the largest share of visitors to Guam. Accordingly, Guam’s economy may be affected by economic conditions in Japan that reduce visits to the island, including a weak Yen and an increase in
consumption tax. For example, after visitor
arrivals increased approximately 14% from 2009 to 2010, arrivals for 2011 declined following the natural disasters that struck Japan in March 2011. In FY2014, Guam received more than 825,800 arrivals from Japan.
Although Japanese tourists still
accounted for over 61% of all visitors to Guam in FY2014, the total share of Japanese visitors has declined in recent years as the U.S. has implemented visa waiver programs for more countries. As a result, Guam has
attracted new visitors from South Korea and China. Increased visits from tourists representing a more diverse pool of countries may reduce the impact of events, such as natural disasters, increased taxes, or weakening
of the local currency, that may prevent Japanese tourists from visiting Guam. Based on preliminary data for the first nine months of FY2015, the total number of visitors to Guam increased by approximately 1.6% from
the same period in FY2014.
The United States’
military presence on Guam also contributes significantly to the island’s economy. Its strategic location close to Asia has increased its importance in the overall military strategy of the United States. As of
2014, approximately 6,000 active duty military personnel were stationed on Guam. In 2006, the United States and Japan reached an agreement to relocate certain U.S. military forces and their dependents from Japan to
Guam by 2014, which was anticipated to add approximately 32,000 permanent residents to the island. In the years following 2010, however, Guam began to experience a decrease in U.S. military personnel as the plan to
relocate certain forces from Japan to Guam was delayed. Due to the high cost of relocating military personnel to Guam and federal budget concerns, the proposed U.S. military build-up in Guam is now expected to begin
after 2018. In addition, the expected size of the build-up has decreased. Recent proposals project that the U.S. Navy will relocate approximately 4,700 marines and 1,300 dependents from Japan to Guam over a 13-year
period, rather than the approximately 8,600 marines and 9,000 dependents originally projected. It is expected that the costs related to the development and construction of facilities accommodating the build-up will be
funded by the federal government and the government of Japan. The bulk of related construction is currently expected to occur in 2017 and 2018. Although the proposed relocation may improve economic conditions in Guam,
there can be no guarantee that the proposed relocation will occur or to what extent Guam’s local economy will benefit from any relocation.
Budget. On January 31, 2015, the Governor of Guam presented his executive budget for FY2016 (“Proposed Budget”). The Proposed Budget calls for total appropriations of $941.6 million.
The Proposed Budget projects total gross revenues for the General Fund of $851.7 million, which would represent an increase of $67.1 million (8.6%) from the budgeted revenues for FY2015. Total net General Fund
revenues, after taking into account mandatory set asides, amount to $702.2 million for FY2016. The Proposed Budget also projects Special Fund revenues of $196.0 million and Federal Matching Grants-in-Aid of $43.4
million, representing a 6.6% increase and negligible change from FY2015, respectively.
Under the Proposed Budget, the
executive branch would receive $344.1 million from the General Fund to fund various government programs and priorities. From this total, the Proposed Budget would allocate $61.1 million to the Department of Public
Health and Social Services, $37.8 million to the Guam Police Department, and $36.4 million to the Guam Fire Department. The Proposed Budget would also include a continuing appropriation of approximately $81.1 million
to pay debt service costs on Guam’s outstanding debt obligations.
On September 11, 2015,
Guam’s budget for FY2016 (“Enacted Budget”) lapsed into law under Public Law 33-66. The Enacted Budget largely follows the recommendations included in the Proposed Budget. The Enacted Budget projects
total net General Fund revenues, after taking into account mandatory set asides, of $665 million. Notably, the Enacted Budget included a continuing appropriation of $81.1 million to pay debt service costs on
Guam’s outstanding debt.
Debt. Guam is prohibited from authorizing or allowing the issuance of public debt in excess of 10% of the assessed tax valuation of the property in Guam. Public debt does not include bonds or
other obligations payable solely from revenues derived from any public improvement or undertaking, and obligations for the payment of which appropriations are required on an annual basis. As of the most recent
available valuation, the public debt of Guam may not exceed $1.16 billion. According to the most recent government audit report, the Government of Guam had total outstanding public debt of approximately $1.09 billion
at the end of FY2015. In addition, Guam may also obtain other financing sources that are not subject to the debt ceiling, such as notes payable and other loans not backed by the full faith of general government taxes
and revenues. As of the end of FY2015, Guam’s total indebtedness, including sources not subject to the debt ceiling, equaled approximately $2.46 billion.
Litigation. Guam, its officials and employees are named as defendants in legal proceedings that occur in the normal course of governmental operations. Some of these proceedings involve claims for
substantial amounts, which if decided against Guam might require Guam to make significant future expenditures or substantially impair future revenue sources. Because of the prospective nature of these proceedings, it
is not presently possible to predict the ultimate outcome of such proceedings, estimate the potential impact on the ability of Guam to pay debt service costs on its obligations, or determine what impact, if any, such
proceedings may have on a fund’s investments.
Credit rating. As of November 18, 2015, Guam’s general obligation debt was assigned a rating of BB- by Standard & Poor’s Rating Services. This rating reflects only the views of Standard
& Poor’s Rating Services, an explanation of which may be obtained from that rating agency. There is no assurance that this rating will continue for any given period of time or that it will not be revised or
withdrawn entirely by the rating agency if, in the judgment of such rating agency,
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circumstances so warrant. A downward revision
or withdrawal of any such rating may have an adverse effect on the market prices of the securities issued by Guam or its political subdivisions, instrumentalities and authorities.
U.S. Virgin Islands
Introduction. The United States Virgin Islands (“Virgin Islands”) is an unincorporated territory of the United States with separate executive, legislative and judicial branches of government.
In 2014, the population of the Virgin Islands was estimated at 105,954, representing a fairly even split between St. Thomas and St. John (54,964) and St. Croix (50,990). The economy of the Virgin Islands is heavily
dependent upon revenues from tourism. Nearly 3 million tourists visit the Virgin Islands per year, mostly arriving on cruise ships. Other major sectors of the Virgin Islands’ economy include the trade,
transportation and utilities sector; the retail trade sector; and the government sector. As these sectors represent the largest share of employment in the Virgin Islands, economic problems or factors that adversely
impact these sectors may have a negative effect on the value of the Virgin Islands’ municipal securities, which may reduce the performance of a fund.
The economy of the Virgin
Islands has faced significant setbacks in recent years. Recovery, if any, may be slow as the Virgin Islands continues to face significant fiscal challenges including a high unemployment rate and declining government
revenues. Furthermore, the economic outlook in the rest of the United States remains uncertain. An economic downturn in the United States could significantly impact the finances of the Virgin Islands and, therefore,
its municipal securities. Moreover, the level of public debt in the Virgin Islands may affect long-term growth prospects and could cause the Virgin Islands to experience increased financial hardship. As a result of
these and other factors, the Virgin Islands has faced fiscal stress and budgetary shortfalls in recent years.
There can be no guarantee that
economic and fiscal conditions in the Virgin Islands will improve or that future developments will not have a materially adverse impact on the finances of the Virgin Islands. Any deterioration in the Virgin
Islands’ financial condition may have a negative effect on the value of the securities issued by the Virgin Islands, which could reduce the performance of a fund.
Economic Climate. The civilian labor force of the Virgin Islands consists of approximately 48,000 individuals. As of September 2015, the Virgin Islands had an unemployment rate of approximately 12.1%. The
Virgin Islands’ unemployment rate was significantly above the national average of 5.1% during the same period.
The Virgin Islands’
economy has faced setbacks in recent years largely as a result of the economic recession in the United States, the closure of the HOVENSA petroleum refinery and regulatory changes made through the American JOBS
Creation Act of 2004 (“JOBS Act”). These three factors have placed financial stress on key segments of the Virgin Islands’ economy. While signs of growth have emerged, a full recovery will likely
require significant structural changes that are not guaranteed to be successful.
The financial crisis and
following economic recession accentuated pre-existing economic troubles in the Virgin Islands by eroding the tourism market. Typically, over two and a half million individuals visit the Virgin Islands each year via
cruise ship and air arrivals. After decreasing by approximately 16% between 2007 and 2009, total visits to the Virgin Islands rebounded between 2010 and 2012, surpassing pre-recession levels in both 2011 and 2012. In
2013, the Virgin Islands welcomed more than 2.69 million visitors, which was an increase of 1.8% from 2012. However, visitor spending fell approximately 20% between 2007 and 2013 from $1.5 billion to $1.2 billion.
The majority of visitors arrive
at the Virgin Islands via cruise ships. Although total cruise passengers decreased by approximately 21% from 2007 to 2009, total cruise passengers increased by nearly 20.3% between 2010 and 2012. In 2013, nearly 2
million cruise passenger arrived in the Virgin Islands, which was an increase of 4.9% from 2012. Based on preliminary data for the first three quarters of 2014, total cruise passenger arrivals increased 3.9% from the
same period in 2013.
The United States continues to
be the primary source of visitors to the Virgin Islands. Therefore, sustained gains in the tourism industry are closely related to continued economic growth in the United States. In order to expand its tourism
industry and insulate the islands from potential economic declines in the United States, the Virgin Islands began increasing its tourism marketing to other countries and regions. For example, the Virgin Islands
recently began a charter service from Denmark to St. Croix, which has provided growth from the Scandinavian countries. Additionally, new service from Canada, which began in FY2012, should allow the Virgin Islands to
explore opportunities for an increased number of both leisure and group travelers. Continued efforts to encourage visitors from within the Caribbean region are also expected to play a significant role in growing the
Virgin Islands’ tourism industry in the future.
Tourism-related services
continue to bolster private sector enterprises. Important private sector activities in the Virgin Islands include wholesale and trade, manufacturing (petroleum refining, textiles, electronics, pharmaceuticals and
watch assembly), construction and mining activities. The agricultural sector remains small, which requires most of the territory’s food to be imported. International business and financial services are a small
but growing component of the economy. Telecommunications, in tandem with other emerging technologies, present growth potential as exploration continues into accessibility and speed of broadband connectivity.
Because of its geographical location, the
Virgin Islands is subject to natural disasters – three hurricanes since 1989 (Hugo, Marilyn, and Bertha) have caused considerable damage to the territory. If another large hurricane, or other natural disaster,
were to make landfall on the Virgin Islands, the tourism industry, as well as other crucial industries, may be negatively impacted.
In January 2012, the operators
of the HOVENSA oil refinery announced that they would close the refinery, laying off approximately 1,200 employees and 950 subcontractors. At the time of its closure, HOVENSA was the third largest oil refinery in the
western hemisphere and the largest private employer in the Virgin Islands. The closure of the oil refinery is estimated to represent a $580 million reduction in direct gross economic output, or approximately 13% of
the Virgin Islands’ total gross territorial product. In addition, the HOVENSA closure is expected to have the government of the Virgin Islands nearly $140 million in annual tax revenues. Because the HOVENSA
refinery was one of the largest employers in the Virgin Islands, unemployment rates in the Virgin Islands have increased to levels not experienced in over 30 years. Due in part to this closure, real gross domestic
product in the Virgin Islands decreased by 13.2% in 2012. If imports, exports, and inventory investment of the petroleum refining industry are excluded from consideration, the Virgin Islands’ gross domestic
product would have increased 2.6% in 2012 due primarily to the growth in rum exports.
Several potential bidders have
expressed interest in various refinery assets. In September 2015, it was announced that a potential deal was made for ArcLight Capital Partners, LLC to purchase HOVENSA’s storage and docking facilities. At this
time, is not possible to project what impact any acquisition or reconfiguration of HOVENSA will have on the Virgin Islands’ economy.
Companies that make the Virgin
Islands their residence enjoy favorable tax rates sanctioned by the U.S. Congress through the Internal Revenue Code. The Virgin Islands enacts its tax program through the Virgin Islands Economic Development Commission
(“EDC”), which is designed to encourage investment and job creation in the territory. The JOBS Act included more stringent requirements for establishing bona fide residency in the Virgin Islands, thereby
making it harder for companies to qualify for favorable tax treatment under the EDC program. The JOBS Act may also narrow the scope of qualifying income under the EDC program. According to the Virgin Islands Economic
Development Authority, 32 companies terminated or suspended their EDC certificates, causing an estimated loss of 347 jobs and $619 million in employee taxes over the term of benefits which ranged from 10-15 years.
Additionally, as an unincorporated territory of the United States, the Virgin Islands is subject to the plenary power of Congress to make rules and regulations with respect to the Virgin Islands. Accordingly, there is
no guarantee that congressional action in the future will not negatively affect the EDC program.
Overall, the underlying
fundamentals of the Virgin Islands economy are volatile. Increasing unemployment, decreasing revenues and the loss of many high-paying jobs have combined to place significant fiscal pressure on the local government.
It is possible that fiscal challenges facing the Virgin Islands could impact the ability of the territory to satisfy the obligations on its outstanding debt. Any such outcome would likely reduce the value of the
municipal securities issued by the Virgin Islands and its political subdivisions, instrumentalities, and authorities, which may reduce the performance of a fund.
Budget. In recent fiscal years, the government has experienced substantial fluctuations in revenues and expenditures, as well as recurring deficits. The annual deficit increased from $9.2 million
in FY2006 to a peak of $577.6 million in FY2010. In January 2015, the Virgin Islands faced a budget deficit of approximately $133 million for FY2015 – which ultimately grew to $144 million. The Virgin Islands
has taken a series of actions to reduce the size of its operating budget and address its recurring operating deficit. However, these actions have not addressed the structural imbalances that have led to recurring
deficits. Rather, annual shortfalls have been addressed by an ad hoc combination of inter-fund transfers and debt financing.
In May 2015, the Governor
released his proposed budget for FY2016 (“Proposed Budget”). The Proposed Budget estimates that the Virgin Islands will have approximately $702.8 million in General Fund revenues available for
appropriation in FY2016. This estimate represents an increase of approximately $47.1 million from projected FY2015 General Fund revenues. Of this total, $504 million is expected to come from direct taxes, including
$361 million in individual income taxes (an increase of 6.3% from projected FY2015 totals), $83 million in corporate income taxes (an increase of 66% from projected FY2015 totals), and $60 million in real property
taxes (a decrease of 23.3% from projected FY2015 totals). The net amount available after offsetting $85.5 million for tax refunds and credits is estimated at $418.5 million. The Proposed Budget estimates $42.6 million
in transfers from local funds to the General Fund, which would represent a decrease of 27% from FY2015 projected totals. Finally, the Proposed Budget forecasts funding from other sources, such as various duties, fees
and charges to total $132.6 million in FY2015.
Against these estimated
revenues, the Proposed Budget would appropriate approximately $702.8 million from the General Fund. This total is $41 million less than FY2015 appropriations and $81.5 million less than FY2014 estimates. The major
drivers of General Fund spending in the Proposed Budget include $154.5 million for the Department of Education, $19.9 million for the Department of Human Services, $59.2 million for the Virgin Islands’ police
department, and $55.3 million to fund the operations of the Virgin Islands’ judicial and legislative branches. Other notable items listed in the funding proposal include $5.2 million for off-island prisoner
placements and $3.8 million for asphalt and roadside maintenance.
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Structural imbalances for the
General Fund have continued, and estimated revenues are insufficient by $98 million to cover estimated expenditures for FY2016. To address this shortfall, the Proposed Budget includes “revenue generating
initiatives” as follows: $55.5 million in savings from proposed long-term debt restructuring, $31 million from a focused tax collection campaign and $11.5 million from sustained efforts to release federal funds.
As with all projected revenues, there is no guarantee that these sources will generate revenues in the expected amounts.
In September 2015, the Virgin
Islands Legislature adopted its FY2016 budget (“Adopted Budget”). The Adopted Budget was sent to the Governor for approval. In October 2015, the Governor approved portions of the Adopted Budget, while
vetoing others. The Governor’s vetoes are not expected to have a significant impact on General Fund revenues or appropriations.
Debt. Current law prohibits the Virgin Islands from authorizing or issuing general obligation bonds in excess of 10% of the total value of taxable property in the territory. As of July 1, 2014,
the general obligation debt ceiling for the Virgin Islands was estimated to be $924.9 million. As of June 2, 2014, the Virgin Islands had approximately $753.5 million of general obligation bonds or notes outstanding.
As of September 30, 2014, the net amount of bonds outstanding, including both general obligation and revenue bonds, was estimated at $2.1 billion.
Litigation. The Virgin Islands, its officials and employees are named as defendants in legal proceedings that occur in the normal course of governmental operations. Some of these proceedings involve
claims for substantial amounts, which if decided against the Virgin Islands might require the Virgin Islands to make significant future expenditures or substantially impair future revenue sources. Because of the
prospective nature of these proceedings, it is not presently possible to predict the ultimate outcome of such proceedings, estimate the potential impact on the ability of the Virgin Islands to pay debt service costs
on its obligations, or determine what impact, if any, such proceedings may have on a fund’s investments.
Credit rating. As of November 18, 2015, Fitch Inc. maintained an implied rating of BB- on the Virgin Islands’ general obligation debt. This rating reflects only the views of the respective rating
agency, an explanation of which may be obtained from that rating agency. There is no assurance that this rating will continue for any given period of time or that it will not be revised or withdrawn entirely by the
rating agency if, in the judgment of such rating agency, circumstances so warrant. A downward revision or withdrawal of any such rating may have an adverse effect on the market prices of the securities issued by the
Virgin Islands or its political subdivisions, instrumentalities and authorities.
Northern Mariana Islands
Introduction. The Commonwealth of the Northern Mariana Islands (the “Commonwealth”) is a commonwealth of the United States with a political status similar to that of Puerto Rico. As of the
2010 Census, the Commonwealth had a population of 53,883, a decrease of 22.2% from 2000. The economy of the Commonwealth is heavily dependent upon revenues from tourism and transfers from the federal government. As
these sources represent a significant share of the Commonwealth’s revenue, economic problems or factors that adversely impact these sources may have a negative effect on the value of the Commonwealth’s
municipal securities, which may reduce the performance of a fund.
The economy of the Commonwealth
has faced significant setbacks in recent years. Recovery, if any, may be slow as the Commonwealth continues to face substantial fiscal challenges including high unemployment, severe reductions in key industry segments
and large government deficits. Furthermore, the economic outlook in the rest of the United States remains uncertain. An economic downturn in the United States or countries such as Japan, China or Korea, which provide
large sources of tourism to the islands, could significantly impact the finances of the Commonwealth and, therefore, its municipal securities. Moreover, the level of public debt in the Commonwealth may affect
long-term growth prospects and could cause the Commonwealth to experience continued financial hardship.
There can be no guarantee that
the Commonwealth’s economic and fiscal conditions will improve or that future developments will not have a materially adverse impact on the Commonwealth’s finances. Any further deterioration in the
Commonwealth’s financial condition may have a negative effect on the marketability, liquidity or value of the securities issued by the Commonwealth and may jeopardize the ability of the Commonwealth to satisfy
its obligations on its outstanding debt, which could reduce the performance of a fund.
Economic Climate. After joining the United States in 1978, the federal government agreed to exempt the Commonwealth from federal minimum wage and immigration laws in an effort to help stimulate the
Commonwealth’s economy. As a result of these exemptions, the Commonwealth was able to build a large garment industry, which at one time accounted for nearly 40% of the Commonwealth’s economy. The rapid
growth of this industry generated significant economic growth in the islands from 1980-1995. Critical to this growth was duty-free access to U.S. markets and local authority over immigration and the minimum
wage.
Prior to 2005, garment
manufacturers in the Commonwealth possessed a significant competitive advantage over manufactures on the U.S. mainland because workers in the Commonwealth were not required to be paid the same federal minimum wage as
workers on the U.S. mainland. Although the Commonwealth was exempt from the federal minimum wage requirements, the cost of manufacturing textiles in the Commonwealth was significantly higher than the cost of producing
similar goods in larger, low-cost economies such as China. However, the United States maintained import quotas and duties on textiles received from these producers, which further promoted the growth of the textile
industry in the Commonwealth. At the height of
the industry in 1999-2000, nearly 30 garment factories produced almost $1 billion worth of garments on Saipan alone, while employing a significant portion of the island’s residents and a large number of
temporary workers from the region.
Over the last several years,
however, the Commonwealth’s economy underwent an involuntary transformation resulting from federal policy actions that led to the dissolution of the Commonwealth’s garment industry. In 2005, the United
States, as part of its participation in the World Trade Organization, eliminated quotas on textile imports to the United States. Removing these quotas caused the Commonwealth to lose its main competitive advantage
over low-cost manufacturers in larger Asian countries. With the new trade rules taking effect in January 2005, garment factories in the Commonwealth began to consolidate, move and close, which sent the
Commonwealth’s economy into a severe decline. Partly as a result of these structural changes, the gross domestic product of the Commonwealth declined by approximately 64% between 2002 and 2012. Moreover exports
of goods from the islands dropped by more than 75% during this period, while annual compensation from manufacturing dropped by 96%.
Following the collapse of the
garment industry, tourism emerged as the major driver of the Commonwealth’s economy. Tourism grew rapidly in the 1980s and early 1990s. Between 1978 and 1997, visitor arrivals in the Commonwealth increased from
86,700 to more than 726,000 annually, before declining to 531,000 in 2004. During this time, visitors from Japan accounted for a significant majority of arrivals, followed by Korea, the United States and China.
Beginning in 2006, visitor arrivals began to decline significantly when Japan Air Lines (“JAL”) decided to suspend its long-established route to the islands. At the time of JAL’s departure from the
Commonwealth, the airline carried nearly a third of all Japanese tourists to and from the islands. The decline in the Commonwealth’s tourism industry was further exacerbated as global economic conditions
worsened during the most recent recession.
Although still below historical
highs, tourism in the Commonwealth has recently shown signs of recovery. The Commonwealth has engaged in marketing efforts to increase visitor arrivals from a wider scope of countries, casino gambling is now allowed
in certain areas and several major airlines continue to offer flights to the Commonwealth. The Commonwealth estimates that it welcomed 410,423 visitors in FY2015, which represents a 12% increase from FY2014. Although
the number of visitors from Japan has decreased in recent years, Korean and Chinese visitors have increased. Growth in the tourism industry has helped the Commonwealth’s overall economic performance. For
example, while Commonwealth’s real gross domestic product decreased by 6.8% in 2011, real gross domestic product increased by 5.2% in 2012, and is estimated to have increased by 4.4% in 2013.
In 2008, control of the
Commonwealth’s immigration administration transferred to the federal government. As a result, visa permits became more difficult to obtain, and Chinese arrivals to the islands have fluctuated widely in recent
years. Total Chinese visitors declined in 2008 and 2009 by an average of 17% from the approximately 41,000 Chinese arrivals in 2007. However, with the implementation of a temporary visa waiver program in 2009, visits
from Chinese tourists rebounded in 2011 and 2012. This rebound accelerated in 2013, when the Commonwealth benefited from a 35.8% increase in visitors from China. The Commonwealth further benefited in 2014 from a
mutual 10-year visa extension between the United States and China. Any future developments that make international travel to the islands more difficult may have a negative impact on the Commonwealth’s
economy.
Because of its geographical
location, the Commonwealth is subject to natural disasters. In August 2015, a state of disaster was declared after a large typhoon passed through the islands. The typhoon caused severe damage to infrastructure and
left most of Saipan without water and power. Rebuilding efforts are underway, and federal aid approved by the Federal Emergency Management Agency has surpassed $25 million. The total damage caused by the typhoon to
the Commonwealth’s economy is unclear at this time.
Budget. The Commonwealth has run a budget deficit since 1994, which means spending has consistently outpaced revenue collection. The Commonwealth’s governmental activities deficit net
position increased from $215 million to a deficit net position of $239.3 million from FY2013 to FY2014. The “governmental activities” position accounts for most of the Commonwealth’s basic services,
including public safety and general administration. For FY2014, the Commonwealth’s General Fund experienced a total deficit of $81.5 million, which represents a 9.8% increase from the prior fiscal
year.
On September 29, 2015, the
Governor signed into law the Commonwealth’s budget for FY2016 (“Enacted Budget”). The Enacted Budget identifies total budgetary resources of approximately $183.6 million, which, after adjustments and
transfers, would leave $149.5 million for appropriations during the fiscal year. These projected resources represent an increase of approximately 7.9% from budgeted FY2015 resources. The Enacted Budget includes $36.3
million for the Commonwealth’s public school system, $5.1 million to fund the Department of Public Safety, $3.0 million for the Department of Fire and Emergency Services, and a combined total of $10.2 million to
fund the legislative and judicial branches of government.
Unfunded liabilities of the
Northern Mariana Islands Retirement Fund present a significant risk to the fiscal condition of the Commonwealth. Pursuant to law, the Commonwealth is required to make contributions to the retirement fund each year on
an actuarially funded basis toward the annuities related to retirement and other benefits. In recent years, the Commonwealth has delayed or suspended payments to the retirement fund, largely as a result of reoccurring
budget deficits. These actions, combined with poor investment performance, have resulted in a substantial unfunded liability in
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the retirement fund. Due to rising unfunded
liabilities, the retirement fund filed for Chapter 11 bankruptcy in April 2012, which was subsequently rejected by a federal district court in June 2012. Recent projections suggest that the retirement fund will go
bankrupt in the near future if additional measures are not taken to increase a fund’s assets or decrease its liabilities.
Debt. As of September 30, 2014, the Commonwealth had $88.8 million in long-term debt outstanding, which represents a net decrease of $8.9 million (9.1%) from the prior year. The expected annual
debt service requirements on the Commonwealth’s general obligation bonds were $8.5 million for FY2015 and $8.4 million for FY2016. These figures may not reflect the actual amount appropriated for debt service in
a given fiscal year.
Litigation. The Commonwealth, its officials and employees are named as defendants in legal proceedings that occur in the normal course of governmental operations. Some of these proceedings involve
claims for substantial amounts, which if decided against the Commonwealth might require the Commonwealth to make significant future expenditures or substantially impair future revenue sources. Because of the
prospective nature of these proceedings, it is not presently possible to predict the ultimate outcome of such proceedings, estimate the potential impact on the ability of the Commonwealth to pay debt service costs on
its obligations, or determine what impact, if any, such proceedings may have on a fund’s investments.
Credit rating. As of November 18, 2015, no national ratings agency maintained a credit rating for the general obligation debt of the Commonwealth.
Appendix C
Ratings Definitions
Below are summaries of the
rating definitions used by the nationally recognized statistical rating organizations (“NRSROs”) listed below. Those ratings represent the opinion of the NRSRO as to the credit quality of issues that they
rate. The summaries below are based upon publicly available information provided by the NRSROs.
Moody’s Investors Service,
Inc. (“Moody’s”)
GLOBAL RATING SCALES
Ratings assigned on
Moody’s global long-term and short-term rating scales are forward-looking opinions of the relative credit risks of financial obligations issued by non-financial corporates, financial institutions, structured
finance vehicles, project finance vehicles, and public sector entities. Long-term ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both on the likelihood of a
default on contractually promised payments and the expected financial loss suffered in the event of default.1 Short-term ratings are assigned to obligations with an original maturity of thirteen months or less and reflect both on the
likelihood of a default on contractually promised payments and the expected financial loss suffered in the event of default.2
Global Long-Term Rating Scale
Aaa: Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa: Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A: Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
Baa: Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
Ba: Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B: Obligations rated B are considered speculative and are subject to high credit risk.
Caa: Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Ca: Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
C: Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.
Note: Moody’s appends
numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. Additionally, a “(hyb)” indicator is appended to all ratings of hybrid securities issued by
banks, insurers, finance companies, and securities firms.*
* By their terms, hybrid
securities allow for the omission of scheduled dividends, interest, or principal payments, which can potentially result in impairment if such an omission occurs. Hybrid securities may also be subject to contractually
allowable write-downs of principal that could result in impairment. Together with the hybrid indicator, the long-term obligation rating assigned to a hybrid security is an expression of the relative credit risk
associated with that security.
Global Short-Term Rating Scale
Short-term ratings are assigned
to obligations with an original maturity of thirteen months or less and reflect the likelihood of a default on contractually promised payments.
P-1: Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2: Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3: Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP: Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
U.S. MUNICIPAL SHORT-TERM DEBT AND
DEMAND OBLIGATION RATINGS
Short-Term Obligation Ratings
While the global short-term
‘prime’ rating scale is applied to US municipal tax-exempt commercial paper, these programs are typically backed by external letters of credit or liquidity facilities and their short-term prime ratings
usually map to the long-term rating of the enhancing bank or financial institution and not to the municipality’s rating. Other short-term
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municipal obligations, which generally have
different funding sources for repayment, are rated using two additional short-term rating scales (i.e., the MIG and VMIG scales discussed below). The Municipal Investment Grade (MIG) scale is used to rate US municipal
bond anticipation notes of up to three years maturity. Municipal notes rated on the MIG scale may be secured by either pledged revenues or proceeds of a take-out financing received prior to note maturity. MIG ratings
expire at the maturity of the obligation, and the issuer’s long-term rating is only one consideration in assigning the MIG rating. MIG ratings are divided into three levels—MIG 1 through MIG 3—while
speculative grade short-term obligations are designated SG.
MIG 1: This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to the
market for refinancing.
MIG 2: This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group.
MIG 3: This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for refinancing is likely to be less well-established.
SG: This designation denotes speculative-grade credit quality. Debt instruments in this category may lack sufficient margins of protection.
Demand Obligation Ratings
In the case of variable rate
demand obligations (VRDOs), a two-component rating is assigned: a long or short-term debt rating and a demand obligation rating. The first element represents Moody’s evaluation of risk associated with scheduled
principal and interest payments. The second element represents Moody’s evaluation of risk associated with the ability to receive purchase price upon demand (“demand feature”). The second element uses
a rating from a variation of the MIG scale called the Variable Municipal Investment Grade (VMIG) scale.
VMIG 1: This designation denotes superior credit quality. Excellent protection is afforded by the superior short-term credit strength of the liquidity provider and structural and legal protections
that ensure the timely payment of purchase price upon demand.
VMIG 2: This designation denotes strong credit quality. Good protection is afforded by the strong short-term credit strength of the liquidity provider and structural and legal protections that
ensure the timely payment of purchase price upon demand.
VMIG 3: This designation denotes acceptable credit quality. Adequate protection is afforded by the satisfactory short-term credit strength of the liquidity provider and structural and legal
protections that ensure the timely payment of purchase price upon demand.
SG: This designation denotes speculative-grade credit quality. Demand features rated in this category may be supported by a liquidity provider that does not have an investment grade short-term
rating or may lack the structural and/or legal protections necessary to ensure the timely payment of purchase price upon demand.
S&P Global Ratings
(“S&P”), a part of McGraw-Hill Financial
ISSUE CREDIT RATINGS
A S&P issue credit rating is
a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on
medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement on the obligation and takes into account the
currency in which the obligation is denominated. The opinion reflects S&P view of the obligor’s capacity and willingness to meet its financial commitments as they come due, and may assess terms, such as
collateral security and subordination, which could affect ultimate payment in the event of default.
Issue credit ratings can be
either long-term or short-term. Short-term ratings are generally assigned to those obligations considered short-term in the relevant market. In the U.S., for example, that means obligations with an original maturity
of no more than 365 days—including commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. Medium-term notes are
assigned long-term ratings.
Issue credit ratings are based,
in varying degrees, on S&P analysis of the following considerations:
| • | Likelihood of payment-capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation; |
| • | Nature of and provisions of the obligation and the promise we impute; |
| • | Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors’ rights. |
Issue ratings are an assessment of default
risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)
LONG-TERM ISSUE CREDIT RATINGS
AAA: An obligation rated ‘AAA’ has the highest rating assigned by S&P. The obligor’s capacity to meet its financial commitment on the obligation is extremely
strong.
AA: An obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is
very strong.
A: An obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories.
However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.
BBB: An obligation rated ‘BBB’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity
of the obligor to meet its financial commitment on the obligation.
BB; B; CCC; CC; and C: Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant speculative characteristics.
‘BB’ indicates the least degree of speculation and ‘C’ the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB: An obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
B: An obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently has the capacity to meet its financial commitment on
the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.
CCC: An obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC: An obligation rated ‘CC’ is currently highly vulnerable to nonpayment. The ‘CC’ rating is used when a default has not yet occurred, but S&P expects default to
be a virtual certainty, regardless of the anticipated time to default.
C: An obligation rated ‘C’ is currently highly vulnerable to nonpayment, and the obligation is expected to have lower relative seniority or lower ultimate recovery compared to
obligations that are rated higher.
D: An obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when payments on an
obligation are not made on the date due, unless S&P believes that such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30
calendar days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to
automatic stay provisions. An obligation’s rating is lowered to ‘D’ if it is subject to a distressed exchange offer.
NR: This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular obligation as a matter of
policy.
Note: The ratings from
‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
SHORT-TERM ISSUE CREDIT RATINGS
A-1: A short-term obligation rated ‘A-1’ is rated in the highest category by S&P. The obligor’s capacity to meet its financial commitment on the obligation is strong.
Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitment on these obligations is extremely strong.
A-2: A short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor’s capacity to meet its financial commitment on the obligation is satisfactory.
A-3: A short-term obligation rated ‘A-3’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitment on the obligation.
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B: A short-term obligation rated ‘B’ is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial
commitments; however, it faces major ongoing uncertainties which could lead to the obligor’s inadequate capacity to meet its financial commitments.
C: A short-term obligation rated ‘C’ is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its
financial commitment on the obligation.
D: A short-term obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when
payments on an obligation are not made on the date due, unless S&P believes that such payments will be made within any stated grace period. However, any stated grace period longer than five business days will be
treated as five business days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action and where default on an obligation is a virtual certainty, for
example due to automatic stay provisions. An obligation’s rating is lowered to ‘D’ if it is subject to a distressed exchange offer.
MUNICIPAL SHORT-TERM NOTE
RATINGS
An S&P U.S. municipal note
rating reflects S&P opinion about the liquidity factors and market access risks unique to the notes. Notes due in three years or less will likely receive a note rating. Notes with an original maturity of more than
three years will most likely receive a long-term debt rating. In determining which type of rating, if any, to assign, S&P analysis will review the following considerations:
| • | Amortization schedule-the larger the final maturity relative to other maturities, the more likely it will be treated as a note; and |
| • | Source of payment-the more dependent the issue is on the market for its refinancing, the more likely it will be treated as a note. |
SP-1: Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
SP-3: Speculative capacity to pay principal and interest.
ISSUER CREDIT RATINGS
An S&P issuer credit rating
is a forward-looking opinion about an obligor’s overall creditworthiness. This opinion focuses on the obligor’s capacity and willingness to meet its financial commitments as they come due. It does not
apply to any specific financial obligation, as it does not take into account the nature of and provisions of the obligation, its standing in bankruptcy or liquidation, statutory preferences, or the legality and
enforceability of the obligation. Counterparty credit ratings, corporate credit ratings and sovereign credit ratings are all forms of issuer credit ratings. Issuer credit ratings can be either long-term or
short-term.
LONG-TERM ISSUER CREDIT RATINGS
AAA: An obligor rated ‘AAA’ has extremely strong capacity to meet its financial commitments. ‘AAA’ is the highest issuer credit rating assigned by S&P.
AA: An obligor rated ‘AA’ has very strong capacity to meet its financial commitments. It differs from the highest-rated obligors only to a small degree.
A: An obligor rated ‘A’ has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligors in higher-rated categories.
BBB: An obligor rated ‘BBB’ has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitments.
BB; B; CCC; and CC: Obligors rated ‘BB’, ‘B’, ‘CCC’, and ‘CC’ are regarded as having significant speculative characteristics. ‘BB’ indicates the
least degree of speculation and ‘CC’ the highest. While such obligors will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to
adverse conditions.
BB: An obligor rated ‘BB’ is less vulnerable in the near term than other lower-rated obligors. However, it faces major ongoing uncertainties and exposure to adverse business,
financial, or economic conditions which could lead to the obligor’s inadequate capacity to meet its financial commitments.
B: An obligor rated ‘B’ is more vulnerable than the obligors rated ‘BB’, but the obligor currently has the capacity to meet its financial commitments. Adverse
business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitments.
CCC: An obligor rated ‘CCC’ is currently vulnerable, and is dependent upon favorable business, financial, and economic conditions to meet its financial commitments.
CC: An obligor rated ‘CC’ is currently highly vulnerable. The ‘CC’ rating is used when a default has not yet occurred, but S&P expects default to be a virtual
certainty, regardless of the anticipated time to default.
R: An obligor rated ‘R’ is under regulatory supervision owing to its financial condition. During the pendency of the regulatory supervision the regulators may have the power to
favor one class of obligations over others or pay some obligations and not others.
SD and D: An obligor rated ‘SD’ (selective default) or ‘D’ is in default on one or more of its financial obligations including rated and unrated financial obligations but
excluding hybrid instruments classified as regulatory capital or in non-payment according to terms. An obligor is considered in default unless S&P believes that such payments will be made within five business days
of the due date in the absence of a stated grace period, or within the earlier of the stated grace period or 30 calendar days. A ‘D’ rating is assigned when S&P believes that the default will be a
general default and that the obligor will fail to pay all or substantially all of its obligations as they come due. An ‘SD’ rating is assigned when S&P believes that the obligor has selectively
defaulted on a specific issue or class of obligations but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. An obligor’s rating is lowered to
‘D’ or ‘SD’ if it is conducting a distressed exchange offer.
NR: An issuer designated ‘NR’ is not rated.
Note: The ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating
categories.
SHORT-TERM ISSUER CREDIT
RATINGS
A-1: An obligor rated ‘A-1’ has strong capacity to meet its financial commitments. It is rated in the highest category by S&P. Within this category, certain obligors are
designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitments is extremely strong.
A-2: An obligor rated ‘A-2’ has satisfactory capacity to meet its financial commitments. However, it is somewhat more susceptible to the adverse effects of changes in circumstances
and economic conditions than obligors in the highest rating category.
A-3: An obligor rated ‘A-3’ has adequate capacity to meet its financial obligations. However, adverse economic conditions or changing circumstances are more likely to lead to a
weakened capacity of the obligor to meet its financial commitments.
B: An obligor rated ‘B’ is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments;
however, it faces major ongoing uncertainties which could lead to the obligor’s inadequate capacity to meet its financial commitments.
C: An obligor rated ‘C’ is currently vulnerable to nonpayment that would result in a ‘SD’ or ‘D’ issuer rating, and is dependent upon favorable business,
financial, and economic conditions for it to meet its financial commitments.
R: An obligor rated ‘R’ is under regulatory supervision owing to its financial condition. During the pendency of the regulatory supervision the regulators may have the power to
favor one class of obligations over others or pay some obligations and not others. Please see S&P issue credit ratings for a more detailed description of the effects of regulatory supervision on specific issues or
classes of obligations.
SD and D: An obligor rated ‘SD’ (selective default) or ‘D’ has failed to pay one or more of its financial obligations (rated or unrated), excluding hybrid instruments
classified as regulatory capital or in nonpayment according to terms, when it came due. An obligor is considered in default unless S&P believes that such payments will be made within any stated grace period.
However, any stated grace period longer than five business days will be treated as five business days. A ‘D’ rating is assigned when S&P believes that the default will be a general default and that the
obligor will fail to pay all or substantially all of its obligations as they come due. An ‘SD’ rating is assigned when S&P believes that the obligor has selectively defaulted on a specific issue or
class of obligations, excluding hybrid instruments classified as regulatory capital, but it will continue to meet its payment obligations on other issues or classes of obligations in a timely manner. An
obligor’s rating is lowered to ‘D’ or ‘SD’ if it is conducting a distressed exchange offer.
NR: An issuer designated ‘NR’ is not rated.
Fitch Ratings, Inc.
Fitch Ratings’ credit
ratings provide an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations. Credit
ratings are used by investors as indications of the likelihood of receiving the money owed to them in accordance with the terms on which they invested. The agency’s credit ratings cover the global spectrum of
corporate, sovereign (including
118
supranational and sub-national), financial,
bank, insurance, municipal and other public finance entities and the securities or other obligations they issue, as well as structured finance securities backed by receivables or other financial assets.
The terms “investment
grade” and “speculative grade” have established themselves over time as shorthand to describe the categories ‘AAA’ to ‘BBB’ (investment grade) and ‘BB’ to
‘D’ (speculative grade). The terms “investment grade” and “speculative grade” are market conventions, and do not imply any recommendation or endorsement of a specific security for
investment purposes. “Investment grade” categories indicate relatively low to moderate credit risk, while ratings in the “speculative” categories either signal a higher level of credit risk or
that a default has already occurred.
A designation of “Not
Rated” or “NR” is used to denote securities not rated by Fitch where Fitch has rated some, but not all, securities comprising an issuance capital structure.
Credit ratings express risk in
relative rank order, which is to say they are ordinal measures of credit risk and are not predictive of a specific frequency of default or loss. For information about the historical performance of ratings please refer
to Fitch’s Ratings Transition and Default studies which detail the historical default rates and their meaning. The European Securities and Markets Authority also maintains a central repository of rating default
rates.
Fitch Ratings’ credit
ratings do not directly address any risk other than credit risk. In particular, ratings do not deal with the risk of a market value loss on a rated security due to changes in interest rates, liquidity and other market
considerations. However, in terms of payment obligation on the rated liability, market risk may be considered to the extent that it influences the ability of an issuer to pay upon a commitment. Ratings nonetheless do
not reflect market risk to the extent that they influence the size or other conditionality of the obligation to pay upon a commitment (for example, in the case of index-linked bonds).
In the default components of
ratings assigned to individual obligations or instruments, the agency typically rates to the likelihood of non-payment or default in accordance with the terms of that instrument’s documentation. In limited
cases, Fitch Ratings may include additional considerations (i.e. rate to a higher or lower standard than that implied in the obligation’s documentation). In such cases, the agency will make clear the assumptions
underlying the agency’s opinion in the accompanying rating commentary.
INTERNATIONAL ISSUER AND CREDIT
RATING SCALES
International credit ratings
relate to either foreign currency or local currency commitments and, in both cases, assess the capacity to meet these commitments using a globally applicable scale. As such, both foreign currency and local currency
international ratings are internationally comparable assessments.
The local currency international
rating measures the likelihood of repayment in the currency of the jurisdiction in which the issuer is domiciled and hence does not take account of the possibility that it will not be possible to convert local
currency into foreign currency, or make transfers between sovereign jurisdictions (transfer and convertibility (T&C) risk).
Foreign currency ratings
additionally consider the profile of the issuer or note after taking into account transfer and convertibility risk. This risk is usually communicated for different countries by the Country Ceiling, which
“caps” the foreign currency ratings of most, though not all, issuers within a given country.
Where the rating is not
explicitly described in the relevant rating action commentary as local or foreign currency, the reader should assume that the rating is a “foreign currency” rating (i.e. the rating is applicable for all
convertible currencies of obligation).
INTERNATIONAL LONG-TERM ISSUER
RATINGS
Rated entities in a number of
sectors, including financial and non-financial corporations, sovereigns and insurance companies, are generally assigned Issuer Default Ratings (IDRs). IDRs opine on an entity’s relative vulnerability to default
on financial obligations. The “threshold” default risk addressed by the IDR is generally that of the financial obligations whose non-payment would best reflect the uncured failure of that entity. As such,
IDRs also address relative vulnerability to bankruptcy, administrative receivership or similar concepts, although the agency recognizes that issuers may also make pre-emptive and therefore voluntary use of such
mechanisms.
In aggregate, IDRs provide an
ordinal ranking of issuers based on the agency’s view of their relative vulnerability to default, rather than a prediction of a specific percentage likelihood of default.
AAA: Highest credit quality. ‘AAA’ ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial
commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
AA: Very high credit quality. ‘AA’ ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is
not significantly vulnerable to foreseeable events.
A: High credit quality. ‘A’ ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
BBB: Good credit quality. ‘BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but
adverse business or economic conditions are more likely to impair this capacity.
BB: Speculative. ‘BB’ ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time;
however, business or financial flexibility exists which supports the servicing of financial commitments.
B: Highly speculative. ‘B’ ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however,
capacity for continued payment is vulnerable to deterioration in the business and economic environment.
CCC: Substantial credit risk. Default is a real possibility.
CC: Very high levels of credit risk. Default of some kind appears probable.
C: Exceptionally high levels of credit risk. Default is imminent or inevitable, or the issuer is in standstill. Conditions that are indicative of a ‘C’ category rating for an
issuer include:
a. the issuer has entered into a
grace or cure period following non-payment of a material financial obligation;
b. the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; or
c. Fitch Ratings otherwise believes a condition of ‘RD’ or ‘D’ to be imminent or inevitable, including through the formal announcement of a distressed debt exchange.
b. the issuer has entered into a temporary negotiated waiver or standstill agreement following a payment default on a material financial obligation; or
c. Fitch Ratings otherwise believes a condition of ‘RD’ or ‘D’ to be imminent or inevitable, including through the formal announcement of a distressed debt exchange.
RD: Restricted default. ‘RD’ ratings indicate an issuer that in Fitch Ratings’ opinion has experienced an uncured payment default on a bond, loan or other material financial
obligation but which has not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, and which has not otherwise ceased operating. This would include:
a. the selective payment default
on a specific class or currency of debt;
b. the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation;
c. the extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either in series or in parallel; or d. execution of a distressed debt exchange on one or more material financial obligations.
b. the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a bank loan, capital markets security or other material financial obligation;
c. the extension of multiple waivers or forbearance periods upon a payment default on one or more material financial obligations, either in series or in parallel; or d. execution of a distressed debt exchange on one or more material financial obligations.
D: Default. ‘D’ ratings indicate an issuer that in Fitch Ratings’ opinion has entered into bankruptcy filings, administration, receivership, liquidation or other formal
winding-up procedure, or which has otherwise ceased business. Default ratings are not assigned prospectively to entities or their obligations; within this context, non-payment on an instrument that contains a deferral
feature or grace period will generally not be considered a default until after the expiration of the deferral or grace period, unless a default is otherwise driven by bankruptcy or other similar circumstance, or by a
distressed debt exchange. “Imminent” default typically refers to the occasion where a payment default has been intimated by the issuer, and is all but inevitable. This may, for example, be where an issuer
has missed a scheduled payment, but (as is typical) has a grace period during which it may cure the payment default. Another alternative would be where an issuer has formally announced a distressed debt exchange, but
the date of the exchange still lies several days or weeks in the immediate future. In all cases, the assignment of a default rating reflects the agency’s opinion as to the most appropriate rating category
consistent with the rest of its universe of ratings, and may differ from the definition of default under the terms of an issuer’s financial obligations or local commercial practice.
Note: The modifiers “+” or “–” may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added to the
‘AAA’ Long-Term category, or to Long-Term categories below ‘B’.
INTERNATIONAL SHORT-TERM ISSUER
AND ISSUE CREDIT RATINGS
A short-term issuer or
obligation rating is based in all cases on the short-term vulnerability to default of the rated entity or security stream and relates to the capacity to meet financial obligations in accordance with the documentation
governing the relevant obligation. Short-Term Ratings are assigned to obligations whose initial maturity is viewed as “short term” based on market convention. Typically, this means up to 13 months for
corporate, sovereign, and structured obligations, and up to 36 months for obligations in U.S. public finance markets.
F1: Highest short-term credit quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added “+” to denote any exceptionally
strong credit feature.
F2: Good short-term credit quality. Good intrinsic capacity for timely payment of financial commitments.
F3: Fair short-term credit quality. The intrinsic capacity for timely payment of financial commitments is adequate.
BB: Speculative short-term credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic
conditions.
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C: High short-term default risk. Default is a real possibility.
RD: Restricted default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Applicable to entity
ratings only.
D: Default Indicates a broad-based default event for an entity, or the default of a short-term obligation.
DBRS
LONG-TERM OBLIGATIONS
The DBRS® long-term rating scale provides an opinion on the risk of default. That is, the risk that an issuer will fail to
satisfy its financial obligations in accordance with the terms under which an obligations has been issued. Ratings are based on quantitative and qualitative considerations relevant to the issuer, and the relative
ranking of claims. All rating categories other than AAA and D also contain subcategories “(high)” and “(low)”. The absence of either a “(high)” or “(low)” designation
indicates the rating is in the middle of the category.
AAA: Highest credit quality. The capacity for the payment of financial obligations is exceptionally high and unlikely to be adversely affected by future events.
AA: Superior credit quality. The capacity for the payment of financial obligations is considered high. Credit quality differs from AAA only to a small degree. Unlikely to be significantly
vulnerable to future events.
A: Good credit quality. The capacity for the payment of financial obligations is substantial, but of lesser credit quality than AA. May be vulnerable to future events, but qualifying negative
factors are considered manageable.
BBB: Adequate credit quality. The capacity for the payment of financial obligations is considered acceptable. May be vulnerable to future events.
BB: Speculative, non investment-grade credit quality. The capacity for the payment of financial obligations is uncertain. Vulnerable to future events.
B: Highly speculative credit quality. There is a high level of uncertainty as to the capacity to meet financial obligations.
CCC/CC/C: Very highly speculative credit quality. In danger of defaulting on financial obligations. There is little difference between these three categories, although CC and C ratings are normally
applied to obligations that are seen as highly likely to default, or subordinated to obligations rated in the CCC to B range. Obligations in respect of which default has not technically taken place but is considered
inevitable may be rated in the C category.
D: When the issuer has filed under any applicable bankruptcy, insolvency or winding up statute or there is a failure to satisfy an obligation after the exhaustion of grace periods, a
downgrade to D may occur. DBRS may also use SD (Selective Default) in cases where only some securities are impacted, such as the case of a “distressed exchange”.
COMMERCIAL PAPER AND SHORT-TERM
DEBT
The DBRS® short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial
obligations in a timely manner. Ratings are based on quantitative and qualitative considerations relevant to the issuer and the relative ranking of claims. The R-1 and R-2 rating categories are further denoted by the
subcategories “(high),” “(middle),” and “(low).”
R-1 (high): Highest credit quality. The capacity for the payment of short-term financial obligations as they fall due is exceptionally high. Unlikely to be adversely affected by future
events.
R-1 (middle): Superior credit quality. The capacity for the payment of short-term financial obligations as they fall due is very high. Differs from R-1 (high) by a relatively modest degree. Unlikely to
be significantly vulnerable to future events.
R-1 (low): Good credit quality. The capacity for the payment of short-term financial obligations as they fall due is substantial. Overall strength is not as favorable as higher rating categories. May
be vulnerable to future events, but qualifying negative factors are considered manageable.
R-2 (high): Upper end of adequate credit quality. The capacity for the payment of short-term financial obligations as they fall due is acceptable. May be vulnerable to future events.
R-2 (middle): Adequate credit quality. The capacity for the payment of short-term financial obligations as they fall due is acceptable. May be vulnerable to future events or may be exposed to other
factors that could reduce credit quality.
R-2 (low): Lower end of adequate credit quality. The capacity for the payment of short-term financial obligations as they fall due is acceptable. May be vulnerable to future events. A number of
challenges are present that could affect the issuer’s ability to meet such obligations.
R-3: Lowest end of adequate credit quality. There is a capacity for the payment of short-term financial obligations as they fall due. May be vulnerable to future events and the certainty of
meeting such obligations could be impacted by a variety of developments.
R-4: Speculative credit quality. The capacity for the payment of short-term financial obligations as they fall due is uncertain.
R-5: Highly speculative credit quality. There is a high level of uncertainty as to the capacity to meet short-term financial obligations as they fall due.
D: When the issuer has filed under any applicable bankruptcy, insolvency or winding up statute or there is a failure to satisfy an obligation after the exhaustion of grace periods, a
downgrade to D may occur. DBRS may also use SD (Selective Default) in cases where only some securities are impacted, such as the case of a “distressed exchange”.
Kroll Bond Rating Agency
(“KBRA”)
LONG-TERM CREDIT RATINGS
Kroll Bond Rating Agency (KBRA)
assigns credit ratings to issuers and their obligations using the same rating scale. In either case, KBRA’s credit ratings are intended to reflect both the probability of default and severity of loss in the
event of default, with greater emphasis on probability of default at higher rating categories. For obligations, the determination of expected loss severity is, among other things, a function of the seniority of the
claim. Generally speaking, issuer-level ratings assume a loss severity consistent with a senior unsecured claim. KBRA appends an (sf) indicator to ratings assigned to structured finance obligations.
AAA: Determined to have almost no risk of loss due to credit-related events. Assigned only to the very highest quality obligors and obligations able to survive extremely challenging economic
events.
AA: Determined to have minimal risk of loss due to credit-related events. Such obligors and obligations are deemed very high quality.
A: Determined to be of high quality with a small risk of loss due to credit-related events. Issuers and obligations in this category are expected to weather difficult times with low credit
losses.
BBB: Determined to be of medium quality with some risk of loss due to credit-related events. Such issuers and obligations may experience credit losses during stress environments.
BB: Determined to be of low quality with moderate risk of loss due to credit-related events. Such issuers and obligations have fundamental weaknesses that create moderate credit
risk.
B: Determined to be of very low quality with high risk of loss due to credit-related events. These issuers and obligations contain many fundamental shortcomings that create significant credit
risk.
CCC: Determined to be at substantial risk of loss due to credit-related events, or currently in default with high recovery expectations.
CC: Determined to be near default or in default with average recovery expectations.
C: Determined to be near default or in default with low recovery expectations.
D: KBRA defines default as occurring if:
1. There is a missed interest or principal payment on a rated obligation which is unlikely to be recovered.
2. The rated entity files for protection from creditors, is placed into receivership or is closed by regulators such that a missed payment is likely to result.
3. The rated entity seeks and completes a distressed exchange, where existing rated obligations are replaced by new obligations with a diminished economic value.
1. There is a missed interest or principal payment on a rated obligation which is unlikely to be recovered.
2. The rated entity files for protection from creditors, is placed into receivership or is closed by regulators such that a missed payment is likely to result.
3. The rated entity seeks and completes a distressed exchange, where existing rated obligations are replaced by new obligations with a diminished economic value.
KBRA may append – or +
modifiers to ratings in categories AA through CCC to indicate, respectively, upper and lower risk levels within the broader category.
SHORT-TERM CREDIT RATINGS
Kroll Bond Rating Agency’s
short-term ratings indicate an ability to meet obligations that typically have maturities of thirteen months or less when issued by corporate entities, financial institutions, and in connection with structured finance
transactions. When applied to municipal obligations, KBRA’s short-term ratings typically indicate an ability to meet obligations of three years or less. Short-term ratings may be assigned to both issuers and to
specific obligations. As compared to long-term ratings, greater emphasis is placed on an obligor’s liquidity profile and access to funding. KBRA appends an (sf) indicator to ratings assigned to structured
finance obligations.
K1: Very strong ability to meet short-term obligations.
K2: Strong ability to meet short-term obligations.
K3: Adequate ability to meet short-term obligations.
B: Questionable ability to meet short-term obligations.
122
C: Little ability to meet short-term obligations.
D: KBRA defines default as occurring if:
1. There is a missed interest or principal payment on a rated obligation which is unlikely to be recovered.
2. The rated entity files for protection from creditors, is placed into receivership or is closed by regulators such that a missed payment is likely to result.
3. The rated entity seeks and completes a distressed exchange, where existing rated obligations are replaced by new obligations with a diminished economic value.
1. There is a missed interest or principal payment on a rated obligation which is unlikely to be recovered.
2. The rated entity files for protection from creditors, is placed into receivership or is closed by regulators such that a missed payment is likely to result.
3. The rated entity seeks and completes a distressed exchange, where existing rated obligations are replaced by new obligations with a diminished economic value.
KBRA may append a + modifier to
ratings in the K1 category to indicate exceptional ability to meet short-term obligations.
Footnotes to Appendix B:
| 1. | For certain structured finance, preferred stock and hybrid securities in which payment default events are either not defined or do not match investors’ expectations for timely payment, the ratings reflect the likelihood of impairment and the expected financial loss in the event of impairment. |
| 2. | For certain structured finance, preferred stock and hybrid securities in which payment default events are either not defined or do not match investors’ expectations for timely payment, the ratings reflect the likelihood of impairment. |
Financial Statements
The Fund’s audited
Financial Statements, included in the Fund’s Annual Report dated March 31, 2016, including the notes thereto and the report of KPMG LLP thereon, are incorporated by reference into this Statement of Additional
Information.
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Oppenheimer Rochester State Specific
Municipal Funds
Website
www.oppenheimerfunds.com
www.oppenheimerfunds.com
Investment Adviser and
Sub-Adviser
OFI Global Asset Management, Inc. and OppenheimerFunds, Inc.
225 Liberty Street
New York, New York 10281-1008
OFI Global Asset Management, Inc. and OppenheimerFunds, Inc.
225 Liberty Street
New York, New York 10281-1008
Distributor
OppenheimerFunds Distributor, Inc.
225 Liberty Street
New York, New York 10281-1008
OppenheimerFunds Distributor, Inc.
225 Liberty Street
New York, New York 10281-1008
Transfer Agent and Sub-Transfer
Agent
OFI Global Asset Management, Inc. and
Shareholder Services Inc. doing business as OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1.800.CALL OPP (225.5677)
OFI Global Asset Management, Inc. and
Shareholder Services Inc. doing business as OppenheimerFunds Services
P.O. Box 5270
Denver, Colorado 80217
1.800.CALL OPP (225.5677)
Custodian Bank
Citibank, N.A.
111 Wall Street
New York, New York 10005
Citibank, N.A.
111 Wall Street
New York, New York 10005
Independent Registered Public
Accounting Firm
KPMG LLP
1225 17th Street, Suite 800
Denver, Colorado 80202
KPMG LLP
1225 17th Street, Suite 800
Denver, Colorado 80202
Legal Counsel
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
PX0570.001.0716
OPPENHEIMER ROCHESTER® MASSACHUSETTS MUNICIPAL FUND
FORM N-1A
PART C
OTHER INFORMATION
Item 28. – Exhibits
| (a) | Agreement and Declaration of Trust dated 10/28/13: Previously filed with Registrant’s Post-Effective Amendment No. 12, (12/12/13), and incorporated herein by reference. | |
| (b) | By-Laws dated 10/28/13: Previously filed with Registrant’s Post-Effective Amendment No. 12, (12/12/13), and incorporated herein by reference. | |
| (c) | (i) | Article V of the Agreement and Declaration of Trust: Previously filed with Registrant’s Post-Effective Amendment No. 12, (12/12/13), and incorporated herein by reference. |
| (ii) | Article II of the By-Laws: Previously filed with Registrant’s Post-Effective Amendment No. 12, (12/12/13), and incorporated herein by reference. | |
| (d) | (i) | Restated Investment Advisory Agreement dated 12/12/13: Previously filed with Registrant’s Post-Effective Amendment No. 12, (12/12/13), and incorporated herein by reference. |
| (ii) | Restated Investment Sub-Advisory Agreement dated 12/12/13: Previously filed with Registrant’s Post-Effective Amendment No. 12, (12/12/13), and incorporated herein by reference. | |
| (e) | (i) | General Distributor’s Agreement dated 1/4/96 with Oppenheimer Funds Distributor, Inc.: Previously filed with Registrant’s Post-Effective Amendment No. 7, (1/11/96), and incorporated herein by reference. |
| (ii) | Form of Dealer Agreement of OppenheimerFunds Distributor, Inc.: Previously filed with Post-Effective Amendment No. 34 to the Registration Statement of Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850), (10/23/06), and incorporated herein by reference. | |
| (iii) | Form of Broker Agreement of OppenheimerFunds Distributor, Inc.: Previously filed with Post-Effective Amendment No. 34 to the Registration Statement of Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850), (10/23/06), and incorporated herein by reference. | |
| (iv) | Form of Agency Agreement of OppenheimerFunds Distributor, Inc.: Previously filed with Post-Effective Amendment No. 34 to the Registration Statement of Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850), (10/23/06), and incorporated herein by reference. | |
| (v) | Form of Trust Company Fund/SERV Purchase Agreement of OppenheimerFunds Distributor, Inc.: Previously filed with Post-Effective Amendment No. 45 to the Registration Statement of Oppenheimer High Yield Fund (Reg. No. 2-62076), (10/26/01), and incorporated herein by reference. | |
| (vi) | Form of Trust Company Agency Agreement of OppenheimerFunds Distributor, Inc.: Previously filed with Post-Effective Amendment No. 34 to the Registration Statement of Oppenheimer Main Street Funds, Inc. (Reg. No. 33-17850), (10/23/06), and incorporated herein by reference. | |
| (f) | Amended & Restated Compensation Deferral Plan for Eligible Trustees, effective 1/1/08: Previously filed with Post-Effective Amendment No. 4 to the Registration Statement of Oppenheimer Portfolio Series (Reg. No. 333-121449), (5/29/09), and incorporated herein by reference. | |
| (g) | (i) | Global Custodial Services Agreement dated 5/3/01 as amended from time to time: Previously filed with Post-Effective Amendment No. 33 to the Registration Statement of Centennial Money Market Trust (Reg. No. 2-65245), (10/25/01), and incorporated herein by reference. |
| (ii) | Amendment dated 3/7/11 to the Global Custodial Services Agreement: Previously filed with Post-Effective Amendment No. 28 to the Registration Statement of Rochester Portfolio Series (Reg. 33-41511), (3/29/11), and incorporated herein by reference. | |
| (iii) | Amended and Restated Foreign Custody Manager Agreement dated 5/31/01, as amended 7/15/03: Previously filed with Pre-Effective Amendment No. 1 to the Registration Statement of Oppenheimer International Large-Cap Core Trust (Reg. No. 333-106014), (8/5/03), and incorporated herein by reference. | |
| (h) | Not applicable. | |
| (i) | Opinion and Consent of Counsel: Previously filed with Registrant’s Post-Effective Amendment No. 12, (12/12/13), and incorporated herein by reference. | |
| (j) | Independent Registered Public Accounting Firm’s Consent: Filed herewith | |
| (k) | Not applicable. | |
| (l) | Investment Letter from OppenheimerFunds, Inc. to Registrant dated 6/30/06: Previously filed with Registrant’s Pre-Effective Amendment No. 1, (6/30/06), and incorporated herein by reference. | |
| (m) | (i) | Amended and Restated Service Plan and Agreement for Class A Shares dated 6/30/11: Previously filed with Registrant’s Post-Effective Amendment No. 6, (7/27/11), and incorporated herein by reference. |
| (ii) | Amended and Restated Distribution and Service Plan and Agreement for Class B Shares dated 6/30/11: Previously filed with Registrant’s Post-Effective Amendment No. 6, (7/27/11), and incorporated herein by reference. | |
| (iii) | Amended and Restated Distribution and Service Plan and Agreement for Class C Shares dated 6/30/11: Previously filed with Registrant’s Post-Effective Amendment No. 6, (7/27/11), and incorporated herein by reference. | |
| (n) | Oppenheimer Funds Amended and Restated Plan Pursuant to Rule 18f-3: Previously filed with Post-Effective Amendment No. 1 to the Registration Statement of Oppenheimer Global High Yield Fund (Reg. No. 333-176889), (9/25/14), and incorporated herein by reference. | |
| (o) | Power of Attorney dated 2/29/16 for all Trustees and Officers: Previously filed with Post-Effective Amendment No. 52 to the Registration Statement of Oppenheimer International Value Fund (Reg. 33-34720), (3/24/16), and incorporated herein by reference. | |
| (p) | Code of Ethics of the Oppenheimer Funds, Oppenheimer Revenue Weighted ETF Trust, OFI Global Asset Management, Inc. OFI SteelPath, Inc., VTL Associates, LLC, OppenheimerFunds, Inc. (including certain other affiliates and subsidiaries) and OppenheimerFunds Distributor, Inc., effective as of 5/26/16, under Rule 17j-1 of the Investment Company Act of 1940: Previously filed with Post-Effective Amendment No. 18 to the Registration Statement of Oppenheimer Portfolio Series (Reg. No. 333-121449), (5/25/16), and incorporated herein by reference. | |
Item 29. – Persons Controlled by or Under Common Control with the Fund
None.
Item 30. – Indemnification
Reference is made to the provisions of Article VII of Registrant’s Agreement and Declaration of Trust filed as Exhibit 28(a) to the Registration Statement and incorporated herein by reference.
Insofar as indemnification for certain liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of Registrant pursuant to the foregoing provisions or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a trustee, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
Item 31. – Business and Other Connections of the Investment Advisers
| (a) | OFI Global Asset Management, Inc. (the “Manager”) is the manager of the Registrant. The information required by this Item 31 about officers and directors of the Manager, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated by reference to Form ADV, filed by the Manager pursuant to the Investment Advisers Act of 1940 (SEC File No. 801-76771). |
| (b) | OppenheimerFunds, Inc. (the “Sub-Adviser”) provides advisory services to the Registrant. The information required by this Item 31 about officers and directors of the Sub-Adviser, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated by reference to Form ADV, filed by the Sub-Adviser pursuant to the Investment Advisers Act of 1940 (SEC File No. 801-8253). |
Item 32. – Principal Underwriter
| (a) | OppenheimerFunds Distributor, Inc. is the Distributor of the Registrant’s shares. It is also the Distributor of each of the registered open-end investment companies listed below and for MassMutual Institutional Funds. |
Oppenheimer Capital Appreciation Fund
Oppenheimer Capital Income Fund
Oppenheimer Cash Reserves
Oppenheimer Core Bond Fund (a series of Oppenheimer Integrity Funds)
Oppenheimer Corporate Bond Fund
Oppenheimer Developing Markets Fund
Oppenheimer Discovery Fund
Oppenheimer Discovery Mid Cap Growth Fund
Oppenheimer Dividend Opportunity Fund
Oppenheimer Emerging Markets Innovators Fund
Oppenheimer Emerging Markets Local Debt Fund
Oppenheimer Equity Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Global High Yield Fund
Oppenheimer Global Multi-Alternatives Fund
Oppenheimer Global Multi-Asset Growth Fund
Oppenheimer Global Multi-Asset Income Fund
Oppenheimer Global Multi Strategies Fund
Oppenheimer Global Opportunities Fund
Oppenheimer Global Real Estate Fund
Oppenheimer Global Strategic Income Fund
Oppenheimer Global Value Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Institutional Money Market Fund
Oppenheimer International Bond Fund
Oppenheimer International Diversified Fund
Oppenheimer International Growth Fund
Oppenheimer International Small-Mid Company Fund
Oppenheimer International Value Fund
Oppenheimer Limited-Term Bond Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer Macquarie Global Infrastructure Fund
Oppenheimer Main Street Fund (a series of Oppenheimer Main Street Funds)
Oppenheimer Main Street Mid Cap Fund
Oppenheimer Main Street Select Fund
Oppenheimer Main Street Small Cap Fund
Oppenheimer Master Event-Linked Bond Fund, LLC
Oppenheimer Master Inflation Protected Securities Fund, LLC
Oppenheimer Master International Value Fund, LLC
Oppenheimer Master Loan Fund, LLC
Oppenheimer Money Market Fund
Oppenheimer Multi-State Municipal Trust (3 series):
Oppenheimer Rochester High Yield Municipal Fund
Oppenheimer Rochester New Jersey Municipal Fund
Oppenheimer Rochester Pennsylvania Municipal Fund
Oppenheimer Portfolio Series (4 series):
Active Allocation Fund
Equity Investor Fund
Conservative Investor Fund
Moderate Investor Fund
Oppenheimer Quest For Value Funds (3 series):
Oppenheimer Fundamental Alternatives Fund
Oppenheimer Global Allocation Fund
Oppenheimer Mid Cap Value Fund
Oppenheimer Real Estate Fund
Oppenheimer Revenue Weighted ETF Trust
Oppenheimer ADR Revenue ETF
Oppenheimer Financials Sector Revenue ETF
Oppenheimer Global Growth Revenue ETF
Oppenheimer Large Cap Revenue ETF
Oppenheimer Mid Cap Revenue ETF
Oppenheimer Navellier Overall A-100 Revenue ETF
Oppenheimer Small Cap Revenue ETF
Oppenheimer Ultra Dividend Revenue ETF
Oppenheimer Rising Dividends Fund
Oppenheimer Rochester AMT-Free Municipal Fund
Oppenheimer Rochester AMT-Free New York Municipal Fund
Oppenheimer Rochester Arizona Municipal Fund
Oppenheimer Rochester California Municipal Fund
Oppenheimer Rochester Fund Municipals
Oppenheimer Rochester Intermediate Term Municipal Fund
Oppenheimer Rochester Limited Term California Municipal Fund
Oppenheimer Rochester Limited Term Municipal Fund (a series of Oppenheimer Municipal Fund)
Oppenheimer Rochester Limited Term New York Municipal Fund (a series of Rochester Portfolio Series)
Oppenheimer Rochester Maryland Municipal Fund
Oppenheimer Rochester Massachusetts Municipal Fund
Oppenheimer Rochester Michigan Municipal Fund
Oppenheimer Rochester Minnesota Municipal Fund
Oppenheimer Rochester North Carolina Municipal Fund
Oppenheimer Rochester Ohio Municipal Fund
Oppenheimer Rochester Short Term Municipal Fund
Oppenheimer Rochester Virginia Municipal Fund
Oppenheimer Senior Floating Rate Fund
Oppenheimer Senior Floating Rate Plus Fund
Oppenheimer Small Cap Value Fund
Oppenheimer SteelPath MLP Funds Trust (4 series):
Oppenheimer SteelPath MLP Select 40 Fund
Oppenheimer SteelPath MLP Alpha Fund
Oppenheimer SteelPath MLP Income Fund
Oppenheimer SteelPath MLP Alpha Plus Fund
Oppenheimer SteelPath Panoramic Fund
Oppenheimer Ultra-Short Duration Fund
Oppenheimer Value Fund (a series of Oppenheimer Series Fund)
Oppenheimer Variable Account Funds (12 series):
Oppenheimer Capital Appreciation Fund/VA
Oppenheimer Conservative Balanced Fund/VA
Oppenheimer Core Bond Fund/VA
Oppenheimer Discovery Mid Cap Growth Fund/VA
Oppenheimer Equity Income Fund/VA
Oppenheimer Global Fund/VA
Oppenheimer Global Multi-Alternatives Fund/VA
Oppenheimer Global Strategic Income Fund/VA
Oppenheimer Government Money Fund/VA
Oppenheimer International Growth Fund/VA
Oppenheimer Main Street Fund/VA
Oppenheimer Main Street Small Cap Fund/VA
| (b) | The directors and officers of the Registrant’s principal underwriter are: |
| Name & Principal Business Address |
Position & Office with Underwriter |
Position and Office with Registrant |
| Rina M. Aligaen(2) | Assistant Vice President | None |
| Anthony P. Allocco(2) | Assistant Vice President | None |
| Joseph M. Allyn(1) | Vice President | None |
| Nicole Andersen(2) | Assistant Vice President | None |
| Charles F. Anderson(1) | Vice President | None |
| Janette Aprilante(2) | Secretary | None |
| Rupa Athreya(2) | Senior Vice President | None |
| Matthew J. Auer(2) | Vice President | None |
| Kevin K. Babikian(2) | Assistant Secretary | None |
| Anthony E. Bamonte(2) | Vice President | None |
| James P. Barker(2) | Vice President | None |
| Todd M. Barney(1) | Vice President | None |
| Leslie A. Bednar(2) | Assistant Vice President | None |
| Kathleen M. Beichert(1) | Senior Vice President | None |
| Kimberly A. Belsole(2) | Vice President | None |
| Rocco Benedetto(2) | Senior Vice President | None |
| Emanuele S. Bergagnini(2) | Vice President | None |
| Christopher E. Bergeron(2) | Vice President | None |
| Rhea M. Berglund(1) | Vice President | None |
| Rick D. Bettridge(2) | Vice President | None |
| Kamal Bhatia(2) | Senior Vice President | None |
| Adam L. Bilmes(2) | Vice President | None |
| Paul G. Blease(2) | Senior Vice President | None |
| Carolyn Boccaccio(2) | Vice President | None |
| Maria T. Boingeanu(2) | Assistant Vice President | None |
| Nancy S. Bong(2) | Vice President | None |
| David A. Borrelli(2) | Senior Vice President | None |
| Jeffrey R. Botwinick(2) | Vice President | None |
| Sarah M. Bourgraf(1) | Vice President | None |
| Reginald J. Breaux(1) | Vice President | None |
| Joshua H. Broad(2) | Vice President | None |
| Kenneth S. Brodsky(2) | Senior Vice President | None |
| Kevin E. Brosmith(2) | Senior Vice President | None |
| Gregory L. Brown(2) | Vice President | None |
| Matthew G. Brown(1) | Vice President | None |
| Name & Principal Business Address |
Position & Office with Underwriter |
Position and Office with Registrant |
| Ryan M. Buckley(2) | Vice President | None |
| Joanne Butler(2) | Assistant Vice President | None |
| Megan R. Byrne(2) | Assistant Vice President | None |
| Clare Cambria(2) | Vice President | None |
| Mersin Capollari(1) | Vice President | None |
| Tara Carbonneau(1) | Vice President | None |
| Sean T. Carey(2) | Vice President | None |
| Robert M. Caruso(2) | Vice President | None |
| Rick A. Casagrande(2) | Assistant Vice President | None |
| Thomas M. Caulfield(1) | Vice President | None |
| Stephane C. Chevrier(2) | Vice President | None |
| Michael G. Chewning(1) | Vice President | None |
| Donelle L. Chisolm(2) | Vice President | None |
| Andrew S. Chonofsky(2) | Senior Vice President | None |
| Angelanto L. Ciaglia(2) | Vice President | None |
| Nicholas A. Cirbo(1) | Vice President | None |
| John S. Clark(2) | Vice President | None |
| H. D. Clements(2) | Senior Vice President | None |
| Adam M. Cohen(2) | Assistant Vice President | None |
| Craig U. Colby(2) | Vice President | None |
| Ryan J. Coleman(1) | Vice President | None |
| Ellen L. Comisar(2) | Vice President | None |
| Serina Copanas(2) | Vice President | None |
| John H. Corcoran(2) | Vice President | None |
| Cameron T. Cowden(2) | Vice President | None |
| Neev Crane(2) | Vice President | None |
| Michael Daley(2) | Vice President | None |
| Amanda J. Dampier(2) | Assistant Vice President | None |
| Edward Dane(2) | Senior Vice President | None |
| Jeffrey N. Davis(3) | Vice President | None |
| Denise De Leo(1) | Assistant Vice President | None |
| Damaris de los Santos(2) | Vice President | None |
| Stephen D. Degnan(2) | Vice President | None |
| Ivan A. DelRio(2) | Vice President | None |
| Richard E. DeMarco(2) | Assistant Vice President | None |
| Michael R. Dennehy(2) | Vice President | None |
| Michelle D. DeWitt(2) | Assistant Vice President | None |
| Jeffrey S. Dickin(2) | Vice President | None |
| Robert U. Duffey(2) | Vice President | None |
| Cameron F. Dunford(1) | Vice President | None |
| Robert B. Dunphy(2) | Vice President | None |
| Wendy Hetson Ehrlich(2) | Vice President | None |
| Name & Principal Business Address |
Position & Office with Underwriter |
Position and Office with Registrant |
| Paul F. Eisenhardt(2) | Senior Vice President | None |
| Kent M. Elwell(2) | Vice President | None |
| Rickey C. Ernzen(3) | Vice President | None |
| Michael J. Eustic(2) | Vice President | None |
| Gregg A. Everett(2) | Vice President | None |
| George R. Fahey(1) | Senior Vice President | None |
| Jason E. Farrell(2) | Assistant Vice President | None |
| Kristie M. Feinberg(2) | Assistant Treasurer | None |
| Jessica M. Fernandez(2) | Assistant Vice President | None |
| Josean Y. Fernandez(2) | Vice President | None |
| Michael A. Ferrer(2) | Vice President | None |
| Mark J. Ferro(2) | Senior Vice President | None |
| Nicole Filingeri(2) | Vice President | None |
| Tristan A. Fischer(2) | Assistant Vice President | None |
| Patrick W. Flynn(1) | Senior Vice President | None |
| David Ford(2) | Vice President | None |
| John Fortuna(2) | Senior Vice President | None |
| Mark D. Foster(1) | Vice President | None |
| Jayme D. Fowler(2) | Vice President | None |
| Valeri L. Fox(2) | Vice President | None |
| George P. Fraser(1) | Vice President | None |
| Francisco J. Fraustro(2) | Vice President | None |
| Victoria K. Frey(1) | Assistant Vice President | None |
| Alice K. Fricke(2) | Vice President | None |
| William L. Friebel(2) | Vice President | None |
| Joseph T. Friedman(1) | Vice President | None |
| Kathryn T. Gallo(2) | Vice President | None |
| Hazem S. Gamal(2) | Vice President | None |
| Charlotte A. Gardner(1) | Vice President | None |
| Sarah E. Garrity(1) | Vice President | None |
| Christopher R. Gaudio(2) | Vice President | None |
| Jay Gentry(1) | Senior Vice President | None |
| Dina Ghanbarzadeh(2) | Assistant Vice President | None |
| Nancy J. Girondo(2) | Vice President | None |
| Jill E. Glazerman(2) | Senior Vice President | None |
| Emily R. Glotzer(2) | Assistant Vice President | None |
| Jack E. Goldin(2) | Vice President | None |
| Justin A. Goldstein(2) | Vice President | None |
| Michael H. Gottesman(2) | Senior Vice President | None |
| Raquel Granahan(2) | Senior Vice President | None |
| Anthony Greco(2) | Assistant Vice President | None |
| Steven M. Grise(2) | Assistant Vice President | None |
| Name & Principal Business Address |
Position & Office with Underwriter |
Position and Office with Registrant |
| Samuel J. Groban(2) | Vice President | None |
| Vincent E. Grogan(2) | Vice President | None |
| Eric M. Grossjung(2) | Vice President | None |
| Michael D. Guman(2) | Vice President | None |
| Joseph B. Gunderson(2) | Assistant Vice President | None |
| LeaAnna M. Hartman(1) | Vice President | None |
| Alexander D. Hayes(2) | Vice President | None |
| John Hauryluke(2) | Assistant Vice President | None |
| Richard N. Henn(2) | Vice President | None |
| Kenneth L. Henry(2) | Vice President | None |
| Nicholas M. Henry(2) | Assistant Vice President | None |
| Jennifer S. Hoelscher(1) | Assistant Vice President | None |
| Nicole M. Pretzel Holahan(2) | Vice President | None |
| Eric D. Holquist(2) | Vice President | None |
| Timothy B. Horsburgh(2) | Assistant Vice President | None |
| Edward Hrybenko(2) | Senior Vice President | None |
| Brian F. Husch(2) | Vice President | None |
| Keith P. Hylind(2) | Vice President | None |
| Vincent R. Iacono(2) | Vice President | None |
| Omar Z. Idilby(2) | Assistant Vice President | None |
| Jason F. Israel(2) | Assistant Vice President | None |
| Christopher Ivezic(2) | Vice President | None |
| Michael C. Jamison(1) | Vice President | None |
| Nickie J. Jacobs(1) | Assistant Vice President | None |
| Shonda R. Jaquez(2) | Vice President | None |
| Allyson M. Jarecky-Freitag(2) | Vice President | None |
| Daniel C. Jarema(1) | Vice President | None |
| Robert T. Jason(1) | Assistant Vice President | None |
| Ira F. Jersey(2) | Vice President | None |
| Ryan O. Johann(2) | Assistant Vice President | None |
| Eric K. Johnson(1) | Senior Vice President | None |
| Jacquelyn A. Johnson(2) | Assistant Vice President | None |
| Sarah J. Joyce(2) | Assistant Vice President | None |
| Sachin Kambli(2) | Assistant Vice President | None |
| Assaf Kedem (2) | Assistant Vice President | None |
| Geoffrey M. Keller(1) | Vice President | None |
| Scott R. Kelley(1) | Vice President | None |
| Brian P. Kiley(2) | Vice President | None |
| Elena Kirova(2) | Assistant Vice President | None |
| Joseph B. Kolman(2) | Assistant Vice President | None |
| Melissa M. Kretschmer(2) | Assistant Vice President | None |
| Eric J. Kristenson(2) | Vice President | None |
| Name & Principal Business Address |
Position & Office with Underwriter |
Position and Office with Registrant |
| Lamar V. Kunes(2) | Senior Vice President | None |
| Stanford L. Kutler(2) | Vice President | None |
| David T. Kuzia(1) | Vice President | None |
| Michael S. La Tona(2) | Assistant Vice President | None |
| Lisa Lamentino(2) | Vice President | None |
| Thomas M. Landhauser(2) | Assistant Vice President | None |
| John A. Laudadio(2) | Vice President | None |
| Laura L. Lawson(2) | Vice President | None |
| Daniel J. Lee(2) | Vice President | None |
| Eric Lee(2) | Assistant Vice President | None |
| Talley D. Leger(2) | Vice President | None |
| John P. Leonard(2) | Vice President | None |
| Brian S. Levitt(2) | Senior Vice President | None |
| Jesse E. Levitt(2) | Vice President | None |
| Eric J. Liberman(2) | Vice President | None |
| Lorna A. Lindquist(2) | Vice President | None |
| Malissa B. Lischin(2) | Vice President | None |
| Terrie P. Liu(1) | Assistant Vice President | None |
| Cynthia Lo Bessette(2) | Chief Legal Officer | Secretary and Chief Legal Officer |
| Gordon C. Loetz(2) | Vice President | None |
| Christina J. Loftus(2) | Senior Vice President | None |
| David P. Lolli(2) | Assistant Vice President | None |
| Thomas Loncar(2) | Vice President | None |
| Inna London-Ikhilov(2) | Assistant Vice President | None |
| David A. Long(1) | Assistant Vice President | None |
| John Luiz(2) | Vice President | None |
| Joseph M. Macaluso(2) | Assistant Vice President | None |
| John W. Mackey(2) | Vice President | None |
| Peter K. Maddox(2) | Vice President | None |
| Salvatore Maia(2) | Assistant Vice President | None |
| Michael J. Malik(2) | Vice President | None |
| Joseph C. Marich(2) | Vice President | None |
| Natalie Marin(2) | Vice President | None |
| Todd A. Marion(2) | Vice President | None |
| Katarina Maxianova(2) | Vice President | None |
| Anthony P. Mazzariello(2) | Vice President | None |
| Peter J. McCarthy(1) | Vice President | None |
| Robert D. McClure(2) | Vice President | None |
| John C. McDonough(2) | Chairman, Chief Executive Officer, President & Director | None |
| Matthew S. McGee(1) | Vice President | None |
| Brian P. McGinty(1) | Vice President | None |
| Name & Principal Business Address |
Position & Office with Underwriter |
Position and Office with Registrant |
| Kent C. McGowan(2) | Vice President | None |
| Simon A. McKay(2) | Vice President | None |
| William J. McNamara(2) | Vice President | None |
| Christopher S. Mechem(2) | Vice President | None |
| Brian F. Medina(1) | Vice President | None |
| Gregory E. Mehok(2) | Vice President | None |
| Daniel P. Melehan(2) | Vice President | None |
| Izaak Mendelson(2) | Assistant Vice President | None |
| Ariella Menegon(2) | Assistant Vice President | None |
| Debbie S. Michaelson(1) | Vice President | None |
| David B. Miller(2) | Assistant Vice President | None |
| Toller C. Miller(1) | Vice President | None |
| Peter L. Mintzberg(2) | Executive Vice President | None |
| Clint T. Modler(1) | Senior Vice President | None |
| Ella Monakova(2) | Assistant Vice President | None |
| Rian Morrissey(1) | Vice President | None |
| James F. Mugno(2) | Vice President | None |
| Matthew D. Mulcahy(2) | Vice President | None |
| Wendy J. Murray(2) | Vice President | None |
| Keith D. Myers(1) | Assistant Vice President | None |
| Kyle Najarian(1) | Vice President | None |
| Christina M. Nasta(2) | Senior Vice President | None |
| Kevin R. Neznek(2) | Senior Vice President | None |
| Nichola L. Noriega(2) | Vice President | None |
| Peter J. Novak(2) | Senior Vice President | None |
| Timothy J. O’Connell(2) | Vice President | None |
| James B. O’Connell(2) | Assistant Vice President | None |
| Patricia O’Connor(2) | Assistant Vice President | None |
| Tony D. Oh(1) | Treasurer | None |
| Ronald M. Ongaro(2) | Assistant Vice President | None |
| Leonard J. Oremland(2) | Senior Vice President | None |
| Steven W. Paddon(2) | Senior Vice President | None |
| Bruce Palm(2) | Vice President | None |
| Alan I. Panzer(2) | Vice President | None |
| Andrew Y. Park(1) | Vice President | None |
| Maria Paster(2) | Assistant Vice President | None |
| Ashley B. Patten(1) | Vice President | None |
| Lori L. Penna (2) | Vice President | None |
| Brian C. Perkes(2) | Vice President | None |
| Daniel J. Petter(2) | Vice President | None |
| Charles K. Pettit(2) | Vice President | None |
| David M. Pfeffer(2) | Director & Chief Financial Officer | None |
| Name & Principal Business Address |
Position & Office with Underwriter |
Position and Office with Registrant |
| Andrew W. Phillips(1) | Vice President | None |
| Piers A. Platt(2) | Vice President | None |
| Scott A. Porter(2) | Assistant Vice President | None |
| Chad W. Potter(3) | Assistant Vice President | None |
| Stacy L. Pottinger(2) | Assistant Vice President | None |
| Rachel R. Powers(1) | Vice President | None |
| Michael E. Quinn(2) | Vice President | None |
| Michael A. Radon(2) | Assistant Vice President | None |
| Richard E. Rath(2) | Vice President | None |
| William J. Raynor(2) | Vice President | None |
| Brenna D. Rhone(2) | Assistant Vice President | None |
| James T. Robinson(1) | Vice President | None |
| Ian M. Roche(2) | Vice President | None |
| Jason D. Roche(2) | Assistant Vice President | None |
| Adam T. Rochlin(2) | Senior Vice President | None |
| Michael A. Rock(2) | Vice President | None |
| Rachel S. Rodgers(2) | Assistant Vice President | None |
| Philip Rolleri(2) | Assistant Vice President | None |
| Michael J. Roman(2) | Assistant Vice President | None |
| Megan P. Rosenblum(2) | Vice President | None |
| Francis W. Ross(1) | Vice President | None |
| Kristen M. Ross(2) | Assistant Vice President | None |
| Adrienne M. Ruffle(2) | Vice President | None |
| Thomas F. Sabow(2) | Vice President | None |
| Gary Salerno(2) | Assistant Vice President | None |
| Catherine D. Sanders(2) | Vice President | None |
| Brian J. Sateja(2) | Assistant Vice President | None |
| John C. Saunders(2) | Senior Vice President | None |
| Kurt R. Savallo(2) | Assistant Vice President | None |
| Alex C. Schardt(2) | Vice President | None |
| Joshua I. Scher(2) | Assistant Vice President | None |
| Pamela Z. Schiess(2) | Assistant Vice President | None |
| Thomas J. Schmitt(2) | Vice President | None |
| William A. Schories(2) | Vice President | None |
| Eric M. Schranck(1) | Assistant Vice President | None |
| Patrick L. Scorzelli(2) | Vice President | None |
| Jennifer L. Sexton(2) | Senior Vice President | Vice President and Chief Business Officer |
| Jeffrey D. Sharon(2) | Vice President | None |
| James B. Shields(1) | Assistant Vice President | None |
| Faiza Sikander(2) | Assistant Vice President | None |
| Bryant B. Smith(2) | Vice President | None |
| Timothy F. Smith(2) | Assistant Vice President | None |
| Name & Principal Business Address |
Position & Office with Underwriter |
Position and Office with Registrant |
| Mark C. Sokoloff(2) | Assistant Vice President | None |
| John A. Spensley(2) | Vice President | None |
| Timothy J. Spitz(2) | Vice President | None |
| Kirti N. Srikant(2) | Vice President | None |
| Alfred O. St. John(2) | Vice President | None |
| Michael N. Staples(2) | Vice President | None |
| Keith S. Stecker(2) | Assistant Vice President | None |
| Bryan D. Stein(2) | Vice President | None |
| Joseph D. Stellato(2) | Vice President | None |
| Benjamin A. Stewart(2) | Senior Vice President | None |
| Wayne C. Strauss(2) | Vice President | None |
| Matthew C. Straut(2) | Senior Vice President | None |
| Brian C. Summe(2) | Vice President | None |
| Michael E. Sussman(2) | Vice President | None |
| George T. Sweeney(2) | Senior Vice President | None |
| Adam L. Tabor(2) | Vice President | None |
| Leo P. Tallon(2) | Vice President | None |
| Laura B. Taylor (1) | Senior Vice President | None |
| Paul E. Temple(2) | Senior Vice President | None |
| Jay S. Therrien(2) | Vice President | None |
| Anil K. Thomas(2) | Vice President | None |
| David G. Thomas(2) | Vice President | None |
| John B. Thorpe(1) | Vice President | None |
| Stephen D. Tisdalle(2) | Senior Vice President | None |
| Luz V. Touma(2) | Vice President | None |
| Catherine L. Tulley(1) | Assistant Vice President | None |
| David C. Van Hellemont(2) | Vice President | None |
| Wesley R. Vance(2) | Vice President | None |
| Vincent C. Vermette(2) | Vice President | None |
| Alyse S. Vishnick(2) | Assistant Vice President | None |
| Kenneth M. Waddell(2) | Vice President | None |
| Richard Walsh(2) | Vice President | None |
| Teresa M. Ward(2) | Vice President | None |
| Keith R. Watts(1) | Vice President | None |
| Taylor Watts(1) | Vice President | None |
| Michael J. Weigner(2) | Vice President | None |
| Kimberly W. Weinrick(2) | Vice President | None |
| Donn S. Weise(2) | Vice President | None |
| Christopher G. Werner(2) | Vice President | None |
| Donna M. White (2) | Chief Compliance Officer | None |
| Jason Widener(2) | Vice President | None |
| Ryan C. Wilde(1) | Vice President | None |
| Name & Principal Business Address |
Position & Office with Underwriter |
Position and Office with Registrant |
| Tim A. Wilkinson(1) | Vice President | None |
| Thomas Winnick(2) | Vice President | None |
| Patrick J. Wisneski(1) | Vice President | None |
| Kevin P. Woodson(1) | Assistant Vice President | None |
| Ryan J. Woolhiser(1) | Vice President | None |
| Cary P. Wozniak(2) | Vice President | None |
| David T. Zicchinella(2) | Vice President | None |
| Steven L. Zito(1) | Vice President | None |
(1)6803 South Tucson Way, Centennial, CO 80112-3924
(2)225 Liberty Street, New York, NY 10281-1008
(3)2100 McKinney Avenue, Suite 1401, Dallas, TX 75201
| (c) | Not applicable. |
Item 33. – Location of Accounts and Records
The accounts, books and other documents required to be maintained by Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and rules promulgated thereunder are in the possession of OFI Global Asset Management, Inc., OppenheimerFunds, Inc. and Shareholder Services, Inc., as applicable, at each entity’s offices at 6803 South Tucson Way, Centennial, Colorado 80112-3924.
Item 34. – Management Services
Not applicable.
Item 35. – Undertakings
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all the requirements for effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York on the 27th day of July, 2016.
| Oppenheimer Rochester® Massachusetts Municipal Fund | |
| By: | Arthur P. Steinmetz* |
| Arthur P. Steinmetz Trustee, President and Principal Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities on the dates indicated:
| Signatures | Title | Date | ||
|
Brian F. Wruble* Brian F. Wruble |
Chairman of the Board of Trustees | July 27, 2016 | ||
|
Arthur P. Steinmetz* Arthur P. Steinmetz |
Trustee, President and Principal Executive Officer | July 27, 2016 | ||
|
Brian S. Petersen* Brian S. Petersen |
Treasurer, Principal Financial & Accounting Officer | July 27, 2016 |
| Signatures | Title | Date | ||
|
Beth Ann Brown* Beth Ann Brown |
Trustee | July 27, 2016 | ||
|
Matthew P. Fink* Matthew P. Fink |
Trustee | July 27, 2016 | ||
|
Edmund P. Giambastiani, Jr.* Edmund P. Giambastiani, Jr. |
Trustee | July 27, 2016 | ||
|
Elizabeth Krentzman* Elizabeth Krentzman |
Trustee | July 27, 2016 | ||
|
Mary F. Miller* Mary F. Miller |
Trustee | July 27, 2016 | ||
|
Joel W. Motley* Joel W. Motley |
Trustee | July 27, 2016 | ||
|
Joanne Pace* Joanne Pace |
Trustee | July 27, 2016 | ||
|
Daniel Vandivort* Daniel Vandivort |
Trustee | July 27, 2016 | ||
|
*By: /s/ Mitchell J. Lindauer Mitchell J. Lindauer, Attorney-in-Fact |
OPPENHEIMER ROCHESTER® MASSACHUSETTS MUNICIPAL FUND
Post-Effective Amendment No. 17
Registration Statement No. 333-132781
EXHIBIT INDEX
| Exhibit No. | Description | |
| 28 (j) | Independent Registered Public Accounting Firm’s Consent |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Trustees and Shareholders of
Oppenheimer Rochester Massachusetts Municipal Fund:
We consent to the use of our report dated May 27, 2016, with respect to the financial statements and financial highlights of Oppenheimer Rochester Massachusetts Municipal Fund as of March 31, 2016, incorporated by reference herein, and to the references to our firm under the headings “Financial Highlights” in the Prospectus, and “Independent Registered Public Accounting Firm” and “Financial Statements” in the Statement of Additional Information.
| /s/ KPMG LLP | |
| KPMG LLP |
Denver, Colorado
July 26, 2016
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