WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks as high a level of income exempt from federal income tax and California individual income taxes as is consistent with its investment policies and prudent investment management.

WHAT DOES THE FUND MAINLY INVEST IN?

What is a Municipal Security? Municipal securities are fixed-income securities primarily issued by states, cities, counties and other governmental entities to finance the development of local communities. The interest received from most municipal bonds is exempt from federal, state or local income taxes in the municipalities where the bonds are issued. What are California Municipal Securities? California municipal securities are securities that pay interest that, in the opinion of counsel to the issuer of each security, is exempt from federal and California personal income tax.

The Fund invests primarily in a portfolio of investment-grade municipal debt obligations, and seeks a dollar-weighted average effective portfolio maturity of five years or less. Under normal market conditions, as a non-fundamental policy, the Fund invests at least 80% of its net assets (plus borrowings for investment purp oses) in California Municipal Securities.
California Municipal Securities include municipal securities issued by the State of California and its political subdivisions (cities, towns and counties, for example), agencies, instrumentalities (which are state-chartered corporations) and public authorities of the State of California, and territories, commonwealths and possessions of the United States (for example, Puerto Rico, Guam, the Virgin Islands and Northern Mariana Islands) that pay interest that is exempt (in the opinion of the legal counsel to the issuer of the security) from federal income tax, and California individual income taxes. These are referred to as "California Municipal Securities" in this prospectus.
Even though the Fund seeks to limit the dollar-weighted average effective maturity of its portfolio to five years or less, it can buy securities having maturities of more than five years. The Fund can buy municipal bonds (which are obligations having a maturity of more than one year when issued), municipal notes (short-term obligations), and interests in municipal leases. The Fund can invest in municipal lease obligations that are used by state and local governments to obtain funds to acquire land, equipment or facilities. A substantial percentage of the municipal securities the Fund buys may be "callable," allowing the issuer of the securities to redeem them before their maturity date. The Fund can invest up to 5% of its total assets in investments that pay interest that is subject to federal and California individual income tax. The Fund's investment objective is not a fundamental policy, but it will not be changed without the approval of the Board of Trustees and 60 days notice to shareholders.
Under normal market conditions, the Fund invests primarily in investment-grade California Municipal Securities. The Fund can invest as much as 5% of its total assets in municipal securities below investment grade to seek higher income. "Investment-grade" bonds are either securities rate d within the four highest rating categories of a nationally-recognized rating organization, such as Standard and Poor's Ratings Services ("Standard & Poor's"), a division of The McGraw-Hill Companies, Inc., Moody's Investors Service, Inc. ("Moody's"), Fitch, Inc. ("Fitch"), or unrated securities that the Fund's investment manager believes to be comparable to investment-grade securities rated by a nationally recognized rating organization. The Fund's criteria for credit quality are further explained below.
The Fund can invest substantial amounts of its assets in "private activity" municipal securities that pay interest that is tax-exempt but which may be a "tax-preference item" for investors subject to alternative minimum taxation. Securities that may pay interest subject to alternative minimum taxation will count toward the Fund's policy regarding minimum investments in California Municipal Securities as described above. The Fund also can borrow for leverage and use certain derivative investments, su ch as inverse floaters, to try to increase income. The investments are more fully explained in this prospectus.

HOW DOES THE PORTFOLIO MANAGEMENT TEAM DECIDE WHAT SECURITIES TO BUY OR SELL? In selecting securities for the Fund, the portfolio managers examine a variety of factors, which may change over time and may vary in particular cases. The portfolio managers focus on:

The portfolio managers may consider selling a security if any of these factors no longer applies to a security purchased for the Fund.

WHO IS THE FUND DESIGNED FOR? The Fund is designed for investors who are seeking income exempt from federal income tax and California personal income taxes by investing in a fund emphasizing investment-grade securities and an intermediate effective average maturity intended to reduce overall portfolio volatility. As a result of these strategies, the Fund's yields may be lower than longer-term municipal bond funds or municipal bond funds that can invest more of their assets in lower-grade investments. The Fund does not seek capital gains or growth. The Fund invests in bonds that are exposed to credit and interest rate risks and can invest up to 25% of its total assets in bonds that are rated below investment grade ("junk bonds"). Because it invests in tax-exempt securities, the Fund is not appropriate for retirement plan accounts or for investors whose primary goal is capital growth. The Fund is not a complete investment program. There is no assurance that the Fund will achieve its i nvestment objective. You should carefully consider your own investment goals and risk tolerance before investing in the Fund.

All investments have some degree of risk. The value of the Fund's shares fluctuates as the value of the Fund's investments changes, and may decline. The value of the Fund's investments may change because of broad changes in the markets in which the Fund invests or from more specific factors like those described below. There is also the risk that poor security selection could cause the Fund to underperform other funds with similar objectives. When you redeem your shares, they may be worth more or less than what you paid for them. These risks mean that you can lose money by investing in the Fund.

OppenheimerFunds, Inc. (the "Manager") tries to reduce risks by selecting a wide variety of municipal securities 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 Fund's share prices and yields may change daily based on changes in general bond market movements, changes in values of particular bonds because of events affecting the issuer, or changes in interest rates that can affect bond prices overall.

The Fund focuses its investments in its particular state and is non-diversified. The Fund will therefore be vulnerable to the effects of economic, regulatory and political developments that affect its state governmental issuers.

CREDIT RISK. Municipal securities are subject to credit risk, which is the risk that the issuer of a security might not make principal or interest payments on the security when they are due. The credit quality of many bond issues is evaluated by rating agencies such as Standard & Poor's and Moody's based on an analysis of the ability of the bond issuer to meet all required interest and principal payments. If a bond is insured, it will usually be rated by the rating agencies based on the financial strength of the insurer.

If the issuer fails to pay interest or repay principal, the Fund's income might be reduced and the value of the security might fall. 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 or a security's insurer's credit rating, for any reason, can reduce the market value of the issuer's securities.

INTEREST RATE RISK. Municipal securities are debt securities that are subject to changes in value when prevailing interest rates change. When prevailing interest rates fall, the values of already-issued municipal securities generally rise. As a result, the income the Fund earns on its investments, and the Fund's distributions to shareholders, may decline. When prevailing interest rates rise, the values of already-issued municipal securities held by the Fund generally fall, and the securities may sell at a discount from their face amount. The magnitude of these price changes is generally greater for securities having longer maturities. When the average maturity of the Fund's portfolio is longer, its share price may fluctuate more if interest rates change. The Fund generally focuses on longer-term securities to seek higher income. Therefore, the Fund's share prices may fluctuate more when interest rates change. Additionally, the Fund can buy variable rate obligations. When interest rates fall, the yields of these securities decline. Callable bonds that the Fund buys are more likely to be called when interest rates fall, and the Fund might then have to reinvest the proceeds of the called instrument in other securities that have lower yields, reducing its income.

The Fund currently seeks to limit the average effective maturity of its overall portfolio to not more than five years, to try to reduce the volatility that can occur when interest rates change. However, the Fund can hold individual securities having an effective maturity of more than five years, and their prices may be more volatile when interest rates change.

SPECIAL RISKS OF INVESTING PRIMARILY IN CALIFORNIA MUNICIPAL SECURITIES. The Fund generally invests a significant portion of its assets in California Municipal Securities. Because the Fund invests primarily in California Municipal Securities, the value of its portfolio investments will be highly sensitive to events affecting the fiscal stability of the State of California and its municipalities, agencies, authorities and other instrumentalities that issue securities. These may include state or local legislation or policy changes, erosion of the tax base of the state or one or more particular localities, the effects of possible terrorist acts or natural disasters, or other economic or credit problems affecting the state generally or any individual locality (which may directly or indirectly affect the state as a whole). Having a higher percentage of its assets invested in the securities of fewer issuers, particularly obligations of government issuers of a single state, could result in gre ater credit risk exposure to a smaller number of issuers due to economic, regulatory or political problems in California. These risks are disclosed in more detail in the Fund's Statement of Additional Information.

Municipal Sector Concentration. While the Fund's fundamental policies do not allow it to concentrate its investments (that is, to invest more than 25% of its total assets) in a single industry, certain types of municipal securities are not considered a part of any "industry" under that policy. Examples of these types of municipal securities include: general obligation, general appropriation, municipal leases, special assessment and special tax bonds. Therefore, the Fund may invest more than 25% of its total assets in these types of municipal securities, which may finance similar types of projects or from which the interest is paid from revenues of similar types of projects. "Similar types of projects" are projects that are related in such a way that economic, business or political developments tend to have the same impact on each similar project. For example, a change that affects one project, such as proposed legislation on the financing of the project, a shortage of the m aterials needed for the project, or a declining economic need for the project, would likely affect all similar projects, thereby increasing market risk. Thus, market or economic changes that affect a security issued in connection with one project also would affect securities issued in connection with similar types of projects.

Although these types of municipal securities may be related to certain industries, because they are issued by governments or their political subdivisions, these types of municipal securities are not considered a part of any industry for purposes of the Fund's industry concentration policy.

Special Tax or Special Assessment Bonds (Land-Secured or "Dirt" Bonds). As discussed above, 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 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 and 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 secur e 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.

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

U.S. Territories, Commonwealths and Possessions. The Fund also invests in obligations of the governments of the U.S. territories, commonwealths and possessions such as Puerto Rico, the Virgin Islands, Guam and the Northern Mariana Islands to the extent such obligations are exempt from state income taxes. These investments also are considered to be "California Municipal Securities" for purposes of this prospectus. Accordingly, the Fund may be adversely affected by local political and economic conditions and developments within these U.S. territories, commonwealths and possessions affecting the issuers of such obligations.

RISKS OF NON-DIVERSIFICATION. The Fund is classified as a "non-diversified" fund under the Investment Company Act of 1940. Accordingly the Fund may invest a greater portion of its assets in the securities of a single issuer or limited number of issuers than a "diversified" fund. To the extent that the Fund invests a higher percentage of its assets in the securities of a single issuer or limited number of issuers, the Fund is more subject to the risks associated with and developments affecting an individual issuer than a fund that invests more widely.

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") 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.

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 to 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.
Because tobacco settlement revenue bonds are backed by payments fr om 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. The Statement of Additional Information contains more detailed information about the litigation related to the tobacco industry and the MSA.

Appropriation debt differs from a state's general obligation debt in that general obligation debt is backed by the state's full faith, credit and taxing power, while appropriation debt requires the state to pass a specific periodic appropriation to pay interest and/or principal on the bonds as the payments come due. The appropriation is usually made annually. While STA Tobacco Bonds offer an enhanced credit support feature, that feature is generally not an unconditional guarantee of payment by a state and states generally do not pledge the full faith, credit or taxing power of the state. The Fund considers STA Tobacco Bonds to be "municipal securities" for purposes of its concentration policies.

TAXABILITY RISK. The Fund will invest in municipal securities in reliance at the time of purchase on an opinion of bond counsel to the issuer that the interest paid on those securities will be excludable from gross income for federal income tax purposes. Subsequent to the Fund's acquisition of a municipal security, however, the security may be determined to pay, or to have paid, taxable income. As a result, the treatment of dividends previously paid or to be paid by the Fund as "exempt-interest dividends" could be adversely affected, subjecting the Fund's shareholders to increased federal income tax liabilities.

Under highly unusual circumstances, the Internal Revenue Service may determine that a municipal bond issued as tax-exempt should in fact be taxable. If the Fund held such a bond, it might have to distribute taxable income or reclassify as taxable, ordinary income that was previously distributed as exempt-interest dividends.

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 Manager when available, funding amounts necessary to unwind or "collapse" trusts that issued "inverse floaters" to the Fund (an investment technique 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.

UNUSUAL VOLATILITY AND LACK OF LIQUIDITY IN THE MUNICIPAL BOND MARKETS. Municipal bonds are traded in the "over-the-counter" market among dealers and other large institutional investors. In late 2008, the municipal market entered a period of greater volatility than it had historically experienced. Liquidity in the municipal bond market (the ability to buy and sell bonds readily) was reduced in response to overall economic conditions and credit tightening. During times of reduced market liquidity, the Fund may not be able to sell bonds readily at prices reflecting the values at which the bonds are carried on the Fund's books. Sales of large blocks of bonds by market participants, such as the Fund, that are seeking liquidity can further reduce bond prices in an illiquid market. The Fund may seek to make sales of large blocks of bonds to meet shareholder redemption requests, or it may be required to raise cash to re-collateralize, unwind or "collapse" trusts that issued inverse floaters to the Fund or to make payments to such trusts to enable them to pay for tenders of the short-term securities they have issued, if the remarketing agents for those securities are unable to sell those short-term securities in the marketplace to other buyers (typically tax exempt money market funds). It is not possible to predict whether such cycles of market illiquidity are short-term or may continue over a protracted period of time.

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 bar chart and table below show one measure of the risks of investing in the Fund by showing changes in the Fund's performance. The bar chart shows the performance of the Fund's Class A shares for each full calendar year since the Fund's inception.

Sales charges and taxes are not included in the calculations of return in this bar chart, and if those charges and taxes were included, the returns may be less than those shown. During the period shown in the bar chart, the highest return before taxes for a calendar quarter was 3.74% (2 qtr 05) and the lowest return before taxes for a calendar quarter was -0.67% (3 qtr 07). For the period from January 1, 2008 through September 30, 2008 the cumulative return before taxes was -3.82%.

The following table shows the average annual total returns of each class of the Fund's shares before taxes compared to a broad-based market index. After-tax returns are also shown for Class A shares. They are calculated using the highest individual Federal income tax rates in effect during the periods shown and do not reflect the impact of state or local taxes. The after-tax returns are based on certain assumptions mandated by regulation and your actual after-tax returns may differ from those shown, depending on your individual tax situation. After-tax returns will vary for the other share classes and are not relevant to investors who hold their shares through tax-deferred or tax-exempt arrangements (for example individual retirement accounts, 401(k) plans, 529 plans or tax-exempt institutional investors). The Fund's past investment performance, before and after taxes, is not necessarily an indication of how the Fund will perform in the future.

The Fund's average annual total returns include applicable sales charges: for Class A, the current maximum initial sales charge of 3.50%; for Class B, the contingent deferred sales charge of 4% (1-year) and 1% (5-years); and for Class C, the 1% contingent deferred sales charge for the 1-year period. The returns measure the performance of a hypothetical account and assume that all dividends and capital gains distributions have been reinvested in additional shares. The performance of the Fund's shares is compared to the Barclays Capital Municipal Bond Index (formerly Lehman Brothers Municipal Bond Index), an unmanaged index of a broad range of investment-grade municipal bonds that is a measure of the general municipal bond market. The index performance includes reinvestment of income but does not reflect transaction costs, fees, expenses or taxes. The Fund's investments vary from those in the index. The Fund's performance also is compared to the Consumer Price Index, a non-secu rities index that measures changes in the inflation rate.

The following tables are provided to help you understand the fees and expenses you may pay if you buy and hold shares of the Fund. Shareholders pay certain expenses directly, such as sales charges. The Fund pays other expenses for management of its assets, administration, distribution of its shares and other services. Since those expenses are paid from the Fund's assets, all shareholders pay those expenses indirectly.

The numbers below are based on the Fund's expenses during its fiscal year ended July 31, 2008. Expenses may vary in future years.

Expenses may vary in future years. "Other Expenses" include transfer agent fees, interest and fees from borrowings, custodial fees, and accounting and legal expenses that the Fund pays. The "Other Expenses" in the table are based on, among other things, the fees the Fund would have paid if the transfer agent had not waived a portion of its fees under a voluntary undertaking to the Fund to limit these fees to 0.35% of average daily net assets per fiscal year for all classes. That undertaking may be amended or withdrawn at any time. For the Fund's fiscal year ended July 31, 2008, the transfer agent's fees exceeded the expense limitation described above by less than 0.01%, for each class.

1. A contingent deferred sales charge may apply to redemptions of investments of $1 million or more or to certain retirement plan redemptions of Class A shares. See "How to Buy Shares" for details.

2. Applies to redemptions in first year after purchase. The contingent deferred sales charge gradually declines from 4% to 1% in years one through five and is eliminated after that.

4. Interest and Related Expenses from Inverse Floaters include certain expenses and fees related to the Fund's investments in inverse floaters. Some of those expenses are liabilities with respect to interest paid on short-term floating rate notes issued by the trusts whose inverse floater certificates are held by the Fund. Under accounting rules, the Fund also recognizes additional income in an amount that directly corresponds to these expenses. Therefore, the Fund's net asset values per share and total returns have not been affected by these additional expenses. Those expenses affected the statement of the Fund's Total Other Expenses and Total Annual Operating Expenses in the table above and the Examples below.

EXAMPLES. The following examples are intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The examples assume that you invest $10,000 in a class of shares of the Fund for the time periods indicated and reinvest your dividends and distributions. These examples also assume that your investment has a 5% return each year and that the Fund's operating expenses remain the same. The Fund's expenses will vary over time, however, and your actual costs may be higher or lower.

The first example assumes that you redeem all of your shares at the end of the periods. The second example assumes that you keep your shares. Based on these assumptions your expenses would be as follows:

In the first example, expenses include the initial sales charge for Class A and the applicable Class B and Class C contingent deferred sales charges. In the second example, the Class A expenses include the sales charge, but Class B and Class C expenses do not include contingent deferred sales charges.

* Since Class B shares automatically convert to Class A shares 72 months after purchase, the Class B expenses for years 7 through 10 are based on Class A expenses.

In evaluating the Fund's expenses, it is important to remember that mutual funds offer you the opportunity to combine your resources with those of many other investors to obtain professional portfolio management, exposure to a larger number of markets and issuers, reliable custody for investment assets, liquidity, and convenient recordkeeping and reporting services. Funds also offer investment benefits to individuals without the expense and inconvenience of buying and selling individual securities. Because a fund is a pooled investment, however, shareholders may bear certain fund operating costs as a result of the activities of other fund investors. Because some investors may use fund services more than others, or may have smaller accounts or more frequent account activity, those activities may increase the Fund's overall expenses, which are indirectly borne by all of the Fund's shareholders.

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 more detailed information about the Fund's investment policies and risks.

THE FUND'S PRINCIPAL INVESTMENT POLICIES AND RISKS. The following strategies and types of investments are the ones that the Fund considers to be the most important in seeking to achieve its investment objective and the following risks are those the Fund expects its portfolio to be subject to as a whole.

The Manager tries to reduce risks by selecting a wide variety of municipal investments and by carefully researching securities before they are purchased. However, changes in the overall market prices of municipal securities and the income they pay can occur at any time. The yield and share prices of the Fund will change daily based on changes in interest rates and market conditions and in response to other economic events.

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 b onds 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." See, for example, "STA Tobacco Bonds" discussed earlier in this prospectus.

California 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 California individual income tax. The term "California 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 California 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 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.

Ratings of Municipal Securities the Fund Buys. The Manager may rely to some extent on credit ratings by nationally recognized statistical rating agencies in evaluating the credit risk of securities selected for the Fund's portfolio. It may also use its own research and analysis. Many factors affect an issuer's ability to make timely payments, and the credit risk of a particular security may change over time. If a bond is insured, it will usually be rated by the rating agencies based on the financial strength of the insurer.

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 Standard & Poor's, Moody's, Fitch or another nationally recognized statistical rating organization. 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. The rating categories are described in Appendix A of the Statement of Additional Information.

Unrated securities also are considered "investment grade" if judged by the Manager to be comparable to rated investment grade securities. Some unrated securities may not have an active trading market, which means that the Fund might have difficulty valuing them and selling them promptly at an acceptable price.

A reduction in the rating of a security after the Fund buys it will not automatically require the Fund to dispose of the security. However, the Manager will evaluate such downgraded securities to determine whether to keep them in the Fund's portfolio.

The Fund can invest as much as 5% of its total assets in securities that are not "investment grade" (measured at the time of purchase) to seek higher income. The Fund considers the following securities to be "investment-grade" under its credit quality guidelines:

Determining the "Average Effective Maturity" of the Fund's Portfolio. In general, when interest rates change, debt securities having shorter maturities fluctuate in value less than securities with longer maturities. The Fund tries to reduce the volatility of its share prices by seeking to maintain an average effective portfolio maturity of five years or less. It measures the "average" maturity of all of its securities on a "dollar-weighted" basis, meaning that larger securities holdings have a greater effect on overall portfolio maturity than smaller holdings. The Fund can therefore hold securities with stated and effective maturities of more or less than five years.

The "effective" maturity of a security is not always the same as the stated maturity date. A number of factors may cause the "effective" maturity to be shorter than the stated maturity. For example, a bond's effective maturity might be deemed to be shorter (for pricing and trading purposes) than its stated maturity as a result of differences between its coupon interest rate and current market interest rates, whether the bond is callable (that means the issuer can pay off the bond prior to its stated maturity), the rate of accretion of discounts on the bond, and other factors such as mandatory put provisions and scheduled sinking fund payments.

When interest rates change, securities that have an effective maturity that is shorter than their stated maturity tend to behave like securities having those shorter maturity dates. However, those securities might not behave as expected, and the Fund might not always be successful in maintaining its average effective portfolio maturity at five years or less or in reducing the volatility of its share prices.

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.

SPECIAL RISKS OF DERIVATIVE INVESTMENTS. The Fund can invest in different types of "derivative" investments that are consistent with its investment strategies. A derivative is an investment 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.

The Fund may use derivatives to seek income or capital gain or to hedge against the risks of other investments. Derivatives may allow the Fund to increase or decrease its exposure to certain markets or risks very quickly. The Fund may also use derivatives for hedging purposes. Examples include, but are not limited to, interest rate swaps or municipal bond swaps. The Fund typically does not use hedging instruments, such as options, to hedge investment risks.

Derivatives may be volatile and may involve significant risks. Derivative transactions may require the payment of premiums. Certain derivative investments held by the Fund may be illiquid, making it difficult to close out an unfavorable position. The underlying security or other reference rate on which a derivative is based, or the derivative itself, may not perform the way the Manager expects it to. As a result, the Fund could realize little or no income or lose principal from the investment, or a hedge might be unsuccessful. The Fund may also lose money on a derivative investment if the issuer fails to pay the amount due.

The Fund can invest up to one third of its assets in derivatives to seek increased income or to try to hedge investment risks.

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 and Percentage of LIBOR Notes discussed in this prospectus, are types of variable rate obligations.

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

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

The Fund's investments in inverse floaters involve certain risks. The market value of an inverse floater residual certificate can be more volatile than that of a conventional fixed-rate bond having similar credit quality, maturity and redemption provisions. Typically, inverse floater residual certificates tend to underperform fixed-rate bonds when long-term interest rates are rising but tend to outperform fixed-rate bonds when long-term interest rates are stable or falling. Inverse floater residual certificates entail a degree of leverage because the trust issues short-term securities in a ratio to the residual certificates with the underlying long-term bond providing collateral for the obligation to pay the principal value of the short-term securities if and when they are tendered. If the Fund has created the inverse floater by depositing a long-term bond into a trust, it may be required to provide additional collateral for the short-term securities if the value of the underlying bond deposit ed in the trust falls.

An inverse floater that has a higher degree of leverage is typically more volatile with respect to its price and income than an inverse floater having a lower degree of leverage. Under inverse floater arrangements, if the remarketing agent that offers the short-term securities for sale is unable to sell them, or if the holders tender (or put) them for repayment of principal and the remarketing agent is unable to remarket them, the remarketing agent may cause the trust to be collapsed, and in the case of floaters created by the Fund, the Fund will then be required to repay the principal amount of the tendered securities. During times of market volatility, illiquidity or uncertainty, the Fund could be required to sell other portfolio holdings at a disadvantageous time to raise cash to meet that obligation.

Some inverse floaters may have a "cap," so that if interest rates rise above the cap, the security pays additional interest income. If rates do not rise above the cap, the Fund will have paid an additional amount for that feature that has proved worthless.

The Fund may also enter into "shortfall and forbearance" agreements with respect to inverse floaters. Under those agreements, upon liquidation of the trust, the Fund is committed to pay the trust the difference between the liquidation value of the underlying municipal bond on which the inverse floater is based and the principal amount payable to the holders of the short-term floating rate security that is based on the same underlying municipal security. Although the Fund has the risk that it may be required to make such additional payment, these agreements may offer higher interest payments than a standard inverse floater.

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

The Fund will not expose more than 20% of its total assets to the effects of leverage from its investment in inverse floaters.

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 interest rate environment and lower levels of income as 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.

Because the market for PLNs is relatively new and still developing, the Fund's ability to engage in transactions using such instruments may be limited. There is no assurance that a liquid secondary market will exist for any particular PLN or at any particular time, and so the Fund may not be able to close a position in a PLN when it is advantageous to do so. The Fund may also transfer a PLN to a sponsor to create an inverse floater, which may, as discussed above, further increase the volatility of the market value of a PLN or the inverse floater.

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. Between the purchase and settlement date, no payment is made for the security and no interest accrues to the buyer from the investment. There is a risk of loss to the Fund if the value of the security declines prior to the settlement date.

The securities are subject to changes in value from market fluctuations during the period until settlement 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 declines below the purchase price.

The Fund will not invest more than 5% of its total assets in "when-issued" and "delayed-delivery" transactions.

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 Manager monitors holdings of illiquid securities on an ongoing basis to determine whether to sell any holdings to maintain adequate liquidity.

The Fund will not invest more than 15% of its net assets in illiquid securities.

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.

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 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.

Conflicts of Interest. The investment activities of the Manager and its affiliates in regard to other accounts they manage may present conflicts of interest that could disadvantage the Fund and its shareholders. The Manager or its 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 or its 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 th ose 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 or its affiliates and the Fund may experience losses during periods in which other accounts advised by the Manager or its affiliates achieve gains. The Manager has adopted policies and procedures designed to address potential conflicts of interest identified by the Manager, however such policies and procedures may also limit the Fund's investment activities and affect its performance.

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 (for example, over 100%). Increased portfolio turnover may result in higher brokerage fees or other transaction costs, which can reduce performance. In most cases, however, the Fund does not pay brokerage commissions on debt securities it buys. 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.

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 but will not be changed by the Board without advance notice to shareholders. 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 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 Statements 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.

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.

THE MANAGER. OppenheimerFunds, Inc., the Manager, chooses the Fund's investments and handles its day-to-day business. The Manager carries out its duties, subject to the policies established by the Fund's Board of Trustees, under an investment advisory agreement that states the Manager's responsibilities. The agreement sets the fees the Fund pays to the Manager and describes the expenses that the Fund is responsible to pay to conduct its business.

The Manager has been an investment adviser since 1960. The Manager and its subsidiaries and controlled affiliates managed Oppenheimer funds with more than 6 million shareholder accounts as of September 30, 2008. The Manager is located at Two World Financial Center, 225 Liberty Street, 11th Floor, 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, which declines on additional assets as the Fund grows: 0.50% of the first $100 million of average daily net assets, 0.45% of the next $150 million of average daily net assets, 0.40% of the next $1.75 billion of average daily net assets, and 0.39% of average daily net assets in excess of $2 billion. The Fund's management fee for its last fiscal year ended July 31, 2008 was 0.46% of average annual net assets for each class of shares.

A discussion regarding the basis for the Board of Trustees' approval of the investment advisory contracts for the Fund is available in the Fund's Semi-Annual Report to shareholders for the six-month period ended January 31, 2008.

Portfolio Managers. The Fund's portfolio is managed by a team of investment professionals, including Ronald H. Fielding, Daniel G. Loughran, Scott S. Cottier, Troy E. Willis, Mark R. DeMitry, Marcus V. Franz and Michael L. Camarella, who are primarily responsible for the day-to-day management of the Fund's investments. Mr. Fielding has been a Senior Portfolio Manager and Vice President of the Fund since January 1996. Mr. Loughran has been a Senior Portfolio Manager of the Fund since April 2001 and Vice President of the Fund since October 2005. Mr. Cottier has been a Senior Portfolio Manager of the Fund since July 2002 and Vice President of the Fund since October 2005. Mr. Willis has been a Senior Portfolio Manager of the Fund since January 2006 and Vice President of the Fund since October 2005. Messrs. DeMitry and Franz have been Associate Portfolio Managers of the Fund since September 2006. Mr. Camarella has been an Associate Portfolio Manager of the Fund since April 2008.

Mr. Fielding has been a Senior Vice President of the Manager and Chairman of the Rochester Division since January 1996. He is the chief strategist, Senior Portfolio Manager, an officer and a trader for the Fund and other Oppenheimer Funds.

Mr. Loughran has been a Senior Vice President of the Manager since July 2007 and has been a Portfolio Manager with the Manager since 1999. He was Vice President of the Manager from April 2001 to June 2007. He is a team leader, a Senior Portfolio Manager, an officer and a trader for the Fund and other Oppenheimer Funds.

Mr. Cottier has been a Vice President of the Manager since 2002. He is a Senior Portfolio Manager, an officer and trader for the Fund and other Oppenheimer Funds.

Mr. Willis has been a Portfolio Manager since 2003 and an Assistant Vice President of the Manager since July 2005. He is a Senior Portfolio Manager, an officer and trader for the Fund and other Oppenheimer Funds.

Mr. DeMitry was a research analyst of the Manager from June 2003 to September 2006 and a credit analyst of the Manager from July 2001 to May 2003. He is an Associate Portfolio Manager and a trader for the Fund and other Oppenheimer Funds.

Mr. Franz was a research analyst of the Manager from June 2003 to September 2006. He is an Associate Portfolio Manager and a trader for the Fund and other Oppenheimer Funds.

Mr. Camarella was a research analyst of the Manager from February 2006 to April 2008. Mr. Camarella was a credit analyst of the Manager from June 2003 to January 2006. He is an Associate Portfolio Manager and a trader for the Fund and other Oppenheimer Funds.

The Statement of Additional Information provides additional information about the portfolio managers' compensation, other accounts they manage and their ownership of Fund shares.

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 programs.

WHAT CLASSES OF SHARES DOES THE FUND OFFER? The Fund offers investors four 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 A Shares. If you buy Class A shares, you will pay an initial sales charge on investments up to $1 million for regular accounts or lesser amounts or if 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.

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 clicking on the hyperlink "Sales Charge Waivers" under the heading "Fund Information" on the OppenheimerFunds website at "www.oppenheimerfunds.com."

WHAT IS THE MINIMUM INVESTMENT? In most cases, you can buy Fund shares with a minimum initial investment of $1,000 and make additional investments with as little as $50. The minimum additional investment requirement does not apply to reinvested dividends from the Fund or from other Oppenheimer funds or to omnibus account purchases. A $25 minimum applies to additional investments through an Asset Builder Plan, an Automatic Exchange Plan or a government allotment plan established before November 1, 2002. Reduced initial minimums are available in certain circumstances, including under the following investment plans:

Minimum Account Balance. A $12 annual "minimum balance fee" is assessed on Fund accounts with a value of less than $500. The fee is automatically deducted from each applicable Fund account annually in September. See the Statement of Additional Information for information about the circumstances under which this fee will not be assessed. Small accounts may be involuntarily redeemed by the Fund if the value has fallen below $500 for reasons other than a decline in the market value of the shares.

CHOOSING A SHARE CLASS. Once you decide that the Fund is an appropriate investment for you, the decision as to which class of shares is best suited to your needs depends on a number of factors that you should discuss with your financial adviser. 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, the net asset value and the dividends of Class B and Class C shares will be reduced by additional expenses borne by those classes such as the asset-based sales charge.

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 asset-based sales charges on Class B or Class C shares. 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 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.

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 Manager 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 or 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.

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 rates that would apply to a larger purchase. The Fund reserves the right to modify or to cease offering these programs at any time.

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 your financial intermediary you must notify your intermediary of your eligibility for the Right of Accumulation at the time of your purchase. You must notify the Distributor or your financial intermediary of any qualifying 529 plan holdings. To count eligible shares held in accounts at other firms, you may be requested to provide the Distributor or your financial intermediary with a copy of all account statements showing current holdings of the Fund, other eligible Oppenheimer funds or qualifying 529 plans, as described above. To determine which Class A sales charge rate you qualify for on your current purchase, the Distributor or financial intermediary through which you are buying shares will calculate the value of your eligible shares based on the current offering p rice.

Purchases of Class N or Class Y shares, purchases made by reinvestment of dividends or capital gains distributions from other Oppenheimer funds, purchases of Class A shares with redemption proceeds under the "reinvestment privilege" described below, and purchases of Class A shares of Oppenheimer Money Market Fund, Inc. or Oppenheimer Cash Reserves on which a sales charge has not been paid do not count as "qualified shares" for satisfying the terms of a Letter.

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 – Letters 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 Contingent Deferred Sales Charge. There is no initial sales charge on Class A share purchases totaling $1 million or more of one or more of the Oppenheimer funds. However, those Class A shares may be subject to a 0.50% contingent deferred sales charge if they are redeemed within an 18-month "holding period" measured from the beginning of the calendar month in which they were purchased (except for shares in certain retirement plans). That sales charge will be calculated on the lesser of the original net asset value of the redeemed shares 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 and will not exceed the aggregate amount of the concessions the Distributor pays on all of your purchases of Class A shares, of all Oppenheimer funds, that are subject to the contingent deferred sales charge.

The Distributor pays concessions from its own resources on certain purchases of Class A shares of one or more of the Oppenheimer funds that, in the aggregate, total $1 million or more. If purchases of a Fund's Class A shares are included in any such purchase, the Distributor will pay the concession on those Fund shares at the rate of 0.50% of their net asset value. A concession will not be paid on shares purchased by exchange or shares that were previously subject to a front-end sales charge and dealer 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 six years from the beginning of the calendar month in which they were purchased, a contingent deferred sales charge will be deducted from the redemption proceeds. 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.

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:

In the table, a "year" is a 12-month period. In applying the contingent deferred sales charge, all purchases are considered to have been made on the first regular business day of the month in which the purchase was made.

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. 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 holding period of 12 months from the beginning of the calendar month in which they were purchased, 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 currently available for sale.) Class Y shares are sold at net asset value per share without a sales charge directly to institutional investors that have special agreements with the Distributor for this purpose. They may include insurance companies, registered investment companies, employee benefit plans and Section 529 plans, among others.

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 those 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.

Present or former officers, directors, trustees and employees (and their eligible family members) of the Fund, the Manager, 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.

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 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 as of the close of the New York Stock Exchange (the "NYSE"), on each day the NYSE is open for trading (referred to in this prospectus as a "regular business day"). The NYSE normally closes at 4:00 p.m., Eastern time, but may close earlier on some days. All references to time in this prospectus are to "Eastern 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 Manager'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 Manager's Valuation Committee. Fair value determinations by the Manager 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 Manager 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 Manager 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 "Sales Charge 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:

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.

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.

In addition, the "Sales Charge 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 (follow the hyperlink "Sales Charge Waivers," under the heading "Fund Information") 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 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, by the close of the NYSE for you to receive that day's offering price. If your order is received on a day when the NYSE is closed or after it has closed, 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. 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 adviser 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." to the address 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 and Class A shares are your only purchase option. Class B or Class C shares may not be purchased by a new investor directly from the Distributor without the investor designating another registered broker-dealer. However, if a current investor no longer has a broker-dealer of record for an existing Class B or Class C account, the Distributor is automatically designated as the broker-dealer of record, but solely for the purpose of acting as your agent to purchase the shares.

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.

HOW TO SELL 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 the Statement of Additional Information. 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.

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. 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.

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 10 days from the date the shares were purchased. That delay may be avoided if you purchase shares by Federal Funds wire or certified check. Under unusual circumstances, the right to redeem shares or the payment of redemption proceeds may be delayed or suspended as permitted under the Investment Company Act.

THE OPPENHEIMERFUNDS 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.

The OppenheimerFunds exchange privilege affords investors the ability to switch their investments among Oppenheimer funds if their investment needs change. However, there are limits on that privilege. Frequent purchases, redemptions and exchanges of Fund shares may interfere with the Manager's ability to manage the Fund's investments efficiently, increase its transaction and administrative costs and/or affect its performance, depending on various factors, such as the size of the Fund, the nature of its investments, the amount of Fund assets the portfolio manager maintains in cash or cash equivalents, the aggregate dollar amount and the number and frequency of trades.

If large dollar amounts are involved in exchange or redemption transactions, the Fund might be required to sell portfolio securities at unfavorable times to meet those transaction requests, and the Fund's brokerage or administrative expenses might be increased. Therefore, the Manager and the Fund's Board have adopted the following policies and procedures to detect and prevent frequent and/or excessive exchanges or purchase and redemption activity, while addressing the needs of investors who seek liquidity in their investment and the ability to exchange shares as their investment needs change. There is no guarantee that those policies and procedures, described below, will be sufficient to identify and deter all excessive short-term trading.

30-Day Hold. If a direct 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. 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 shareholder already owned shares worth $10,000, then, following the exchange, the full account balance ($12,000 in this example) would be blocked from exchanges into another fund for a period of 30 calendar days. A shareholder whose account is registered on the Fund's books showing the name, address and tax ID number of the beneficial owner is a "direct shareholder."

Limitations on Exchanges in Omnibus Accounts. If you hold your Fund shares through a financial adviser or other firm such as a broker-dealer, a bank, an insurance company separate account, an investment adviser, an administrator or a trustee of a retirement plan that holds your shares in an account under its name (these are sometimes referred to as "omnibus" or "street name" accounts), that financial intermediary may impose its own restrictions or limitations to discourage short-term or excessive trading. You should consult your financial intermediary to find out what trading restrictions, including limitations on exchanges, may apply. The Fund, the Distributor, the Manager and the Transfer Agent encourage those financial intermediaries to apply the Fund's policies to their customers who invest indirectly in the Fund. However, the Transfer Agent may not be able to detect excessive short-term trading activity in accounts maintained in "omnibus" or "street name" form where the underlying beneficial owners are not identified. The Transfer Agent will attempt to monitor overall purchase and redemption activity in those accounts to seek to identify patterns that may suggest excessive trading by the underlying owners. If evidence of possible excessive trading activity is observed by the Transfer Agent, the financial intermediary that is the registered owner will be asked to review the account activity, and to confirm to the Transfer Agent and the Fund that appropriate action has been taken to curtail any excessive trading activity.

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 Charges" and "Sales Charge Arrangements and Waivers" above.

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:

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 by the close of the NYSE that day in order to receive that day's net asset value on the exchanged shares. For requests received after the close of the NYSE 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, however, 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 ex change is being made. The exchange proceeds will be invested in the new fund at 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.

OTHER LIMITS ON SHARE TRANSACTIONS. The Fund may impose other limits on transactions that it believes would be disruptive and may refuse any purchase or exchange order.

HOW TO SUBMIT SHARE TRANSACTION REQUESTS. Share transactions may be requested by telephone or internet, in writing, through your financial advisor, or by establishing one of the Investor Services plans described below. Certain transactions may also be submitted by fax. Redemptions may also be made using the Fund's checkwriting privilege.

Internet and Telephone Transaction Requests. Purchase, redemption and exchange requests may be submitted on the OppenheimerFunds internet 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 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.

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:

Certain Requests Require a Signature Guarantee. To protect you and the Fund from fraud, the following redemption requests must be in writing and must include a signature guarantee. A notary public seal will not be accepted for these requests (other situations might also require a signature guarantee):

Where Can You Have Your Signature Guaranteed? The Transfer Agent will accept a signature guarantee from a number of financial institutions, including:

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 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 a special 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.

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:

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 Plan. 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. The Transfer Agent requires a reasonable period (approximately 10 days) after receipt of your instructions to implement the 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.

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. The Fund makes these payments quarterly, calculated at an annual rate of up to 0.15% 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.

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 0.15% of the daily net assets of Class B and Class C. Altogether, these fees increase the Class B and Class C annual expenses by 0.90%, 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: The Distributor currently pays a sales concession of 2.75% of the purchase price of Class B shares to dealers from its own resources at the time of sale. Including the advance of the service fee, the total amount paid by the Distributor to the dealer at the time of sale of Class B shares is therefore 3.00% of the purchase price. The Distributor normally retains the Class B asset-based sales charge. For ongoing purchases of Class B shares by certain retirement plans, the Distributor may pay the intermediary the asset-based sales charge and service fee during the first year after purchase instead of paying a sales concession and the first year's service fees at the time of purchase. See the Statement of Additional Information for exceptions.

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 Manager and the Distributor, in their discretion, may also make payments to brokers, dealers and other financial intermediaries or to service providers for distribution and/or shareholder servicing activities. Those payments are made out of the Manager's and/or the Distributor's own resources, including from the profits derived from the advisory fees the Manager receives from the Fund. Those cash payments, which may be substantial, are paid to many firms having business relationships with the Manager and Distributor and are in addition to any distribution fees, servicing fees, or transfer agency fees paid directly or indirectly by the Fund to these financial intermediaries and any commissions the Distributor pays to these firms out of the sales charges paid by investors. Payments by the Manager or Distributor from their own resources are not reflected in the tables in the "Fees and Expenses of the Fund" section of this pro spectus because they are not paid by the Fund.

The financial intermediaries that may receive those payments include firms that offer and sell Fund shares to their clients, or provide shareholder services to the Fund, or both, and receive compensation for those activities. The financial intermediaries that may receive payments include your securities broker, dealer or financial adviser, sponsors of fund "supermarkets," sponsors of fee-based advisory or wrap fee programs, sponsors of college and retirement savings programs, banks, trust companies and other intermediaries offering products that hold Fund shares, and insurance companies that offer variable annuity or variable life insurance products.

In general, these payments to financial intermediaries can be categorized as "distribution-related" or "servicing" payments. Payments for distribution-related expenses, 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 intermediary, the average net assets of the Fund and other Oppenheimer funds attributable to the accounts of that 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 an 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 intermediary recei ving the payment or provide representatives of the Distributor with access to representatives of the intermediary's sales force, in some cases on a preferential basis over funds of competitors. Additionally, as firm support, the Manager or Distributor may reimburse expenses related 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"), formerly known as the NASD) designed to increase sales representatives' awareness about Oppenheimer funds, including travel and lodging expenditures. However, the Manager 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 intermediary, sales of Fund shares, the redemption rates on accounts of clients of the intermediary or overall asset levels of Oppenheimer funds held for or by clients of the intermediary, the willingness of the intermediary to allow the Distributor to provide educational and training support for the intermediary's sales personnel relating to the Oppenheimer funds, the availability of the Oppenheimer funds on the intermediary's sales system, as well as the overall quality of the services provided by the intermediary and the Manager or Distributor's relationship with the intermediary. The Manager 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 Manager or Distributor s ell more shares of the Oppenheimer funds or retain more shares of the funds in their client accounts, the Manager and Distributor benefit from the incremental management and other fees they receive with respect to those assets.

Payments may also be made by the Manager, the Distributor or the Transfer Agent to financial intermediaries to compensate or reimburse them for administrative or other client services provided such as sub-transfer agency services for shareholders or retirement plan participants, omnibus accounting or sub-accounting, participation in networking arrangements, account set-up, recordkeeping and other shareholder services. Payments may also be made for administrative services related to the distribution of Fund shares through the intermediary. Firms that may receive servicing fees include retirement plan administrators, qualified tuition program sponsors, banks and trust companies, and others. These fees may be used by the service provider to offset or reduce fees that would otherwise be paid directly to them by certain account holders, such as retirement plans.

The Statement of Additional Information contains more information about revenue sharing and service payments made by the Manager or the Distributor. 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 Manager or the Distributor and their affiliates, or any other fees or expenses it charges.

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 shares will generally be higher than dividends for Class B and Class C shares, which normally have higher expenses than Class A. The Fund cannot guarantee that it will pay any dividends or 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 net 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:

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 at www.oppenheimerfunds.com. Under the heading "I Want To," click on the link "Access the Tax Center" and under the drop down menu for "Tax Preparation Information," click the link "Municipal Income/Tax Preference Percentage Tables." You'll find a link to the Oppenheimer Municipal Fund AMT Tax Percentages at the end of that page. This 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.

The Fund has qualified and intends to qualify each year to be taxed as a regulated investment company under the Internal Revenue Code by satisfying certain income, asset diversification and income distribution requirements, but reserves the right not to so qualify. In each year that it qualifies as a regulated investment company, the Fund will not be subject to federal income taxes on its income that it distributes to shareholders.

If you are neither a lawful permanent resident nor a citizen of the United States, or if you are a foreign entity, the Fund's ordinary income dividends (which include distributions of net short-term capital gain) generally will be subject to a 30% U.S. withholding tax, unless a lower rate applies under an income tax treaty. Dependent upon Congressional action, for the Fund's taxable year beginning August 1, 2008, certain distributions that are designated by the Fund as interest-related dividends or short-term gain dividends 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 dividends, they will not be eligible for this exemption.

By law, your dividends and redemption proceeds will be subject to a withholding tax if you are not a corporation and have not provided a taxpayer identification number or social security number or if the number you have provided is incorrect.
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 consid ered a non-taxable return of capital to shareholders, resulting in a reduction in the basis in their shares. If this occurs, the Fund will notify you.

This information is only a summary of certain federal 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.

Every year your Fund will send you and the Internal Revenue Service a statement showing the amount of any taxable distribution you received in the previous year. The Fund will also send you a separate statement summarizing the total distributions paid by that Fund.

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 the 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 regularly considered by the United States Congress from time to time, 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.

Qualification as a Registered Investment Company. The Fund intends each year to qualify as a "regulated investment company" under the Internal Revenue Code, but 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.

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, whose report, along with the Fund's financial statements, is included in the Statement of Additional Information, which is available upon request.

STATEMENT OF ADDITIONAL INFORMATION. This document includes additional information about the Fund's investment policies, risks, and operations. It is incorporated by reference into this prospectus (it is legally part of this prospectus).
ANNUAL AND SEMI-ANNUAL REPORTS. The Fund's Annual and Semi-Annual Reports provide additional information about the Fund's investments and performance. The Annual Report includes a discussion of market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year.

You can request the above documents, the notice explaining the Fund's privacy policy, and other information about the Fund, without charge, by:

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 1.202.942.8090. Reports and other information about the Fund are available on the EDGAR database on the SEC's Internet 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: publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.

No one has been authorized to provide any information about the Fund or to make any representations about the Fund other than what is contained in this prospectus. This prospectus is not an offer to sell shares of the Fund, nor a solicitation of an offer to buy shares of the Fund, to any person in any state or other jurisdiction where it is unlawful to make such an offer.

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

This Statement of Additional Information ("SAI") is not a Prospectus. This document contains additional information about the Fund and supplements information in the Prospectus dated November 28, 2008. It should be read together with the Prospectus, which may be obtained by writing to the Fund's Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217 or by calling the Transfer Agent at the toll-free number shown above or by downloading it from the OppenheimerFunds Internet website at www.oppenheimerfunds.com.

The investment objective, the principal investment policies and the main 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 investment manager, OppenheimerFunds, Inc. (the "Manager"), may select for the Fund. Additional explanations are also provided about the strategies the Fund may use to try to achieve its objective.

The Fund's Investment Policies. The composition of the Fund's portfolio and the techniques and strategies that the Manager uses in selecting portfolio securities will vary over time. The Fund is not required to use all of the investment techniques and strategies described in this SAI in seeking its objective. It may use some of the investment techniques and strategies at some times or not at all.

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

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

There are variations in the credit quality of municipal securities, both within a particular rating category and between categories. These variations depend on numerous factors. The yields of municipal securities depend on a number of factors, including general conditions in the municipal securities market, the size of a particular offering, the maturity of the obligation and rating (if any) of the issue. These factors are discussed in greater detail below.

|X| Determining the Average Effective Portfolio Maturity. In seeking to maintain a dollar-weighted average effective portfolio maturity of less than five years, the Fund may purchase individual securities that have effective maturities of more or less than five years. The effective maturity of a bond might lengthen if market interest rates increase, and the effective maturity might shorten if market interest rates decline. Increasing market interest rates therefore could cause the average effective maturity of the portfolio to lengthen beyond five years, absent any portfolio transactions.

If the average effective maturity of the portfolio should exceed five years, the Fund will not purchase securities that have effective maturities beyond five years. The Manager might also take steps to reduce the average effective maturity of the portfolio below five years. Those steps might include selling bonds with effective maturities beyond five years or buying bonds with effective maturities less than five years.

In computing the Fund's average effective portfolio maturity, the Manager intends to use the same effective maturity dates that are shorter than the bond's stated maturity as are used in the marketplace for evaluating a bond for trading and pricing purposes. That date might be the date of a mandatory put, pre-refunded call, optional call or the average life to which a bond is priced. A bond having a variable coupon rate or anticipated principal prepayment may be assigned an effective maturity that is shorter than a stated call date, put date or average life, to reflect more closely the reduced price volatility expectations as to that bond.

Municipal Securities. The types of municipal securities in which the Fund may invest are described in the Prospectus under "What Does the Fund Mainly Invest In?" 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.

|X| 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 "industrial development" and "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 five to 10 years from the issuance date. When interest rates decline, if the call protection on a bond has expired, it is more likely that the issuer may call the bond. If that occurs, the Fund might have to reinvest the proceeds of the called bond in bonds that pay a lower rate of return. In turn, that could reduce the Fund's yield.

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.

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

Moreover, a private activity bond of certain types that would otherwise be a qualified tax-exempt private activity bond will not, under Internal Revenue Code Section 147(a), be a qualified bond for any period during which it is held by a person who is a "substantial user" of the facilities financed by the bond, or a "related person" of such a substantial user. A "substantial user" is a non-exempt person who regularly uses part of a facility in a trade or business.

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

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

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

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

|X| Municipal Notes. Municipal securities having a maturity (when the security is issued) of less than one year are generally known as municipal notes. Municipal notes generally are used to provide for short-term working capital needs. Some of the types of municipal notes the Fund can invest in are described below.

n Auction Rate Securities. Auction rate securities are municipal debt instruments with long-term nominal maturity 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.

|X| Municipal Lease Obligations. The Fund's investments in municipal lease obligations may be through certificates of participation that are offered to investors by public entities. Municipal leases may take the form of a lease or an installment purchase contract issued by a state or local government authority to obtain funds to acquire a wide variety of equipment and facilities.

Some municipal lease securities may be deemed to be "illiquid" securities. Their purchase by the Fund would be limited as described below in "Illiquid Securities." The Manager may determine that certain municipal leases are liquid under specific guidelines that require the Manager to evaluate:

     Municipal leases have special risk considerations. Although lease obligations do not constitute general obligations of the municipality for which the municipality's taxing power is pledged, a lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for that purpose on a yearly basis. While the obligation might be secured by the lease, it might be difficult to dispose of that property in case of a default.

     Projects financed with certificates of participation generally are not subject to state constitutional debt limitations or other statutory requirements that may apply to other municipal securities. Payments by the public entity on the obligation underlying the certificates are derived from available revenue sources. That revenue might be diverted to the funding of other municipal service projects. Payments of interest and/or principal with respect to the certificates are not guaranteed and do not constitute an obligation of a state or any of its political subdivisions.

     In addition to the risk of "non-appropriation," municipal lease securities do not have as highly liquid a market as conventional municipal bonds. Municipal leases, like other municipal debt obligations, are subject to the risk of non-payment of interest or repayment of principal by the issuer. The ability of issuers of municipal leases to make timely lease payments may be adversely affected in general economic downturns and as relative governmental cost burdens are reallocated among federal, state and local governmental units. A default in payment of income would result in a reduction of income to the Fund. It could also result in a reduction in the value of the municipal lease and that, as well as a default in repayment of principal, could result in a decrease in the net asset value of the Fund.

While the Fund holds such securities, the Manager will also evaluate the likelihood of a continuing market for these securities and their credit quality.

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

Tobacco Settlement Revenue Bonds. The Fund may invest up to 25% of its total assets in tobacco settlement revenue bonds. Tobacco settlement revenue bonds are secured by an issuing state's proportionate share in the MSA. The MSA is an agreement reached out of court in November 1998 between 46 states and six other U.S. jurisdictions (including Puerto Rico and Guam) and the four largest (now three) U.S. tobacco manufacturers (Philip Morris, RJ Reynolds, Brown & Williamson (merged with R.J. 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.

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 a Fund's net asset value.

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

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

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

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

To date, challenges to the MSA or the states' MSA-related legislation have not been ultimately successful, although three such challenges (the Grand River and Freedom Holdings cases in federal court in New York and the Xcaliber case in federal court in Louisiana, each of which is discussed below) have survived initial appellate review of motions to dismiss. Moreover, these three cases and the A.B. Coker case in federal court in Louisiana (discussed below) are the only cases challenging the MSA or related legislation that 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. In Grand River and Freedom Holdings, certain decisions by the U.S. Court of Appeals for the Second Circuit have created heightened uncertainty as a result of that court's interpretation of federal antitrust immunity and Commerce Clause doctrines as applied to the MSA and the states' MSA-related legislation. The Second Circuit's interpretation appears to conflict with interpretations by other courts which have rejected challenges to the MSA and the states' MSA-related legislation. Prior district court and appellate decisions in circuits other than the Second Circuit rejecting such challenges (in the Third, Fourth, Fifth, Sixth, Ninth and Tenth Circuits) have concluded that the MSA and the MSA-related legislation do not violate the Commerce Clause of the U.S. Constitution and/or are protected from antitrust challenges based on established antitrust immunity doctrines. In addition, proceedings are pending or on appeal in certain other cases, including two challenged by certain tobacco companies not participating in the MSA in federal court in Louisiana. One case (Xcaliber) alleges, among other things, that the Louisiana MSA-related statute violates the rights of free speech, due process of law and equal protection of the laws guaranteed by the U.S. Constitution and the federal antitrust laws. On March 1, 2006, the U.S. Court of Appeals for the Fifth Circuit vacated the district court's dismissal of the plaintiffs' complaint in this case and remanded the case for reconsideration. Following two years of trial motions, the federal district trial was expected to begin in mid-2008. The other case (A.B. Coker) alleges the MSA and Louisiana's MSA-related legislation are violations of the Commerce Clause, Due Process Clause and First Amendment of the U.S. Constitution and other federal statutes. In late 2006, the federal district court granted in part and denied in part the defendant's motion to dismiss. The court allowed the case to proceed on claims that the MSA and Louisiana's related legislation are violations of the Commerce Clause, Due Process Clause and First Amendment of the U.S. Constitution and other federal statutes. A trial date was expected to be set in late 2008.

Such conflicts may result in significant uncertainty regarding the validity and enforceability of the MSA and/or the states' related MSA-legislation and could adversely affect payment streams associated with the MSA and the bonds. The existence of a conflict as to the rulings of different federal courts on these issues, especially between Circuit Courts of Appeals, is one factor that the U.S. Supreme Court may take into account when deciding whether to exercise its discretion in agreeing to hear an appeal. No assurance can be given that the U.S. Supreme Court would choose to hear and determine any appeal relating to the substantive merits of the cases challenging the MSA or the states' MSA-related legislation.

Grand River and Freedom Holdings. Both cases are pending in the U.S. District Court for the Southern District of New York and seek to enjoin the enforcement of states' MSA-related legislation. The Grand River case is pending against the attorneys general of 30 states. The plaintiffs seek to enjoin the enforcement of the states' MSA-related legislation, and allege, among other things, (a) violations of federal antitrust law, the accompanying state legislation enacted pursuant to the MSA mandates or authorizes such violations and is thus preempted by federal law and that (b) the MSA and related statutes are invalid or unenforceable under the Commerce Clause of the U.S. Constitution. Grand River was remanded and remains pending in the Southern District and the parties have engaged in discovery with respect to the antitrust and Commerce Clause claims. The Freedom Holdings case is pending against the attorney general and the commissioner of taxation and finance of the State of New York and is based on the same purported claims as the Grand River case. These two suits have survived appellate review of motions to dismiss for failure to state a claim upon which relief can be granted. Grand River is in the discovery phase of litigation in preparation for the development of a factual record to support possible findings of fact that may be used by the court in its decision as to the pending claims. The discovery deadline has passed in Freedom Holdings and motions for summary judgment were fully submitted to the court on March 7, 2007, which are pending.

To date, the Second Circuit is the only federal court that has sustained a Commerce Clause challenge to the MSA and MSA-related legislation after reviewing a motion to dismiss. A final decision in these cases by the District Court would be subject to appeal to the Second Circuit and would likely be further appealed to the U.S. Supreme Court. A Supreme Court decision to affirm or to decline to review a Second Circuit ruling that is adverse to the participating manufacturers and states, challenging validity or enforceability of MSA or the states' MSA-related legislation, could potentially lead to invalidation of the MSA and states' MSA-related legislation in their entirety, materially affect the payment streams under the MSA and/or result in the complete loss of the Fund's outstanding investment.

In addition to the cases identified above, proceedings are pending in federal courts that challenge the MSA and/or the states' MSA-related legislation in California, Louisiana, Kentucky, Tennessee and Arkansas. The issues raised in Freedom Holdings or Grand River are also raised in many of these other cases. The MSA and states' MSA-related legislation may also continue to be challenged in the future. A determination that the MSA or states' MSA-related legislation is void or unenforceable would have a material adverse effect on the payments made by the participating manufacturers under the MSA.

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

The MSA does not release participating manufacturers from liability in either individual or class action cases. Healthcare cost recovery cases have also been brought by governmental and non-governmental healthcare providers seeking, among other things, reimbursement for healthcare expenditures incurred in connection with the treatment of medical conditions allegedly caused by smoking. The participating manufacturers are also exposed to liability in

these cases, because the MSA only settled healthcare cost recovery claims of the participating states. Litigation has also been brought against certain participating manufacturers and their affiliates in foreign countries.

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

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

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

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

A list of the rating categories of Standard & Poor's, Moody's and Fitch for municipal securities is contained in Appendix A to this SAI. Because the Fund may purchase securities that are unrated by nationally recognized rating organizations, the Manager will make its own assessment of the credit quality of unrated issues the Fund buys. The Manager will use criteria similar to those used by the rating agencies, and assign a rating category to a security that is comparable to what the Manager believes a rating agency would assign to that security. However, the Manager's rating does not constitute a guarantee of the quality of a particular issue.

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

While securities rated within the category "Baa" by Moody's or "BBB" by Standard & Poor's or Fitch are investment grade, they may be subject to special risks and have some speculative characteristics.

In the event of unanticipated financial difficulties, default or bankruptcy of an issuer of an obligation or the underlying source of funds for debt service on an obligation the Fund owns, the Fund can take such action as the Manager considers appropriate. That might include, for example, retaining the services of persons, firms, professional organizations and others to evaluate or protect real estate, facilities or other assets securing the obligation or acquired by the Fund as a result of such event. The Fund will incur additional costs in taking protective action with respect to portfolio obligations that are in default or the assets securing those obligations. As a result, the Fund's share prices could be adversely affected. Any income derived from the Fund's ownership or operation of assets acquired as a result of these types of actions might not be tax-exempt.

     The Fund may also borrow up to 5% of its total assets for temporary or emergency purposes from any lender. 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.

     The Fund will pay interest on loans, and that interest expense will raise the overall expenses of the Fund and reduce its returns. If the Fund does borrow, its expenses will be greater than comparable funds that do not borrow. In the case of borrowing for leverage, the interest paid on a loan might be more (or less) than the yield on the securities purchased with the loan proceeds. Additionally, borrowing might cause the Fund's net asset value per share to fluctuate more than that of funds that do not borrow.

     The Fund participates in a secured line of credit (the "Line of Credit") with certain conduit facilities, Citibank, N.A., and other banks. The Line of Credit enables the Fund to participate with certain other Oppenheimer funds in a committed, secured borrowing facility which was increased in October 2008 to permit borrowings of up to $3,000,000,000, in the aggregate by the participants. The Line of Credit is required to be operated in compliance with the terms of an exemptive order issued by the SEC to Citicorp North America, Inc. ("Citicorp"), which acts as agent for the lenders under the Line of Credit. That Line of Credit can be used to purchase securities for investment or for other business 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. To facilitate the lender's willingness to increase the amount available to the Fund and other affiliated funds that are borrowers under that loan facility, the Manager has used its own resources to fund certain collateral accounts for the potential benefit of one of the lenders, Citibank in connection with another investment program unrelated to the Fund or the loan. The Manager has received no compensation from the Fund or the lender for establishing that collateral account or in connection with the increase in the Line of Credit available to the Fund and its affiliated funds.

     Loans are typically secured by assets of the Fund. Liquidity support for loans from the Line of Credit facility is provided by banks obligated to make loans to the Fund in the event the conduit or conduits are unable or unwilling to make such loans. Interest is charged to the Fund, based on its borrowings, at current commercial rates. The Fund has paid its pro rata portion of a loan commitment fee for the Line of Credit and the recent increase thereto, and pays additional fees annually to the lender on its outstanding borrowings to manage and administer the facility. The Fund can prepay such loans and terminate its participation in the Line of Credit at any time upon prior notice. 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.

Other Investment Techniques and Strategies. In seeking its objective, the Fund may from time to time employ the types of investment strategies and investments described below. The Fund is not required to use all of these strategies and may not use them.

|X| 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 more than one year. Generally, the changes in the interest rate on such securities reduce the fluctuation in their market value. As interest rates decrease or increase, the potential for capital appreciation or depreciation is less than that for fixed-rate obligations of the same maturity.

     The Manager may determine that an unrated floating rate or variable rate demand obligation meets the Fund's quality standards by reason of the backing provided 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 (7) days are subject to the Fund's limitations on investments in illiquid securities.

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

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

To facilitate the creation of inverse floaters, the Fund may purchase a fixed-rate municipal security and subsequently transfer it to a broker-dealer (the sponsor), which deposits the municipal security in a trust. The trust issues the residual certificates and short-term floating rate bond. The trust documents enable the Fund to withdraw the underlying bond to unwind or "collapse" the trust (upon tendering the residual certificate and paying the value of the short-term bond and certain costs).

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

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

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

Some inverse floaters have a feature known as an interest rate "cap" as part of the terms of the investment. Investing in inverse floaters that have interest rate caps might be part of a portfolio strategy to try to maintain a high current yield for the Fund when the Fund has invested in inverse floaters that expose the Fund to the risk of short-term interest rate fluctuations. "Embedded" caps can be used to hedge a portion of the Fund's exposure to rising interest rates. When interest rates exceed a pre-determined rate, the cap generates additional cash flows that offset the decline in interest rates on the inverse floater. However, the Fund bears the risk that if interest rates do not rise above the pre-determined rate, the cap (which is purchased for additional cost) will not provide additional cash flows and will expire worthless.

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

An investment in inverse floaters may involve greater risk than an investment in a fixed-rate municipal security. All inverse floaters entail some degree of leverage. The interest rate on inverse floaters varies inversely at a pre-set multiple of the change in short-term rates. An

inverse floater that has a higher multiple, and therefore more leverage, will be more volatile with respect to both price and income than an inverse floater with a lower degree of leverage or than the underlying security.

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

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

|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can purchase securities on a "when-issued" basis, and may purchase or sell such securities on a "delayed-delivery" basis. "When-issued" or "delayed-delivery" refers to securities whose terms and indenture are available and for which a market exists, but which are not available for immediate delivery.

When such transactions are negotiated, the price (which is generally expressed in yield terms) is fixed at the time the commitment is made. Delivery and payment for the securities take place at a later date. Normally the settlement date is within six months of the purchase of municipal bonds and notes. However, the Fund may, from time to time, purchase municipal securities having a settlement date more than six months and possibly as long as two years or more after the trade date. The securities are subject to change in value from market fluctuation during the settlement period. The value at delivery may be less than the purchase price. For example, changes in interest rates in a direction other than that expected by the Manager before settlement will affect the value of such securities and may cause loss to the Fund. 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. Its 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 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 assets 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.

|X| Zero-Coupon Securities. The Fund may buy zero-coupon and delayed interest municipal securities. Zero-coupon securities do not make periodic interest payments and are sold at a deep discount from their face value. The buyer recognizes a rate of return determined by the gradual appreciation of the security, which is redeemed at face value on a specified maturity date. This discount depends on the time remaining until maturity, as well as prevailing interest rates, the liquidity of the security and the credit quality of the issuer. In the absence of threats to the issuer's credit quality, the discount typically decreases as the maturity date approaches. Some zero-coupon securities are convertible, in that they are zero-coupon securities until a predetermined date, at which time they convert to a security with a specified coupon rate.

Because zero-coupon securities pay no interest and compound semi-annually at the rate fixed at the time of their issuance, their value is generally more volatile than the value of other debt securities. Their value may fall more dramatically than the value of interest-bearing securities when interest rates rise. When prevailing interest rates fall, zero-coupon securities tend to rise more rapidly in value because they have a fixed rate of return.

The Fund's investment in zero-coupon securities may cause the Fund to recognize income and 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.

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

When the Fund buys a municipal security subject to a standby commitment to repurchase the security, the Fund is entitled to same-day settlement from the purchaser. The Fund receives an exercise price equal to the amortized cost of the underlying security plus any accrued interest at the time of exercise. A put purchased in conjunction with a municipal security enables the Fund to sell the underlying security within a specified period of time at a fixed exercise price.

The Fund might purchase a standby commitment or put separately in cash or it might acquire the security subject to the standby commitment or put (at a price that reflects that additional feature). The Fund will enter into these transactions only with banks and securities dealers that, in the Manager's opinion, present minimal credit risks. The Fund's ability to exercise a put or standby commitment will depend on the ability of the bank or dealer to pay for the securities if the put or standby commitment is exercised. If the bank or dealer should default on its obligation, the Fund might not be able to recover all or a portion of any loss sustained from having to sell the security elsewhere.

Puts and standby commitments are not transferable by the Fund. They terminate if the Fund sells the underlying security to a third party. The Fund intends to enter into these arrangements to facilitate portfolio liquidity, although such arrangements might enable the Fund to sell a security at a pre-arranged price that may be higher than the prevailing market price at the time the put or standby commitment is exercised. However, the Fund might refrain from exercising a put or standby commitment if the exercise price is significantly higher than the prevailing market price, to avoid imposing a loss on the seller that could jeopardize the Fund's business relationships with the seller.

A put or standby commitment increases the cost of the security and reduces the yield otherwise available from the security. Any consideration paid by the Fund for the put or standby commitment will be reflected on the Fund's books as unrealized depreciation while the put or standby commitment is held, and a realized gain or loss when the put or commitment is exercised or expires. Interest income received by the Fund from municipal securities subject to puts or stand-by commitments may not qualify as tax exempt in its hands if the terms of the put or stand-by commitment cause the Fund not to be treated as the tax owner of the underlying municipal securities.

|X| Repurchase Agreements. The Fund may acquire securities subject to repurchase agreements. It may do so for liquidity purposes to meet anticipated redemptions of Fund shares, or pending the investment of the proceeds from sales of Fund shares, or pending the settlement of portfolio securities. In a repurchase transaction, the Fund acquires a security from, and simultaneously resells it to an approved vendor for delivery on an agreed upon future date. The resale price exceeds the purchase price by an amount that reflects an agreed-upon interest rate effective for the period during which the repurchase agreement is in effect. Approved vendors include U.S. commercial banks, U.S. branches of foreign banks or broker-dealers that have been designated a primary dealer in government securities, which meet the credit requirements set by the Fund's Manager from time to time. The Manager will monitor the vendor's creditworthiness to confirm that the vendor is financially sound and will continuously monitor the collateral's value.

The majority of these transactions run from day to day. Delivery pursuant to resale typically will occur within one to five days of the purchase. Repurchase agreements having a maturity beyond seven days are subject to the Fund's limits on holding illiquid investments. There is no limit on the amount of the Fund's net assets that may be subject to repurchase agreements of seven days or less.

Repurchase agreements, considered "loans" under the Investment Company Act of 1940 (the "Investment Company Act"), are collateralized by the underlying security. The Fund's repurchase agreements require that at all times while the repurchase agreement is in effect, the collateral's value must equal or exceed the repurchase price to fully collateralize the repayment obligation. However, if the vendor fails to pay the resale price on the delivery date, the Fund may incur costs in disposing of the collateral and may experience losses if there is any delay in its ability to do so.

Pursuant to an Exemptive Order issued by the Securities and Exchange Commission (the "SEC"), the Fund, along with the affiliated entities managed by the Manager, may transfer uninvested cash balances into one or more joint repurchase agreement accounts. These balances are invested in one or more repurchase agreements secured by U.S. government securities. Securities 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 of the collateral may be subject to legal proceedings.

|X| Reverse Repurchase Agreements. The Fund can use reverse repurchase agreements on debt obligations it owns. Under a reverse repurchase agreement, the Fund sells an underlying debt obligation and simultaneously agrees to repurchase the same security at an agreed-upon price at an agreed-upon date. The Fund will identify on its books liquid assets in an amount sufficient to cover its obligations under reverse repurchase agreements, including interest, until payment is made to the seller.

These transactions involve the risk that the market value of the securities sold by the Fund under a reverse repurchase agreement could decline below the price at which the Fund is obligated to repurchase them. These agreements are considered borrowings by the Fund and will be subject to the asset coverage requirement under the Fund's policy on borrowing discussed below.

|X| Illiquid Securities. The Fund has percentage limitations that apply to purchases of illiquid securities, as stated in the Prospectus. The Manager determines the liquidity of certain of the Fund's investments and monitors holdings of illiquid securities on an ongoing basis to determine whether to sell any holdings to meet percentage restrictions or maintain adequate liquidity. The Manager takes into account the trading activity for such securities and the availability of reliable pricing information, among other factors. Illiquid securities include repurchase agreements maturing in more than seven days.

n Loans of Portfolio Securities. The Fund may lend its portfolio securities pursuant to a Securities Lending Agency Agreement (the "Securities Lending Agreement") with Goldman Sachs Bank USA, doing business as Goldman Sachs Agency Lending (" Goldman Sachs"), subject to the restrictions stated in the Prospectus. The Fund will lend portfolio securities to attempt to increase its income. Goldman Sachs has agreed, in general, to guarantee the obligations of borrowers to return loaned securities and to be responsible for certain expenses relating to securities lending. Under the Securities Lending Agreement, the Fund's securities lending procedures and applicable regulatory requirements (which are subject to change), the Fund must receive collateral from the borrower consisting of cash, bank letters of credit or securities of the U.S. government (or its agencies or instrumentalities). On each business day, the amount of collateral that the Fund has received must at least equal the value of the loaned securities. If the Fund receives cash collateral from the borrower, the Fund may invest that cash in certain high quality, short-term investments specified in its securities lending procedures. The Fund will be responsible, for the risks associated with the investment of cash collateral, including the risk that the Fund may lose money on the investment or may fail to earn sufficient income to meet its obligations to the borrower.

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

To attempt to raise income or raise cash for liquidity purposes, the Fund may lend its portfolio securities to brokers, dealers and other financial institutions approved by the Fund's Board of Trustees. These loans are limited to not more than 25% of the value of the Fund's total assets. The Fund presently does not intend to engage in loans of securities that will exceed 5% of the value of the Fund's total assets in the coming year. Income from securities loans does not constitute exempt-interest income for the purpose of paying tax-exempt dividends.

There are risks in connection with securities lending. The Fund might experience a delay in receiving additional collateral to secure a loan, or a delay in recovery of the loaned securities. The Fund must receive collateral for a loan. Under current applicable regulatory requirements (which are subject to change), on each business day the loan collateral must be at least equal to the value of the loaned securities. It must consist of cash, bank letters of credit, securities of the U.S. government or its agencies or instrumentalities, or other cash equivalents in which the Fund is permitted to invest. To be acceptable as collateral, letters of credit must obligate a bank to pay amounts demanded by the Fund if the demand meets the terms of the letter. The terms of the letter of credit and the issuing bank both must be satisfactory to the Fund.

When it lends securities, the Fund receives amounts equal to the dividends or interest on the loaned securities, it also receives one or more of (a) negotiated loan fees, (b) interest on securities used as collateral, and (c) interest on short-term debt securities purchased with the loan collateral. Either type of interest may be shared with the borrower. The Fund may pay reasonable finder's, administrative or other fees in connection with these loans. The terms of the Fund's loans must meet applicable tests under the Internal Revenue Code and must permit the Fund to reacquire loaned securities on five days' notice or in time to vote on any important matter.

n 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 Fund if the Manager judges market conditions incorrectly or employs a strategy that does not correlate well with the Fund's other investments. These techniques can cause losses if the counterparty does not perform its promises. An additional risk of investing in municipal securities that are derivative investments is that their market value could be expected to vary to a much greater extent than the market value of municipal securities that are not derivative investments but have similar credit quality, redemption provisions and maturities.

|X| Hedging. The Fund may use hedging to attempt to protect against declines in the market value of its portfolio, to permit the Fund to retain unrealized gains in the value of portfolio securities that have appreciated, or to facilitate selling securities for investment reasons. To do so, the Fund may:

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:

The Fund is not obligated to use hedging instruments, even though it is permitted to use them in the Manager's discretion, as described below. The Fund's strategy of hedging with futures and options on futures will be incidental to the Fund's investment activities in the underlying cash market. The particular hedging instruments the Fund can use are described below. The Fund may employ new hedging instruments and strategies when they are developed, if those investment methods are consistent with the Fund's investment objective and are permissible under applicable regulations governing the Fund.

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 a 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 Fund they are taxable as ordinary income.

The Fund may also write calls on futures contracts without owning the futures contract or securities deliverable under the contract. To do so, at the time the call is written, the Fund must cover the call by segregating in escrow an equivalent dollar value of liquid assets. The Fund will segregate additional liquid assets if the value of the escrowed assets drops below 100% of the current value of the future. Because of this escrow requirement, in no circumstances would the Fund's receipt of an exercise notice as to that future put the Fund in a "short" futures position.

Purchasing Puts and Calls. The Fund may buy calls only on securities, broadly-based municipal bond indices, municipal bond index futures and interest rate futures. It may also buy calls to close out a call it has written, as discussed above. Calls the Fund buys must be listed on a securities or commodities exchange, or quoted on NASDAQ^®, or traded in the over-the-counter market. A call or put option may not be purchased if the purchase would cause the value of all the Fund's put and call options to exceed 5% of its total assets.

When the Fund purchases a call (other than in a closing purchase transaction), it pays a premium. For calls on securities that the Fund buys, it has the right to buy the underlying investment from a seller of a corresponding call on the same investment during the call period at a fixed exercise price. The Fund benefits only if (1) the call is sold at a profit or (2) the call is exercised when the market price of the underlying investment is above the sum of the exercise price plus the transaction costs and premium paid for the call. If the call is neither 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 the Fund 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).

The Fund's option activities may affect its portfolio turnover rate and brokerage commissions. The exercise of calls written by the Fund may cause the Fund to sell related portfolio securities, thus increasing its turnover rate. The exercise by the Fund of puts on securities will cause the sale of underlying investments, increasing portfolio turnover. Although the decision whether to exercise a put it holds is within the Fund's control, holding a put might cause the Fund to sell the related investments for reasons that would not exist in the absence of the put.

The Fund may pay a brokerage commission each time it buys a call or put, sells a call or put, or buys or sells an underlying investment in connection with the exercise of a call or put. Such commissions may be higher on a relative basis than the commissions for direct purchases or sales of the underlying investments. Premiums paid for options are small in relation to the market value of the underlying investments. Consequently, put and call options offer large amounts of leverage. The leverage offered by trading in options could result in the Fund's net asset value being more sensitive to changes in the value of the underlying investment.

If a covered call written by the Fund is exercised on an investment that has increased in value, the Fund will be required to sell the investment at the call price. It will not be able to realize any profit if the investment has increased in value above the call price.

There is a risk in using short hedging by selling interest rate futures and municipal bond index futures or purchasing puts on municipal bond indices or futures to attempt to protect against declines in the value of the Fund's securities. The risk is that the prices of such futures or the applicable index will correlate imperfectly with the behavior of the cash (that is, market) prices of the Fund's securities. It is possible, for example, that while the Fund has used hedging instruments in a short hedge, the market may advance and the value of debt securities held in the Fund's portfolio may decline. If that occurred, the Fund would lose money on the hedging instruments and also experience a decline in value of its debt securities. However, while this could occur over a brief period or to a very small degree, over time the value of a diversified portfolio of debt securities will tend to move in the same direction as the indices upon which the hedging instruments are based.

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

The ordinary spreads between prices in the cash and futures markets are subject to distortions due to differences in the natures of those markets. All participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close out futures contracts through offsetting transactions which could distort the normal relationship between the cash and futures markets. From the point of view of speculators, the deposit requirements in the futures markets are less onerous than margin requirements in the securities markets. Therefore, increased participation by speculators in the futures markets may cause temporary price distortions.

The Fund may use hedging instruments to establish a position in the municipal securities markets as a temporary substitute for the purchase of individual securities (long hedging). It is possible that the market may decline. If the Fund then does not invest in such securities because of concerns that there may be further market decline or for other reasons, the Fund will realize a loss on the hedging instruments that is not offset by a reduction in the purchase price of the securities.

An option position may be closed out only on a market that provides secondary trading for options of the same series. There is no assurance that a liquid secondary market will exist for a particular option. If the Fund could not effect a closing purchase transaction due to a lack of a market, it would have to hold the callable investment until the call lapsed or was exercised. The Fund might experience losses if it could not close out a position because of an illiquid market for a future or option.

n Interest Rate Swap Transactions. In an interest rate swap, the Fund and another party exchange their right to receive or their obligation to pay interest on a security. For example, they may swap a right to receive floating rate payments for fixed rate payments. The Fund may not enter into swaps with respect to more than 25% of its total assets. Also, the Fund will segregate liquid assets (such as cash or U.S. government securities) to cover any amounts it could owe under swaps that exceed the amounts it is entitled to receive, and it will adjust that amount daily, as needed. Income from interest rate swaps may be taxable.

Swap agreements entail both interest rate risk and credit risk. There is a risk that, based on movements of interest rates in the future, the payments made by the Fund under a swap agreement will have been greater than those received by it. Credit risk arises from the possibility that the counterparty will default. If the counterparty to an interest rate swap defaults, the Fund's loss will consist of the net amount of contractual interest payments that the Fund has not yet received. The Manager will monitor the creditworthiness of counterparties to the Fund's interest rate swap transactions on an ongoing basis.

The Fund will enter into swap transactions with appropriate counterparties pursuant to master netting agreements. A master netting agreement provides that all swaps done between the Fund and that counterparty under the master agreement shall be regarded as parts of an integral agreement. If on any date amounts are payable under one or more swap transactions, the net amount payable on that date shall be paid. In addition, the master netting agreement may provide that if one party defaults generally or on one swap, the counterparty may terminate the swaps with that party. Under master netting agreements, if there is a default resulting in a loss to one party, that party's damages are calculated by reference to the average cost of a replacement swap with respect to each swap. The gains and losses on all swaps are then netted, and the result is the counterparty's gain or loss on termination. The termination of all swaps and the netting of gains and losses on termination is generally referred to as "aggregation."

Transactions in options by the Fund are subject to limitations established by the option exchanges. The exchanges limit the maximum number of options that may be written or held by a single investor or group of investors acting in concert. Those limits apply regardless of whether the options were written or purchased on the same or different exchanges, or are held in one or more accounts or through one or more different exchanges or through one or more brokers. Thus, the number of options that the Fund may write or hold may be affected by options written or held by other entities, including other investment companies having the same adviser as the Fund (or an adviser that is an affiliate of the Fund's adviser). The exchanges also impose position limits on futures transactions. An exchange may order the liquidation of positions found to be in violation of those limits and may impose certain other sanctions.

Under interpretations of staff members of the SEC regarding applicable provisions of the Investment Company Act, when the Fund purchases an interest rate future or municipal bond index future, it must segregate cash or readily marketable short-term debt instruments in an amount equal to the purchase price of the future, less the margin deposit applicable to it. The account must be a segregated account or accounts held by its custodian bank.

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 these temporary defensive or interim investments may not be tax-exempt. Therefore, when making those investments, the Fund might not achieve its objective.

n Taxable Investments. While the Fund can invest up to 20% of its net assets (plus borrowing 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. To the extent it invests in taxable securities, the Fund would not be able to meet its objective of paying exempt-interest dividends to its shareholders. Taxable investments include, for example, hedging instruments, repurchase agreements, and the types of securities the Fund could 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, a Fund may determine or be required to accept equity securities from the issuer in exchange for all or a portion of the Fund's holdings in the municipal security. Although the Manager will attempt to sell the equity security as soon as reasonably practicable in most cases, depending upon, among other things, the Manager's valuation of the potential value of such securities in relation to the price that could be obtained by a Fund at any given time upon sale thereof, a Fund may determine to hold such securities in its portfolio for limited period of time in order to liquidate the equity securities in a manner that maximizes their value to the Fund.

• Investments in Other Investment Companies. On a temporary basis, the Fund can invest up to 5% of its total assets in shares of other investment companies that have an investment objective of seeking income exempt from federal and California personal income taxes. It can invest up to 5% of its total assets in any one investment company (but cannot own more than 3% of the outstanding voting stock of that company). These limits do not apply to shares acquired in a merger, consolidation, reorganization or acquisition of another investment company. Because the Fund would be subject to its ratable share of the other investment company's expenses in addition to its own expenses, the Fund will not make these investments unless the Manager believes that the potential investment benefits justify the added costs and expenses.

|X| 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 short-term trading to attempt to take advantage of short-term market variations. It may also do so to dispose of a portfolio security prior to its maturity. That might be done if, on the basis of a revised credit evaluation of the issuer or other considerations, the Fund believes such disposition 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.

|X| What Are "Fundamental Policies?" Fundamental policies are those policies that the Fund has adopted to govern its investments that can be changed only by the vote of a "majority" of the Fund's outstanding voting securities. Under the Investment Company Act, such a "majority" vote is defined as the vote of the holders of the lesser of:

The Fund's investment objective is not a fundamental policy, but will not be changed without approval by the Fund's Board of Trustees and notice to shareholders. 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.

• Does the Fund Have Additional Fundamental Policies? The following investment restrictions are fundamental policies of the Fund.

o The Fund cannot invest 25% or more of its total assets in any one 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. Nor does that limit apply to municipal securities in general or to California municipal securities.

· The Fund cannot invest in real estate, physical commodities or commodity contracts, except to the extent permitted under the Investment Company Act, the rules or regulations thereunder or any exemption therefrom, as such statute, rules or regulations may be amended or interpreted from time to time.

o The Fund cannot underwrite securities of other companies. A permitted exception is in case it is deemed to be an underwriter under the Securities Act of 1933 when reselling any securities held in its own portfolio.

o 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, as such statute, rules or regulations may be amended or interpreted from time to time.

Unless the Prospectus or SAI states that a percentage restriction applies on an ongoing basis, it applies only at the time the Fund makes an investment (except in the case of borrowing and investments in illiquid securities). In that case the Fund need not sell securities to meet the percentage limits if the value of the investment increases in proportion to the size of the Fund.

Non-Diversification of the Fund's Investments. The Fund is "non-diversified" as defined in the Investment Company Act. Funds that are diversified have restrictions against investing too much of their assets in the securities of any one "issuer." That means that the Fund can invest more of its assets in the securities of a single issuer than a fund that is diversified.

Being non-diversified poses additional investment risks, because if the Fund invests more of its assets in fewer issuers, the value of its shares is subject to greater fluctuations from adverse conditions affecting any one of those issuers. However, the Fund does limit its investments in the securities of any one issuer to qualify for tax purposes as a "regulated investment company" under the Internal Revenue Code. If it qualifies, the Fund does not have to pay federal income taxes if more than 90% of its earnings are distributed to shareholders. To qualify, the Fund must meet a number of conditions. First, not more than 25% of the market value of the Fund's total assets may be invested in the securities of a single issuer (other than Government securities and securities of other regulated investment companies), two or more issuers that are engaged in the same or related trades or businesses and are controlled by the Fund, or one or more qualified publicly traded partnerships (i.e., publicly-traded partnerships that are treated as partnerships for tax purposes and derive at least 90% of their income from certain passive sources). Second, with respect to 50% of the market value of its total assets, (1) no more than 5% of the market value of its total assets may be invested in the securities of a single issuer, and (2) the Fund must not own more than 10% of the outstanding voting securities of a single issuer.

The identification of the issuer of a municipal security depends on the terms and conditions of the security. When the assets and revenues of an agency, authority, instrumentality or other political subdivision are separate from those of the government creating it and the security is backed only by the assets and revenues of the subdivision, agency, authority or instrumentality, the latter would be deemed to be the sole issuer. Similarly, if an industrial development bond is backed only by the assets and revenues of the non-governmental user, then that user would be deemed to be the sole issuer. However, if in either case the creating government or some other entity guarantees a security, the guarantee would be considered a separate security and would be treated as an issue of such government or other entity.

Applying the Restriction Against Concentration. In implementing the Fund's policy not to concentrate its investments, the Manager will consider a non-governmental user of facilities financed by private activity bonds as being in a particular industry. That is done even though the bonds are municipal securities, as to which the Fund has no concentration limitation. The Manager categorizes tobacco industry related municipal bonds as either tobacco settlement revenue bonds or tobacco bonds that are subject to appropriation ("STA Bonds"). For purposes of the Funds' industry concentration policies, STA Bonds are considered to be "municipal" bonds, as distinguished from "tobacco" bonds. As municipal bonds, STA Bonds are not within any industry and are not subject to the Funds' industry concentration policies.

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

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

Disclosure of Portfolio Holdings. The Fund has adopted policies and procedures concerning the dissemination of information by employees, officers and/or directors of the Manager Distributor and Transfer Agent. These policies are designed to assure that non-public information about portfolio securities 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.

Until publicly disclosed, the Fund's portfolio holdings are proprietary, confidential business information. 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 process, 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 portfolio managers are trading on the Fund's behalf.

The Manager and its subsidiaries and affiliates, employees, officers, and directors, shall neither solicit nor accept any compensation or other consideration (including any agreement to maintain assets in the Fund or in other investment companies or accounts managed by the Manager or any affiliated person of the Manager) in connection with the disclosure of the Fund's non-public portfolio holdings. The receipt of investment advisory fees or other fees and compensation paid to the Manager and its subsidiaries pursuant to agreements approved by the

Fund's Board shall not be deemed to be "compensation" or "consideration" for these purposes. It is a violation of the Code of Ethics for any covered person to release holdings in contravention of portfolio holdings disclosure policies and procedures adopted by the Fund.

A list of the top 20 or more portfolio securities holdings (based on invested assets), listed by security or by issuer, as of the end of each month may be disclosed to third parties (subject to the procedures below) no sooner than 15 days after month-end.

Except under special limited circumstances discussed below, month-end lists of the Fund's complete portfolio holdings may be disclosed no sooner than 30-days after the relevant month-end, subject to the procedures below. If the Fund's complete portfolio holdings have not been disclosed publicly, they may be disclosed pursuant to special requests for legitimate business reasons, provided that:

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

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

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

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

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

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

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

The Chief Compliance Officer (the "CCO") of the Fund and the Manager, Distributor, and Transfer Agent shall oversee the compliance by the Manager, Distributor, Transfer Agent, and their personnel with these policies and procedures. At least annually, the CCO shall report to the Fund's Board on such compliance oversight and on the categories of entities and individuals to which disclosure of portfolio holdings of the Fund has been made during the preceding year pursuant to these policies. The CCO shall report to the Fund's Board any material violation of these policies and procedures and shall make recommendations to the Board as to any amendments that the CCO believes are necessary and desirable to carry out or improve these policies and procedures.

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

Organization and History. The Fund is an open-end, non-diversified management investment company with an unlimited number of authorized shares of beneficial interest. The Fund was organized as a Massachusetts business trust in December 2003.

n Classes of Shares. The Trustees are authorized, without shareholder approval, to create new series and classes of shares, to reclassify unissued shares into additional series or classes and to divide or combine the shares of a class into a greater or lesser number of shares without changing the proportionate beneficial interest of a shareholder in the Fund. Shares do not have cumulative voting rights, preemptive rights or subscription rights. Shares may be voted in person or by proxy at shareholder meetings.

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

Shares are freely transferable, and each share of each class has one vote at shareholder meetings, with fractional shares voting proportionally, on matters submitted to a vote of shareholders. Each share of the Fund represents an interest in the Fund proportionately equal to the interest of each other share of the same class.

n Meetings of Shareholders. As a Massachusetts business trust, the Fund is not required to hold, and does not plan to hold, regular annual meetings of shareholders, but may hold shareholder meetings from time to time on important matters or when required to do so by the Investment Company Act or other applicable law. Shareholders have the right, upon a vote or declaration in writing of two-thirds of the outstanding shares of the Fund, to remove a Trustee or to take other action described in the Fund's Declaration of Trust.

The Trustees will call a meeting of shareholders to vote on the removal of a Trustee upon the written request of the record holders of 10% of its outstanding shares. If the Trustees receive a request from at least 10 shareholders stating that they wish to communicate with other shareholders to request a meeting to remove a Trustee, the Trustees will then either make the Fund's shareholder list available to the applicants or mail their communication to all other shareholders at the applicants' expense. The shareholders making the request must have been shareholders for at least six months and must hold shares of the Fund valued at $25,000 or more or constituting at least 1% of the Fund's outstanding shares. The Trustees may also take other action as permitted by the Investment Company Act.

n Shareholder and Trustee Liability. The Fund's Declaration of Trust contains an express disclaimer of shareholder or Trustee liability for the Fund's obligations. It also provides for indemnification and reimbursement of expenses out of the Fund's property for any shareholder held personally liable for its obligations. The Declaration of Trust also states that upon request, the Fund shall assume the defense of any claim made against a shareholder for any act or obligation of the Fund and shall satisfy any judgment on that claim. Massachusetts law permits a shareholder of a business trust (such as the Fund) to be held personally liable as a "partner" under certain circumstances. However, the risk that a Fund shareholder will incur financial loss from being held liable as a "partner" of the Fund is limited to the relatively remote circumstances in which the Fund would be unable to meet its obligations.

The Fund's contractual arrangements state that any person doing business with the Fund (and each shareholder of the Fund) agrees under its Declaration of Trust to look solely to the assets of the Fund for satisfaction of any claim or demand that may arise out of any dealings with the Fund. Additionally, the Trustees shall have no personal liability to any such person, to the extent permitted by law.

Board of Trustees and Oversight Committees. The Fund is governed by a Board of Trustees, which is responsible for protecting the interests of shareholders under Massachusetts law. The Trustees meet periodically throughout the year to oversee the Fund's activities, review its performance, and review the actions of the Manager. The Board of Trustees 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").

During the Fund's fiscal year ended July 31, 2008, the Audit Committee held 4 meetings, the Regulatory & Oversight Committee held 5 meetings and the Governance Committee held 4 meetings.

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

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

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

The Governance Committee's functions also include the selection and nomination of Trustees, including Independent Trustees for election. The Governance Committee may, but need not, consider the advice and recommendation of the Manager and its affiliates in selecting nominees. The full Board elects new Trustees except for those instances when a shareholder vote is required.

To date, the Governance Committee has been able to identify from its own resources an ample number of qualified candidates. Nonetheless, under the current policy of the Board, if the Board determines that a vacancy exists or is likely to exist on the Board, the Governance Committee will consider candidates for Board membership including those recommended by the Fund's shareholders. The Governance Committee will consider nominees recommended by Independent Board members or recommended by any other Board members including Board members affiliated with the Fund's Manager. The Governance Committee may, upon Board approval, retain an executive search firm to assist in screening potential candidates. Upon Board approval, the Governance Committee may also use the services of legal, financial, or other external counsel that it deems necessary or desirable in the screening process. Shareholders wishing to submit a nominee for election to the Board may do so by mailing their submission to the offices of OppenheimerFunds, Inc., Two World Financial Center, 225 Liberty Street, 11th Floor, New York, New York 10281-1008, to the attention of the Board of Trustees of Oppenheimer Limited Term California Municipal Fund, c/o the Secretary of the Fund.

Submissions should, at a minimum, be accompanied by the following: (1) the name, address, and business, educational, and/or other pertinent background of the person being recommended; (2) a statement concerning whether the person is an "interested person" as defined in the Investment Company Act; (3) any other information that the Fund would be required to include in a proxy statement concerning the person if he or she was nominated; and (4) the name and address of the person submitting the recommendation and, if that person is a shareholder, the period for which that person held Fund shares. Shareholders should note that a person who owns securities issued by Massachusetts Mutual Life Insurance Company (the parent company of the Manager) would be deemed an "interested person" under the Investment Company Act. In addition, certain other relationships with Massachusetts Mutual Life Insurance Company or its subsidiaries, with registered broker-dealers, or with the Funds' outside legal counsel may cause a person to be deemed an "interested person."

The Governance Committee has not established specific qualifications that it believes must be met by a trustee nominee. In evaluating trustee nominees, the Governance Committee considers, among other things, an individual's background, skills, and experience; whether the individual is an "interested person" as defined in the Investment Company Act; and whether the individual would be deemed an "audit committee financial expert" within the meaning of applicable SEC rules. The Governance Committee also considers whether the individual's background, skills, and experience will complement the background, skills, and experience of other Trustees and will contribute to the Board. There are no differences in the manner in which the Governance Committee evaluates nominees for trustees 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.

Trustees and Officers of the Fund. Except for Mr. Murphy, each of the Trustees is an Independent Trustee. All of the Trustees are also directors or trustees of the following Oppenheimer funds (referred to as "Board I Funds"):

In addition to being a Board member of each of the Board I Funds, Messrs. Downes, Galli and Wruble are directors or trustees of ten other portfolios in the Oppenheimer fund complex.

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

Messrs. Fielding, Loughran, Cottier, Willis, Murphy, Petersen, Szilagyi, Vandehey, Wixted, Zack, Legg and Edwards and Mss. Bloomberg and Ives, who are officers of the Fund, hold the same offices with one or more of the other Board I Funds. As of October 31, 2008, the Trustees and officers of the Fund, as a group, owned of record or beneficially less than 1% of any class of shares of the Fund. The foregoing statement does not reflect ownership of shares held of record by an employee benefit plan for employees of the Manager, other than the shares beneficially owned under that plan by the officers of the Fund listed above. In addition, none of the Independent Trustees (nor any of their immediate family members) owns securities of either the Manager or the Distributor of the Board I Funds or of any entity directly or indirectly controlling, controlled by or under common control with the Manager or the Distributor.

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

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

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

|X| Remuneration of the Officers and Trustees. The officers and interested Trustees of the Fund, who are affiliated with the Manager, receive no salary or fee from the Fund. The Independent Trustees' compensation from the Fund, shown below, is for serving as a Trustee and member of a committee (if applicable), with respect to the Fund's fiscal year ended July 31, 2008. The 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, 2007.

|X| Retirement Plan for Trustees. The Board I Funds adopted a retirement plan that provides for payments to retired Independent Trustees. Payments are up to 80% of the average compensation paid during a Trustee's five years of service in which the highest compensation was received. A Trustee must serve as director or trustee for any of the Board I Funds for at least seven years to be eligible for retirement plan benefits and must serve for at least 15 years to be eligible for the maximum benefit. The Board has frozen the retirement plan with respect to new accruals as of December 31, 2006 (the "Freeze Date"). Each Trustee continuing to serve on the Board of any of the Board I Funds after the Freeze Date (each such Trustee a "Continuing Board Member") may elect to have his accrued benefit as of that date (i.e., an amount equivalent to the actuarial present value of his benefit under the retirement plan as of the Freeze Date) (i) paid at once or over time, (ii) rolled into the Compensation Deferral Plan described below, or (iii) in the case of Continuing Board Members having at least 7 years of service as of the Freeze Date paid in the form of an annual benefit or joint and survivor annual benefit. The Board determined to freeze the retirement plan after considering a recent trend among corporate boards of directors to forego retirement plan payments in favor of current compensation.

|X| 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 Board I 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 upon the amount of compensation deferred and the performance of the selected funds.

Deferral of the Trustees' fees under the plan will not materially affect the Fund's assets, liabilities or net income per share. The plan will not obligate the Fund to retain the services of any Trustee or to pay any particular level of compensation to any Trustee. Pursuant to an Order issued by the SEC, the Fund may invest in the funds selected by the Trustee under the plan without shareholder approval for the limited purpose of determining the value of the Trustee's deferred compensation account.

n Major Shareholders. As of October 31, 2008, the only persons or entities who owned of record or were known by the Fund to own beneficially 5% or more of any class of the Fund's outstanding shares:

Charles Schwab & Co. Inc., Special Custody Account for the Exclusive Benefit of Customers, Attn. Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104-4122, which owned 3,346,935.817 Class A shares (representing approximately 5.32% of the Fund's then outstanding Class A shares)

Merrill Lynch Pierce Fenner & Smith, Inc., for the Sole Benefit of its Customers, Attn Fund Admn, 4800 Deer Lake Drive East, Floor 3, Jacksonville, Florida 32246-6484, which owned 3,308,855.608 Class A shares (representing approximately 5.26% of the Fund's then outstanding Class A shares)

Merrill Lynch Pierce Fenner & Smith, Inc., for the Sole Benefit of its Customers, Attn Fund Admn, 4800 Deer Lake Drive East, Floor 3, Jacksonville, Florida 32246-6484, which owned 4,963,087.686 Class C shares (representing approximately 21.99% of the Fund's then outstanding Class C shares)

Citigroup Global Markets Inc., Attn Cindy Tempesta, 7^th Floor, 333 West 34^th Street, New York, NY 10001-2483, ,which owned 1,638,835.770 Class C shares (representing approximately 7.26% of the Fund's then outstanding Class C shares)

Charles Schwab & Co. Inc. Special Custody Account for the Exclusive Benefit of Customers, Attn. Mutual Funds, 101 Montgomery Street, San Francisco, CA 94104-4122, which owned 1,560,670.660 Class C shares (representing approximately 6.91% of the Fund's then outstanding Class C shares)

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

|X| Code of Ethics. The Fund, the Manager and the Distributor have a Code of Ethics. It is designed to detect and prevent improper personal trading by certain employees, including portfolio managers, that would compete with or take advantage of the Fund's portfolio transactions. Covered persons include persons with knowledge of the investments and investment intentions of the Fund and other funds advised by the Manager. The Code of Ethics does permit personnel subject to the Code to invest in securities, including securities that may be purchased or held by the Fund, subject to a number of restrictions and controls. Compliance with the Code of Ethics is carefully monitored and enforced by the Manager.

The Code of Ethics is an exhibit to the Fund's registration statement filed with the SEC and can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. You can obtain information about the hours of operation of the Public Reference Room by calling the SEC at 1.202.942.8090. The Code of Ethics can also be viewed as part of the Fund's registration statement on the SEC's EDGAR database at the SEC's Internet website at http://www.sec.gov. Copies may be obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov., or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.

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

The Fund generally supports proposals to require majority voting for the election of directors.

The Fund generally supports proposals seeking additional disclosure of executive and director pay information.

The Fund generally supports proposals seeking disclosure regarding the company's, board's or committee's use of compensation consultants.

The Fund generally supports "pay-for-performance" proposals that align a significant portion of total compensation of senior executives to company performance.

In the case of social, political and environmental responsibility issues, the Fund will generally abstain where there could be a detrimental impact on share value or where the perceived value if the proposal was adopted is unclear or unsubstantiated. The Fund will vote for a proposal that would clearly have a discernible positive impact on short- or long-term share value, or that would have a presently indiscernible impact on short- or long-term share value but promotes general long-term interests of the company and its shareholders.

The Fund is required to file Form N-PX, with its complete proxy voting record for the 12 months ended June 30^th, no later than August 31^st of each year. The Fund's Form N-PX filing is available (i) without charge, upon request, by calling the Fund toll-free at 1.800.225.5677 and (ii) on the SEC's website at www.sec.gov.

|X| The Investment Advisory Agreement. The Manager provides investment advisory and management services to the Fund under an investment advisory agreement between the Manager and the Fund. The Manager selects securities for the Fund's portfolio and handles its day-to day business. That agreement requires the Manager, at its expense, to provide the Fund with adequate office space, facilities and equipment. It also requires the Manager to provide and supervise the activities of all administrative and clerical personnel required to provide effective corporate administration for the Fund. Those responsibilities include the compilation and maintenance of records with respect to the Fund's operations, the preparation and filing of specified reports, and the composition of proxy materials and registration statements for continuous public sale of shares of the Fund.

The Fund pays expenses not expressly assumed by the Manager under the advisory agreement. The investment advisory agreement lists examples of expenses paid by the Fund. The major categories relate to interest, taxes, fees to Independent Trustees, legal and audit expenses, custodian and transfer agent expenses, share issuance costs, certain printing and registration costs, brokerage commissions, and non-recurring expenses, including litigation cost. The management fees paid by the Fund to the Manager are calculated at the rates described in the Prospectus, which are applied to the assets of the Fund as a whole. The fees are allocated to each class of shares based upon the relative proportion of the Fund's net assets represented by that class. The management fees paid by the Fund to the Manager during its last three fiscal years are listed below.

The investment advisory agreement states that in the absence of willful misfeasance, bad faith, gross negligence in the performance of its duties, or reckless disregard of its obligations and duties under the investment advisory agreement, the Manager is not liable for any loss the Fund sustains in connection with matters to which the agreement relates.

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

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

Other Accounts Managed by the Portfolio Managers. 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 portfolios and accounts as of July 31, 2008:

1. In millions.
2. Does not include personal accounts of portfolio managers and their families, which are subject to the Code of Ethics.

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

< Compensation of the Portfolio Managers. The Fund's Portfolio Managers are employed and compensated by the Manager, not the Fund. Under the Manager's compensation program for its portfolio managers and portfolio analysts, Fund performance is the most important element of compensation with half of annual cash compensation based on the relative investment performance results of the funds and accounts they manage, rather than on the financial success of the Manager. This is intended to align the portfolio managers' and analysts' interests with the success of the funds and accounts and their shareholders. The Manager's compensation structure is designed to attract and retain highly qualified investment management professionals and to reward individual and team contributions toward creating shareholder value. As of July 31, 2008, the Portfolio Managers' compensation consisted of three elements: a base salary, an annual discretionary bonus and eligibility to participate in long-term awards of options and stock appreciation rights in regard to the common stock of the Manager's holding company parent. Senior portfolio managers may also be eligible to participate in the Manager's deferred compensation plan.

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

Ownership of Fund Shares. As of July 31, 2008, the Portfolio Managers did not own any shares of the Fund.

Brokerage Provisions of the Investment Advisory Agreement. One of the duties of the Manager under the investment advisory agreement is to arrange the portfolio transactions for the Fund. The advisory agreement contains provisions relating to the employment of broker-dealers to effect the Fund's portfolio transactions. The Manager is authorized by the advisory agreement to employ broker-dealers, including "affiliated brokers," as that term is defined in the Investment Company Act, that the Manager thinks, in its best judgment based on all relevant factors, will implement the policy of the Fund to obtain, at reasonable expense, the "best execution" of the Fund's portfolio transactions. "Best execution" means prompt and reliable execution at the most favorable price obtainable for the services provided. The Manager need not seek competitive commission bidding. However, it 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 of Trustees.

Under the investment advisory agreement, in choosing brokers to execute portfolio transactions for the Fund, the Manager may select brokers (other than affiliates) that provide both brokerage and research services to the Fund. The commissions paid to those brokers may be higher than another qualified broker would charge, if the Manager makes a good faith determination that the commission is fair and reasonable in relation to the services provided.

Brokerage Practices Followed by the Manager. The Manager allocates brokerage for each Fund subject to the provisions of the investment advisory agreement and other applicable rules and procedures described below. The Manager's portfolio managers directly place trades and allocate brokerage based upon their judgment as to the execution capability of the broker or dealer. The Manager's executive officers supervise the allocation of brokerage.

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

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

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

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

Investment research services include information and analyses on particular companies and industries as well as market or economic trends and portfolio strategy, market quotations for portfolio evaluations, analytical software and similar products and services. If a research service also assists the Manager in a non-research capacity (such as bookkeeping or other administrative functions), then only the percentage or component that provides assistance to the Manager in the investment decision-making process may be paid in commission dollars.

Although the Manager currently does not do so, the Board of Trustees may permit the Manager to use stated commissions on secondary fixed-income agency trades to obtain research if the broker represents to the Manager that: (i) the trade is not from or for the broker's own inventory, (ii) the trade was executed by the broker on an agency basis at the stated commission, and (iii) the trade is not a riskless principal transaction. The Board of Trustees may also permit the Manager to use commissions on fixed-price offerings to obtain research, in the same manner as is permitted for agency transactions.

The research services provided by brokers broaden the scope and supplement the research activities of the Manager. That research provides additional views and comparisons for consideration and helps the Manager to obtain market information for the valuation of securities that are either held in each Fund's portfolio or are being considered for purchase. The Manager provides information to the Board of the Funds about the commissions paid to brokers furnishing such services, together with the Manager's representation that the amount of such commissions was reasonably related to the value or benefit of such services.

During the fiscal year ended July 31, 2006, 2007 and 2008, the Fund executed no transactions and paid no commissions to firms that provide research services.

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

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 classes of 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 retained by the Distributor on the redemption of shares during the Fund's three most recent fiscal years are shown in the tables below.

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 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 of Trustees, including a majority of the Independent Trustees¹, cast in person at a meeting called for the purpose of voting on that plan.

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

Unless a plan is terminated as described below, the plan continues in effect from year to year but only if the Fund's Board of Trustees and its Independent Trustees specifically vote annually to approve its continuance. Approval must be by a vote cast in person at a meeting called for the purpose of voting on continuing the plan. A plan may be terminated at any time by the vote of a majority of the Independent Trustees or by the vote of the holders of a "majority" (as defined in the Investment Company Act) of the outstanding shares of that class.

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

While the plans are in effect, the Treasurer of the Fund shall provide separate written reports on the plans to the Board of Trustees at least quarterly for its review. The reports shall detail the amount of all payments made under a plan, and the purpose for which the payments were made. Those reports are subject to the review and approval of the Independent Trustees.

Each plan states that while it is in effect, the selection and nomination of those Trustees of the Fund who are not "interested persons" of the Fund is committed to the discretion of the Independent Trustees. This does not prevent the involvement of others in the selection and nomination process as long as the final decision as to selection or nomination is approved by a majority of the Independent Trustees.

Under the plans for a class, no payment will be made to any recipient in any period in which the aggregate net asset value of all Fund shares of that class held by the recipient for itself and its customers does not exceed a minimum amount, if any, that may be set from time to time by a majority of the Independent Trustees.

The Distributor does not receive or retain the service fee on Class A shares in accounts for which the Distributor has been listed as the broker-dealer of record. While the plan permits the Board to authorize payments to the Distributor to reimburse itself for services under the plan, the Board has not yet done so, except in the case of shares purchased prior to March 1, 2007 with respect to certain group retirement plans that were established prior to March 1, 2001 ("grandfathered retirement plans"). Prior to March 1, 2007, the Distributor paid the 0.25% service fee for grandfathered retirement plans in advance for the first year and retained the first year's service fee paid by the Fund with respect to those shares. After the shares were held for a year, the Distributor paid the ongoing service fees to recipients on a periodic basis. Such shares are subject to a contingent deferred sales charge if they are redeemed within 18 months. If Class A shares purchased in a grandfathered retirement plan prior to March 1, 2007 are redeemed within the first year after their purchase, the recipient of the service fees on those shares will be obligated to repay the Distributor a pro rata portion of the advance payment of those fees. For Class A shares purchased in grandfathered retirement plans on or after March 1, 2007, the Distributor does not make any payment in advance and does not retain the service fee for the first year. Such shares are not subject to the contingent deferred sales charge.

For the fiscal year ended July 31, 2008, payments under the Class A plan totaled $567,669, all of which all was paid by the Distributor to recipients, and included $13,632 paid to an affiliate of the Distributor's parent company. Any unreimbursed expenses the Distributor incurs with respect to Class A shares for any fiscal year may not be recovered in subsequent years. The Distributor may not use payments received under the Class A plan to pay any of its interest expenses, carrying charges, other financial costs, or allocation of overhead.

|X| Class B and Class C Distribution and Service Plan Fees. Under each plan, distribution and service fees are computed on the average of the net asset value of shares in the respective class, determined as of the close of each regular business day during the period. Each plan provides for the Distributor to be compensated at a flat rate, whether the Distributor's distribution expenses are more or less than the amounts paid by the Fund under the plan during the period for which the fee is paid. The types of services that recipients provide are similar to the services provided under the Class A service plan, described above.

Each plan permits the Distributor to retain both the asset-based sales charges and the service fee on shares or to pay recipients the service fee on a periodic basis, without payment in advance. However, the Distributor currently intends to pay the service fee to recipients in advance for the first year after Class B and Class C shares are purchased. After the first year shares are outstanding, after their purchase, the Distributor makes service fee payments periodically on those shares. The advance payment is based on the net asset value of shares sold. Shares purchased by exchange do not qualify for the advance service fee payment. If Class B or Class C shares are redeemed during the first year after their purchase, the recipient of the service fees on those shares will be obligated to repay the Distributor a pro rata portion of the advance payment made on those shares. Class B or Class C shares may not be purchased by a new investor directly from the Distributor without the investor designating another registered broker-dealer. If the 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 asset-based sales charge paid on Class B and Class C shares, but does not retain any service fees as to the assets represented by that account.

The asset-based sales charge and service fees increase Class B and Class C expenses by 1.00% of the net assets per year of the respective classes.

The Distributor retains the asset-based sales charge on Class B shares. The Distributor retains the asset-based sales charge on Class C shares during the first year the shares are outstanding. It pays the asset-based sales charge as an ongoing concession to the recipient on Class C shares outstanding for a year or more. If a dealer has a special agreement with the Distributor, the Distributor will pay the Class B and/or Class C service fee and the asset-based sales charge to the dealer periodically in lieu of paying the sales concession and service fee in advance at the time of purchase.

The asset-based sales charge on Class B and Class C shares allows investors to buy shares without a front-end sales charge while allowing the Distributor to compensate dealers that sell those shares. The Fund pays the asset-based sales charge to the Distributor for its services rendered in distributing Class B and Class C shares. The payments are made to the Distributor in recognition that the Distributor:

During a calendar year, the Distributor's actual expenses in selling Class B and Class C shares may be more than the payments it receives from the contingent deferred sales charges collected on redeemed shares and from the asset-based sales charges paid to the Distributor by the Fund under the distribution and service plans. Those excess expenses are carried over on the Distributor's books and may be recouped from asset-based sales charge payments from the Fund in future years. However, the Distributor has voluntarily agreed to cap the amount of expenses under the plans that may be carried over from year to year and recouped that relate to (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. The cap on the carry-over of those categories of expenses is set at 0.70% of annual gross sales of shares of the Fund. If those categories of expenses exceed the capped amount, the Distributor bears the excess costs. If the Class B or Class C plan were to be terminated by the Fund, the Fund's Board of Trustees may allow the Fund to continue payments of the asset-based sales charge to the Distributor for distributing shares prior to the termination of the plan.

All payments under the plans are subject to the limitations imposed by the Conduct Rules of FINRA on payments of asset-based sales charges and service fees.

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

Possible types of payments to financial intermediaries include, without limitation, those discussed below.

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 payment may exceed the cost of providing the service. Certain of these payments are subject to limitations under applicable law. Financial intermediaries may categorize and disclose these arrangements to their clients and to members of the public in a manner different from the disclosures in the Fund's Prospectus and this SAI. You should ask your financial intermediary for information about any payments it receives from the Fund, the Manager or the Distributor and any services it provides, as well as the fees and commissions it charges.

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

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

Additionally, the Manager or Distributor may make payments for firm support, such as business planning assistance, advertising, and educating a financial intermediary's sales personnel about the Oppenheimer funds and shareholder financial planning needs.

For the year ended December 31, 2007, the following financial intermediaries and/or their respective affiliates offered shares of the Oppenheimer funds and received revenue sharing or similar distribution-related payments from the Manager or Distributor for marketing or program support:

For the year ended December 31, 2007, the following firms, which in some cases are broker-dealers, received payments from the Manager or Distributor for administrative or other services provided (other than revenue sharing arrangements), as described above:

Explanation of Performance Terminology. The Fund uses a variety of terms to illustrate its performance. These terms include "standardized yield," "tax-equivalent yield," "dividend yield (or "distribution yield")," "average annual total return," "cumulative total return," "average annual total return at net asset value" and "total return at net asset value." An explanation of how yields and total returns are calculated is set forth below. The charts below show the Fund's performance as of the Fund's most recent fiscal year end. You can obtain current performance information by calling the Fund's Transfer Agent at 1.800.225.5677 or by visiting the OppenheimerFunds Internet website at www.oppenheimerfunds.com.

The Fund's illustrations of its performance data in advertisements must comply with rules of the SEC. Those rules describe the types of performance data that may be used and how it is to be calculated. In general, any advertisement by the Fund of its performance data must include the average annual total returns for the advertised class of shares of the Fund.

Use of standardized performance calculations enables an investor to compare the Fund's performance to the performance of other funds for the same periods. However, a number of factors should be considered before using the Fund's performance information as a basis for comparison with other investments:

The performance of each class of shares is shown separately, because the performance of each class of shares will usually be different. That is because of the different kinds of expenses each class bears. The yields and total returns of each class of shares of the Fund are affected by market conditions, the quality of the Fund's investments, the maturity of those investments, the types of investments the Fund holds, and its operating expenses that are allocated to the particular class.

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

c = the average daily number of shares of that class outstanding during the 30-day period that were entitled to receive dividends.

d = the maximum offering price per share of that class on the last day of the period, adjusted for undistributed net investment income.

The standardized yield for a particular 30-day period may differ from the yield for other periods. The SEC formula assumes that the standardized yield for a 30-day period occurs at a constant rate for a six-month period and is annualized at the end of the six-month period. Additionally, because each class of shares is subject to different expenses, it is likely that the standardized yields of the Fund's classes of shares will differ for any 30-day period.

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

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

The tax-equivalent yield is based on a 30-day period, and is computed by dividing the tax-exempt portion of the Fund's current yield (as calculated above) by one minus a stated income tax rate. The result is added to the portion (if any) of the Fund's current yield that is not tax-exempt.

The tax-equivalent yield may be used to compare the tax effects of income derived from the Fund with income from taxable investments at the tax rates stated. Your tax bracket is determined by your federal and state taxable income (the net amount subject to federal and state income tax after deductions and exemptions).

|X| Total Return Information. There are different types of "total returns" to measure the Fund's performance. Total return is the change in value of a hypothetical investment in the Fund over a given period, assuming that all dividends and capital gains distributions are reinvested in additional shares and that the investment is redeemed at the end of the period. Because of differences in expenses for each class of shares, the total returns for each class are separately measured. The cumulative total return measures the change in value over the entire period (for example, 10 years). An average annual total return shows the average rate of return for each year in a period that would produce the cumulative total return over the entire period. However, average annual total returns do not show actual year-by-year performance. The Fund uses standardized calculations for its total returns as prescribed by the SEC. The methodology is discussed below.

In calculating total returns for Class A shares, the current maximum sales charge of 3.50% (as a percentage of the offering price) is deducted from the initial investment ("P" in the formula below) (unless the return is shown without sales charge, as described below). For Class B shares, payment of the applicable contingent deferred sales charge is applied, depending on the period for which the return is shown: 4.0% in the first year, 3.0% in the second year, 2.0% in the third and fourth years, 1.0% in the fifth year, and none thereafter. For Class C shares, the 1.0% contingent deferred sales charge is deducted for returns for the one-year period.

1. Inception of Class A:     2/25/04
2. Inception of Class B:     2/25/04
3. Inception of Class C:     2/25/04

Other Performance Comparisons. The Fund compares its performance annually to that of an appropriate broadly-based market index in its Annual Report to shareholders. You can obtain that information by contacting the Transfer Agent at the addresses or telephone numbers shown on the cover of this SAI. The Fund may also compare its performance to that of other investments, including other mutual funds, or use rankings of its performance by independent ranking entities. Examples of these performance comparisons are set forth below.

|X| Lipper Rankings. From time to time the Fund may publish the ranking of the performance of its classes of shares by Lipper, Inc. ("Lipper"). Lipper is a widely-recognized
independent mutual fund monitoring service. Lipper monitors the performance of regulated investment companies, including the Fund, and ranks their performance for various periods in categories based on investment styles. The Lipper performance rankings are based on total returns that include the reinvestment of capital gain distributions and income dividends but do not take sales charges or taxes into consideration. Lipper also publishes "peer-group" indices of the performance of all mutual funds in a category that it monitors and averages of the performance of the funds in particular categories.

n Morningstar Ratings. From time to time the Fund may publish the star rating of the performance of its classes of shares by Morningstar, Inc. ("Morningstar"), an independent mutual fund monitoring service. Morningstar rates and ranks mutual funds in their specialized market sectors. The Fund is ranked among the municipal California intermediate/short funds.

Morningstar proprietary star ratings reflect historical risk-adjusted total investment return. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating™ based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's monthly performance (including the effects of sales charges, loads, and redemption fees), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the distribution percentages.) The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three-, five-and ten-year (if applicable) Morningstar Rating metrics.

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

Investors may also wish to compare the returns on the Fund's share classes to the return on fixed-income investments available from banks and thrift institutions. Those include certificates of deposit, ordinary interest-paying checking and savings accounts, and other forms of fixed or variable time deposits, and various other instruments such as Treasury bills. However, the Fund's returns and share price are not guaranteed or insured by the FDIC or any other agency and will fluctuate daily, while bank depository obligations may be insured by the FDIC and may provide fixed rates of return. Repayment of principal and payment of interest on Treasury securities is backed by the full faith and credit of the U.S. government.

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

From time to time the Fund may include in its advertisements and sales literature the total return performance of a hypothetical investment account that includes shares of the Fund and other Oppenheimer funds. The combined account may be part of an illustration of an asset allocation model or similar presentation. The account performance may combine total return performance of the Fund and the total return performance of other Oppenheimer funds included in the account. Additionally, from time to time, the Fund's advertisements and sales literature may include, for illustrative or comparative purposes, statistical data or other information about general or specific market and economic conditions. That may include, for example,

Additional information is presented below about the methods that can be used to buy shares of the Fund. Appendix C contains more information about the special sales charge arrangements offered by the Fund, and the circumstances in which sales charges may be reduced or waived for certain classes of investors.

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.

AccountLink. When shares are purchased through AccountLink, each purchase must be at least $50 and shareholders must invest at least $500 before an Asset Builder Plan (described below) can be established on a new account. Accounts established prior to November 1, 2002 will remain at $25 for additional purchases. Shares will be purchased on the regular business day the Distributor is instructed to initiate the Automated Clearing House ("ACH") transfer to buy the shares. Dividends will begin to accrue on shares purchased with the proceeds of ACH transfers on the business day the Fund receives Federal Funds for the purchase through the ACH system before the close of the New York Stock Exchange (the "NYSE"). The NYSE normally closes at 4:00 p.m., but may close earlier on certain days. If Federal Funds are received on a business day after the close of the NYSE, the shares will be purchased and dividends will begin to accrue on the next regular business day. The proceeds of ACH transfers are normally received by the Fund three days after the transfers are initiated. If the proceeds of the 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.

Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge rate may be obtained for Class A shares under Right of Accumulation and Letters of Intent because of the economies of sales efforts and reduction in expenses realized by the Distributor, dealers and brokers making such sales. No sales charge is imposed in certain other circumstances described in Appendix C to this SAI because the Distributor or dealer or broker incurs little or no selling expenses.

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

There is an initial sales charge on the purchase of Class A shares of each of the Oppenheimer funds described above except the money market funds. Under certain circumstances described in this SAI, redemption proceeds of certain money market fund shares may be subject to a contingent deferred sales charge.

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

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

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

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

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

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

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

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

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

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

6. By signing the Letter, the investor irrevocably constitutes and appoints the Transfer Agent as attorney-in-fact to surrender for redemption any or all escrowed shares.

Asset Builder Plans. As explained in the Prospectus, you must initially establish your account with $500. Subsequently, you can establish an Asset Builder Plan to automatically purchase additional shares directly from a bank account for as little as $50. For those accounts established prior to November 1, 2002 and which have previously established Asset Builder Plans, additional purchases will remain at $25. Shares purchased by Asset Builder Plan payments from bank accounts are subject to the redemption restrictions for recent purchases described in the Prospectus. Asset Builder Plans are available only if your bank is an ACH member. Asset Builder Plans may not be used to buy shares for OppenheimerFunds employer-sponsored qualified retirement accounts.

If you make payments from your bank account to purchase shares of the Fund, your bank account will be debited automatically. Normally the debit will be made two business days prior to the investment dates you selected on your application. Neither the Distributor, the Transfer Agent or the Fund shall be responsible for any delays in purchasing shares that result from delays in ACH transmissions.

Before you establish Asset Builder payments, you should obtain a prospectus of the selected fund(s) from your financial advisor (or the Distributor) and request an application from the Distributor. Complete the application and return it. You may change the amount of your Asset Builder payment or you can terminate these automatic investments at any time by writing to the Transfer Agent. The Transfer Agent requires a reasonable period (approximately 10 days) after receipt of your instructions to implement them. The Fund reserves the right to amend, suspend or discontinue offering Asset Builder plans at any time without prior notice.

Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's shares (for example, when a purchase check is returned to the Fund unpaid) causes a loss to be incurred when the net asset 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.

Classes of Shares. Each class of shares of the Fund represents an interest in the same portfolio of investments of the Fund. However, each class has different shareholder privileges and features. The net income attributable to Class B or Class C shares and the dividends payable on Class B or Class C shares will be reduced by incremental expenses borne solely by that class. Those expenses include the asset-based sales charges to which Class B and Class C are subject.

The availability of different classes of shares permits an investor to choose the method of purchasing shares that is more appropriate for the investor. That may depend on the amount of the purchase, the length of time the investor expects to hold shares, and other relevant circumstances. Class A shares normally are sold subject to an initial sales charge. While Class B and Class C shares have no initial sales charge, the purpose of the deferred sales charge and asset-based sales charge on Class B and Class C shares is the same as that of the initial sales charge on Class A shares – to compensate the Distributor and brokers, dealers and financial institutions that sell shares of the Fund. A salesperson who is entitled to receive compensation from his or her firm for selling Fund shares may receive different levels of compensation for selling one class of shares rather than another.

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

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

|X| Class B Conversion. Under current interpretations of applicable federal income tax law by the Internal Revenue Service, the conversion of Class B shares to Class A shares 72 months after purchase 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. Investors should consult their tax advisers regarding the state and local tax consequences of the conversion or exchange of shares.

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

The methodology for calculating the net asset value, dividends and distributions of the Fund's share classes recognizes two types of expenses. General expenses that do not pertain specifically to any one class are allocated pro rata to the shares of all classes. The allocation is based on the percentage of the Fund's total assets that is represented by the assets of each class, and then equally to each outstanding share within a given class. Such general expenses include management fees, legal, bookkeeping and audit fees, printing and mailing costs of shareholder

reports, Prospectuses, Statements of Additional Information and other materials for current shareholders, fees to unaffiliated Trustees, custodian expenses, share issuance costs, organization and start-up costs, interest, taxes and brokerage commissions, and non-recurring expenses, such as litigation costs.

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

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

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

To access account documents electronically via eDocs Direct, please visit the Service Center on our website at www.oppenheimerfunds.com and click the hyperlink "Sign Up for Electronic Document Delivery" under the heading "I Want To," or call 1.888.470.0862 for instructions.

Determination of Net Asset Values Per Share. The net asset value per share of each class of shares of the Fund is determined as of the close of business of the NYSE on each day that the NYSE is open. The calculation is done 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 NYSE normally closes at 4:00 p.m., Eastern time, but may close earlier on some other days (for example, in case of

weather emergencies or on days falling before a U.S. holiday). All references to time in this SAI mean "Eastern time." The NYSE's most recent annual announcement regarding holidays and days when the market may close early is available on the NYSE's website at www.nyse.com.

Dealers other than NYSE members may conduct trading in municipal securities on days on which 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 such days when shareholders may not purchase or redeem shares.

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

In the case of municipal securities, when last sale information is not generally available, the Manager may use pricing services approved by the Board of Trustees. The pricing service may use "matrix" comparisons to the prices for comparable instruments on the basis of quality, yield and maturity. Other special factors may be involved (such as the tax-exempt status of the interest paid by municipal securities). The Manager will monitor the accuracy of the pricing services. That monitoring may include comparing prices used for portfolio valuation to actual sales prices of selected securities.

Puts, calls, futures and municipal bond index futures are valued at the last sale price on the principal exchange on which they are traded, as determined by a pricing service approved by the Board of Trustees or by the Manager. If there were no sales that day, they shall be valued at the last sale price on the preceding trading day if it is within the spread of the closing "bid" and "asked" prices on the principal exchange on the valuation date. If not, the value shall be the closing bid price on the principal exchange on the valuation date. If the put, call or future is not traded on an exchange, it shall be valued by the mean between "bid" and "asked" prices obtained by the Manager from two active market makers. In certain cases that may be at the "bid" price if no "asked" price is available.

When the Fund writes an option, an amount equal to the premium received is included in the Fund's Statement of Assets and Liabilities as an asset. An equivalent credit is included in the liability section. The credit is adjusted ("marked-to-market") to reflect the current market value of the option. In determining the Fund's gain on investments, if a call or put written by the Fund is exercised, the proceeds are increased by the premium received. If a call or put written by the Fund expires, the Fund has a gain in the amount of the premium. If the Fund enters into a closing purchase transaction, it will have a gain or loss, depending on whether the premium received was more or less than the cost of the closing transaction. If the Fund exercises a put it holds, the amount the Fund receives on its sale of the underlying investment is reduced by the amount of premium paid by the Fund.

The information below supplements the terms and conditions for redeeming shares set forth in the Prospectus.

Checkwriting. When a check is presented to United Missouri Bank (the "Bank") for clearance, the Bank will ask the Fund to redeem a sufficient number of full and fractional shares in the shareholder's account to cover the amount of the check. This enables the shareholder to continue receiving dividends on those shares until the check is presented to the Fund. Checks may not be presented for payment at the offices of the Bank or the Fund's custodian. This limitation does not affect the use of checks for the payment of bills or to obtain cash at other banks. The Fund reserves the right to amend, suspend or discontinue offering checkwriting privileges at any time. The Fund will provide you notice whenever it is required to do so by applicable law.

In choosing to take advantage of the Checkwriting privilege, by signing the account application or by completing a Checkwriting card, each individual who signs:

Sending Redemption Proceeds by Federal Funds Wire. The Federal Funds wire of redemption proceeds may be delayed if the Fund's custodian bank is not open for business on a day when the Fund would normally authorize the wire to be made, which is usually the Fund's next regular business day following the redemption. In those circumstances, the wire will not be transmitted until the next bank business day on which the Fund is open for business. No dividends will be paid on the proceeds of redeemed shares awaiting transfer by Federal Funds wire.

Reinvestment Privilege. Within six months of a redemption, a shareholder may reinvest all or part of the redemption proceeds of:

The reinvestment may be made without sales charge only in Class A shares of the Fund or any of the other Oppenheimer funds into which shares of the Fund are exchangeable as described in "How to Exchange Shares" below. Reinvestment will be at the net asset value next computed after the Transfer Agent receives the reinvestment order. The shareholder must ask the Transfer Agent for that privilege at the time of reinvestment. This privilege does not apply to Class C shares. The Fund may amend, suspend or cease offering this reinvestment privilege at any time as to shares redeemed after the date of such amendment, suspension or cessation. This reinvestment privilege does not apply to reinvestment purchases made through automatic investment options.

Any capital gain that was realized when the shares were redeemed is taxable, and reinvestment will not alter any capital gains tax payable on that gain. If there has been a capital loss on the redemption, some or all of the loss may not be tax deductible, depending on the timing and amount of the reinvestment. Under the Internal Revenue Code, if the redemption proceeds of Fund shares on which a sales charge was paid are reinvested in shares of the Fund or another of the Oppenheimer funds within 90 days of payment of the sales charge, the shareholder's basis in the shares of the Fund that were redeemed may not include the amount of the sales charge paid. That would reduce the loss or increase the gain recognized from the redemption. However, in that case the sales charge would be added to the basis of the shares acquired by the reinvestment of the redemption proceeds.

Payments "In Kind". The Prospectus states that payment for shares tendered for redemption is ordinarily made in cash. However, under certain circumstances, the Board of Trustees of the Fund may determine that it would be detrimental to the best interests of the remaining shareholders of the Fund to make payment of a redemption order wholly or partly in cash. In that case, the Fund may pay the redemption proceeds in whole or in part by a distribution "in kind" of liquid securities from the portfolio of the Fund, in lieu of cash.

The Fund has elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any 90-day period for any one shareholder. If shares are redeemed in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities for cash. The Fund will value securities used to pay redemptions in kind using the same method the Fund uses to value its portfolio securities described above under "Determination of Net Asset Values Per Share." That valuation will be made as of the time the redemption price is determined.

Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the involuntary redemption of the shares held in any account if the aggregate net asset value of those shares is less than $200 or such lesser amount as the Board may fix. The Board of Trustees will not cause the involuntary redemption of shares in an account if the aggregate net asset value of such shares has fallen below the stated minimum solely as a result of market fluctuations. If the Board exercises this right, it may also fix the requirements for any notice to be given to the shareholders in question (not less than 30 days). The Board may alternatively set requirements for the shareholder to increase the investment, or set other terms and conditions so that the shares would not be involuntarily redeemed.

Transfers of Shares. A transfer of shares to a different registration is not an event that triggers the payment of sales charges. Therefore, shares are not subject to the payment of a contingent deferred sales charge of any class at the time of transfer to the name of another person or entity. It does not matter whether the transfer occurs by absolute assignment, gift or bequest, as long as it does not involve, directly or indirectly, a public sale of the shares. When shares subject to a contingent deferred sales charge are transferred, the transferred shares will remain subject to the contingent deferred sales charge. It will be calculated as if the transferee shareholder had acquired the transferred shares in the same manner and at the same time as the transferring shareholder.

If less than all shares held in an account are transferred, and some but not all shares in the account would be subject to a contingent deferred sales charge if redeemed at the time of transfer, the priorities described in the Prospectus under "How to Buy Shares" for the imposition of the Class B or Class C contingent deferred sales charge will be followed in determining the order in which shares are transferred.

Special Arrangements for Repurchase of Shares from Dealers and Brokers. The Distributor is the Fund's agent to repurchase its shares from authorized dealers or brokers on behalf of their customers. Shareholders should contact their broker or dealer to arrange this type of redemption. The repurchase price per share will be the net asset value next computed after the Distributor receives an order placed by the dealer or broker. However, if the Distributor receives a repurchase order from a dealer or broker after the close of the NYSE on a regular business day, it will be processed at that day's net asset value if the order was received by the dealer or broker from its customers prior to the time the NYSE closes. Normally, the NYSE closes at 4:00 p.m., but may do so earlier on some days.

Ordinarily, for accounts redeemed by a broker-dealer under this procedure, payment will be made within three business days after the shares have been redeemed upon the Distributor's receipt of the required redemption documents in proper form. The signature(s) of the registered owners on the redemption documents must be guaranteed as described in the Prospectus.

Automatic Withdrawal and Exchange Plans. Investors can authorize the Transfer Agent to redeem shares (having a value of at least $50) automatically on a monthly, quarterly, semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be redeemed three business days prior to the date requested by the shareholder for receipt of the payment. Automatic withdrawals of up to $1,500 per month may be requested by telephone if payments are to be made by check payable to all shareholders of record. Payments must also be sent to the address of record for the account and the address must not have been changed within the prior 30 days. Required minimum distributions from OppenheimerFunds-sponsored retirement plans may not be arranged on this basis.

Payments are normally made by check, but shareholders having AccountLink privileges (see "How To Buy Shares") may arrange to have Automatic Withdrawal Plan payments transferred to the bank account designated on the account application or by signature-guaranteed instructions sent to the Transfer Agent. Shares are normally redeemed pursuant to an Automatic Withdrawal Plan three business days before the payment transmittal date you select in the account application. If a contingent deferred sales charge applies to the redemption, the amount of the check or payment will be reduced accordingly.

The Fund cannot guarantee receipt of a payment on the date requested. The Fund reserves the right to amend, suspend or discontinue offering these plans at any time without prior notice. Because of the sales charge assessed on Class A share purchases, shareholders should not make regular additional Class A share purchases while participating in an Automatic Withdrawal Plan. Class B and Class C shareholders should not establish automatic withdrawal plans, because of the potential imposition of the contingent deferred sales charge on such withdrawals (except where the contingent deferred sales charge is waived as described in Appendix C to this SAI ).

By requesting an Automatic Withdrawal or Exchange Plan, the shareholder agrees to the terms and conditions that apply to such plans, as stated below. These provisions may be amended from time to time by the Fund and/or the Distributor. When adopted, any amendments will automatically apply to existing Plans.

n Automatic Exchange Plans. Shareholders can authorize the Transfer Agent to automatically exchange a pre-determined amount of shares of the Fund for shares (of the same class) of other Oppenheimer funds that offer the exchange privilege on a monthly, quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The minimum amount that may be exchanged to each other fund account is $50. Instructions should be provided on the OppenheimerFunds application or signature-guaranteed instructions. Exchanges made under these plans are subject to the restrictions that apply to exchanges as set forth in "How to Exchange Shares" in the Prospectus and below in this SAI.

n Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to meet withdrawal payments. Shares acquired without a sales charge will be redeemed first. Shares acquired with reinvested dividends and capital gains distributions will be redeemed next, followed by shares acquired with a sales charge, to the extent necessary to make withdrawal payments. Depending upon the amount withdrawn, the investor's principal may be depleted. Payments made under these plans should not be considered as a yield or income on your investment.

The Transfer Agent will administer the investor's Automatic Withdrawal Plan as agent for the shareholder(s) (the "Planholder") who executed the plan authorization and application submitted to the Transfer Agent. Neither the Fund nor the Transfer Agent shall incur any liability to the Planholder for any action taken or not taken by the Transfer Agent in good faith to administer the plan. Share certificates will not be issued for shares of the Fund purchased for and held under the plan, but the Transfer Agent will credit all such shares to the account of the Planholder on the records of the Fund. Any share certificates held by a Planholder may be surrendered unendorsed to the Transfer Agent with the plan application so that the shares represented by the certificate may be held under the plan.

For accounts subject to Automatic Withdrawal Plans, distributions of capital gains must be reinvested in shares of the Fund, which will be done at net asset value without a sales charge. Dividends on shares held in the account may be paid in cash or reinvested.

Shares will be redeemed to make withdrawal payments at the net asset value per share determined on the redemption date. Checks or AccountLink payments representing the proceeds of Plan withdrawals will normally be transmitted three business days prior to the date selected for receipt of the payment, according to the choice specified in writing by the Planholder. Receipt of payment on the date selected cannot be guaranteed.

The amount and the interval of disbursement payments and the address to which checks are to be mailed or AccountLink payments are to be sent may be changed at any time by the Planholder by writing to the Transfer Agent. The Planholder should allow at least two weeks' time after mailing such notification for the requested change to be put in effect. The Planholder may, at any time, instruct the Transfer Agent by written notice to redeem all, or any part of, the shares held under the plan. That notice must be in proper form in accordance with the requirements of the then-current Prospectus of the Fund. In that case, the Transfer Agent will redeem the number of shares requested at the net asset value per share in effect and will mail a check for the proceeds to the Planholder.

The Planholder may terminate a Plan at any time. The Fund may also give directions to the Transfer Agent to terminate a Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence satisfactory to it that the Planholder has died or is legally incapacitated. Upon termination of a Plan by the Transfer Agent or the Fund, shares that have not been redeemed will be held in uncertificated form in the name of the Planholder. The account will continue as a dividend-reinvestment, uncertificated account unless and until proper instructions are received from the Planholder, his or her executor or guardian, or another authorized person.

If the Transfer Agent ceases to act as transfer agent for the Fund, the Planholder will be deemed to have appointed any successor transfer agent to act as agent in administering the plan.

As stated in the Prospectus, shares of a particular class of Oppenheimer funds having more than one class of shares may be exchanged only for shares of the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have a single class without a class designation are deemed "Class A" shares for this purpose. The prospectus of each of the Oppenheimer funds indicates which share class or classes that fund offers and provides information about limitations on the purchase of particular share classes, as applicable for the particular fund. You can also obtain a current list showing which funds offer which classes of shares by calling the Distributor at the telephone number indicated on the front cover of this SAI.

The Fund may amend, suspend or terminate the exchange privilege at any time. Although the Fund may impose those changes at any time, it will provide you with notice of those changes whenever it is required to do so by applicable law. It may be required to provide 60 days' notice prior to materially amending or terminating the exchange privilege , except in extraordinary circumstances.

|X| How Exchanges Affect Contingent Deferred Sales Charges. No contingent deferred sales charge is imposed on exchanges of shares of any class purchased subject to a contingent deferred sales charge, with the following exceptions:

Shareholders owning shares of more than one class must specify which class of shares they wish to exchange.

|X| 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.

|X| Processing Exchange Requests. Shares to be exchanged are redeemed on the regular business day the Transfer Agent receives an exchange request in proper form (the "Redemption Date"). Normally, shares of the fund to be acquired are purchased on the Redemption Date, but such purchases may be delayed by either fund up to five business days if it determines that it would be disadvantaged by an immediate transfer of the redemption proceeds. The Fund reserves the right, in its discretion, to refuse any exchange request that may disadvantage it. For example, if the receipt of multiple exchange requests 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 from one fund to another, any special account features that are available in the new fund (such as an Asset Builder Plan or Automatic Withdrawal Plan) will be switched to the new fund account unless you tell the Transfer Agent not to do so.

In connection with any exchange request, the number of shares exchanged may be less than the number requested if the exchange or the number requested would include shares subject to a restriction cited in the Prospectus or this SAI, or would include shares covered by a share certificate that is not tendered with the request. In those cases, only the shares available for exchange without restriction will be exchanged.

The different Oppenheimer funds available for exchange have different investment objectives, policies and risks. A shareholder should assure that the fund selected is appropriate for his or her investment and should be aware of the tax consequences of an exchange. For federal income tax purposes, an exchange transaction is treated as a redemption of shares of one fund and a purchase of shares of another. "Reinvestment Privilege," above, discusses some of the tax consequences of reinvestment of redemption proceeds in such cases. The Fund, the Distributor, and the Transfer Agent are unable to provide investment, tax or legal advice to a shareholder in connection with an exchange request or any other investment transaction.

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

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

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

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. Returned checks for the proceeds of other redemptions will be invested in shares of Oppenheimer Money Market Fund, Inc. Reinvestment will be made as promptly as possible after the return of such checks to the Transfer Agent. Unclaimed accounts may be subject to state escheatment laws, and the Fund and the Transfer Agent will not be liable to shareholders or their representatives for compliance with those laws in good faith.

The amount of a distribution paid on a class of shares may vary from time to time depending on market conditions, the composition of the Fund's portfolio, and expenses borne by the Fund or borne separately by a class. Dividends are calculated in the same manner, at the same time and on the same day for shares of each class. However, dividends on Class B and Class C shares are expected to be lower than dividends on Class A shares. That is due to the effect of the asset-based sales charge on Class B and Class C shares. Those dividends will also differ in amount as a consequence of any difference in net asset value among the different classes of shares.

Tax Status of the Fund's Dividends, Distributions and Redemptions of Shares. The federal tax treatment of the Fund's distributions 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 law in effect on the date of the Prospectus and this SAI. Those laws and regulations may be changed by legislative, judicial, or administrative action, sometimes with retroactive effect. State and local tax treatment of exempt-interest dividends and potential capital gain distributions from regulated investment companies may differ from the treatment under the Internal Revenue Code described below. Potential purchasers of shares of the Fund are urged to consult their tax advisers with specific reference to their own tax circumstances as well as the consequences of federal, state and local tax rules affecting an investment in the Fund.

Qualification as a Regulated Investment Company. The Fund has elected to be taxed as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. As a regulated investment company, 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 net long-term capital gains over net short-term capital losses) that it distributes 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. The Fund might not meet those tests in a particular year. If it does not qualify, the Fund will be treated for tax purposes as an ordinary corporation and will receive no tax deduction for payments of dividends and other distributions made to shareholders. In such an instance, all of the Fund's dividends would be taxable to shareholders.

To qualify as a regulated investment company, the Fund must distribute at least 90% of its investment company taxable income (in brief, net investment income and the excess of net short-term capital gain over net long-term capital loss) and at least 90% of its net tax-exempt income for the taxable year. The Fund must also satisfy certain other requirements of the Internal Revenue Code, some of which are described below. Distributions by the Fund made during the taxable year or, under specified circumstances, within 12 months after the close of the taxable year, will be considered distributions of income and gains for the taxable year and will therefore count toward satisfaction of the above-mentioned requirement.

To qualify as a regulated investment company, the Fund also must derive at least 90% of its gross income from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business of investing in stock or securities) and certain other income including net income derived from an interest in a qualified publicly traded partnership.

In addition to satisfying the requirements described above, the Fund must satisfy an asset diversification test in order to qualify as a regulated investment company. Under this test, at the close of each quarter of the Fund's taxable year, at least 50% of the value of the Fund's assets must consist of cash and cash items (including receivables), U.S. government securities, securities of other regulated investment companies, and securities of other issuers. As to each of those other issuers, the Fund must not have invested more than 5% of the value of the Fund's total assets in securities of such issuer and the Fund must not hold more than 10% of the outstanding voting securities of such issuer. No more than 25% of the value of the Fund's total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses or of one or more qualified publicly traded partnerships. For purposes of this test, obligations issued or guaranteed by certain agencies or instrumentalities of the U.S. Government are treated as U.S. Government securities.

Net investment income includes the allocation of amounts of income from the municipal securities in the Fund's portfolio that are free from federal income taxes. This allocation will be made by the use of one designated percentage applied uniformly to all income dividends paid during the Fund's tax year. That designation will normally be made following the end of each fiscal year as to income dividends paid in the prior year. The percentage of income designated as tax-exempt may substantially differ from the percentage of the Fund's income that was tax-exempt for a given period.

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 be an item of tax preference for shareholders subject to the federal alternative minimum tax. The amount of any dividends attributable to tax preference items for purposes of the alternative minimum tax will be identified when tax information is distributed by the Fund.

A shareholder receiving a dividend from income earned by the Fund from one or more of the following sources must treat the dividend as ordinary income in the computation of the shareholder's gross income, regardless of whether the dividend is reinvested:

The Fund's dividends will not be eligible for the dividends-received deduction for corporations. Shareholders receiving Social Security or railroad retirement benefits should be aware that exempt-interest dividends are a factor in determining whether (and the extent to which) such benefits are subject to federal income tax.

In any year in which the Fund qualifies as a regulated investment company under the Internal Revenue Code, the Fund will also be exempt from California corporate income and franchise taxes. It will also be qualified under California law to pay exempt interest dividends that will be exempt from California personal income tax. That exemption applies to the extent that the Fund's distributions are attributable to interest on California municipal securities and qualifying obligations of the United States government, if at least 50% of the Fund's assets are invested in such obligations at the close of each quarter in its tax year. Distributions from the Fund attributable to income from sources other than California municipal securities and U.S. Government obligations will generally be subject to California income tax as ordinary income.

Distributions by the Fund from investment income and long- and short-term capital gains will generally not be excludable from taxable income in determining California corporate franchise tax or income tax for corporate shareholders of the Fund. Additionally, certain distributions paid to corporate shareholders of the Fund may be includable in income subject to the California alternative minimum tax.

The Fund may either retain or distribute to shareholders its net capital gain for each taxable year. The Fund currently intends to distribute any such amounts. If the net capital gain is distributed and designated as a capital gain distribution, it will be taxable to shareholders as a long-term capital gain and will be properly identified in reports sent to shareholders in January of each year. Such treatment will apply no matter how long the shareholder has held his or her shares or whether that gain was recognized by the Fund before the shareholder acquired his or her shares.

If the Fund elects to retain its net capital gain, the Fund will be subject to tax on it at the 35% corporate tax rate. If the Fund elects to retain its net capital gain, the Fund will provide to shareholders of record on the last day of its taxable year information regarding their pro rata share of the gain and tax paid. As a result, each shareholder will be required to report his or her pro rata share of such gain on their tax return as long-term capital gain, will receive a refundable tax credit for his/her pro rata share of tax paid by the Fund on the gain, and will increase the tax basis for his/her shares by an amount equal to the deemed distribution less the tax credit.

Distributions by the Fund will be treated in the manner described above regardless of whether the distributions are paid in cash or reinvested in additional shares of the Fund (or of another fund). Shareholders receiving a distribution in the form of additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received, determined as of the reinvestment date.

The Fund will be required in certain cases to withhold 28% of ordinary income dividends (not including "exempt-interest dividends"), capital gains 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 the receipt of interest or dividend income properly, 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 all income and any tax withheld is identified in reports mailed to shareholders in January of each year with a copy sent to the IRS.

In general, any gain or loss arising from the redemption of shares of the Fund will be considered capital gain or loss, if the shares were held as a capital asset. It will be long-term capital gain or loss if the shares were held for more than one year. However, any capital loss arising from the redemption of shares held for six months or less 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 and there are limits on the deductibility of capital losses in any year.

Ordinary income dividends that are paid by the Fund (and are deemed not "effectively connected income") to foreign persons will be subject to a U.S. tax withheld by the Fund at a rate of 30%, provided the Fund obtains a properly completed and signed Certificate of Foreign Status. The tax rate may be reduced if the foreign person's country of residence has a tax treaty with the U.S. allowing for a reduced tax rate on ordinary income dividends paid by the Fund. Any tax withheld by the Fund is remitted by the Fund to the U.S. Treasury and all income and any tax withheld is identified in reports mailed to shareholders in March of each year with a copy sent to the IRS.

If the ordinary income dividends from the Fund are effectively connected with the conduct of a U.S. trade or business, then the foreign person may claim an exemption from the U.S. tax described above provided the Fund obtains a properly completed and signed Certificate of Foreign Status. If a foreign person fails to provide a certification of his/her foreign status, the Fund will be required to withhold U.S. tax at a rate of 28% on ordinary income dividends (not including "exempt-interest dividends"), capital gains distributions (including short-term and long-term) and the proceeds of the redemption of shares, paid to any foreign person. Any tax withheld by the Fund is remitted by the Fund to the U.S. Treasury and all income and any tax withheld is identified in reports mailed to shareholders in January of each year with a copy sent to the IRS.

The tax consequences to foreign persons entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign shareholders are urged to consult their own tax advisors or the U.S. Internal Revenue Service with respect to the particular tax consequences to them of an investment in the Fund, including the applicability of the U.S. withholding taxes described above.

Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to reinvest all dividends and/or capital gains distributions in shares of the same class of any of the other Oppenheimer funds into which you may exchange shares. Reinvestment will be made without sales charge at the net asset value per share in effect at the close of business on the payable date of the dividend or distribution. To elect this option, the shareholder must notify the Transfer Agent or his or her financial intermediary and must have an existing account in the fund selected for reinvestment. Otherwise the shareholder first must obtain a prospectus for that fund and an application from the Distributor to establish an account. Dividends and/or distributions from shares of certain other Oppenheimer funds may be invested in shares of this Fund on the same basis.

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

The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a division of the Manager. It is responsible for maintaining the Fund's shareholder registry and shareholder accounting records, and for paying dividends and distributions to shareholders. It also handles shareholder servicing and administrative functions. It serves as the Transfer Agent for an annual per account fee. It also acts as shareholder servicing agent for the other Oppenheimer funds. Shareholders should direct inquiries about their accounts to the Transfer Agent at the address and toll-free numbers shown on the back cover.

The Custodian Bank. Citibank, N.A. is the custodian of the Fund's assets. The custodian's responsibilities include safeguarding and controlling the Fund's portfolio securities and handling the delivery of such securities to and from the Fund. It is the practice of the Fund to deal with the custodian in a manner uninfluenced by any banking relationship the custodian may have with the Manager and its affiliates. The Fund's cash balances with the custodian in excess of $100,000 are not protected by federal deposit insurance. Those uninsured balances at times may be substantial.

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

We have audited the accompanying statement of assets and liabilities of Oppenheimer Limited Term California Municipal Fund, including the statement of investments, as of July 31, 2008, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the three-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial statements for the period February 25, 2004 (commencement of operations) to July 31, 2005 were audited by another independent registered public accounting firm, whose report dated August 30, 2005 expressed an unqualified opinion thereon.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 2008, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

STATEMENT OF INVESTMENTS July 31, 2008


								Effective
Principal								Maturity		*
Amount			Coupon			Maturity		(Unaudited)			Value

Municipal Bonds and Notes—100.2%
California—96.3%
$	695,000	Adelanto, CA Improvement Agency, Series B		5.500	%		12/01/2023		12/01/2008	^A	$	699,789
	210,000	Adelanto, CA Public Financing Authority, Series B		6.300			09/01/2028		09/01/2008	^A		210,302
	135,000	Alameda County, CA COP (Alameda County Medical Center)¹		5.300			06/01/2026		12/01/2008	^A		135,190
	25,000	Alvord, CA Unified School District Community Facilities District		6.200			09/01/2025		09/01/2012	^A		25,074
	10,000	Anaheim, CA Public Financing Authority¹		5.000			10/01/2023		10/01/2008	^A		10,152
	20,000	Apple Valley, CA Improvement Bond Act 1915		6.900			09/02/2015		09/02/2008	^A		20,631
	15,000	Aromas, CA Water District		5.600			09/01/2018		04/02/2017	^B		14,846
	15,000	Atwater, CA Redevel. Agency (Downtown Redevel.)		5.500			06/01/2019		06/01/2019			14,658
	25,000	Azusa, CA COP¹		5.750			08/01/2020		08/01/2008	^A		25,374
	40,000	Bakersfield, CA Improvement Bond Act 1915		5.600			09/02/2020		09/02/2020			39,731
	50,000	Bakersfield, CA Improvement Bond Act 1915		6.100			09/02/2024		03/02/2017	^A		50,179
	25,000	Beaumont, CA Financing Authority, Series A		5.700			09/01/2035		10/10/2033	^B		22,704
	135,000	Beaumont, CA Financing Authority, Series A		7.000			09/01/2023		09/01/2008	^A		135,271
	55,000	Beaumont, CA Financing Authority, Series B		6.000			09/01/2034		04/01/2030	^B		54,177
	30,000	Belmont, CA Redevel. Agency (Los Costano Community Devel.)		5.500			08/01/2016		08/01/2008	^A		30,069
	50,000	Blythe, CA Redevel. Agency (Redevel. Project No. 1 Tax Allocation)		5.750			05/01/2034		06/29/2032	^B		45,890
	750,000	Blythe, CA Redevel. Agency (Redevel. Project No. 1 Tax Allocation)		6.200			05/01/2031		10/18/2023	^B		737,798
	145,000	Bonita Canyon, CA Public Facilities Financing Authority		5.375			09/01/2028		11/21/2022	^B		135,537
	25,000	Brawley, CA Union High School District		5.000			08/01/2028		08/01/2009	^A		25,034
	80,000	Brentwood, CA Improvement Bond Act 1915		6.800			09/02/2017		09/02/2008	^A		80,570
	25,000	Brentwood, CA Infrastructure Financing Authority (Water & Sewer)¹		5.625			07/01/2026		01/01/2009	^A		25,038
	30,000	Brisbane, CA Improvement Bond Act 1915 (Northeast Ridge)		5.875			09/02/2020		09/02/2020			30,024
	205,000	Brisbane, CA Public Financing Authority		6.000			05/01/2026		07/25/2023	^B		197,718
	35,000	Buena Park, CA Special Tax (Park Mall)		6.125			09/01/2033		10/15/2031	^B		33,931
	250,000	Burbank, CA Community Facilities District Special Tax		5.200			12/01/2023		06/24/2022	^B		229,288
	25,000	Burbank, CA Public Service Dept.¹		5.125			06/01/2016		12/01/2008	^A		25,303
	40,000	CA ABAG Finance Authority for NonProfit Corporations (Driftwood Family Apartments)¹		5.300			06/01/2029		03/05/2025	^B		37,413
	280,000	CA ABAG Finance Authority for NonProfit Corporations (Lincoln Glen Manor)¹		6.100			02/15/2025		08/15/2008	^A		283,301

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity		*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	100,000	CA ABAG Finance Authority for NonProfit Corporations (San Diego Hospital Assoc.)¹		6.125	%		08/15/2020		02/15/2011	^A	$	102,563
	10,000	CA ABAG Finance Authority for NonProfit Corporations COP¹		5.600			11/01/2023		11/01/2008	^A		10,005
	15,000	CA ABAG Finance Authority for NonProfit Corporations COP¹		5.750			08/15/2014		08/15/2008	^A		15,022
	20,000	CA ABAG Finance Authority for NonProfit Corporations COP¹		5.800			03/01/2023		09/01/2008	^A		20,008
	150,000	CA ABAG Finance Authority for NonProfit Corporations COP (American Baptist Homes of the West)		5.850			10/01/2027		09/17/2023	^B		148,184
	65,000	CA ABAG Finance Authority for NonProfit Corporations COP (American Baptist Homes of the West)		6.100			10/01/2017		10/01/2009	^A		65,546
	25,000	CA ABAG Finance Authority for NonProfit Corporations COP (Episcopal Homes Foundation)		5.125			07/01/2013		07/01/2010	^A		25,237
	90,000	CA ABAG Finance Authority for NonProfit Corporations COP (Home for Jewish Parents)¹		5.625			05/15/2022		11/15/2008	^A		91,063
	30,000	CA ABAG Finance Authority for NonProfit Corporations COP (Home for Jewish Parents)¹		5.625			05/15/2022		05/15/2009	^A		30,178
	275,000	CA ABAG Finance Authority for NonProfit Corporations COP (Lytton Gardens)¹		6.000			02/15/2019		08/15/2008	^A		278,143
	55,000	CA ABAG Tax Allocation, Series A¹		5.800			12/15/2008		12/15/2008			55,744
	65,000	CA ABAG Tax Allocation, Series A¹		6.000			12/15/2014		12/15/2008	^A		65,844
	100,000	CA Affordable Hsg. Agency (Merced County Hsg. Authority)		6.500			01/01/2033		01/01/2029	^B		96,500
	2,455,000	CA Aztec Shops Auxiliary Organization (San Diego State University)¹		6.000			09/01/2031		09/01/2011	^A		2,463,396
	9,720,000	CA County Tobacco Securitization Agency		5.830	²		06/01/2033		03/18/2015	^B		1,385,683
	1,810,000	CA County Tobacco Securitization Agency (TASC)		0.000	³		06/01/2021		03/15/2014	^C		1,357,247
	1,240,000	CA County Tobacco Securitization Agency (TASC)		0.000	³		06/01/2028		09/12/2018	^B		860,176
	4,035,000	CA County Tobacco Securitization Agency (TASC)		0.000	³		06/01/2028		01/16/2017	^B		3,138,342
	5,000,000	CA County Tobacco Securitization Agency (TASC)		0.000	³		06/01/2036		11/23/2021	^B		3,321,600
	290,000	CA County Tobacco Securitization Agency (TASC)		5.500			06/01/2033		06/01/2011	^C		257,395
	1,680,000	CA County Tobacco Securitization Agency (TASC)		5.750			06/01/2029		11/23/2011	^C		1,551,866
	25,000	CA County Tobacco Securitization Agency (TASC)¹		5.875			06/01/2027		06/01/2014	^B		23,599


								Effective
Principal								Maturity		*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	290,000	CA County Tobacco Securitization Agency (TASC)		5.875	%		06/01/2035		03/28/2017	^B	$	259,364
	280,000	CA County Tobacco Securitization Agency (TASC)		5.875			06/01/2043		08/27/2019	^B		247,943
	765,000	CA County Tobacco Securitization Agency (TASC)¹		6.000			06/01/2029		06/01/2012	^B		730,820
	665,000	CA County Tobacco Securitization Agency (TASC)¹		6.000			06/01/2035		05/01/2018	^B		605,004
	435,000	CA County Tobacco Securitization Agency (TASC)		6.000			06/01/2042		01/01/2020	^B		392,792
	10,700,000	CA County Tobacco Securitization Agency (TASC)		6.068	²		06/01/2046		09/09/2028	^B		488,027
	51,520,000	CA County Tobacco Securitization Agency (TASC)		6.192	²		06/01/2050		01/02/2026	^B		1,695,523
	50,000	CA County Tobacco Securitization Agency (TASC)¹		6.250			06/01/2037		06/11/2017	^B		46,957
	3,520,000	CA Dept. of Transportation COP¹		5.250			03/01/2016		09/01/2008	^A		3,562,205
	85,000	CA Dept. of Veterans Affairs Home Purchase¹		5.200			12/01/2027		09/09/2024	^B		85,000
	60,000	CA Dept. of Veterans Affairs Home Purchase¹		5.200			12/01/2028		12/01/2008	^A		60,013
	3,590,000	CA Dept. of Veterans Affairs Home Purchase¹		5.450			12/01/2019		12/01/2008	^A		3,694,792
	10,000	CA Dept. of Veterans Affairs Home Purchase¹		5.500			12/01/2018		12/01/2008	^A		10,061
	3,025,000	CA Dept. of Veterans Affairs Home Purchase¹		5.500			12/01/2019		01/09/2012	^A		3,064,900
	25,000	CA Dept. of Water Resources (Center Valley)		5.000			12/01/2029		12/01/2008	^A		25,022
	15,000	CA Dept. of Water Resources (Center Valley)		5.125			12/01/2011		12/01/2008	^A		15,030
	15,000	CA Dept. of Water Resources (Center Valley)		5.125			12/01/2012		12/01/2008	^A		15,027
	45,000	CA Dept. of Water Resources (Center Valley)		5.250			12/01/2017		12/01/2008	^A		45,053
	515,000	CA Dept. of Water Resources (Center Valley)¹		5.250			07/01/2022		01/01/2009	^A		537,943
	310,000	CA Dept. of Water Resources (Center Valley)		5.375			12/01/2027		12/01/2008	^A		310,425
	25,000	CA Dept. of Water Resources (Center Valley)¹		5.400			07/01/2012		01/01/2009	^A		25,061
	20,000	CA Educational Facilities Authority		5.125			04/01/2017		04/01/2009	^A		20,654
	45,000	CA Educational Facilities Authority		5.125			04/01/2017		04/01/2017			44,609
	25,000	CA Educational Facilities Authority (California College of Arts and Crafts)		5.875			06/01/2030		07/11/2028	^B		24,755
	5,000	CA Educational Facilities Authority (College & University Financing)		6.125			06/01/2009		12/01/2008	^A		5,017
	5,000	CA Educational Facilities Authority (College & University Financing)		6.250			06/01/2018		12/01/2008	^A		5,018
	85,000	CA Educational Facilities Authority (Dominican University of California/Harvey Mudd College Obligated Group)¹		5.500			03/01/2011		09/01/2008	^A		86,050
	15,000	CA Educational Facilities Authority (Los Angeles College of Chiropractic)		5.600			11/01/2017		10/12/2013	^B		14,213

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity		*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	50,000	CA Educational Facilities Authority (Stanford University)¹		5.125	%		01/01/2031		01/01/2009	^A	$	50,050
	35,000	CA Educational Facilities Authority (University of Southern California)¹		5.000			10/01/2028		10/01/2010	^A		35,212
	335,000	CA Financing Authority (Wastewater Improvement)		6.100			11/01/2033		12/17/2031	^B		323,473
	60,000	CA GO¹		4.800			08/01/2014		08/01/2008	^A		60,054
	25,000	CA GO¹		5.000			06/01/2017		12/01/2008	^A		25,047
	25,000	CA GO¹		5.000			06/01/2019		12/02/2008	^A		25,010
	5,000	CA GO		5.000			06/01/2019		06/01/2011	^A		5,083
	5,000	CA GO¹		5.000			02/01/2021		02/01/2009	^A		5,010
	100,000	CA GO		5.000			11/01/2022		11/01/2008	^A		100,404
	75,000	CA GO¹		5.000			10/01/2023		10/01/2008	^A		75,017
	10,000	CA GO		5.000			10/01/2023		10/01/2008	^A		10,027
	10,000	CA GO¹		5.000			02/01/2025		02/01/2009	^A		10,090
	45,000	CA GO¹		5.000			02/01/2025		02/01/2009	^A		45,024
	10,000	CA GO¹		5.100			10/01/2008		10/01/2008			10,054
	60,000	CA GO¹		5.100			03/01/2010		09/01/2008	^A		60,119
	25,000	CA GO¹		5.125			10/01/2027		10/01/2008	^A		25,003
	25,000	CA GO¹		5.150			12/01/2013		12/01/2008	^A		25,021
	15,000	CA GO¹		5.200			06/01/2010		12/01/2008	^A		15,124
	105,000	CA GO¹		5.250			06/01/2011		12/01/2008	^A		105,894
	25,000	CA GO¹		5.250			10/01/2013		10/01/2008	^A		25,112
	20,000	CA GO¹		5.250			06/01/2016		12/01/2008	^A		20,170
	25,000	CA GO¹		5.250			04/01/2018		10/01/2008	^A		25,020
	10,000	CA GO¹		5.250			04/01/2019		10/01/2008	^A		10,007
	10,000	CA GO¹		5.250			04/01/2021		10/01/2008	^A		10,005
	160,000	CA GO¹		5.250			06/01/2021		12/01/2008	^A		160,339
	10,000	CA GO¹		5.250			02/01/2029		02/01/2013	^A		10,132
	10,000	CA GO¹		5.250			02/01/2030		02/01/2012	^A		10,095
	15,000	CA GO¹		5.300			09/01/2011		09/01/2008	^A		15,033
	15,000	CA GO¹		5.350			12/01/2013		04/27/2011	^A		15,467
	15,000	CA GO		5.375			06/01/2026		12/01/2008	^A		15,082
	2,780,000	CA GO¹		5.400			12/01/2014		12/01/2008	^A		2,830,429
	70,000	CA GO¹		5.500			03/01/2009		09/01/2008	^A		70,193
	15,000	CA GO		5.500			03/01/2010		09/01/2008	^A		15,039
	100,000	CA GO¹		5.500			06/01/2010		12/01/2008	^A		100,240
	15,000	CA GO¹		5.500			06/01/2013		12/01/2008	^A		15,036
	55,000	CA GO¹		5.500			04/01/2015		10/01/2008	^A		55,277
	30,000	CA GO		5.500			04/01/2019		10/01/2008	^A		30,136
	15,000	CA GO¹		5.500			03/01/2020		09/01/2008	^A		15,036


								Effective
Principal								Maturity		*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	25,000	CA GO		5.500	%		03/01/2020		09/01/2008	^A	$	25,060
	20,000	CA GO¹		5.500			10/01/2022		10/01/2008	^A		20,072
	5,000	CA GO¹		5.600			09/01/2021		09/01/2008	^A		5,012
	70,000	CA GO¹		5.625			10/01/2021		10/01/2008	^A		70,338
	130,000	CA GO		5.625			10/01/2023		10/01/2008	^A		130,512
	10,000	CA GO¹		5.625			09/01/2024		09/01/2008	^A		10,019
	15,000	CA GO¹		5.625			10/01/2026		10/01/2008	^A		15,044
	75,000	CA GO		5.750			03/01/2010		09/01/2008	^A		75,203
	5,000	CA GO		5.750			03/01/2012		09/01/2008	^A		5,014
	35,000	CA GO¹		5.750			03/01/2015		09/01/2008	^A		35,096
	120,000	CA GO¹		5.750			11/01/2017		11/01/2008	^A		120,937
	35,000	CA GO¹		5.750			11/01/2017		11/01/2008	^A		35,278
	25,000	CA GO¹		5.800			06/01/2013		12/01/2008	^A		25,069
	155,000	CA GO		5.900			04/01/2023		10/01/2008	^A		156,745
	35,000	CA GO¹		5.900			04/01/2023		10/01/2008	^A		35,155
	75,000	CA GO¹		5.900			03/01/2025		09/01/2008	^A		75,070
	20,000	CA GO		6.000			08/01/2010		08/01/2008	^A		20,377
	10,000	CA GO		6.000			05/01/2011		11/01/2008	^A		10,089
	25,000	CA GO		6.000			05/01/2012		11/01/2008	^A		25,234
	10,000	CA GO		6.000			10/01/2014		10/01/2008	^A		10,060
	20,000	CA GO¹		6.000			08/01/2015		08/01/2008	^A		20,352
	20,000	CA GO¹		6.000			05/01/2018		11/01/2008	^A		20,178
	5,000	CA GO¹		6.000			08/01/2019		08/01/2008	^A		5,081
	15,000	CA GO¹		6.000			10/01/2021		10/01/2008	^A		15,081
	40,000	CA GO¹		6.000			08/01/2024		08/01/2008	^A		40,563
	605,000	CA GO¹		6.250			10/01/2019		10/01/2008	^A		608,836
	5,000	CA GO¹		6.800			11/01/2008		11/01/2008			5,058
	295,000	CA GO (Safe Drinking Water)¹		8.250			09/01/2010		09/01/2008	^A		296,516
	1,505,000	CA Golden State Tobacco Securitization Corp.¹		5.000			06/01/2017		06/01/2009	^A		1,505,075
	25,000	CA Golden State Tobacco Securitization Corp.¹		5.000			06/01/2020		06/01/2020			24,987
	5,000,000	CA Golden State Tobacco Securitization Corp. (TASC)¹		0.000	³		06/01/2037		05/22/2022	^C		2,757,550
	34,810,000	CA Golden State Tobacco Securitization Corp. (TASC)¹		4.500			06/01/2027		08/29/2012	^B		30,879,951
	575,000	CA Golden State Tobacco Securitization Corp. (TASC)¹		5.000			06/01/2018		06/01/2009	^A		575,029
	10,000	CA Health Facilities Financing Authority (Catholic Healthcare West)		5.000			07/01/2011		01/01/2009	^A		10,018
	145,000	CA Health Facilities Financing Authority (Catholic Healthcare West)¹		5.000			07/01/2021		01/01/2009	^A		145,026

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity		*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	15,000	CA Health Facilities Financing Authority (Catholic Healthcare West)¹		5.125	%		07/01/2024		07/01/2009	^A	$	15,085
	160,000	CA Health Facilities Financing Authority (Catholic Healthcare West)		5.250			07/01/2023		01/01/2009	^A		160,237
	30,000	CA Health Facilities Financing Authority (Catholic Healthcare West)¹		5.250			07/01/2023		01/01/2009	^A		30,030
	175,000	CA Health Facilities Financing Authority (Catholic Healthcare West)¹		6.000			07/01/2013		01/01/2009	^A		175,513
	60,000	CA Health Facilities Financing Authority (Cedars-Sinai Medical Center)¹		5.250			08/01/2027		08/01/2008	^A		60,197
	70,000	CA Health Facilities Financing Authority (Community Program)		7.200			01/01/2012		08/01/2008	^A		70,362
	50,000	CA Health Facilities Financing Authority (Downey Community Hospital)¹		5.750			05/15/2015		08/04/2012	^B		47,923
	50,000	CA Health Facilities Financing Authority (Fellowship Homes)¹		6.000			09/01/2019		09/01/2008	^A		50,076
	5,000,000	CA Health Facilities Financing Authority (Kaiser Permanente)¹		5.500			06/01/2022		12/01/2008	^A		5,109,950
	115,000	CA Health Facilities Financing Authority (Marshall Hospital)¹		5.000			11/01/2018		11/01/2008	^A		115,039
	80,000	CA Health Facilities Financing Authority (Marshall Hospital)¹		5.125			11/01/2012		11/01/2008	^A		80,103
	20,000	CA Health Facilities Financing Authority (Mercy Senior Hsg.)¹		5.800			12/01/2018		12/01/2008	^A		20,020
	30,000	CA Health Facilities Financing Authority (Providence Health System-Southern California)¹		5.500			10/01/2013		10/01/2008	^A		30,143
	40,000	CA Health Facilities Financing Authority (San Fernando Valley Community Mental Health Center)¹		5.250			06/01/2023		12/01/2008	^A		40,059
	50,000	CA Health Facilities Financing Authority (Sunny View Lutheran Home)¹		5.100			01/01/2024		01/01/2010	^A		50,045
	5,000	CA Health Facilities Financing Authority (Sutter Health)¹		5.000			08/15/2017		08/15/2008	^A		5,059
	135,000	CA Health Facilities Financing Authority (Sutter Health)¹		5.125			08/15/2022		08/15/2008	^A		136,548
	25,000	CA Health Facilities Financing Authority (Sutter Health)¹		5.250			08/15/2027		08/15/2008	^A		25,217
	30,000	CA Health Facilities Financing Authority (Sutter Health)¹		5.375			08/15/2030		08/15/2010	^A		30,229
	2,000,000	CA Health Facilities Financing Authority (Sutter Health)¹		6.250			08/15/2035		08/15/2010	^A		2,078,540
	40,000	CA HFA		8.037	²		08/01/2015		04/14/2011	^B		22,150
	115,000	CA HFA		8.265	²		02/01/2015		02/11/2011	^B		68,907
	7,250,000	CA HFA (Home Mtg.)¹		5.000			08/01/2037		02/01/2012	^B		7,200,555


								Effective
Principal								Maturity		*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	6,885,000	CA HFA (Home Mtg.)⁴		5.500	%		02/01/2042		01/01/2012	^A	$	6,961,038
	55,000	CA HFA (Multifamily Hsg.)¹		5.375			08/01/2028		01/06/2026	^B		52,006
	35,000	CA HFA (Multifamily Hsg.)¹		5.375			02/01/2036		08/21/2031	^B		32,159
	15,000	CA HFA (Multifamily Hsg.)¹		5.400			08/01/2018		08/01/2008	^A		15,069
	40,000	CA HFA (Multifamily Hsg.)¹		5.400			08/01/2018		08/01/2008	^A		40,183
	445,000	CA HFA (Multifamily Hsg.)¹		5.450			08/01/2028		04/13/2024	^B		424,681
	85,000	CA HFA (Multifamily Hsg.)¹		5.850			02/01/2010		08/01/2008	^A		85,133
	630,000	CA HFA (Multifamily Hsg.)¹		5.950			08/01/2028		02/01/2009	^A		633,364
	320,000	CA HFA (Multifamily Hsg.)¹		6.050			08/01/2016		08/01/2008	^A		327,632
	130,000	CA HFA (Multifamily Hsg.)¹		6.050			08/01/2027		08/01/2008	^A		133,111
	25,000	CA HFA (Multifamily Hsg.)		6.050			08/01/2038		02/01/2009	^A		25,000
	2,340,000	CA HFA (Multifamily Hsg.)¹		6.150			08/01/2022		08/01/2008	^A		2,385,864
	25,000	CA HFA (Multifamily Hsg.), Series B		5.500			08/01/2039		03/26/2034	^B		23,086
	40,000	CA HFA (Multifamily Hsg.), Series B¹		5.850			08/01/2010		08/01/2008	^A		40,062
	15,000	CA HFA (Single Family Mtg.)¹		5.400			08/01/2028		02/01/2010	^A		15,315
	10,000	CA HFA (Single Family Mtg.), Series A¹		5.300			08/01/2018		02/01/2010	^A		10,097
	3,280,000	CA Home Mtg. Finance Authority (Homebuyers Fund)		6.000			02/01/2033		08/30/2012	^A		3,394,439
	1,245,000	CA Infrastructure & Economic Devel. (Copia: The American Center for Wine, Food and the Arts)		5.350	²		12/01/2019		12/01/2019			202,213
	1,320,000	CA Infrastructure & Economic Devel. (Copia: The American Center for Wine, Food and the Arts)		5.400	²		12/01/2020		12/01/2020			212,744
	3,235,000	CA Infrastructure & Economic Devel. (Copia: The American Center for Wine, Food and the Arts)		5.420	²		12/01/2021		12/01/2021			517,374
	15,000	CA Infrastructure & Economic Devel. (Stockton Port District)		5.375			07/01/2022		02/23/2020	^B		13,287
	50,000	CA Infrastructure & Economic Devel. (Stockton Port District)		5.500			07/01/2032		06/08/2028	^B		43,165
	1,350,000	CA Inland Empire Tobacco Securitization Authority		5.000			06/01/2021		06/23/2013	^B		1,288,346
	235,000	CA Intercommunity Hospital Financing Authority COP		5.250			11/01/2019		10/03/2015	^B		219,340
	10,000	CA Loan Purchasing Finance Authority¹		5.500			10/01/2008		10/01/2008			10,028
	70,000	CA Loan Purchasing Finance Authority¹		5.600			10/01/2014		10/01/2008	^A		70,172
	35,000	CA M-S-R Public Power Agency (San Juan)		6.000			07/01/2022		01/01/2009	^A		37,066
	10,000	CA Maritime Infrastructure Authority (Santa Cruz Port District)		5.750			05/01/2024		05/01/2024			9,682
	90,000	CA Mobilehome Park Financing Authority (Palomar Estates East & West)		5.250			03/15/2034		01/28/2030	^B		77,090
	25,000	CA Padre Dam Municipal Water District COP¹		5.500			10/01/2016		10/01/2008	^A		25,115

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity		*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	1,350,000	CA Pollution Control Financing Authority (Browning-Ferris Industries)		6.750	%		09/01/2019		09/01/2019		$	1,330,898
	11,260,000	CA Pollution Control Financing Authority (Pacific Gas & Electric Company)¹		5.350			12/01/2016		04/01/2013	^A		11,292,316
	30,000	CA Pollution Control Financing Authority (Sacramento Biosolids Facility)		5.300			12/01/2017		06/24/2016	^B		27,815
	240,000	CA Pollution Control Financing Authority (Sacramento Biosolids Facility)		5.500			12/01/2024		07/27/2022	^B		210,451
	805,000	CA Pollution Control Financing Authority (San Diego Gas & Electric Company)¹		5.850			06/01/2021		06/01/2021			804,952
	190,000	CA Pollution Control Financing Authority (San Diego Gas & Electric Company)¹		5.850			06/01/2021		06/01/2021			189,989
	195,000	CA Pollution Control Financing Authority (San Diego Gas & Electric Company)¹		5.850			06/01/2021		12/01/2008	^A		195,107
	20,000	CA Pollution Control Financing Authority (Southern California Edison Company)¹		5.550			09/01/2031		09/01/2031			19,002
	485,000	CA Pollution Control Financing Authority (Southern California Water Company)¹		5.500			12/01/2026		12/01/2026			484,403
	10,000	CA Port of Oakland, Series N¹		5.000			11/01/2022		05/27/2021	^B		9,472
	150,000	CA Public Works¹		5.250			12/01/2013		12/01/2008	^A		150,324
	115,000	CA Public Works (California Community College)¹		5.375			03/01/2011		09/01/2008	^A		115,266
	45,000	CA Public Works (California Science Center)¹		5.250			10/01/2017		10/01/2008	^A		45,994
	25,000	CA Public Works (Dept. of Corrections)¹		5.000			09/01/2021		09/01/2010	^A		25,127
	175,000	CA Public Works (Dept. of Food & Agriculture)¹		5.400			06/01/2013		12/01/2008	^A		175,394
	185,000	CA Public Works (State Universities)¹		5.250			12/01/2013		12/01/2008	^A		185,390
	590,000	CA Public Works (State Universities)¹		5.500			12/01/2018		12/01/2008	^A		590,572
	100,000	CA Public Works (Various Community Colleges)¹		5.375			03/01/2013		09/01/2008	^A		100,231
	25,000	CA Public Works (Various Community Colleges)¹		5.375			03/01/2014		09/01/2008	^A		25,060
	20,000	CA Public Works (Various Community Colleges)¹		5.500			09/01/2011		09/01/2008	^A		20,047
	50,000	CA Public Works (Various Community Colleges)¹		5.600			04/01/2014		10/01/2008	^A		50,626
	1,030,000	CA Public Works (Various Community Colleges)¹		5.625			03/01/2016		09/01/2008	^A		1,032,596
	3,050,000	CA Public Works (Various Community Colleges)¹		5.625			03/01/2016		09/01/2008	^A		3,057,686
	585,000	CA Public Works (Various Community Colleges)¹		5.625			03/01/2019		09/01/2008	^A		586,322
	600,000	CA Public Works (Various Community Colleges)¹		5.875			10/01/2008		10/01/2008			601,848


								Effective
Principal								Maturity		*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	50,000	CA Public Works (Various Community Colleges)¹		5.875	%		10/01/2008		10/01/2008		$	50,167
	25,000	CA Public Works (Various State Universities)¹		5.375			12/01/2019		12/01/2008	^A		25,551
	50,000	CA Public Works (Various State Universities)¹		5.400			10/01/2022		10/01/2009	^A		50,361
	10,000	CA Public Works (Various State Universities)¹		5.500			09/01/2015		09/01/2008	^A		10,224
	5,000	CA Resource Efficiency Financing Authority COP		5.500			04/01/2017		10/01/2008	^A		5,061
	85,000	CA River Highlands Community Services District		7.750			09/02/2020		09/02/2008	^A		85,120
	20,000	CA River Highlands Community Services District		8.125			09/02/2020		09/02/2008	^A		20,031
	1,000,000	CA Rural Home Mtg. Finance Authority (Single Family Mtg.)		5.700			02/01/2033		02/01/2021	^A		1,056,480
	1,920,000	CA Rural Home Mtg. Finance Authority (Single Family Mtg.)		5.750			02/01/2044		06/30/2013	^A		1,966,291
	10,000	CA Rural Home Mtg. Finance Authority (Single Family Mtg.)¹		7.500			08/01/2027		08/25/2020	^B		10,213
	200,000	CA Rural Home Mtg. Finance Authority (Single Family Mtg.), Series A¹		6.350			12/01/2029		10/01/2008	^C		206,556
	105,000	CA Rural Home Mtg. Finance Authority (Single Family Mtg.), Series A¹		7.000			09/01/2029		03/01/2010	^C		107,053
	40,000	CA Sierra View Local Health Care District¹		5.250			07/01/2018		02/23/2016	^B		38,284
	6,000,000	CA Sierra View Local Health Care District¹		5.400			07/01/2022		07/01/2009	^A		6,007,140
	25,000	CA Statewide CDA		6.625			09/01/2027		09/01/2008	^A		25,012
	10,000	CA Statewide CDA		7.000			07/01/2022		07/01/2009			10,008
	100,000	CA Statewide CDA (Bouquet Canyon)¹		5.300			07/01/2018		07/01/2010	^A		100,148
	120,000	CA Statewide CDA (California Odd Fellow Hsg.)¹		5.375			10/01/2013		10/01/2008	^A		120,163
	110,000	CA Statewide CDA (California Odd Fellow Hsg.)¹		5.500			10/01/2023		10/01/2008	^A		110,045
	2,000,000	CA Statewide CDA (Citrus Valley Health Partners/Citrus Valley Medical Center/Foothill Hospital Obligated Group) COP¹		5.500			04/01/2013		04/01/2010	^A		2,011,360
	4,000,000	CA Statewide CDA (Del Nido Apartments)		5.550			05/01/2028		11/01/2008	^A		4,123,640
	160,000	CA Statewide CDA (East Campus Apartments)		5.500			08/01/2022		05/12/2019	^B		156,867
	500,000	CA Statewide CDA (East Tabor Apartments)¹		6.850			08/20/2036		02/20/2011	^A		535,420
	135,000	CA Statewide CDA (Eastfield Ming Quong)¹		5.625			06/01/2020		12/01/2008	^A		135,324
	45,000	CA Statewide CDA (Escrow Term)		6.750			09/01/2037		09/01/2014	^A		46,235
	250,000	CA Statewide CDA (Fairfield Apartments)		6.500			01/01/2016		08/26/2012	^C		249,185
	570,000	CA Statewide CDA (Family House & Hsg. Foundation-Torrence I)		7.000			04/20/2036		04/20/2011	^A		621,197
	10,000	CA Statewide CDA (GP Steinbeck)		5.700			09/20/2019		09/20/2014	^A		10,244
	85,000	CA Statewide CDA (GP Steinbeck)		5.897	²		09/20/2027		09/20/2014	^A		25,793

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity		*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	135,000	CA Statewide CDA (John Muir/Mt. Diablo Health System)¹		5.250	%		08/15/2027		08/15/2009	^A	$	138,349
	400,000	CA Statewide CDA (Kaiser Permanente)¹		5.300			12/01/2015		12/01/2008	^A		423,248
	250,000	CA Statewide CDA (Live Oak School)		6.750			10/01/2030		10/01/2011	^A		253,718
	20,000	CA Statewide CDA (Methodist Hospital of Southern California)¹		5.500			07/01/2010		01/01/2009	^A		20,048
	100,000	CA Statewide CDA (Multifamily)		5.696	²		09/20/2021		09/20/2014	^A		45,442
	100,000	CA Statewide CDA (Multifamily)		5.744	²		09/20/2023		09/20/2014	^A		39,453
	200,000	CA Statewide CDA (Quail Ridge Apartments)		5.375			07/01/2032		11/26/2029	^B		181,052
	430,000	CA Statewide CDA (Rio Bravo)⁵		6.500			12/01/2018		02/19/2014	^B		389,705
	560,000	CA Statewide CDA (Sycamore)¹		6.000			03/20/2038		03/20/2016	^A		559,950
	25,000	CA Statewide CDA Community Facilities District		6.350			09/01/2021		09/01/2012	^A		25,647
	5,000	CA Statewide CDA COP (CVHP/CVMC/FH Obligated Group)¹		5.000			04/01/2018		04/01/2010	^A		5,017
	45,000	CA Statewide CDA COP (CVHP/CVMC/FH Obligated Group)¹		5.125			04/01/2023		04/01/2010	^A		45,336
	1,000,000	CA Statewide CDA Linked PARS & INFLOS¹		5.600	⁶		10/01/2011		04/28/2010	^B		1,050,000
	1,275,000	CA Statewide Financing Authority Tobacco Settlement (TASC)		5.625			05/01/2029		07/30/2010	^C		1,163,603
	885,000	CA Statewide Financing Authority Tobacco Settlement (TASC)		5.625			05/01/2029		04/04/2011	^C		807,678
	250,000	CA Statewide Financing Authority Tobacco Settlement (TASC)		6.000			05/01/2037		10/01/2017	^B		226,895
	45,000	CA Valley Health System COP⁵		6.875			05/15/2023		04/02/2017	^B		33,021
	15,000	CA Valley Health System, Series A^5,7		6.500			05/15/2025		05/21/2021	^B		11,007
	65,000	CA Valley Health System, Series A⁷		6.500			05/15/2025		05/21/2021	^B		47,697
	100,000	CA Veterans GO¹		4.700			12/01/2012		12/01/2008	^A		100,064
	950,000	CA Veterans GO¹		5.125			12/01/2019		02/17/2017	^B		949,981
	180,000	CA Veterans GO¹		5.300			12/01/2029		04/28/2026	^B		172,103
	1,730,000	CA Veterans GO¹		5.400			12/01/2015		12/01/2008	^A		1,742,802
	4,445,000	CA Veterans GO, Series BH¹		5.400			12/01/2014		12/01/2008	^A		4,492,650
	310,000	CA Veterans GO, Series BH¹		5.400			12/01/2016		12/01/2009	^A		311,773
	45,000	CA Veterans GO, Series BJ¹		5.700			12/01/2032		09/16/2029	^B		44,999
	110,000	CA Veterans GO, Series BP¹		5.500			12/01/2026		10/01/2021	^B		109,993
	180,000	CA Veterans GO, Series BR¹		5.250			12/01/2026		11/26/2023	^B		174,224
	90,000	CA Veterans GO, Series BX¹		5.000			12/01/2014		12/01/2008	^A		90,093
	10,000	CA Veterans GO, Series BX¹		5.450			12/01/2024		12/01/2008	^A		10,019
	140,000	CA Veterans GO, Series BX¹		5.500			12/01/2031		12/01/2008	^A		140,207
	6,610,000	CA Veterans GO, Series BZ¹		5.350			12/01/2021		12/01/2008	^A		6,610,198
	75,000	CA Water Resource Devel. GO, Series N¹		5.500			06/01/2011		12/01/2008	^A		75,180
	10,000	CA Water Resource Devel. GO, Series P¹		5.800			06/01/2011		12/01/2008	^A		10,028


								Effective
Principal								Maturity		*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	25,000	CA Water Resource Devel. GO, Series P¹		5.800	%		06/01/2014		12/01/2008	^A	$	25,069
	50,000	CA Water Resource Devel. GO, Series Q¹		5.000			03/01/2016		09/01/2008	^A		50,094
	10,000	CA Western Hills Water District Special Tax (Diablo Grande Community Facilities)		3.750			09/01/2010		09/01/2010			5,881
	120,000	CA Western Hills Water District Special Tax (Diablo Grande Community Facilities)		6.000			09/01/2024		06/21/2021	^B		69,250
	50,000	CA Western Hills Water District Special Tax (Diablo Grande Community Facilities)		6.125			09/01/2031		03/23/2029	^B		28,818
	115,000	CA Western Hills Water District Special Tax (Diablo Grande Community Facilities)		6.750			09/01/2022		06/06/2018	^C		66,419
	45,000	CA Western Hills Water District Special Tax (Diablo Grande Community Facilities)		6.875			09/01/2031		04/30/2027	^B		25,953
	210,000	CA William S. Hart Union School District		6.000			09/01/2027		04/13/2026	^B		202,936
	140,000	CA Y/S School Facilities Financing Authority (Chula Vista Elementary School)¹		5.000			09/01/2015		09/01/2008	^A		142,691
	50,000	Calleguas-Las Virgines, CA Public Financing Authority Municipal Water District¹		5.000			11/01/2023		07/30/2010	^C		50,711
	75,000	Camarillo, CA Hsg. (Park Glenn Apartments)¹		5.400			03/01/2028		12/23/2020	^B		71,597
	25,000	Campbell, CA Improvement Bond Act 1915 (Dillon-Gilman Local Improvement District)		7.150			09/02/2012		09/02/2008	^A		25,798
	60,000	Camrosa, CA Water District¹		5.500			01/15/2011		01/15/2009	^A		60,442
	40,000	Capistrano, CA Unified School District (Education & Support Facilities) COP¹		5.250			12/01/2026		12/01/2008	^A		40,188
	75,000	Capistrano, CA Unified School District (Las Flores)¹		5.000			09/01/2023		09/01/2010	^A		75,512
	130,000	Carlsbad, CA Hsg. and Redevel. Commission Tax Allocation¹		5.250			09/01/2019		09/01/2008	^A		130,257
	80,000	Carlsbad, CA Improvement Bond Act 1915		5.550			09/02/2028		08/29/2022	^B		72,611
	120,000	Carlsbad, CA Improvement Bond Act 1915		5.950			09/02/2025		09/02/2012	^A		120,834
	30,000	Carlsbad, CA Improvement Bond Act 1915		6.000			09/02/2022		09/17/2021	^B		29,648
	25,000	Carlsbad, CA Unified School District COP (Aviara Oaks Middle School)¹		5.300			06/01/2017		12/01/2008	^A		25,052
	125,000	Carlsbad, CA Unified School District COP (Aviara Oaks Middle School)¹		5.300			06/01/2022		12/01/2008	^A		125,190
	105,000	Carson, CA Improvement Bond Act 1915		7.375			09/02/2022		09/02/2008	^A		105,102
	80,000	Castaic, CA Union School District Community Facilities District No. 92-1		8.500			10/01/2013		10/01/2008	^A		80,537
	2,750,000	Castaic, CA Union School District Community Facilities District No. 92-1		9.000			10/01/2019		10/01/2008	^A		2,763,090
	70,000	Cathedral City, CA Improvement Bond Act 1915		5.950			09/02/2034		05/03/2032	^B		65,983
	50,000	Cathedral City, CA Special Tax Community Facilities District No. 1		6.625			09/01/2023		09/01/2008	^A		50,711

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	50,000	Cathedral City, CA Special Tax Community Facilities District No. 1		6.700	%		09/01/2030		09/01/2008	^A	$	50,534
	20,000	Central CA Unified School District¹		5.625			03/01/2018		09/01/2008	^A		20,050
	50,000	Central Contra Costa, CA Sanitation District¹		5.000			09/01/2022		09/01/2010	^A		51,367
	150,000	Central Valley, CA Financing Authority Cogeneration Project (Carson Ice)¹		5.200			07/01/2020		01/01/2009	^A		150,255
	35,000	Chico, CA Improvement Bond Act 1915 (Mission Ranch)		6.625			09/02/2011		09/02/2008	^A		36,123
	95,000	Chico, CA Improvement Bond Act 1915 (Mission Ranch)		6.625			09/02/2012		09/02/2008	^A		98,022
	100,000	Chico, CA Improvement Bond Act 1915 (Mission Ranch)		6.625			09/02/2013		09/02/2008	^A		103,164
	30,000	Chino Hills, CA Improvement Bond Act 1915		7.500			09/02/2016		09/02/2008	^A		30,938
	5,000	Chino Hills, CA Improvement Bond Act 1915		7.600			09/02/2021		09/02/2008	^A		5,155
	55,000	Chino, CA Community Facilities District Special Tax		5.750			09/01/2034		10/11/2032	^B		50,264
	25,000	Chowchilla, CA Improvement Bond Act 1915		6.700			09/02/2027		09/02/2014	^A		25,850
	55,000	Chula Vista, CA Community Facilities District (Eastlake Woods)		5.700			09/01/2016		09/01/2013	^A		56,111
	15,000	Chula Vista, CA Community Facilities District (Eastlake Woods)		6.100			09/01/2021		09/01/2011	^A		15,178
	10,000	Chula Vista, CA Improvement Bond Act 1915 Assessment District No. 94-1 (Eastlake)		7.000			09/02/2015		09/02/2008	^A		10,313
	9,000,000	Chula Vista, CA Industrial Devel. (San Diego Gas & Electric Company)		5.000			12/01/2027		12/01/2027			8,207,910
	240,000	Chula Vista, CA Redevel. Agency¹		5.375			09/01/2029		09/01/2012	^A		246,694
	60,000	Chula Vista, CA Special Tax		7.625			09/01/2029		09/01/2009	^A		64,895
	750,000	Coalinga, CA Regional Medical Center COP¹		5.000			09/01/2014		08/12/2011	^B		821,940
	25,000	Colton, CA Community Facilities District Special Tax		5.800			09/01/2018		10/14/2016	^B		24,999
	175,000	Colton, CA Joint Unified School District		5.700			09/01/2034		10/17/2030	^B		159,364
	50,000	Colton, CA Joint Unified School District COP¹		5.100			06/01/2020		12/01/2008	^A		50,367
	45,000	Colton, CA Public Financing Authority¹		5.300			08/01/2027		08/01/2010	^A		45,330
	50,000	Colton, CA Public Financing Authority, Series B		5.875			08/01/2027		04/28/2019	^B		47,427
	20,000	Colton, CA Redevel. Agency (West Valley)		6.375			09/01/2035		01/23/2032	^B		19,998
	40,000	Concord, CA Joint Powers Financing Authority (Concord Police Facilities)		5.250			08/01/2019		08/01/2008	^A		40,029
	20,000	Contra Costa County, CA Public Financing Authority (Pleasant Hill Bart)		5.125			08/01/2019		09/05/2017	^B		19,548
	3,075,000	Contra Costa County, CA Special Tax Community Facilities District		5.580			08/01/2016		06/28/2010	^C		3,085,086
	25,000	Contra Costa, CA Community College District COP (Diablo Valley College)¹		6.000			06/01/2021		12/01/2008	^A		25,032


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	100,000	Corona, CA Redevel. Agency Tax Allocation¹		5.400	%		09/01/2011		09/01/2008	^A	$	100,225
	25,000	Corona, CA Redevel. Agency Tax Allocation¹		5.500			09/01/2016		09/01/2008	^A		25,058
	15,000	Corona-Norco, CA Unified School District		5.625			09/01/2033		01/09/2030	^B		13,548
	100,000	Corona-Norco, CA Unified School District¹		5.750			09/01/2014		09/01/2008	^A		100,259
	20,000	Costa Mesa, CA COP		5.750			12/01/2012		12/01/2008	^A		20,071
	55,000	Crescent City, CA Public Financing Authority		7.750			09/15/2012		09/15/2008	^A		55,128
	20,000	Cypress, CA Improvement Bond Act 1915 (Business & Professional Center)		5.700			09/02/2022		08/17/2018	^B		19,197
	20,000	Davis, CA Joint Unified School District Special Tax		5.300			08/15/2024		08/15/2008	^A		20,234
	20,000	Davis, CA Public Facilities Financing Authority (Local Agency)¹		5.750			09/01/2029		09/01/2008	^A		20,432
	10,000	Del Mar, CA Unified School District		5.875			09/01/2029		10/13/2027	^B		9,546
	45,000	Dixon, CA Public Financing Authority¹		5.150			09/02/2020		09/02/2008	^A		45,087
	40,000	Dixon, CA Public Financing Authority		5.700			09/02/2020		10/13/2017	^B		39,249
	480,000	Downey, CA Community Devel. Commission Tax Allocation (Downey Redevel.)¹		5.125			08/01/2020		08/01/2008	^A		485,371
	245,000	Duarte, CA COP (Hope National Medical Center)¹		5.250			04/01/2024		05/08/2022	^B		221,975
	205,000	Duarte, CA Hsg. (Heritage Park Apartments)¹		5.850			05/01/2030		11/01/2009	^A		204,479
	25,000	East Side CA Union High School District¹		5.250			09/01/2025		09/01/2008	^A		25,044
	90,000	Eastern CA Municipal Water District Community Facilities Special Tax (Crown Valley Village)		5.500			09/01/2028		09/14/2027	^B		81,144
	65,000	Eastern CA Municipal Water District Community Facilities Special Tax (Crown Valley Village)		5.625			09/01/2034		04/30/2032	^B		58,533
	50,000	Eastern CA Municipal Water District Community Facilities Special Tax (Promontory Park)		5.500			09/01/2024		03/24/2023	^B		46,299
	15,000	Eastern CA Municipal Water District Improvement Bond Act 1915		5.750			09/02/2020		09/02/2020			14,724
	140,000	El Dorado County, CA Special Tax		6.250			09/01/2029		09/01/2011	^A		141,100
	25,000	Emeryville, CA Public Financing Authority		6.100			09/01/2012		09/01/2008	^A		25,063
	145,000	Emeryville, CA Public Financing Authority		6.200			09/01/2025		09/01/2008	^A		145,017
	20,000	Encinitas, CA Improvement Bond Act 1915		6.900			09/02/2017		09/01/2008	^A		20,017
	50,000	Fairfax, CA GO		6.100			08/01/2025		08/01/2008	^A		50,625
	25,000	Fairfield, CA Improvement Bond Act 1915 (Green Valley Road/Mangels Blvd.)		7.200			09/02/2009		09/02/2008	^A		25,831
	5,000	Fairfield, CA Improvement Bond Act 1915 (Green Valley Road/Mangels Blvd.)		7.375			09/02/2018		09/02/2008	^A		5,157
	15,000	Florin, CA Resource Conservation District COP⁷		6.000			02/01/2029		04/03/2027	^B		14,394
	10,000	Folsom, CA Improvement Bond Act 1915		6.500			09/02/2013		09/02/2008	^A		10,013

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	20,000	Folsom, CA Public Financing Authority		5.000	%		11/01/2028		09/25/2024	^B	$	19,477
	25,000	Folsom, CA Public Financing Authority		5.400			09/02/2020		08/14/2017	^B		23,650
	25,000	Folsom, CA Public Financing Authority		5.625			09/02/2020		06/15/2017	^B		24,463
	30,000	Folsom, CA Public Financing Authority		6.400			09/02/2009		09/02/2008	^A		30,083
	10,000	Folsom, CA Public Financing Authority		6.875			09/02/2019		09/02/2008	^A		10,010
	25,000	Folsom, CA Public Financing Authority		7.200			09/02/2019		09/02/2008	^A		25,026
	30,000	Folsom, CA Special Tax Community Facilities District No. 7		6.000			09/01/2024		08/22/2020	^B		29,498
	265,000	Fontana, CA Special Tax (Citrus)		5.000			09/01/2020		09/01/2020			240,848
	10,000	Fontana, CA Special Tax Community Facilities District No. 4		7.125			10/01/2015		10/01/2008	^A		10,032
	25,000	Fowler, CA Public Financing Authority		6.750			09/15/2023		09/15/2009	^A		25,468
	30,000	Fremont, CA Unified School District¹		5.250			09/01/2016		09/01/2008	^A		30,662
	25,000	Fresno, CA Unified School District COP¹		4.625			05/01/2011		11/01/2008	^A		25,112
	100,000	Fresno, CA Water System, Series A		5.000			06/01/2024		05/27/2022	^B		98,064
	25,000	Fullerton, CA Community Facilities District No. 1 Special Tax (Amerige Heights)		6.200			09/01/2032		09/01/2012	^A		25,263
	80,000	Fullerton, CA School District Special Tax		6.300			09/01/2023		09/01/2013	^A		82,049
	10,000	Galt, CA Improvement Bond Act 1915		5.900			09/02/2022		09/02/2022			9,929
	50,000	Garden Grove, CA COP (Bahia Village/Emerald Isle)¹		5.700			08/01/2023		08/01/2008	^A		50,207
	50,000	Garden Grove, CA Hsg. Authority (Rose Garden)		6.375			07/01/2012		12/25/2010	^B		49,758
	20,000	Granada, CA Sanitation District Improvement Bond Act 1915		6.125			09/02/2022		03/02/2011	^A		20,105
	950,000	Grass Valley, CA Redevel. Agency Tax Allocation		6.400			12/01/2034		12/01/2008	^A		974,719
	15,000	Greenfield, CA Redevel. Agency		6.000			02/01/2029		02/01/2012	^A		15,016
	10,000	Hawthorne, CA Community Redevel. Agency Special Tax		6.450			10/01/2017		10/01/2008	^A		10,298
	10,000	Hawthorne, CA Community Redevel. Agency Special Tax		6.600			10/01/2019		10/01/2008	^A		10,286
	880,000	Hawthorne, CA Community Redevel. Agency Special Tax		6.750			10/01/2025		10/01/2012	^A		902,290
	145,000	Hawthorne, CA Parking Authority		8.000			09/01/2015		09/01/2008	^A		149,350
	135,000	Hawthorne, CA Parking Authority		8.125			09/01/2019		09/01/2008	^A		135,813
	45,000	Hayward, CA Improvement Bond Act 1915		7.100			09/02/2018		09/01/2008	^A		45,047
	50,000	Hayward, CA Public Finance Authority (Hayward Water System)¹		5.000			06/01/2011		12/01/2008	^A		50,092
	50,000	Hayward, CA Public Finance Authority (Hayward Water System)¹		5.100			06/01/2013		12/01/2008	^A		50,096
	40,000	Healdsburg, CA Community Redevel. Agency (Sotoyome Community Devel.)¹		5.250			12/01/2025		12/01/2008	^A		40,048


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	2,000,000	Hesperia, CA Public Financing Authority, Tranche A		6.250	%		09/01/2035		09/01/2035		$	1,970,340
	2,250,000	Hi-Desert, CA Memorial Health Care District		5.500			10/01/2015		10/01/2008	^A		2,251,575
	10,000	Hollister, CA Improvement Bond Act 1915		7.125			09/02/2022		09/02/2008	^A		10,308
	15,000	Huntington Beach, CA Community Facilities District		5.400			10/01/2020		10/01/2011	^A		15,003
	20,000	Huntington Beach, CA Community Facilities District Special Tax		6.250			09/01/2027		04/14/2026	^B		19,899
	25,000	Huntington Beach, CA Public Financing Authority¹		5.500			12/15/2022		12/15/2008	^A		25,230
	10,000	Huntington Beach, CA Public Financing Authority¹		5.500			12/15/2027		12/15/2008	^A		10,067
	35,000	Imperial County, CA Special Tax		6.500			09/01/2031		03/04/2026	^B		34,853
	50,000	Indio, CA Community Facilities District Special Tax (Talavera)		5.000			09/01/2017		09/01/2017			48,455
	100,000	Indio, CA Hsg. (Olive Court Apartments)¹		6.375			12/01/2026		12/01/2009	^A		100,563
	20,000	Indio, CA Improvement Bond Act 1915		6.350			09/02/2027		09/02/2014	^A		20,456
	20,000	Indio, CA Improvement Bond Act 1915		6.375			09/02/2027		09/02/2014	^A		20,088
	25,000	Industry, CA Urban Devel. Agency¹		5.000			05/01/2024		05/01/2020	^A		25,534
	16,740,000	Inland, CA Empire Tobacco Securitization Authority (TASC)		4.625			06/01/2021		06/23/2013	^B		15,402,976
	150,000	Irvine, CA Improvement Bond Act 1915		5.550			09/02/2026		06/15/2023	^B		144,024
	20,000	Irvine, CA Improvement Bond Act 1915		5.600			09/02/2022		11/21/2019	^B		19,737
	30,000	Irvine, CA Improvement Bond Act 1915		5.625			09/02/2024		04/30/2022	^B		29,377
	25,000	Irvine, CA Mobile Home Park (Meadows Mobile Home Park)		6.050			03/01/2028		02/23/2024	^B		23,866
	100,000	Irvine, CA Unified School District Special Tax Community Facilities District No. 86-1¹		5.500			11/01/2013		11/01/2008	^A		102,226
	30,000	Jefferson, CA Union High School District		5.000			08/01/2024		08/01/2009	^A		30,101
	25,000	Jefferson, CA Union High School District		5.125			08/01/2029		08/01/2009	^A		25,030
	80,000	Jurupa, CA Community Facilities District Special Tax		5.875			09/01/2033		03/26/2029	^B		74,831
	50,000	Jurupa, CA Community Services District COP		5.125			09/01/2013		09/01/2008	^A		50,051
	20,000	Jurupa, CA Community Services District Special Tax		6.125			09/01/2032		08/26/2028	^B		20,029
	70,000	Kern County, CA (Fire Dept.) COP¹		5.250			05/01/2013		11/01/2008	^A		70,490
	50,000	Kern County, CA (Fire Dept.) COP¹		5.250			05/01/2015		11/01/2008	^A		50,350
	25,000	King, CA Community Devel. Agency Tax Allocation (King City Redevel.)		7.000			09/01/2021		09/01/2008	^A		25,022
	5,000	Kingsburg, CA Public Financing Authority		7.800			09/15/2010		09/15/2008	^A		5,016
	15,000	Kingsburg, CA Public Financing Authority		8.000			09/15/2021		09/15/2008	^A		15,022
	100,000	La Canada Flintridge, CA (City Hall Acquisition) COP¹		5.250			12/01/2021		12/01/2008	^A		100,630

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	30,000	La Habra, CA Redevel. Agency Community Facilities District		6.000	%		09/01/2014		09/02/2008	^A	$	30,025
	10,000	La Habra, CA Redevel. Agency Community Facilities District		6.000			09/01/2019		09/02/2008	^A		10,000
	55,000	La Mesa, CA Improvement Bond Act 1915		5.750			09/02/2023		08/18/2019	^B		52,776
	315,000	La Quinta, CA Redevel. Agency Tax Allocation¹		5.200			09/01/2028		09/01/2009	^A		315,775
	15,000	La Verne, CA COP¹		6.000			11/01/2018		11/01/2008	^A		15,121
	1,835,000	Lake Elsinore, CA Improvement Bond Act 1915		7.000			09/02/2030		09/02/2010	^A		1,909,207
	60,000	Lake Elsinore, CA School Financing Authority¹		6.000			09/01/2011		09/01/2008	^A		60,085
	500,000	Lake Elsinore, CA Special Tax		5.100			09/01/2022		04/17/2021	^B		464,555
	1,135,000	Lake Elsinore, CA Unified School District		5.300			09/01/2026		11/01/2024	^B		1,040,375
	50,000	Lammersville, CA School District Community Facilities District (Mountain House)		6.300			09/01/2024		09/01/2012	^A		50,513
	60,000	Lancaster, CA Community Facilities District Special Tax		6.000			10/01/2016		10/01/2010	^A		60,557
	20,000	Lancaster, CA Redevel. Agency (Desert Sands Mobile Home Park)		6.375			11/01/2027		11/01/2009	^A		20,074
	115,000	Lathrop, CA Financing Authority (Water Supply)		5.700			06/01/2019		06/01/2019			112,189
	15,000	Lathrop, CA Financing Authority (Water Supply)		5.750			06/01/2020		06/01/2020			14,616
	50,000	Lathrop, CA Financing Authority (Water Supply)		5.900			06/01/2023		06/01/2023			48,530
	1,440,000	Lathrop, CA Financing Authority (Water Supply)		5.900			06/01/2027		12/26/2025	^B		1,407,082
	1,075,000	Lathrop, CA Financing Authority (Water Supply)		6.000			06/01/2035		03/21/2032	^B		1,064,282
	10,000	Lathrop, CA Improvement Bond Act 1915		6.000			09/02/2021		09/02/2021			9,879
	15,000	Lathrop, CA Improvement Bond Act 1915 (Louise Avenue)		6.875			09/02/2017		09/01/2008	^A		15,460
	10,000	Lathrop, CA Improvement Bond Act 1915 (Mossdale Village)		6.000			09/02/2023		09/02/2023			9,800
	60,000	Lathrop, CA Improvement Bond Act 1915 (Mossdale Village)		6.125			09/02/2028		10/15/2026	^B		58,609
	150,000	Lincoln, CA Improvement Bond Act 1915 Public Financing Authority (Twelve Bridges)		6.200			09/02/2025		09/02/2011	^A		151,181
	10,000	Lincoln, CA Public Financing Authority (Public Safety & Corp. Yard)¹		5.000			08/01/2028		11/26/2024	^B		9,913
	25,000	Lincoln, CA Public Financing Authority (Twelve Bridges)		6.125			09/02/2027		09/02/2011	^A		25,134
	25,000	Livermore, CA Capital Projects Financing Authority		5.650			09/02/2016		09/01/2008	^A		25,246


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	15,000	Livermore, CA Community Facilities District Special Tax (Tri Valley Tech Park)		5.750	%		09/01/2012		09/01/2010	^A	$	15,312
	50,000	Livermore, CA Community Facilities District Special Tax (Tri Valley Tech Park)		6.400			09/01/2026		09/01/2010	^A		50,119
	15,000	Livermore, CA Community Facilities District Special Tax (Tri Valley Tech Park)		6.400			09/01/2030		09/01/2010	^A		15,027
	50,000	Long Beach, CA Airport COP¹		5.000			06/01/2016		12/01/2008	^A		50,088
	50,000	Long Beach, CA Bond Finance Authority (Civic Center)¹		5.000			10/01/2027		10/01/2009	^A		50,002
	25,000	Long Beach, CA Special Tax (Pike)		6.250			10/01/2026		02/25/2023	^B		25,184
	35,000	Long Beach, CA Special Tax (Pine Avenue)		6.375			09/01/2023		09/01/2011	^A		35,357
	20,000	Long Beach, CA Unified School District		5.300			08/01/2018		08/01/2008	^A		20,040
	50,000	Long Beach, CA Unified School District		5.500			08/01/2029		08/01/2008	^A		50,068
	10,000	Los Angeles County, CA Community Facilities District No. 4 Special Tax		7.750			09/01/2017		09/01/2008	^A		10,017
	50,000	Los Angeles County, CA COP (Insured Health Clinic)¹		5.750			01/01/2024		01/01/2009	^A		50,031
	85,000	Los Angeles County, CA COP (Insured Health Clinic)¹		5.800			12/01/2023		12/01/2008	^A		85,320
	10,000	Los Angeles County, CA Metropolitan Transportation Authority¹		5.000			07/01/2015		07/01/2009	^A		10,335
	25,000	Los Angeles County, CA Metropolitan Transportation Authority¹		5.000			07/01/2023		07/01/2010	^A		25,222
	5,000	Los Angeles County, CA Metropolitan Transportation Authority		5.000			07/01/2023		07/01/2009	^A		5,015
	100,000	Los Angeles, CA Community Facilities District Special Tax (Cascade Business Park)		6.400			09/01/2022		09/01/2009	^A		100,497
	45,000	Los Angeles, CA Community Redevel. Agency (Angeles Plaza)¹		7.400			06/15/2010		06/15/2009			46,038
	25,000	Los Angeles, CA Community Redevel. Agency (Cinerama Dome Public Parking)		5.700			07/01/2020		07/01/2020			22,940
	40,000	Los Angeles, CA Community Redevel. Agency (Grand Central Square)¹		5.100			12/01/2015		11/01/2008	^A		40,002
	50,000	Los Angeles, CA Community Redevel. Agency (Grand Central Square)¹		5.200			12/01/2017		12/01/2017			49,997
	50,000	Los Angeles, CA Community Redevel. Agency (Grand Central Square)¹		5.200			12/01/2018		12/01/2018			49,736
	120,000	Los Angeles, CA Community Redevel. Agency (Grand Central Square)¹		5.200			12/01/2019		12/01/2019			118,016
	35,000	Los Angeles, CA Community Redevel. Agency (Grand Central Square)¹		5.250			12/01/2020		12/01/2020			34,203
	55,000	Los Angeles, CA Community Redevel. Agency (Grand Central Square)¹		5.250			12/01/2021		12/01/2021			53,466

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	25,000	Los Angeles, CA Community Redevel. Agency (Hoover Redevel.)¹		5.500	%		09/01/2014		09/01/2008	^A	$	25,058
	140,000	Los Angeles, CA Dept. of Airports (Los Angeles International Airport)¹		5.500			05/15/2009		11/15/2008	^A		140,283
	15,000	Los Angeles, CA Dept. of Airports (Los Angeles International Airport)¹		5.500			05/15/2015		11/15/2008	^A		15,030
	20,000	Los Angeles, CA Dept. of Airports (Los Angeles International Airport)¹		5.625			05/15/2012		11/15/2008	^A		20,042
	60,000	Los Angeles, CA Dept. of Airports (Los Angeles International Airport)¹		5.625			05/15/2013		11/15/2008	^A		60,126
	15,000	Los Angeles, CA Dept. of Water & Power¹		4.750			08/15/2017		08/15/2008	^A		15,024
	10,000	Los Angeles, CA Dept. of Water & Power		4.750			10/15/2020		10/15/2008	^A		10,016
	5,000	Los Angeles, CA Dept. of Water & Power¹		5.000			07/01/2024		07/01/2009	^A		5,048
	5,000	Los Angeles, CA Hsg. Authority (Multifamily)¹		5.750			01/01/2024		01/01/2009	^A		5,020
	75,000	Los Angeles, CA Mtg. (Section 8)¹		5.350			07/01/2022		01/01/2009	^A		75,038
	25,000	Los Angeles, CA Mtg. (Section 8)¹		6.500			07/01/2022		09/01/2008	^A		25,342
	30,000	Los Angeles, CA Multifamily Hsg. (Arminta North & South)¹		7.700			06/20/2028		12/20/2008	^A		31,195
	45,000	Los Angeles, CA Multifamily Hsg. (Earthquake Rehabilitation)¹		5.900			01/01/2030		07/01/2009	^A		45,009
	10,000	Los Angeles, CA Multifamily Hsg. (Palms Apartments)		5.300			07/01/2018		07/01/2010	^A		10,413
	1,200,000	Los Angeles, CA Multifamily Hsg. (Park Plaza West)		5.500			01/20/2043		01/06/2038	^B		1,127,904
	100,000	Los Angeles, CA Regional Airports Improvement Corp. (Laxfuel Corp.)¹		5.250			01/01/2023		07/07/2022	^B		96,948
	75,000	Los Banos, CA Sewer System COP¹		5.000			12/01/2019		12/01/2008	^A		75,141
	15,000	Los Banos, CA Unified School District COP¹		5.625			08/01/2016		08/01/2008	^A		15,037
	25,000	Madera County, CA COP (Valley Children’s Hospital)¹		5.000			03/15/2023		03/15/2010	^A		25,134
	325,000	Madera County, CA COP (Valley Children’s Hospital)¹		5.750			03/15/2028		09/15/2008	^A		325,536
	50,000	Mammoth Lakes, CA Community Facilities District (North Village Area)		5.750			10/01/2033		09/17/2029	^B		45,987
	20,000	Manhattan Beach, CA Water & Wastewater Authority COP¹		5.750			09/01/2020		09/01/2008	^A		20,049
	10,000	Martinez, CA Mtg. (Ridgecrest Apartments)¹		5.625			07/01/2025		01/01/2009	^A		10,006
	25,000	Menifee, CA Union School District Special Tax		6.050			09/01/2026		10/14/2024	^B		24,264
	125,000	Mill Valley, CA COP (The Redwoods)¹		5.750			12/01/2020		12/01/2008	^A		126,280
	10,000	Milpitas, CA Improvement Bond Act 1915		5.700			09/02/2018		10/11/2016	^B		9,875
	395,000	Modesto, CA Irrigation District COP¹		5.300			07/01/2022		01/01/2009	^A		395,600
	3,080,000	Modesto, CA Irrigation District COP¹		5.300			07/01/2022		01/01/2009	^A		3,080,955


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	25,000	Monrovia, CA Redevel. Agency Public Parking Facilities¹		5.200	%		04/01/2013		10/01/2008	^A	$	25,049
	10,000	Montclair, CA Redevel. Agency Mobile Home Park (Augusta Homes Villa Del Arroyo)		6.100			11/15/2037		09/06/2034	^B		9,646
	25,000	Montclair, CA Redevel. Agency Mobile Home Park (Hacienda Mobile Home Park)		6.000			11/15/2029		02/08/2027	^B		24,224
	20,000	Montclair, CA Redevel. Agency Mobile Home Park (Villa Mobile Home Park)		6.100			06/15/2029		07/16/2023	^B		19,409
	10,000	Montebello, CA Community Redevel. Agency (South Montebello)		5.500			09/01/2022		03/27/2021	^B		9,533
	5,000	Monterey County, CA Hsg. Authority (Parkside Manor Apartments)¹		6.000			01/01/2029		10/01/2010	^C		4,765
	10,000	Monterey, CA Joint Powers Financing Authority (Materials Recovery Facilities)		5.500			03/01/2010		09/01/2008	^A		10,074
	30,000	Monterey, CA Joint Powers Financing Authority (Materials Recovery Facilities)		5.500			03/01/2011		09/01/2008	^A		30,287
	65,000	Monterey, CA Joint Powers Financing Authority (Materials Recovery Facilities)		5.600			03/01/2012		09/01/2008	^A		65,776
	50,000	Monterey, CA Joint Powers Financing Authority (Materials Recovery Facilities)		5.600			03/01/2013		09/01/2008	^A		50,714
	65,000	Monterey, CA Joint Powers Financing Authority (Materials Recovery Facilities)		5.700			03/01/2015		09/01/2008	^A		66,234
	20,000	Monterey, CA Joint Powers Financing Authority (Materials Recovery Facilities)		5.700			03/01/2016		09/01/2008	^A		20,427
	95,000	Moorpark, CA Mobile Home Park (Villa Del Arroyo)		6.300			05/15/2030		05/14/2026	^B		93,606
	110,000	Moorpark, CA Mobile Home Park (Villa Del Arroyo)		7.050			05/15/2035		08/17/2029	^B		109,760
	10,000	Moorpark, CA Mobile Home Park (VillaDel Arroyo)		7.000			05/15/2020		12/26/2008	^A		10,001
	140,000	Moorpark, CA Special Tax Community Facilities District No. 97-1		6.700			09/01/2027		09/01/2009	^A		141,261
	15,000	Morgan Hill, CA Improvement Bond Act 1915		5.600			09/02/2011		09/02/2008	^A		15,013
	125,000	Morgan Hill, CA Improvement Bond Act 1915		5.600			09/02/2018		04/30/2016	^B		123,714
	140,000	Morgan Hill, CA Improvement Bond Act 1915		5.650			09/02/2023		10/12/2021	^B		134,863
	350,000	Mountain View, CA Shoreline Regional Park Community¹		5.500			08/01/2013		08/01/2008	^A		350,805
	205,000	Mountain View, CA Shoreline Regional Park Community¹		5.500			08/01/2021		08/01/2008	^A		205,371
	10,000	Murrieta County, CA Water District		6.500			10/01/2015		10/01/2010	^A		10,423
	30,000	Murrieta County, CA Water District Special Tax Community Facilities District No. 88-1		6.700			12/01/2030		12/01/2010	^A		30,518
	10,000	Murrieta, CA Community Facilities District Special Tax (Blackmore Ranch)		6.100			09/01/2034		09/23/2027	^B		9,640

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	20,000	Murrieta, CA Community Facilities District Special Tax (Bluestone)		6.300	%		09/01/2031		05/06/2029	^B	$	19,948
	700,000	Murrieta, CA Community Facilities District Special Tax (Bremerton)		5.625			09/01/2034		01/13/2031	^B		650,370
	105,000	Murrieta, CA Community Facilities District Special Tax (Murrieta Springs)		5.500			09/01/2034		10/09/2032	^B		91,944
	55,000	Murrieta, CA Improvement Bond Act 1915		6.375			09/01/2031		09/01/2013	^A		56,069
	50,000	Murrieta, CA Water Public Financing Authority¹		5.700			10/01/2021		10/01/2008	^A		50,261
	1,020,000	Napa-Vallejo, CA Waste Management Authority (Solid Waste Transfer Facility)		5.300			02/15/2012		02/15/2012			1,019,490
	10,000	Needles, CA Public Utility Authority		6.350			02/01/2012		02/01/2009	^A		10,096
	190,000	Needles, CA Public Utility Authority		6.650			02/01/2032		02/01/2009	^A		190,631
	40,000	New Haven, CA Unified School District		5.250	²		08/01/2018		08/01/2018			23,834
	15,000	Northern CA Power Agency (Hydroelectric)¹		5.000			07/01/2018		01/01/2009	^A		15,175
	5,000	Northern CA Power Agency (Hydroelectric)		5.200			07/01/2032		07/01/2010	^A		5,008
	2,680,000	Northern CA Tobacco Securitization Authority (TASC)¹		4.750			06/01/2023		07/18/2011	^C		2,442,230
	35,000	Novato, CA GO¹		5.000			08/01/2012		08/01/2008	^A		35,359
	30,000	Oakdale, CA Public Financing Authority Tax Allocation (Central City Redevel.)		5.900			06/01/2014		12/01/2008	^A		30,260
	10,000	Oakdale, CA Public Financing Authority Tax Allocation (Central City Redevel.)		6.000			06/01/2019		06/01/2009	^A		10,014
	50,000	Oakdale, CA Public Financing Authority Tax Allocation (Central City Redevel.)		6.100			06/01/2027		03/29/2024	^B		48,767
	25,000	Ontario, CA Improvement Bond Act 1915		6.800			09/02/2013		09/02/2008	^A		25,040
	25,000	Orange County, CA Community Facilities District (Ladera Ranch)		5.550			08/15/2033		06/02/2029	^B		24,369
	15,000	Orange County, CA Improvement Bond Act 1915		5.500			09/02/2016		09/02/2008	^A		15,002
	10,000	Orange County, CA Improvement Bond Act 1915 (Irvine Coast Assessment)		5.375			09/02/2012		09/02/2008	^A		10,008
	115,000	Orange County, CA Improvement Bond Act 1915 (Irvine Coast Assessment)		5.500			09/02/2018		03/08/2018	^B		114,949
	20,000	Orange County, CA Improvement Bond Act 1915 (Irvine Coast Assessment)		5.850			09/02/2013		09/02/2008	^A		20,519
	55,000	Oroville, CA Hospital¹		5.400			12/01/2022		12/01/2008	^A		55,020
	1,415,000	Oxnard, CA Harbor District¹		5.550			08/01/2013		08/01/2009	^A		1,420,250
	25,000	Oxnard, CA Improvement Bond Act 1915		5.625			09/02/2027		10/10/2025	^B		24,176
	40,000	Oxnard, CA School District COP		5.550			08/01/2021		08/01/2008	^A		40,158
	20,000	Oxnard, CA School District, Series A		5.250			08/01/2027		07/24/2023	^B		20,157
	10,000	Oxnard, CA Special Tax Community Facilities District No. 1		6.000			09/01/2027		04/13/2026	^B		10,026
	25,000	Palm Desert, CA Financing Authority¹		5.200			10/01/2028		10/01/2009	^A		25,066


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	250,000	Palm Springs, CA Airport Passenger Facilities (Palm Springs International Airport)		6.000	%		07/01/2018		08/09/2016	^B	$	247,505
	45,000	Palm Springs, CA Financing Authority (Palm Springs Regional Airport)¹		5.500			01/01/2028		01/01/2010	^A		44,732
	125,000	Palmdale, CA Community Facilities District Special Tax		5.400			09/01/2035		10/09/2033	^B		94,409
	250,000	Palmdale, CA Community Redevel. Agency		5.750			08/01/2009		08/01/2008	^A		250,525
	100,000	Palo Alto, CA Improvement Bond Act 1915 (University Ave. Area)¹		5.100			09/02/2024		03/02/2013	^A		102,001
	100,000	Palo Alto, CA Improvement Bond Act 1915 (University Ave. Area)¹		5.125			09/02/2025		03/02/2013	^A		101,566
	45,000	Palo Alto, CA Improvement Bond Act 1915 (University Ave. Area)¹		5.700			09/02/2018		03/02/2014	^A		45,221
	25,000	Pasadena, CA Public Financing Authority (Orange Grove & Villa-Parke)		5.450			06/01/2012		12/01/2008	^A		25,070
	275,000	Perris, CA Community Facilities District Special Tax		6.375			09/01/2032		01/28/2029	^B		275,666
	60,000	Perris, CA Public Financing Authority		5.750			09/01/2024		10/14/2021	^B		59,593
	160,000	Perris, CA Public Financing Authority		7.875			09/01/2025		09/01/2008	^A		160,179
	20,000	Perris, CA Public Financing Authority, Series A		6.125			09/01/2034		09/01/2016	^A		20,106
	10,000	Petaluma, CA Improvement Bond Act 1915		6.000			09/02/2020		03/02/2009	^A		10,007
	60,000	Pittsburg, CA Improvement Bond Act 1915		6.300			09/02/2025		09/02/2008	^A		60,005
	10,000	Pittsburg, CA Improvement Bond Act 1915		6.350			09/02/2031		05/10/2029	^B		9,999
	20,000	Pittsburg, CA Improvement Bond Act 1915 (San Marco Phase I)		6.350			09/02/2031		01/27/2028	^B		20,022
	50,000	Pittsburg, CA Infrastructure Financing Authority		5.850			09/02/2015		09/02/2010	^A		50,371
	130,000	Pittsburg, CA Infrastructure Financing Authority, Series B		6.000			09/02/2024		02/03/2020	^B		129,132
	45,000	Placentia, CA Public Financing Authority¹		5.450			09/01/2015		09/01/2008	^A		45,101
	10,000	Placer County, CA Community Facilities District		6.500			09/01/2026		09/01/2012	^A		10,083
	5,000	Placer County, CA Community Facilities District Special Tax No. 2001-1 (Dry Creek)		6.300			09/01/2019		09/01/2010	^A		5,093
	10,000	Pleasant Hill, CA Special Tax Downtown Community Facilities District No. 1		5.875			09/01/2025		03/29/2024	^B		9,604
	50,000	Pomona, CA Unified School District¹		5.100			08/01/2028		08/01/2008	^A		50,059
	515,000	Port of Oakland, CA Series K¹		5.750			11/01/2021		05/01/2010	^A		515,500
	100,000	Port Redwood City, CA GO¹		5.400			06/01/2019		01/24/2017	^B		99,144
	20,000	Poway, CA Public Financing Authority (Water Services)¹		5.500			11/01/2015		11/01/2008	^A		20,047
	30,000	Poway, CA Unified School District Special Tax Community Facilities District No. 10		5.750			09/01/2032		03/01/2028	^B		28,339
	25,000	Poway, CA Unified School District Special Tax Community Facilities District No. 10		5.950			09/01/2018		09/01/2009	^A		25,166

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	35,000	Poway, CA Unified School District Special Tax Community Facilities District No. 10		6.100	%		09/01/2031		03/24/2029	^B	$	34,720
	200,000	Poway, CA Unified School District Special Tax Community Facilities District No. 6¹		5.600			09/01/2033		06/18/2030	^B		196,030
	10,000	Rancho Cucamonga, CA Public Finance Authority		6.000			09/02/2020		09/02/2011	^A		10,037
	20,000	Rancho Mirage, CA Improvement Bond Act 1915		5.500			09/02/2024		05/02/2022	^B		18,519
	30,000	Rancho Mirage, CA Improvement Bond Act 1915		5.750			09/02/2022		03/28/2021	^B		29,361
	35,000	Rancho Santa Fe, CA Community Services District Special Tax		6.600			09/01/2020		09/01/2010	^A		35,609
	440,000	Rancho Santa Fe, CA Community Services District Special Tax		6.700			09/01/2030		09/01/2010	^A		445,980
	25,000	Redding, CA Improvement Bond Act 1915 (Tierra Oaks Assessment District 1993-1)		7.000			09/02/2013		09/02/2008	^A		25,793
	10,000	Redlands, CA Community Facilities District		5.850			09/01/2033		05/27/2031	^B		9,323
	100,000	Redwood City, CA Special Tax		5.750			09/01/2027		06/20/2024	^B		93,463
	50,000	Reedley, CA COP (Sierra View Homes)¹		5.850			03/01/2021		09/01/2008	^A		50,110
	50,000	Rialto, CA Special Tax Community Facilities District No. 2006-1		5.000			09/01/2016		09/01/2016			48,116
	25,000	Rialto, CA Special Tax Community Facilities District No. 2006-1		5.050			09/01/2017		09/01/2017			23,898
	65,000	Rialto, CA Special Tax Community Facilities District No. 2006-1		5.125			09/01/2018		09/01/2018			61,968
	100,000	Rialto, CA Special Tax Community Facilities District No. 2006-1		5.200			09/01/2019		09/01/2019			94,865
	100,000	Rialto, CA Special Tax Community Facilities District No. 2006-1		5.250			09/01/2020		09/01/2020			94,558
	50,000	Rialto, CA Special Tax Community Facilities District No. 2006-1		5.250			09/01/2021		09/01/2021			46,782
	80,000	River Islands, CA Public Financing Authority		6.000			09/01/2027		06/21/2024	^B		76,966
	100,000	River Islands, CA Public Financing Authority		6.150			09/01/2035		06/23/2032	^B		92,286
	250,000	Riverside County, CA Community Facilities District Special Tax		5.000			09/01/2012		09/01/2012			250,493
	15,000	Riverside County, CA Community Facilities District Special Tax		6.000			09/01/2030		05/01/2028	^B		14,354
	150,000	Riverside County, CA Community Facilities District Special Tax No. 87-1		5.100			09/01/2013		09/01/2013			149,855
	215,000	Riverside County, CA Community Facilities District Special Tax No. 87-1		5.150			09/01/2014		09/01/2014			214,226
	385,000	Riverside County, CA Community Facilities District Special Tax No. 87-1		5.200			09/01/2015		09/01/2015			380,076


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	225,000	Riverside County, CA Community Facilities District Special Tax No. 87-1		5.250	%		09/01/2016		09/01/2016		$	220,282
	1,255,000	Riverside County, CA Community Facilities District Special Tax No. 87-1		5.500			09/01/2020		03/27/2019	^B		1,197,910
	335,000	Riverside County, CA Community Facilities District Special Tax No. 88-8		4.950			09/01/2008		09/01/2008			335,389
	370,000	Riverside County, CA Community Facilities District Special Tax No. 88-8		5.150			09/01/2010		09/01/2010			376,168
	200,000	Riverside County, CA Community Facilities District Special Tax No. 88-8		5.300			09/01/2011		09/01/2011			203,428
	210,000	Riverside County, CA Community Facilities District Special Tax No. 88-8		5.350			09/01/2012		09/01/2012			213,410
	430,000	Riverside County, CA Community Facilities District Special Tax No. 88-8		5.400			09/01/2013		09/01/2013			435,981
	450,000	Riverside County, CA Community Facilities District Special Tax No. 88-8		5.450			09/01/2014		09/01/2014			455,900
	475,000	Riverside County, CA Community Facilities District Special Tax No. 88-8		5.500			09/01/2015		09/01/2015			477,879
	105,000	Riverside County, CA Public Financing Authority (Menifee Village)		7.150			09/01/2011		09/01/2008	^A		105,231
	505,000	Riverside County, CA Public Financing Authority COP		5.750			05/15/2019		05/15/2009	^A		505,980
	630,000	Riverside County, CA Public Financing Authority Improvement Bond Act 1915 (Rancho Village)		6.250			09/02/2013		06/18/2009	^C		648,692
	200,000	Riverside, CA Improvement Bond Act 1915 (Riverwalk Business)		6.250			09/02/2029		10/17/2027	^B		198,712
	15,000	Riverside, CA Improvement Bond Act 1915 (Sycamore Canyon Assessment District)		8.500			09/02/2012		09/02/2008	^A		15,047
	10,000	Riverside, CA Unified School District¹		5.000			02/01/2027		08/07/2025	^B		9,858
	100,000	Riverside, CA Unified School District		5.350			09/01/2024		03/04/2024	^B		91,562
	90,000	Riverside, CA Unified School District		5.450			09/01/2025		10/10/2023	^B		82,722
	100,000	Riverside, CA Unified School District		5.500			09/01/2034		10/10/2032	^B		88,363
	80,000	Riverside, CA Unified School District		5.700			09/01/2034		01/01/2031	^B		72,852
	10,000	Riverside, CA Unified School District		6.000			09/01/2029		05/25/2023	^B		9,590
	20,000	Rocklin, CA Redevel. Agency Tax Allocation (Rocklin Redevel.)		5.500			09/01/2031		09/01/2031			19,589
	25,000	Romoland, CA School District Special Tax		6.000			09/01/2033		11/10/2029	^B		23,773
	50,000	Romoland, CA School District Special Tax		6.375			09/01/2033		09/27/2026	^B		50,068
	50,000	Romoland, CA School District Special Tax		6.375			09/01/2033		06/04/2031	^B		50,068
	45,000	Roseville, CA Special Tax (North Central Community District)		5.800			09/01/2017		09/01/2011	^A		45,382
	20,000	Roseville, CA Special Tax (Stoneridge)		6.000			09/01/2020		09/01/2013	^A		22,370

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	25,000	Sacramento County, CA COP¹		5.375	%		02/01/2019		08/01/2008	^A	$	25,302
	1,000,000	Sacramento County, CA Hsg. Authority (Cottage Estates Apartments)¹		6.000			02/01/2033		08/01/2012	^A		1,002,110
	20,000	Sacramento County, CA Sanitation District Financing Authority¹		5.600			12/01/2017		12/01/2008	^A		20,053
	375,000	Sacramento, CA Cogeneration Authority¹		5.200			07/01/2021		01/01/2009	^A		375,563
	10,000	Sacramento, CA Improvement Bond Act 1915 (Citywide Landscaping & Lighting)¹		5.500			09/02/2016		09/02/2008	^A		10,025
	30,000	Sacramento, CA Municipal Utility District¹		5.125			07/01/2022		07/01/2009	^A		30,077
	55,000	Sacramento, CA Municipal Utility District		5.750			11/15/2009		11/15/2008	^A		57,488
	20,000	Sacramento, CA Municipal Utility District¹		8.000			11/15/2010		11/15/2008	^A		20,550
	70,000	Sacramento, CA Special Tax		5.700			12/01/2020		09/15/2017	^B		68,069
	30,000	Sacramento, CA Special Tax (North Natomas Community Facilities)		6.300			09/01/2026		03/01/2011	^A		30,253
	10,000	Saddleback Valley, CA Unified School District¹		5.650			09/01/2017		09/01/2008	^A		10,025
	5,000	Saddleback Valley, CA Unified School District		7.200			12/01/2011		12/01/2008	^A		5,046
	95,000	Salida, CA Public Facilities Financing Agency¹		5.250			09/01/2028		09/01/2009	^A		95,283
	100,000	Salinas, CA Improvement Bond Act 1915		5.450			09/02/2013		09/02/2013			101,167
	50,000	Salinas, CA Improvement Bond Act 1915 (Bella Vista)		5.500			09/02/2013		09/02/2008	^A		51,481
	30,000	Salinas, CA Redevel. Agency Tax Allocation (Central City Revitalization)¹		5.500			11/01/2010		11/01/2008	^A		30,211
	220,000	Salinas, CA Redevel. Agency Tax Allocation (Central City Revitalization)¹		5.500			11/01/2023		11/01/2008	^A		221,192
	290,000	San Bernardino County, CA (Single Family Mtg.)		5.376	²		05/01/2031		05/01/2031			67,373
	885,000	San Bernardino County, CA COP (Medical Center Financing)¹		5.000			08/01/2026		02/04/2026	^B		850,476
	725,000	San Bernardino County, CA COP (Medical Center Financing)¹		5.000			08/01/2028		08/01/2008	^A		725,094
	95,000	San Bernardino County, CA COP (Medical Center Financing)¹		5.250			08/01/2016		08/01/2008	^A		95,191
	125,000	San Bernardino County, CA COP (Medical Center Financing)¹		5.500			08/01/2019		08/01/2008	^A		125,086
	20,000	San Bernardino County, CA COP (Medical Center Financing)		5.500			08/01/2022		08/01/2008	^A		20,034
	305,000	San Bernardino County, CA COP (Medical Center Financing)¹		5.500			08/01/2024		08/01/2008	^A		305,116
	60,000	San Bernardino County, CA Hsg. Authority (Glen Aire Mobile Home Park)		6.700			12/20/2041		11/20/2011	^A		64,729
	110,000	San Bernardino, CA Joint Powers Financing Authority (California Dept. of Transportation Lease)¹		5.500			12/01/2020		12/01/2008	^A		110,086


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	25,000	San Bernardino, CA Joint Powers Financing Authority (California Dept. of Transportation Lease)¹		5.500	%		12/01/2020		12/01/2008	^A	$	25,058
	75,000	San Bernardino, CA Joint Powers Financing Authority (City Hall)¹		5.600			01/01/2015		01/01/2009	^A		75,917
	150,000	San Bernardino, CA Joint Powers Financing Authority (Tax Allocation)		6.625			04/01/2026		04/01/2012	^A		153,947
	685,000	San Bernardino, CA Mountains Community Hospital District COP⁷		5.000			02/01/2017		03/07/2015	^B		616,836
	15,000	San Bernardino, CA Redevel. Agency (Ramona Senior Complex)		7.875			07/01/2025		12/17/2018	^B		14,182
	25,000	San Diego County, CA COP (Central Jail)¹		5.000			10/01/2025		10/01/2009	^A		24,884
	95,000	San Diego County, CA COP (San Diego Hospital Assoc./Sharp Memorial Hospital Obligated Group)¹		5.000			08/15/2018		08/15/2010	^A		96,133
	70,000	San Diego County, CA COP (San Diego Hospital Assoc./Sharp Memorial Hospital Obligated Group)¹		5.000			08/15/2028		05/04/2024	^B		68,354
	10,000,000	San Diego, CA Certificates (Water Utility Fund)¹		5.200			08/01/2024		08/01/2008	^A		10,114,600
	50,000	San Diego, CA COP (Balboa & Mission Bay Parks)¹		5.500			11/01/2009		11/01/2008	^A		50,107
	25,000	San Diego, CA COP (Balboa & Mission Bay Parks)¹		5.600			11/01/2010		11/01/2008	^A		25,058
	320,000	San Diego, CA COP (Balboa & Mission Bay Parks)¹		5.600			11/01/2010		11/01/2008	^A		320,707
	35,000	San Diego, CA COP (Balboa & Mission Bay Parks)¹		5.800			11/01/2016		11/01/2008	^A		35,048
	105,000	San Diego, CA COP (Balboa & Mission Bay Parks)¹		6.000			11/01/2019		11/01/2008	^A		105,133
	25,000	San Diego, CA COP (Balboa & Mission Bay Parks)¹		6.000			11/01/2020		11/01/2008	^A		25,031
	165,000	San Diego, CA Mtg. (Mariners Cove)¹		5.800			09/01/2015		09/01/2008	^A		165,249
	65,000	San Diego, CA Public Facilities Financing Authority¹		5.000			05/15/2015		11/15/2008	^A		65,043
	1,030,000	San Diego, CA Public Facilities Financing Authority¹		5.000			05/15/2020		05/15/2009	^A		1,030,041
	1,285,000	San Diego, CA Public Facilities Financing Authority¹		5.000			05/15/2025		06/20/2023	^B		1,260,585
	200,000	San Diego, CA Public Facilities Financing Authority¹		5.200			05/15/2013		11/15/2008	^A		200,220
	2,115,000	San Diego, CA Public Facilities Financing Authority		5.250			05/15/2020		11/15/2008	^A		2,116,332
	25,000	San Diego, CA Public Facilities Financing Authority		5.250			05/15/2022		05/15/2009	^A		25,038

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	25,000	San Diego, CA Public Facilities Financing Authority¹		5.250	%		05/15/2022		05/15/2009	^A	$	25,038
	3,540,000	San Diego, CA Public Facilities Financing Authority¹		5.250			05/15/2027		06/21/2025	^B		3,531,327
	70,000	San Diego, CA Public Facilities Financing Authority¹		5.250			05/15/2027		06/21/2025	^B		68,845
	15,000	San Diego, CA Public Facilities Financing Authority¹		5.375			05/15/2017		11/15/2008	^A		15,086
	10,000	San Diego, CA Redevel. Agency (Central Imperial)		6.600			10/01/2030		10/01/2010	^A		10,183
	120,000	San Diego, CA Sewer, Series A¹		5.000			05/15/2013		11/15/2008	^A		120,220
	725,000	San Diego, CA Sewer, Series A¹		5.250			05/15/2020		11/15/2008	^A		728,930
	35,000	San Diego, CA Sewer, Series A¹		5.250			05/15/2020		11/15/2008	^A		35,073
	115,000	San Francisco, CA Bay Area Rapid Transit District¹		5.000			07/01/2028		07/01/2010	^A		115,496
	55,000	San Francisco, CA City & County Airports Commission¹		5.000			05/01/2017		05/01/2017			53,306
	270,000	San Francisco, CA City & County Airports Commission¹		5.000			05/01/2019		11/04/2018	^B		261,984
	70,000	San Francisco, CA City & County Airports Commission¹		5.000			05/01/2021		05/01/2021			68,192
	275,000	San Francisco, CA City & County Airports Commission¹		5.000			05/01/2022		05/01/2022			265,953
	130,000	San Francisco, CA City & County Airports Commission¹		5.000			05/01/2023		11/23/2021	^B		118,450
	278,000	San Francisco, CA City & County Airports Commission¹		5.000			05/01/2025		05/14/2024	^B		265,821
	230,000	San Francisco, CA City & County Airports Commission¹		5.000			05/01/2028		05/14/2027	^B		217,822
	5,000	San Francisco, CA City & County Airports Commission¹		5.000			05/01/2029		12/26/2026	^B		4,728
	30,000	San Francisco, CA City & County Airports Commission¹		5.125			05/01/2021		05/01/2021			28,896
	185,000	San Francisco, CA City & County Airports Commission¹		5.250			01/01/2026		01/01/2026			177,054
	25,000	San Francisco, CA City & County Airports Commission¹		5.500			05/01/2016		05/01/2012	^A		25,526
	35,000	San Francisco, CA City & County Airports Commission¹		5.500			05/01/2024		05/01/2010	^A		35,130
	10,000	San Francisco, CA City & County Airports Commission (SFO Fuel Company)¹		5.000			01/01/2014		01/01/2009	^A		10,036
	260,000	San Francisco, CA City & County Airports Commission (SFO Fuel Company)¹		5.125			01/01/2017		07/01/2009	^A		259,901


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	40,000	San Francisco, CA City & County Airports Commission (SFO Fuel Company)¹		5.250	%		01/01/2021		01/01/2021		$	39,036
	50,000	San Francisco, CA City & County Airports Commission (SFO Fuel Company)¹		5.250			01/01/2027		01/01/2027			47,507
	25,000	San Francisco, CA City & County COP (2789 25th Street Property)¹		5.000			09/01/2013		09/01/2008	^A		25,046
	20,000	San Francisco, CA City & County COP (77th Street Property)¹		5.300			09/01/2022		09/01/2008	^A		20,434
	90,000	San Francisco, CA City & County COP (San Bruno Jail)¹		5.250			10/01/2026		10/01/2010	^A		90,689
	2,000,000	San Francisco, CA City & County COP (San Bruno Jail)¹		5.250			10/01/2033		10/01/2010	^A		2,006,340
	50,000	San Francisco, CA City & County Financing Corp. (Comb Emergency Communications)¹		5.000			04/01/2015		04/01/2009	^A		50,092
	70,000	San Francisco, CA City & County Financing Corp. (Comb Emergency Communications)¹		5.300			04/01/2011		10/01/2008	^A		70,150
	45,000	San Francisco, CA City & County Improvement Bond Act 1915		6.850			09/02/2026		09/02/2008	^A		46,363
	25,000	San Francisco, CA City & County Parking Authority (Parking Meter)¹		5.000			06/01/2018		06/01/2009	^A		25,292
	115,000	San Francisco, CA City & County Redevel. Agency¹		6.750			07/01/2025		01/01/2009	^A		117,151
	90,000	San Francisco, CA City & County Redevel. Agency (South Beach)¹		5.700			03/01/2029		09/01/2008	^A		90,041
	25,000	San Joaquin County, CA Community Facilities District Special Tax (Delta Farms)		6.125			09/01/2024		09/01/2024			25,215
	775,000	San Joaquin Hills, CA Transportation Corridor Agency¹		5.375			01/15/2029		01/15/2029			709,389
	20,000	San Jose, CA Improvement Bond Act 1915		5.600			09/02/2016		09/02/2016			19,931
	25,000	San Jose, CA Improvement Bond Act 1915		5.700			09/02/2018		09/02/2018			24,688
	95,000	San Jose, CA Improvement Bond Act 1915		5.750			09/02/2019		09/02/2019			93,733
	60,000	San Jose, CA Improvement Bond Act 1915		5.750			09/02/2020		09/02/2020			59,405
	280,000	San Jose, CA Multifamily Hsg. (Almaden Senior Hsg. Partners)¹		5.350			07/15/2034		07/03/2020	^C		278,362
	30,000	San Jose, CA Multifamily Hsg. (El Parador Apartments)		6.100			01/01/2031		10/11/2012	^C		29,541
	275,000	San Jose, CA Multifamily Hsg. (Sixth & Martha Family Apartments)¹		5.875			03/01/2033		10/06/2025	^B		269,902
	10,000	San Jose, CA Redevel. Agency		5.500			08/01/2016		08/01/2008	^A		10,123
	45,000	San Jose, CA Redevel. Agency¹		5.750			08/01/2017		08/01/2009	^A		45,352
	20,000	San Jose, CA Unified School District COP¹		5.000			06/01/2016		12/01/2008	^A		20,037
	35,000	San Jose, CA Unified School District COP¹		5.125			06/01/2022		12/01/2008	^A		35,055

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	190,000	San Leandro, CA Community Facilities District No.1 Special Tax		6.400	%		09/01/2019		09/01/2008	^A	$	191,974
	200,000	San Marcos, CA Public Facilities Authority		5.800			09/01/2018		09/01/2008	^A		201,292
	35,000	San Marcos, CA Redevel. Agency Tax Allocation (Affordable Hsg.)¹		5.650			10/01/2028		10/01/2009	^A		35,044
	1,045,000	San Marcos, CA Special Tax		5.900			09/01/2028		05/02/2026	^B		1,007,464
	20,000	San Mateo, CA Sewer¹		5.000			08/01/2028		08/01/2008	^A		20,002
	25,000	San Rafael, CA Joint Powers Financing Authority		6.000			09/02/2011		09/02/2008	^A		25,032
	80,000	Santa Clara County, CA Hsg. Authority (Rivertown Apartments)		5.700			08/01/2021		02/01/2013	^A		80,903
	25,000	Santa Clara, CA Unified School District¹		5.000			08/01/2022		08/01/2008	^A		25,207
	50,000	Santa Cruz County, CA Hsg. Authority (Northgate Apartments)¹		5.350			07/20/2022		07/20/2011	^A		49,902
	5,000	Santa Margarita, CA Water District Special Tax Facilities District No. 99-1		6.200			09/01/2020		09/01/2009	^A		5,336
	20,000	Santa Margarita, CA Water District Special Tax Facilities District No. 99-1		6.200			09/01/2020		09/01/2009	^A		20,344
	15,000	Santa Margarita, CA Water District Special Tax Facilities District No. 99-1		6.250			09/01/2029		09/01/2009	^A		16,015
	45,000	Santa Margarita, CA Water District Special Tax Facilities District No. 99-1		6.250			09/01/2029		09/01/2011	^A		45,416
	25,000	Santa Maria, CA COP		5.500			08/01/2021		08/01/2008	^A		25,005
	30,000	Santa Nella County, CA Water District		6.250			09/02/2028		08/04/2010	^C		29,811
	175,000	Santa Rosa, CA Improvement Bond Act 1915 (Fountaingrove Parkway)		5.700			09/02/2019		05/01/2017	^B		171,211
	20,000	Santa Rosa, CA Improvement Bond Act 1915 (Nielson Ranch)		6.700			09/02/2022		09/02/2008	^A		20,408
	40,000	Santa Rosa, CA Improvement Bond Act 1915 (Skyhawk)		5.750			09/02/2020		11/22/2017	^B		39,096
	50,000	Santaluz, CA Special Tax Community Facilities District No. 2		5.500			09/01/2030		04/26/2028	^B		46,989
	950,000	Santaluz, CA Special Tax Community Facilities District No. 2		6.375			09/01/2030		09/01/2008	^A		950,162
	115,000	Scotts Valley, CA Special Tax¹		5.200			09/01/2028		09/01/2008	^A		115,021
	15,000	Sequoia, CA Hospital District		5.375			08/15/2023		08/15/2008	^A		15,420
	110,000	Shafter, CA Community Devel. Agency Tax Allocation		5.000			11/01/2013		11/01/2013			110,520
	100,000	Shafter, CA Community Devel. Agency Tax Allocation		5.250			11/01/2017		11/01/2017			97,175
	100,000	Shafter, CA Community Devel. Agency Tax Allocation		5.300			11/01/2018		11/01/2018			96,504


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	100,000	Shafter, CA Community Devel. Agency Tax Allocation		5.350	%		11/01/2019		11/01/2019		$	96,031
	100,000	Shafter, CA Community Devel. Agency Tax Allocation		5.375			11/01/2020		11/01/2020			95,583
	75,000	Solana Beach, CA Community Facilities District		5.200			09/01/2009		09/01/2009			76,479
	80,000	Solana Beach, CA Community Facilities District		5.300			09/01/2010		09/01/2010			81,583
	1,000,000	Southern CA Public Power Authority¹		5.000			07/01/2015		01/01/2009	^A		1,001,830
	20,000	Southern CA Public Power Authority¹		5.500			07/01/2020		01/01/2009	^A		20,022
	30,000	Southern CA Public Power Authority (Palo Verde)		5.000			07/01/2017		01/01/2009	^A		30,062
	2,125,000	Southern CA Tobacco Securitization Authority¹		4.750			06/01/2025		10/14/2012	^C		1,893,375
	1,935,000	Southern CA Tobacco Securitization Authority (TASC)¹		5.000			06/01/2037		11/25/2020	^B		1,437,163
	25,000	Stockton, CA Community Facilities District		5.550			08/01/2014		08/01/2008	^A		25,103
	25,000	Stockton, CA Community Facilities District		6.750			08/01/2010		08/01/2008	^A		25,364
	20,000	Stockton, CA COP¹		5.200			09/01/2029		09/01/2010	^A		20,117
	30,000	Stockton, CA Improvement Bond Act 1915		5.800			09/02/2020		04/19/2017	^B		29,831
	50,000	Stockton, CA Improvement Bond Act 1915 (Weber/Sperry)		5.650			09/02/2013		09/02/2013			50,052
	50,000	Susanville, CA COP⁷		5.750			05/01/2011		11/01/2008	^A		50,552
	85,000	Susanville, CA COP⁷		6.000			05/01/2011		11/01/2008	^A		85,955
	60,000	Susanville, CA Public Financing Authority¹		5.500			09/01/2027		09/01/2014	^A		61,658
	45,000	Sweetwater, CA Authority¹		5.250			04/01/2010		10/23/2008	^B		46,216
	15,000	Tejon Ranch, CA Public Facilities Finance Authority		7.200			09/01/2030		09/01/2008	^A		15,462
	740,000	Tejon Ranch, CA Public Facilities Finance Authority Special Tax (Community Facilities District No. 1)		7.200			09/01/2030		09/01/2008	^A		762,570
	30,000	Temecula Valley, CA Unified School District Community Facilities District No. 02-1		6.125			09/01/2033		10/14/2031	^B		30,056
	830,000	Temecula, CA Public Financing Authority Community Facilities District (Roripaugh)		4.350			09/01/2009		09/01/2009			797,497
	865,000	Temecula, CA Public Financing Authority Community Facilities District (Roripaugh)		4.500			09/01/2010		09/01/2010			804,078
	905,000	Temecula, CA Public Financing Authority Community Facilities District (Roripaugh)		4.650			09/01/2011		09/01/2011			816,790
	20,000	Torrance, CA Redevel. Agency (Downtown Redevel.)¹		5.550			09/01/2018		09/01/2010	^A		20,096
	835,000	Tracy, CA Area Public Facilities Financing Agency¹		5.875			10/01/2013		10/01/2008	^A		896,940
	50,000	Tracy, CA Community Facilities District		5.400			09/01/2015		09/01/2012	^A		50,205
	50,000	Tracy, CA Community Facilities District		6.100			09/01/2015		09/02/2011	^A		51,429
	10,000	Tracy, CA Community Facilities District		6.500			09/01/2020		09/02/2011	^A		10,193

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	25,000	Tracy, CA Community Facilities District (205 Parcel Glen)		6.250	%		09/01/2032		05/07/2030	^B	$	24,738
	100,000	Tracy, CA Community Facilities District (South Mac Arthur Area)		6.000			09/01/2027		05/31/2025	^B		96,207
	30,000	Tracy, CA Community Facilities District (South Mac Arthur Area)		6.300			09/01/2017		09/02/2011	^A		30,471
	35,000	Tracy, CA Improvement Bond Act 1915		5.700			09/02/2023		08/16/2019	^B		33,901
	75,000	Tracy, CA Operating Partnership Joint Powers Authority		6.100			09/02/2021		09/02/2008	^A		75,516
	30,000	Truckee-Donner, CA Public Utility District Special Tax		5.800			09/01/2035		05/25/2033	^B		27,642
	75,000	Truckee-Donner, CA Public Utility District Special Tax		6.000			09/01/2028		06/06/2026	^B		71,998
	20,000	Truckee-Donner, CA Public Utility District Special Tax		6.100			09/01/2033		10/31/2031	^B		19,315
	30,000	Tulare County, CA COP¹		5.700			02/15/2009		08/15/2008	^A		30,088
	25,000	Turlock, CA Irrigation District, Series A¹		5.000			01/01/2026		01/01/2010	^A		25,077
	210,000	Upland, CA Community Facilities District Special Tax		5.900			09/01/2024		09/01/2013	^A		210,764
	185,000	Upland, CA COP (San Antonio Community Hospital)¹		5.000			01/01/2018		01/01/2009	^A		184,994
	40,000	Vacaville, CA COP¹		5.500			08/15/2021		08/15/2008	^A		40,056
	35,000	Vacaville, CA COP¹		5.500			08/15/2027		08/15/2008	^A		35,049
	20,000	Vacaville, CA Improvement Bond Act 1915 (East Monte Vista Avenue)		5.850			09/02/2016		03/02/2013	^A		20,211
	10,000	Vacaville, CA Improvement Bond Act 1915 (Green Tree Reassessment District)		6.300			09/02/2013		09/02/2008	^A		10,212
	195,000	Vacaville, CA Public Financing Authority¹		5.400			09/01/2022		09/01/2008	^A		195,737
	145,000	Vacaville, CA Redevel. Agency (Vacaville Community Hsg.)¹		6.000			11/01/2024		11/01/2010	^A		148,110
	275,000	Val Verde, CA Unified School District		6.125			09/01/2034		06/24/2031	^B		266,126
	30,000	Vallejo, CA Public Financing Authority, Series A		7.500			09/01/2020		09/01/2008	^A		30,028
	40,000	Vallejo, CA Quadrant Improvement District No. 001		6.000			09/01/2017		09/01/2015	^A		40,238
	30,000	Vallejo, CA Quadrant Improvement District No. 001		6.000			09/01/2026		05/02/2024	^B		28,584
	40,000	Vallejo, CA Quadrant Improvement District No. 001		6.125			09/01/2034		06/24/2031	^B		38,173
	50,000	Vallejo, CA Unified School District¹		5.375			08/01/2020		08/01/2008	^A		50,117
	25,000	Vallejo, CA Unified School District¹		5.400			08/01/2024		08/01/2008	^A		25,049
	25,000	Valley Center-Pauma, CA Unified School District (Woods Valley Ranch)		5.500			09/01/2019		09/01/2019			24,322


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	10,000	Valley Center-Pauma, CA Unified School District (Woods Valley Ranch)		6.000	%		09/01/2025		09/01/2025		$	9,941
	20,000	Valley Center-Pauma, CA Unified School District (Woods Valley Ranch)		6.000			09/01/2028		09/16/2027	^B		19,199
	1,825,000	Ventura County, CA Area Hsg. Authority (Mira Vista Senior Apartments)¹		5.000			12/01/2022		10/04/2016	^C		1,738,659
	100,000	Ventura, CA Port District COP		6.375			08/01/2028		08/01/2010	^A		100,148
	145,000	Victor, CA Elementary School District		5.600			09/01/2034		04/06/2033	^B		130,084
	60,000	Vista, CA Joint Powers Financing Authority¹		6.100			10/01/2021		10/01/2008	^A		60,132
	5,000	Vista, CA Joint Powers Financing Authority¹		6.250			12/01/2019		12/01/2008	^A		5,013
	20,000	Wasco, CA Improvement Bond Act 1915		8.750			09/02/2010		09/02/2008	^A		20,658
	25,000	Wasco, CA Improvement Bond Act 1915		8.750			09/02/2013		09/02/2008	^A		25,825
	25,000	West Contra Costa, CA Unified School District¹		5.000			08/01/2023		08/01/2010	^A		25,184
	100,000	West Covina, CA Redevel. Agency Tax Allocation (Executive Lodge Apartments)¹		5.100			09/01/2014		09/01/2008	^A		100,019
	20,000	West Patterson, CA Financing Authority Special Tax		5.850			09/01/2028		10/29/2026	^B		18,862
	10,000	West Patterson, CA Financing Authority Special Tax		6.000			09/01/2019		09/01/2015	^A		10,106
	15,000	West Patterson, CA Financing Authority Special Tax		6.000			09/01/2039		05/18/2035	^B		14,132
	105,000	West Patterson, CA Financing Authority Special Tax		6.600			09/01/2033		09/01/2008	^A		105,040
	25,000	West Patterson, CA Financing Authority Special Tax		6.700			09/01/2032		09/01/2008	^A		25,013
	10,000	West Patterson, CA Financing Authority Special Tax		6.750			09/01/2035		09/01/2008	^A		10,005
	120,000	West Patterson, CA Financing Authority Special Tax		6.750			09/01/2036		09/01/2008	^A		120,062
	10,000	West Patterson, CA Financing Authority Special Tax Community Facilities District		5.600			09/01/2019		09/01/2019			9,816
	60,000	West Sacramento, CA Financing Authority Special Tax		6.100			09/01/2029		02/15/2026	^B		58,640
	5,000	West Sacramento, CA Improvement Bond Act 1915		8.500			09/02/2017		09/02/2008	^A		5,156
	250,000	West Sacramento, CA Special Tax Community Facilities District No. 12¹		5.750			09/01/2029		03/01/2009	^A		252,920
	50,000	West Sacramento, CA Special Tax Community Facilities District No. 14		6.125			09/01/2021		03/01/2011	^A		50,239
	10,000	West Sacramento, CA Special Tax Community Facilities District No. 17		5.875			09/01/2033		08/17/2029	^B		9,354
	50,000	West Sacramento, CA Special Tax Community Facilities District No. 8 (Southport)		6.500			09/01/2031		03/01/2011	^A		50,266

STATEMENT OF INVESTMENTS Continued


								Effective
Principal								Maturity*
Amount			Coupon			Maturity		(Unaudited)			Value

California Continued
$	25,000	Western CA Municipal Water Districts		7.125	%		09/02/2014		09/02/2008	^A	$	25,792
	30,000	Yorba Linda, CA Redevel. Agency Tax Allocation¹		5.250			09/01/2013		09/01/2008	^A		30,060
	70,000	Yorba Linda, CA Redevel. Agency Tax Allocation¹		5.250			09/01/2023		09/01/2008	^A		70,104
	50,000	Yuba City, CA Unified School District COP¹		4.900			02/01/2011		08/01/2008	^A		50,084
	30,000	Yuba City, CA Unified School District COP¹		5.250			02/01/2022		08/01/2008	^A		30,044
	25,000	Yucaipa, CA Redevel. Agency (Eldorado Palms Mobile Home)		6.000			05/01/2030		07/06/2025	^B		23,818
	30,000	Yucaipa, CA Special Tax Community Facilities District No. 98-1		6.000			09/01/2028		09/15/2019	^C		28,799

												296,450,414
U.S. Possessions—3.9%
	600,000	Guam Government Waterworks Authority and Wastewater System		6.000			07/01/2025		11/19/2021	^B		593,622
	60,000	Puerto Rico Children’s Trust Fund (TASC)¹		5.375			05/15/2033		05/15/2014	^B		55,406
	360,000	Puerto Rico Commonwealth GO		5.250			07/01/2032		10/01/2031	^B		355,637
	335,000	Puerto Rico HFC (Homeowner Mtg.)¹		5.200			12/01/2032		12/01/2008	^A		337,037
	590,000	Puerto Rico HFC, Series B¹		5.300			12/01/2028		01/31/2021	^B		566,553
	110,000	Puerto Rico IMEPCF (American Home Products)		5.100			12/01/2018		12/01/2008	^A		114,129
	2,535,000	Puerto Rico ITEMECF (Cogeneration Facilities)		6.625			06/01/2026		06/01/2010	^A		2,578,425
	520,000	Puerto Rico ITEMECF (University Plaza)¹		5.625			07/01/2013		07/01/2010	^A		530,748
	1,500,000	Puerto Rico Municipal Finance Agency, Series A		5.250			08/01/2023		08/01/2023			1,487,715
	135,000	Puerto Rico Municipal Finance Agency, Series A¹		5.500			07/01/2017		01/01/2009	^A		136,314
	75,000	Puerto Rico Port Authority, Series D¹		6.000			07/01/2021		01/01/2009	^A		75,279
	1,150,000	Puerto Rico Port Authority, Series D¹		7.000			07/01/2014		01/01/2009	^A		1,155,681
	250,000	V.I. Public Finance Authority, Series A¹		5.250			10/01/2024		10/01/2024			242,303
	160,000	V.I. Public Finance Authority, Series A¹		5.500			10/01/2022		01/09/2021	^B		159,830
	2,500,000	V.I. Public Finance Authority, Series A		6.375			10/01/2019		10/01/2010	^A		2,635,750
	1,000,000	V.I. Water & Power Authority		5.000			07/01/2023		07/01/2023			978,327

												12,002,756

Total Investments, at Value (Cost $323,332,003)—100.2%												308,453,170
Liabilities in Excess of Other Assets—(0.2)												(736,098	)


Net Assets—100.0%											$	307,717,072

Footnotes to Statement of Investments

* Call Date, Put Date or Average Life of Sinking Fund, if applicable, as detailed.

A. Optional call date; corresponds to the most conservative yield calculation.

B. Average life due to mandatory, or expected, sinking fund principal payments prior to maturity.

C. Average life due to mandatory, or expected, sinking fund principal payments prior to the applicable optional call date.

1. All or a portion of the security has been segregated for collateral to cover borrowings. See Note 6 of accompanying Notes.

2. Zero coupon bond reflects effective yield on the date of purchase.

3. Denotes a step bond: a zero coupon bond that converts to a fixed or variable interest rate at a designated future date.

4. Security represents the underlying municipal bond on an inverse floating rate security. The bond was purchased by the Fund and subsequently segregated and transferred to a trust. See Note 1 of accompanying Notes.

5. Issue is in default. See Note 1 of accompanying Notes.

6. Represents the current interest rate for a variable or increasing rate security.

7. Illiquid security. The aggregate value of illiquid securities as of July 31, 2008 was $826,441, which represents 0.27% of the Fund’s net assets. See Note 5 of accompanying Notes.

To simplify the listings of securities, abbreviations are used per the table below:


ABAG		Association of Bay Area Governments
CDA		Communities Devel. Authority
COP		Certificates of Participation
CVHP		Citrus Valley Health Partners
CVMC		Citrus Valley Medical Center
FH		Foothill Hospital
GO		General Obligation
GP		General Purpose
HFA		Housing Finance Agency
HFC		Housing Finance Corp.
IMEPCF		Industrial, Medical and Environmental Pollution Control Facilities
INFLOS		Inverse Floating Rate Securities
ITEMECF		Industrial, Tourist, Educational, Medical and Environmental Community Facilities
M-S-R		Modesto Irrigation District of the City of Santa Clara and the City of Redding
PARS		Periodic Auction Reset Securities
TASC		Tobacco Settlement Asset-Backed Bonds
V.I.		United States Virgin Islands

See accompanying Notes to Financial Statements.

STATEMENT OF ASSETS AND LIABILITIES July 31, 2008



Assets
Investments, at value (cost $323,332,003)—see accompanying statement of investments	$	308,453,170

Cash		444,824

Receivables and other assets:
Interest		4,546,016
Investments sold		1,684,443
Shares of beneficial interest sold		400,803
Other		26,033

Total assets		315,555,289


Liabilities
Payables and other liabilities:
Payable for short-term floating rate notes issued (See Note 1)		5,160,000
Payable on borrowings (See Note 6)		1,300,000
Shares of beneficial interest redeemed		912,530
Dividends		278,599
Distribution and service plan fees		64,792
Shareholder communications		27,349
Trustees’ compensation		24,722
Investments purchased		10,216
Transfer and shareholder servicing agent fees		7,854
Interest expense on borrowings		7,684
Other		44,471

Total liabilities		7,838,217


Net Assets	$	307,717,072



Composition of Net Assets
Par value of shares of beneficial interest	$	92,126

Additional paid-in capital		322,854,301

Accumulated net investment income		427,605

Accumulated net realized loss on investments		(778,127	)

Net unrealized depreciation on investments		(14,878,833	)


Net Assets	$	307,717,072



Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net assets of $228,158,692 and 68,267,032 shares of beneficial interest outstanding)	$	3.34
Maximum offering price per share (net asset value plus sales charge of 3.50% of offering price)	$	3.46

Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $2,028,261 and 594,152 shares of beneficial interest outstanding)	$	3.41

Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge) and offering price per share (based on net assets of $77,530,119 and 23,265,205 shares of beneficial interest outstanding)	$	3.33

See accompanying Notes to Financial Statements.

STATEMENT OF OPERATIONS For the Year Ended July 31, 2008



Investment Income
Interest	$	16,273,087

Other income		60

Total investment income		16,273,147


Expenses
Management fees		1,386,807

Distribution and service plan fees:
Class A		567,669
Class B		20,703
Class C		713,147

Transfer and shareholder servicing agent fees:
Class A		54,212
Class B		2,461
Class C		31,460

Shareholder communications:
Class A		49,387
Class B		1,202
Class C		21,513

Interest expense and fees on short-term floating rate notes issued (See Note 1)		447,691

Interest expense on borrowings		252,115

Custodian fees and expenses		41,577

Trustees’ compensation		11,955

Other		112,789

Total expenses		3,714,688
Less reduction to custodian expenses		(35,898	)

Net expenses		3,678,790


Net Investment Income		12,594,357


Realized and Unrealized Loss
Net realized loss on investments		(579,392	)

Net change in unrealized depreciation on investments		(17,182,405	)


Net Decrease in Net Assets Resulting from Operations	$	(5,167,440	)

See accompanying Notes to Financial Statements.

STATEMENTS OF CHANGES IN NET ASSETS


Year Ended July 31,	2008			2007

Operations
Net investment income	$	12,594,357		$	9,572,724

Net realized gain (loss)		(579,392	)		233,194

Net change in unrealized appreciation (depreciation)		(17,182,405	)		891,554


Net increase (decrease) in net assets resulting from operations		(5,167,440	)		10,697,472


Dividends and/or Distributions to Shareholders
Dividends from net investment income:
Class A		(9,692,459	)		(7,492,067	)
Class B		(67,103	)		(71,582	)
Class C		(2,491,188	)		(1,830,315	)


		(12,250,750	)		(9,393,964	)


Beneficial Interest Transactions
Net increase (decrease) in net assets resulting from beneficial interest transactions:
Class A		33,320,429			45,500,859
Class B		11,952			(407,225	)
Class C		22,596,910			7,070,729


		55,929,291			52,164,363


Net Assets
Total increase		38,511,101			53,467,871

Beginning of period		269,205,971			215,738,100


End of period (including accumulated net investment income of $427,605 and $83,998, respectively)	$	307,717,072		$	269,205,971

See accompanying Notes to Financial Statements.

STATEMENT OF CASH FLOWS For the Year Ended July 31, 2008



Cash Flows from Operating Activities
Net decrease in net assets from operations	$	(5,167,440	)

Adjustments to reconcile net decrease in net assets from operations to net cash used in operating activities:
Purchase of investment securities		(103,175,759	)
Proceeds from disposition of investment securities		89,502,796
Short-term investment securities, net		(35,431,112	)
Premium amortization		1,754,431
Discount accretion		(1,557,461	)
Net realized loss on investments		579,392
Net change in unrealized depreciation on investments		17,182,405
Increase in interest receivable		(1,134,043	)
Increase in receivable for securities sold		(559,953	)
Increase in other assets		(20,517	)
Decrease in payable for securities purchased		(231,738	)
Increase in payable for accrued expenses		45,566

Net cash used in operating activities		(38,213,433	)


Cash Flows from Financing Activities
Proceeds from bank borrowings		158,200,000
Payments on bank borrowings		(158,800,000	)
Payments on short-term floating rate notes issued		(9,535,000	)
Proceeds from shares sold		218,824,260
Payments on shares redeemed		(166,278,514	)
Cash distributions paid		(4,153,149	)


Net cash provided by financing activities		38,257,597

Net increase in cash		44,164

Cash, beginning balance		400,660


Cash, ending balance	$	444,824

Supplemental disclosure of cash flow information:

Noncash financing activities not included herein consist of reinvestment of dividends and distributions of $7,989,652.

Cash paid for interest on bank borrowings—$255,774.

Cash paid for interest on short-term floating rate notes issued—$447,691.

See accompanying Notes to Financial Statements.

FINANCIAL HIGHLIGHTS


Class A Year Ended July 31,	2008			2007			2006			2005			2004¹

Per Share Operating Data
Net asset value, beginning of period	$	3.55		$	3.52		$	3.56		$	3.30		$	3.35

Income (loss) from investment operations:
Net investment income		.15	²		.15	²		.15	²		.16	²		.07
Net realized and unrealized gain (loss)		(.22	)		.02			(.03	)		.25			(.06	)

Total from investment operations		(.07	)		.17			.12			.41			.01

Dividends and/or distributions to shareholders:
Dividends from net investment income		(.14	)		(.14	)		(.16	)		(.15	)		(.06	)


Net asset value, end of period	$	3.34		$	3.55		$	3.52		$	3.56		$	3.30



Total Return, at Net Asset Value³		(1.85	)%		4.99	%		3.32	%		12.78	%		0.21	%


Ratios/Supplemental Data
Net assets, end of period (in thousands)	$	228,159		$	208,041		$	161,562		$	44,554		$	11,627

Average net assets (in thousands)	$	229,325		$	186,689		$	105,009		$	21,877		$	8,381

Ratios to average net assets:⁴
Net investment income		4.36	%		4.10	%		4.19	%		4.76	%		4.99	%
Expenses excluding interest and fees on short-term floating rate notes issued		0.89	%		1.04	%		1.42	%		1.66	%		1.92	%
Interest and fees on short-term floating rate notes issued		0.15	%⁵		0.24	%⁵		—			—			—

Total expenses		1.04	%		1.28	%		1.42	%		1.66	%		1.92	%
Expenses after payments, waivers and/or reimbursements and reduction to custodian expenses		1.03	%		1.08	%		0.80	%		0.80	%		0.76	%

Portfolio turnover rate		41	%		17	%		33	%		4	%		2	%


1.		For the period from February 25, 2004 (commencement of operations) to July 31, 2004.

2.		Per share amounts calculated based on the average shares outstanding during the period.

3.		Assumes an investment at net asset value 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 return. 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. See Note 1 of accompanying Notes.

See accompanying Notes to Financial Statements.

FINANCIAL HIGHLIGHTS Continued


Class B Year Ended July 31,	2008			2007			2006			2005			2004¹

Per Share Operating Data
Net asset value, beginning of period	$	3.62		$	3.59		$	3.63		$	3.36		$	3.35

Income (loss) from investment operations:
Net investment income		.12	²		.12	²		.13	²		.14	²		.05
Net realized and unrealized gain (loss)		(.22	)		.02			(.04	)		.26			—³

Total from investment operations		(.10	)		.14			.09			.40			.05

Dividends and/or distributions to shareholders:
Dividends from net investment income		(.11	)		(.11	)		(.13	)		(.13	)		(.04	)


Net asset value, end of period	$	3.41		$	3.62		$	3.59		$	3.63		$	3.36



Total Return, at Net Asset Value⁴		(2.69	)%		4.05	%		2.49	%		12.03	%		1.60	%



Ratios/Supplemental Data
Net assets, end of period (in thousands)	$	2,028		$	2,136		$	2,517		$	1,295		$	510

Average net assets (in thousands)	$	2,068		$	2,276		$	1,980		$	836		$	297

Ratios to average net assets:⁵
Net investment income		3.46	%		3.34	%		3.49	%		4.11	%		3.96	%
Expenses excluding interest and fees on short-term floating rate notes issued		1.77	%		1.94	%		2.30	%		2.86	%		2.86	%
Interest and fees on short-term floating rate notes issued		0.15	%⁶		0.24	%⁶		—			—			—

Total expenses		1.92	%		2.18	%		2.30	%		2.86	%		2.86	%
Expenses after payments, waivers and/or reimbursements and reduction to custodian expenses		1.91	%		1.89	%		1.55	%		1.55	%		1.55	%

Portfolio turnover rate		41	%		17	%		33	%		4	%		2	%


1.		For the period from February 25, 2004 (commencement of operations) to July 31, 2004.

2.		Per share amounts calculated based on the average shares outstanding during the period.

3.		Less than $0.005 per share.

4.		Assumes an investment at net asset value 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 return. 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. See Note 1 of accompanying Notes.

See accompanying Notes to Financial Statements.


Class C Year Ended July 31,	2008			2007			2006			2005			2004¹

Per Share Operating Data
Net asset value, beginning of period	$	3.54		$	3.51		$	3.56		$	3.30		$	3.35

Income (loss) from investment operations:
Net investment income		.12	²		.12	²		.12	²		.14	²		.05
Net realized and unrealized gain (loss)		(.21	)		.03			(.04	)		.25			(.06	)

Total from investment operations		(.09	)		.15			.08			.39			(.01	)

Dividends and/or distributions to shareholders:
Dividends from net investment income		(.12	)		(.12	)		(.13	)		(.13	)		(.04	)


Net asset value, end of period	$	3.33		$	3.54		$	3.51		$	3.56		$	3.30



Total Return, at Net Asset Value³		(2.59	)%		4.25	%		2.30	%		12.00	%		(0.16	)%


Ratios/Supplemental Data
Net assets, end of period (in thousands)	$	77,530		$	59,029		$	51,659		$	21,589		$	4,079

Average net assets (in thousands)	$	71,291		$	55,357		$	39,346		$	9,836		$	2,044

Ratios to average net assets:⁴
Net investment income		3.58	%		3.34	%		3.46	%		3.98	%		3.92	%
Expenses excluding interest and fees on short-term floating rate notes issued		1.67	%		1.84	%		2.21	%		2.55	%		2.93	%
Interest and fees on short-term floating rate notes issued		0.15	%⁵		0.24	%⁵		—			—			—

Total expenses		1.82	%		2.08	%		2.21	%		2.55	%		2.93	%
Expenses after payments, waivers and/or reimbursements and reduction to custodian expenses		1.81	%		1.86	%		1.55	%		1.55	%		1.55	%

Portfolio turnover rate		41	%		17	%		33	%		4	%		2	%


1.		For the period from February 25, 2004 (commencement of operations) to July 31, 2004.

2.		Per share amounts calculated based on the average shares outstanding during the period.

3.		Assumes an investment at net asset value 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 return. 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. See Note 1 of accompanying Notes.

See accompanying Notes to Financial Statements.

NOTES TO FINANCIAL STATEMENTS

1. Significant Accounting Policies

Oppenheimer Limited Term California Municipal Fund (the “Fund”) is a non-diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended. The Fund’s investment objective is to seek as high a level of income exempt from federal income tax and California individual income taxes as is consistent with its investment policies and prudent investment management. The Fund’s investment adviser is OppenheimerFunds, Inc. (the “Manager”).

The Fund offers Class A, Class B and Class C shares. Class A shares are sold at their offering price, which is normally net asset value plus a front-end sales charge. Class B and Class C shares are sold without a front-end sales charge but may be subject to a contingent deferred sales charge (“CDSC”). All classes of shares have identical rights and voting privileges with respect to the Fund in general and exclusive voting rights on matters that affect that class alone. Earnings, net assets and net asset value per share may differ due to each class having its own expenses, such as transfer and shareholder servicing agent fees and shareholder communications, directly attributable to that class. Class A, B and C have separate distribution and/or service plans. Class B shares will automatically convert to Class A shares 72 months after the date of purchase.

The following is a summary of significant accounting policies consistently followed by the Fund.

Securities Valuation. The Fund calculates the net asset value of its shares as of the close of the New York Stock Exchange (the “Exchange”), normally 4:00 P.M. Eastern time, on each day the Exchange is open for trading. Securities may be valued primarily using dealer-supplied valuations or a portfolio pricing service authorized by the Board of Trustees. Securities traded on a registered U.S. securities exchange are valued based on the last sale price of the security traded on that exchange prior to the time when the Fund’s assets are valued. Securities whose principal exchange is NASDAQ^® are valued based on the closing price reported by NASDAQ prior to the time when the Fund’s assets are valued. In the absence of a sale, the security is valued at the last sale price on the prior trading day, if it is within the spread of the closing “bid” and “asked” prices, and if not, at the closing bid price. Securities traded on foreign exchanges are valued based on the last sale price on the principal exchange on which the security is traded, as identified by the portfolio pricing service, prior to the time when the Fund’s assets are valued. In the absence of a sale, the security is valued at the official closing price on the principal exchange. Corporate, government and municipal debt instruments having a remaining maturity in excess of sixty days and all mortgage-backed securities, collateralized mortgage obligations and other asset-backed securities will be valued at the mean between the “bid” and “asked” prices. Securities for which market quotations are not readily available are valued at their fair value. Securities whose values have been materially affected by what the Manager identifies as a significant event occurring before the Fund’s assets are valued but after the close of their respective exchanges will be fair

valued. Fair value is determined in good faith using consistently applied procedures under the supervision of the Board of Trustees. Shares of a registered investment company that are not traded on an exchange are valued at the acquired investment company’s net asset value per share. “Money market-type” debt instruments with remaining maturities of sixty days or less are valued at cost adjusted by the amortization of discount or premium to maturity (amortized cost), which approximates market value.

Inverse Floating Rate Securities. The Fund invests in inverse floating rate securities that pay interest at a rate that varies inversely with short-term interest rates. Certain of these securities may be leveraged, whereby the interest rate varies inversely at a multiple of the change in short-term rates. As interest rates rise, inverse floaters produce less current income. The price of such securities is more volatile than comparable fixed rate securities. The Fund may expose up to 20% of its total assets to the effects of leverage from its investments in inverse floaters. The Fund’s exposure to the effects of leverage from its investments in inverse floaters amount to $5,232,029 as of July 31, 2008, which represents 1.66% of the Fund’s total assets.

Certain inverse floating rate securities are created when the Fund purchases and subsequently transfers a municipal bond security (the “municipal bond”) to a broker dealer. The municipal bond is typically a fixed rate security. The broker dealer (the “sponsor”) creates a trust (the “Trust”) and deposits the municipal bond. The Trust issues short-term floating rate notes available to third parties and a residual interest in the municipal bond (referred to as an “inverse floating rate security”) to the Fund. The terms of these inverse floating rate securities grant the Fund the right to require that the Trust issuing the inverse floating rate security compel a tender of the short-term floating rate notes to facilitate the Fund’s repurchase of the underlying municipal bond. Following such a request, the Fund pays the sponsor the principal amount due to the holders of the short-term floating rate notes issued by the Trust and exchanges the inverse floating rate security for the underlying municipal bond. These transactions are considered secured borrowings for financial reporting purposes. As a result of such accounting treatments, the Fund includes the municipal bond position on its Statement of Investments (but do not separately include the inverse floating rate securities received). The Fund also includes the value of the municipal bond and a payable amount equal to the short-term floating rate notes issued by the Trust on its Statement of Assets and Liabilities. The interest rates on these short-term floating rate notes reset periodically, usually weekly. The holders of these short-term floating rate notes have the option to tender their investment, to the sponsor or the Trust’s liquidity provider, for redemption at par at each reset date. Income from the municipal bond position and the interest expense on the payable for the short-term floating rate notes issued by the Trust are recorded on the Fund’s Statement of Operations. At July 31, 2008, municipal bond holdings with a value of $6,961,038 shown on the Fund’s Statement of Investments are held by such Trusts and serve as collateral for the $5,160,000 in short-term floating rate notes issued and outstanding at that date.

NOTES TO FINANCIAL STATEMENTS Continued

1. Significant Accounting Policies Continued

At July 31, 2008, the Fund’s residual exposure to these types of inverse floating rate securities were as follows:

Principal

Coupon

Maturity

Amount

Inverse Floater¹

Rate²

Date

Value

1,725,000

CA Austin Trust Various States Inverse Certificates

14.021

2/1/42

1,801,038


1.		For a list of abbreviations used in the Inverse Floater table see the Portfolio Abbreviations table on page F33 of the Statement of Investments.

2.		Represents the current interest rate for a variable rate bond known as an “inverse floater”.

Credit Risk. The Fund invests in high-yield, non-investment-grade bonds, which may be subject to a greater degree of credit risk. Credit risk relates to the ability of the issuer to meet interest or principal payments or both as they become due. The Fund may acquire securities in default, and is not obligated to dispose of securities whose issuers subsequently default. As of July 31, 2008, securities with an aggregate market value of $433,733, representing 0.14% of the Fund’s net assets, were in default.

Concentration Risk. There are certain risks arising from geographic concentration in any state. Certain economic, regulatory or political developments occurring in the state may impair the ability of certain issuers of municipal securities to pay principal and interest on their obligations.

Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than those attributable to a specific class), gains and losses are allocated on a daily basis to each class of shares based upon the relative proportion of net assets represented by such class. Operating expenses directly attributable to a specific class are charged against the operations of that class.

Federal Taxes. The Fund intends to comply with provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its investment company taxable income, including any net realized gain on investments not offset by capital loss carryforwards, if any, to shareholders. Therefore, no federal income or excise tax provision is required. The Fund files income tax returns in U.S. federal and applicable state jurisdictions. The statute of limitations on the Fund’s tax return filings generally remain open for the three preceding fiscal reporting period ends.

The tax components of capital shown in the following table represent distribution requirements the Fund must satisfy under the income tax regulations, losses the Fund may be able to offset against income and gains realized in future years and unrealized appreciation or depreciation of securities and other investments for federal income tax purposes.

Net Unrealized

Depreciation

Based on Cost of

Securities and

Undistributed

Accumulated

Other Investments

Net Investment

Long-Term

Loss

for Federal Income

Income

Gain

Carryforward^1,2,3,4

Tax Purposes

$801,326

—

797,773

14,859,187


1.		As of July 31, 2008, the Fund had $247,106 of net capital loss carryforwards available to offset future realized capital gains, if any, and thereby reduce future taxable gain distributions. As of July 31, 2008, details of the capital loss carryforwards were as follows:


Expiring

2013	$	17,565
2014		1,553
2015		172,117
2016		55,871

Total	$	247,106


2.		As of July 31, 2008, the Fund had $550,667 of post-October losses available to offset future realized capital gains, if any. Such losses, if unutilized, will expire in 2017.

3.		During the fiscal year ended July 31, 2008, the Fund did not utilize any capital loss carryforward.

4.		During the fiscal year ended July 31, 2007, the Fund did not utilize any capital loss carryforward.

The tax character of distributions paid during the years ended July 31, 2008 and July 31, 2007 was as follows:


	Year Ended		Year Ended
	July 31, 2008		July 31, 2007

Distributions paid from:
Exempt-interest dividends	$	12,235,981	$	9,387,112
Ordinary income		14,769		6,852

Total	$	12,250,750	$	9,393,964

The aggregate cost of securities and other investments and the composition of unrealized appreciation and depreciation of securities and other investments for federal income tax purposes as of July 31, 2008 are noted in the following table. The primary difference between book and tax appreciation or depreciation of securities and other investments, if applicable, is attributable to the tax deferral of losses or tax realization of financial statement unrealized gain or loss.


Federal tax cost of securities	$	318,195,796

Gross unrealized appreciation	$	777,883
Gross unrealized depreciation		(15,637,070	)

Net unrealized depreciation	$	(14,859,187	)

Trustees’ Compensation. The Fund has adopted an unfunded retirement plan (the “Plan”) for the Fund’s independent trustees. Benefits are based on years of service and

NOTES TO FINANCIAL STATEMENTS Continued

1. Significant Accounting Policies Continued

fees paid to each trustee during their period of service. The Plan was frozen with respect to adding new participants effective December 31, 2006 (the “Freeze Date”) and existing Plan Participants as of the Freeze Date will continue to receive accrued benefits under the Plan. Active independent trustees as of the Freeze Date have each elected a distribution method with respect to their benefits under the Plan. During the year ended July 31, 2008, the Fund’s projected benefit obligations, payments to retired trustees and accumulated liability were as follows:


Projected Benefit Obligations Increased	$	6,021
Payments Made to Retired Trustees		1,559
Accumulated Liability as of July 31, 2008		18,030

The Board of Trustees has adopted a compensation deferral plan for independent trustees that enables trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Fund. For purposes of determining the amount owed to the Trustee under the plan, deferred amounts are treated as though equal dollar amounts had been invested in shares of the Fund or in other Oppenheimer funds selected by the Trustee. The Fund purchases shares of the funds selected for deferral by the Trustee in amounts equal to his or her deemed investment, resulting in a Fund asset equal to the deferred compensation liability. Such assets are included as a component of “Other” within the asset section of the Statement of Assets and Liabilities. Deferral of trustees’ fees under the plan will not affect the net assets of the Fund, and will not materially affect the Fund’s assets, liabilities or net investment income per share. Amounts will be deferred until distributed in accordance to the compensation deferral plan.

Dividends and Distributions to Shareholders. Dividends and distributions to shareholders, which are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles, are recorded on the ex-dividend date. Income distributions, if any, are declared daily and paid monthly. Capital gain distributions, if any, are declared and paid annually.

Investment Income. Interest income is recognized on an accrual basis. Discount and premium, which are included in interest income on the Statement of Operations, are amortized or accreted daily.

Custodian Fees. “Custodian fees and expenses” in the Statement of Operations may include interest expense incurred by the Fund on any cash overdrafts of its custodian account during the period. Such cash overdrafts may result from the effects of failed trades in portfolio securities and from cash outflows resulting from unanticipated shareholder redemption activity. The Fund pays interest to its custodian on such cash overdrafts, to the extent they are not offset by positive cash balances maintained by the Fund, at a rate equal to the Federal Funds Rate plus 0.50%. The “Reduction to custodian expenses” line item, if applicable, represents earnings on cash balances maintained by the

Fund during the period. Such interest expense and other custodian fees may be paid with these earnings.

Security Transactions. Security transactions are recorded on the trade date. Realized gains and losses on securities sold are determined on the basis of identified cost.

Indemnifications. The Fund’s organizational documents provide current and former trustees and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

Other. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

2. Shares of Beneficial Interest

The Fund has authorized an unlimited number of $0.001 par value shares of beneficial interest of each class. Transactions in shares of beneficial interest were as follows:


	Year Ended July 31, 2008						Year Ended July 31, 2007
	Shares			Amount			Shares			Amount

Class A
Sold		48,479,554		$	167,086,390			27,342,239		$	97,596,183
Dividends and/or distributions reinvested		1,875,204			6,422,486			1,424,806			5,091,404
Redeemed		(40,750,692	)		(140,188,447	)		(15,988,716	)		(57,186,728	)

Net increase		9,604,066		$	33,320,429			12,778,329		$	45,500,859


Class B
Sold		245,171		$	861,459			100,220		$	364,668
Dividends and/or distributions reinvested		14,350			50,271			12,889			46,976
Redeemed		(255,544	)		(899,778	)		(223,948	)		(818,869	)

Net increase (decrease)		3,977		$	11,952			(110,839	)	$	(407,225	)


Class C
Sold		13,224,730		$	45,354,132			6,963,581		$	24,823,382
Dividends and/or distributions reinvested		444,053			1,516,895			306,294			1,092,111
Redeemed		(7,087,050	)		(24,274,117	)		(5,283,912	)		(18,844,764	)

Net increase		6,581,733		$	22,596,910			1,985,963		$	7,070,729

NOTES TO FINANCIAL STATEMENTS Continued

3. Purchases and Sales of Securities

The aggregate cost of purchases and proceeds from sales of securities, other than short-term obligations, for the year ended July 31, 2008, were as follows:


	Purchases		Sales

Investment securities	$	103,175,759	$	89,502,796

4. Fees and Other Transactions with Affiliates

Management Fees. Under the investment advisory agreement, the Fund pays the Manager a management fee based on the daily net assets of the Fund at an annual rate as shown in the following table:


Fee Schedule

Up to $100 million	0.50	%
Next $150 million	0.45
Next $1.75 billion	0.40
Over $2 billion	0.39

Transfer Agent Fees. OppenheimerFunds Services (“OFS”), a division of the Manager, acts as the transfer and shareholder servicing agent for the Fund. The Fund pays OFS a per account fee. For the year ended July 31, 2008, the Fund paid $86,693 to OFS for services to the Fund.

Distribution and Service Plan (12b-1) Fees. Under its General Distributor’s Agreement with the Fund, OppenheimerFunds Distributor, Inc. (the “Distributor”) acts as the Fund’s principal underwriter in the continuous public offering of the Fund’s classes of shares.

Service Plan for Class A Shares. The Fund has adopted a Service Plan (the “Plan”) for Class A shares under Rule 12b-1 of the Investment Company Act of 1940. Under the Plan, the Fund reimburses the Distributor for a portion of its costs incurred for services provided to accounts that hold Class A shares. Reimbursement is made periodically at an annual rate of up to 0.25% of the average annual net assets of Class A shares of the Fund. The Distributor currently uses all of those fees to pay dealers, brokers, banks and other financial institutions periodically for providing personal service and maintenance of accounts of their customers that hold Class A shares. Any unreimbursed expenses the Distributor incurs with respect to Class A shares in any fiscal year cannot be recovered in subsequent periods. Fees incurred by the Fund under the Plan are detailed in the Statement of Operations.

Distribution and Service Plans for Class B and Class C Shares. The Fund has adopted Distribution and Service Plans (the “Plans”) for Class B and Class C shares under Rule 12b-1 of the Investment Company Act of 1940 to compensate the Distributor for its services in connection with the distribution of those shares and servicing accounts. Under the Plans, the Fund pays the Distributor an annual asset-based sales charge of 0.75% on Class B and Class C shares. The Distributor also receives a service fee of 0.25% per year under each plan. If either the Class B or Class C plan is terminated by the Fund or by the

shareholders of a class, the Board of Trustees and its independent trustees must determine whether the Distributor shall be entitled to payment from the Fund of all or a portion of the service fee and/or asset-based sales charge in respect to shares sold prior to the effective date of such termination. The Distributor’s aggregate uncompensated expenses under the Plans at June 30, 2008 for Class C shares was $860,985. Fees incurred by the Fund under the Plans are detailed in the Statement of Operations.

Sales Charges. Front-end sales charges and contingent deferred sales charges (“CDSC”) do not represent expenses of the Fund. They are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. The sales charges retained by the Distributor from the sale of shares and the CDSC retained by the Distributor on the redemption of shares is shown in the following table for the period indicated.

Class A

Class B

Class C

Class A

Contingent

Front-End

Deferred

Sales Charges

Retained by

Year Ended

Distributor

July 31, 2008

98,971

36,574

9,718

23,392

Waivers and Reimbursements of Expenses. OFS has voluntarily agreed to limit transfer and shareholder servicing agent fees for all classes to 0.35% of average annual net assets per class. This undertaking may be amended or withdrawn at any time.

5. Illiquid Securities

As of July 31, 2008, investments in securities included issues that are illiquid. 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 Fund will not invest more than 15% of its net assets (determined at the time of purchase and reviewed periodically) in illiquid securities. Securities that are illiquid are marked with an applicable footnote on the Statement of Investments.

6. Borrowings

The Fund can borrow money from banks in amounts up to one third of its total assets (including the amount borrowed) less all liabilities and indebtedness other than borrowings to purchase portfolio securities, to meet redemption obligations or for temporary and emergency purposes. The purchase of securities with borrowed funds creates leverage in the Fund. The use of leverage will subject the Fund to greater costs than funds that do not borrow for leverage, and may also make the Fund’s share price more sensitive to interest changes. The interest on borrowed money is an expense that might reduce the Fund’s yield. Expenses incurred by the Fund with respect to interest on borrowings and commitment fees are disclosed separately or as other expenses on the Statement of Operations.

NOTES TO FINANCIAL STATEMENTS Continued

6. Borrowings Continued

The Fund entered into a Revolving Credit and Security Agreement (the “Agreement”) with a conduit lender and a bank which enables it to participate with certain other Oppenheimer funds in a committed, secured borrowing facility that permits borrowings of up to $1.25 billion, collectively. To secure the loan, the Fund pledges investment securities in accordance with the terms of the Agreement. Interest is charged to the Fund, based on its borrowings, at current commercial paper issuance rates (2.7228% as of July 31, 2008). The Fund pays additional fees annually to its lender on its outstanding borrowings to manage and administer the facility and is allocated its pro-rata share of an annual commitment fee on the amount of the unused portion of the total facility size. The Fund has the right to prepay such loans and terminate its participation in the conduit loan facility at any time upon prior notice.

As of July 31, 2008, the Fund had borrowings outstanding at an interest rate of 2.7228%. Details of the borrowings for the year ended July 31, 2008 are as follows:


Average Daily Loan Balance	$	6,349,727
Average Daily Interest Rate		4.092	%
Fees Paid	$	42,275
Interest Paid	$	255,774

7. Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements. This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. As of July 31, 2008, the Manager does not believe the adoption of SFAS No. 157 will materially impact the financial statement amounts; however, additional disclosures may be required about the inputs used to develop the measurements and the effect of certain of the measurements on changes in net assets for the period.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. This standard requires enhanced disclosures about derivative and hedging activities, including qualitative disclosures about how and why the Fund uses derivative instruments, how these activities are accounted for, and their effect on the Fund’s financial position, financial performance and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. At this time, management is evaluating the implications of SFAS No. 161 and its impact on the Fund’s financial statements and related disclosures.

A bond rating performs the isolated function of credit risk evaluation. A bond rating does not constitute a recommendation to invest in a bond and does not take into consideration the risk preference of the investor. While many factors go into the investment decision making process, the bond rating is often the single most important factor affecting the interest cost on bonds.

There are three major nationally-recognized rating agencies for municipal bonds: Standard & Poor's Ratings Services ("Standard & Poor's"), Moody's Investors Service, Inc. ("Moody's") and Fitch Ratings ("Fitch"). Of the three rating agencies, Standard & Poor's and Moody's rate over 80% of all municipal and corporate bonds. Below are summaries of the rating definitions used by Standard & Poor's, Moody's and Fitch for municipal securities.

In assigning a rating for general obligation bonds, the rating agencies generally assess, among other things, the following factors: economy, debt structure, financial condition, demographic factors, and management practices of the governing body and administration. The above criteria are also used to analyze revenue bonds and lease obligations although additional credit criteria is considered (e.g., users and user charges for utilities) and the covenants and protections offered by the bond documents are highly important. Rating agencies use mathematical ratios to compare an issuer to others; however, a rating is not a scientific evaluation and subjective evaluation appears to also play a role in the final rating assigned.

Those ratings represent the opinion of the agency as to the credit quality of issues that they rate. The summaries below are based upon publicly-available information provided by the rating organizations.

Standard & Poor's may modify ratings from "AA" to "CCC" by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.

AAA: An obligation rated 'AAA' has the highest rating assigned by Standard & Poor's. 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 in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.

A: An obligation rated 'A' are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.

BBB: 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.

An obligation 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' are 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' are more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.

CCC: An obligation rated 'CCC' are currently vulnerable to nonpayment and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

C: The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued.

D: An obligation rated 'D' are in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.

Moody's applies numerical modifiers 1, 2, and 3 in each generic rating category from Aa through Caa.

Aaa: Issuers or issues rated Aaa demonstrate the strongest creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.

Aa: Issuers or issues rated Aa demonstrate very strong creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.

A: Issuers or issues rated A present above-average creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.

Baa: Issuers or issues rated Baa represent average creditworthiness relative to other U.S. municipal or tax- exempt issuers or issues.

Ba: Issuers or issues rated Ba demonstrate below-average creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.

B: Issuers or issues rated B demonstrate weak creditworthiness relative to other U.S. municipal or tax- exempt issuers or issues.

Caa: Issuers or issues rated Caa demonstrate very weak creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.

Ca: Issuers or issues rated Ca demonstrate extremely weak creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.

C: Issuers or issues rated C demonstrate the weakest creditworthiness relative to other U.S. municipal or tax-exempt issuers or issues.

Plus (+) or Minus (-): The ratings from AA to C may be modified by the addition of a plus or minus sign to indicate the relative position of a credit within the rating category.

AAA: Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events.

AA: Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+".

A: Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings.

BBB: Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings.

BB: Bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified that could assist the obligor in satisfying its debt service requirements.

B: Bonds are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.

CCC: Bonds have certain identifiable characteristics which, if not remedied, may lead to default. The ability to meet
obligations requires an advantageous business and economic environment.

CC: Bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.

DDD, DD, and D: Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. "DDD" represents the highest potential for recovery on these bonds, and "D" represents the lowest potential for recovery.

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 one year, including commercial paper.

A-1: A short-term obligation rated "A-1" is rated in the highest category by Standard & Poor's. 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.

B: A short-term obligation rated "B" is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.

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 payment default. The "D" rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The "D" rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.

Notes. A Standard & Poor's note rating reflects the liquidity factors and market access risks unique to notes. Notes due in three years or less will likely receive a note rating. Notes maturing beyond three years will most likely receive a long-term debt rating. The following criteria will be used in making that assessment:

SP-1: Strong capacity to pay principal and interest. An issue with a very strong capacity to pay debt service is given a (+) designation.

SP-2: Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.

Moody's uses three rating categories for short-term obligations that are considered investment grade. These ratings are designated as Moody's Investment Grade (MIG) and are divided into three levels -- MIG 1 through MIG 3. In addition, those short-term obligations that are of speculative quality are designated SG, or speculative grade.

Variable Rate Demand Obligations (VRDOs). In the case of VRDOs, a two-component rating is assigned. The first element represents Moody's evaluation of the degree of risk associated with scheduled principal and interest payments. The second element represents Moody's evaluation of the degree of risk associated with the demand feature, using the MIG rating scale.

The short-term rating assigned to the demand feature of VRDOs is designated as VMIG. If either the long- or short-term aspect of a VRDO is not rated, that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1. MIG ratings expire at note maturity. By contrast, VMIG rating expirations will be a function of each issue's specific structural or credit features.

MIG 1/VMIG 1: Denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support or demonstrated broad-based access to the market for refinancing.

MIG 2/VMIG 2: Denotes strong credit quality. Margins of protection are ample although not as large as in the preceding group.

MIG 3/VMIG 3: Denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for refinancing is likely to be less well established.

SG: Denotes speculative-grade credit quality. Debt instruments in this category may lack margins of protection.

F-1+: Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment.

F-1: Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated "F-1+".

F-2: Good Credit Quality. Issues carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the "F-1+" and "F-1" categories.

F-3: Fair Credit Quality. Issues carrying this rating have characteristics suggesting that the degree of assurance for timely payment is adequate, however, near-term adverse change could cause these securities to be rated below investment grade.

Special Considerations Relating to Municipal Obligations in California and U.S. Territories, Commonwealths and Possessions

Because the Fund invests in securities issued by California or entities within California, an investment in the Fund may involve greater risk than investments in certain other types of municipal bond funds. You should consider carefully the special risks inherent in the Fund's investments in California municipal securities.

The Fund also invests in municipal securities issued by certain territories, commonwealths and possessions of the United States that pay interest that is exempt (in the opinion of the issuer's legal counsel when the security is issued) from federal income tax and the Fund's state personal income tax. Therefore, the Fund's investments could be affected by the fiscal stability of, for example, Puerto Rico, the Virgin Islands, Guam or the Mariana Islands. Additionally, the Fund's investments could be affected by economic, legislative, regulatory or political developments affecting issuers in those territories, commonwealths or possessions.

Following is a discussion of the special considerations relating to the Fund's investments in municipal securities issued by California, Puerto Rico, the Virgin Islands, Guam and Mariana Islands.

The following information constitutes only a brief summary, does not purport to be a complete description, and is based on information drawn from official statements relating to securities offerings of the State of California (the "State") and various local agencies available as of the date of this Statement of Additional Information. While neither the Manager nor the Fund has independently verified this information, neither has reason to believe that such information is not correct in all material respects. The information below is intended only as a general summary and is not intended as a discussion of any specific factor that may affect any particular obligation or issuer.

The economy of the State is the largest among the 50 states and one of the largest in the world. The diversified economy of the State has major components in high technology, trade, entertainment, agriculture, tourism, manufacturing, construction and services. Certain of the State's significant industries, such as high technology, are sensitive to economic disruptions in their export markets.

Since early 2001, California's economy has faced severe financial challenges, which may continue for several years. The State experienced an economic recession in 2001 and a sluggish recovery in 2002 and 2003. In more recent years, the State's revenues have been volatile because it derived a significant portion of its revenue from personal income and sales taxes, which is particularly sensitive to economic conditions. Although the economy rebounded between 2004 and 2006, economic growth in the State slowed considerably in 2007 and 2008 with significantly lower state tax revenues than in earlier projections and much lower job growth than in the prior several years. The slowdown has been caused in large part by a dramatic downturn in the housing industry in most of the State. As of August 2008, it appears the housing market has still not reached the bottom and its effects have spread to other areas of the economy, particularly the financial market. Economic growth in the State is expected to remain slow in the second half of 2008 and in 2009.

California's geographic location subjects it to earthquake risks. It is impossible to predict the time, magnitude or location of a major earthquake or its effect on the California economy. For example, in January 1994, a major earthquake struck the Los Angeles area, causing significant damage in a four county area. The possibility exists that another such earthquake could create a major dislocation of the California economy and significantly affect State and local governmental budgets.

2007 Budget Act. The State's 2007 Budget Act (adopted in August 2007 for the fiscal year ending June 30, 2008) forecasted $102.3 billion in General Fund revenues and transfers, $101.2 billion in expenditures, and, after application of the prior fiscal year's $4.1 billion General Fund balance and projected 6% increase in revenues, a positive General Fund balance of $4.1 billion. The 2007 Budget Act assumed that the State would not issue Economic Recovery Bonds or raise taxes.

The State's Legislative Analyst's Office (the "LAO"), in its "California Fiscal Outlook" report issued on November 14, 2007 (the "LAO 2007 Report"), estimated General Fund revenues and transfers of $98.9 billion, expenditures of $104.2 billion and a negative General Reserve balance of $1.1 billion for the 2007-08 fiscal year.

The Governor's Budget for the 2008-09 fiscal year, released in January 2008, made adjustments to the 2007 Budget Act projections for the 2007-08 fiscal year, estimating $101.2 billion in General Fund revenues and transfers, $103.3 billion in expenditures, and a deficit of $3.3 billion as of June 30, 2008 absent corrective actions. The May Revision to the 2008-09 Governor's Budget (the "2008 May Revision") projected roughly the same amounts of revenues and transfers for the 2007-08 fiscal year as were projected in the 2008-09 Governor's Budget, but estimated that expenditures would exceed budget estimates by more than $200 million. In addition, the 2008 May Revision estimated a positive reserve of $1.7 billion as of June 30, 2008, assuming the adoption of various proposals by the Governor and the one-time transfer of $1.5 billion from the Budget Stabilization Account.

2008 Budget Act. The Governor's Budget for the 2008-09 fiscal year, released in January 2008, projected General Fund revenues and transfers for the fiscal year ended June 30, 2009 , of $102.9 billion, expenditures of $100.9 billion and a year-end General Fund deficit of $14.5 billion for the 2008-09 fiscal year absent corrective actions . The Governor's Budget proposed to close the deficit by the sale of $3.3 billion in Emergency Recovery Bonds (issued in February 2008), a 10% reduction in General Fund expenditures in 2008 and 2009, and suspension of both Proposition 98 guarantees (described below) and the prepayment of outstanding Emergency Recovery Bonds for the 2008-09 fiscal year. With the implementation of the budget's proposed corrective actions, the Governor's Budget projected a $2.8 billion available reserve at the end of the 2008-09 fiscal year.

In its January 14, 2008 "Overview of the 2008-09 Governor's Budget," the LAO concluded that the 2008-09 budget "is generally reasonable, though it has some downside risk from recent cash trends and continued negative economic reports. The budget's spending proposals also generally are built upon solid assumptions about caseload and program requirements." The overview suggested additional ongoing revenue solutions that the LAO believes would be necessary to offset the new debt-service costs from the bond issuance and projected multi-year revenue deterioration. Further, even if the Legislature adopts all the corrective actions, the LAO projected that revenues and transfers will be less than the 2008-09 Governor's Budget estimates by $300 million and that expenditures would be greater by $250 million, resulting in an estimated fiscal-year-end reserve of $2.3 billion.

The 2008 May Revision estimated $102.9 billion in revenues and transfers for 2008-09, roughly equal to prediction in the Governor's Budget, but projected expenditures of approximately $101.8 billion. The most significant differences between the 2008 May Revision and the Governor's Budget were lower GDP growth, weaker State job growth and smaller gains in State personal income for this fiscal year. Applying the proposed corrective measures in the Governor's Budget for 2008-09, the State projected a General Fund balance of $2.0 billion at the end of the 2008-09 fiscal year.

The State's 2008 Budget Act was enacted on September 25, 2008, 85 days after the statutory deadline for approval of the annual budget. The 2008 Budget Act for the fiscal year ended June 30, 2009, forecasts $101.9 billion in General Fund revenues and transfers, $103.4 billion in expenditures and, after application of the prior year's $3.9 billion General Fund balance, a positive General Fund balance of about $1.7 billion.

Constraints on the Budget Process. Approved in March 2004 with the State's Economic Recovery Bonds, Proposition 58 requires the State to enact a balanced budget and establish a special reserve in the General Fund and restricts future borrowing to cover budget deficits. As a result of the provisions requiring the enactment of a balanced budget and restricting borrowing, the State would, in some cases, have to take more immediate actions to correct budgetary shortfalls. Beginning with the budget for fiscal year 2004-05, Proposition 58 requires the Legislature to pass a balanced budget and provides for mid-year adjustments in the event that the budget falls out of balance. The balanced budget determination is made by subtracting expenditures from all available resources, including prior-year balances.

If the Governor determines that the State is facing substantial revenue shortfalls or spending deficiencies, the Governor is authorized to declare a fiscal emergency. He or she would then be required to propose legislation to address the emergency, and call the Legislature into special session to consider that legislation. If the Legislature fails to pass and send to the Governor legislation to address the budget fiscal emergency within 45 days, the Legislature would be prohibited from acting on any other bills or adjourning in joint recess until such legislation is passed. On January 10, 2008, the Governor declared such a fiscal emergency and called a special session of the Legislature to propose actions to avoid the negative projections in the Governor's Budget for 2008-09. On February 15, 2008, the Governor approved a special session budget bill that made $2 billion in mid-year expenditure reductions. As of March 30, 2008, the total approved solutions enacted during fiscal year 2007-08 amount to $4.8 billion, including $3.2 billion additional revenues obtained from the February 14, 2008 sale of deficit financing bonds.

Proposition 58 also requires that a special reserve (the Budget Stabilization Account) be established in the State's General Fund. Beginning with fiscal year 2006-07, a specified portion of estimated annual General Fund revenues would be transferred by the Controller into the Budget Stabilization Account no later than September 30 of each fiscal year. These transfers would continue until the balance in the Budget Stabilization Account reaches $8 billion or 5% of the estimated General Fund revenues for that fiscal year, whichever is greater. The annual transfer requirement would be in effect whenever the balance falls below the $8 billion or 5% target. The annual transfers could be suspended or reduced for a fiscal year by an executive order issued by the Governor no later than June 1 of the preceding fiscal year. The Governor adopted such an executive order for the fiscal year 2008-09.

Proposition 58 also prohibits certain future borrowing to cover fiscal year end deficits. This restriction applies to general obligation bonds, revenue bonds, and certain other forms of long-term borrowing. The restriction does not apply to certain other types of borrowing, such as short-term borrowing to cover cash shortfalls in the General Fund (including revenue anticipation notes or revenue anticipation warrants currently used by the State), or inter-fund borrowings.

Future Budgets. It cannot be predicted what actions will be taken in the future by the State Legislature and the Governor to deal with changing State revenues and expenditures. The State budget will be affected by national and State economic conditions and other factors.

General Obligation Bonds and Revenue Bonds. As of May 1, 2008, the State had approximately $57.6 billion aggregate principal of its long-term general obligation bonds and special revenue bonds outstanding. Of this amount, $45.6 billion was payable primarily from the State's General Fund and $11.9 billion was payable from other revenue sources. Long-term general obligation bond authorizations in an aggregate amount of approximately $58.3 billion remained unissued as of that date.

Ratings. As of July 1, 2008, the State's general obligation bonds were rated A1 by Moody's, A+ by Standard & Poor's, and A+ by Fitch. It is not possible to determine whether, or the extent to which, Moody's, Standard & Poor's or Fitch will change such ratings in the future.

The primary units of local government in California are the counties, ranging in population from 1,200 (Alpine) to approximately 10 million (Los Angeles). Counties are responsible for the provision of many basic services, including indigent healthcare, welfare, jails and public safety in unincorporated areas. There are also 478 incorporated cities and thousands of other special districts formed for education, utility and other services. The fiscal condition of local governments has been constrained since the enactment of "Proposition 13" in 1978 and later constitutional amendments, which reduced and limited the future growth of property taxes and limited the ability of local governments to impose "special taxes" (those devoted to a specific purpose) without two-thirds voter approval. Proposition 218, another initiative constitutional amendment enacted in 1996, further limited the ability of local governments to impose or raise various taxes, fees, charges and assessments without voter approval. Counties, in particular, have had fewer options to raise revenues than many other local government entities, and have been required to maintain many services.

Some local governments in California have experienced notable financial difficulties, including Los Angeles County, Orange County and San Diego County, and there is no assurance that any California issuer will make full or timely payments of principal or interest or remain solvent. It should be noted that the creditworthiness of obligations issued by local California issuers may be unrelated to the creditworthiness of obligations issued by the State, and there is no obligation on the part of the State to make payment on such local obligations in the event of default.

According to the State, the 2004 Budget Act, related legislation and the enactment of Proposition 1A (described below) dramatically changed the State-local fiscal relationship. These constitutional and statutory changes implemented an agreement negotiated between the Governor and local government officials (the "State-local agreement") in connection with the 2004 Budget Act. One change relates to the reduction of the Vehicle License Fee ("VLF") rate from 2% to 0.65% of the market value of the vehicle. In order to protect local governments, the reduction in VLF revenue to cities and counties from this rate change will be replaced by an increase in the amount of property tax they receive.

As part of the State-local agreement, Proposition 1A was approved by the voters at the November 2004 election. Proposition 1A amended the State Constitution to, among other things, reduce the Legislature's authority over local government revenue sources by placing restrictions on the State's access to local governments' property, sales, and VLF revenues as of November 3, 2004. Beginning with fiscal year 2008-09, the State will be able to borrow up to 8% of local property tax revenues, but only if the Governor proclaims such action is necessary due to a severe State fiscal hardship, two-thirds of both houses of the Legislature approve the borrowing and the amount borrowed is required to be paid back within three years. The State also will not be able to borrow from local property tax revenues for more than two fiscal years within a period of 10 fiscal years. In addition, the State cannot reduce the local sales tax rate or restrict the authority of the local governments to impose or change the distribution of the statewide local sales tax.

Proposition 1A also prohibits the State from mandating activities on cities, counties or special districts without providing for the funding needed to comply with the mandates. If the State does not provide funding for an activity that has been determined to be mandated, the requirement on cities, counties or special districts to abide by the mandate would be suspended. In addition, Proposition 1A expands the definition of what constitutes a mandate to encompass State action that transfers to cities, counties and special districts financial responsibility for a required program for which the State previously had partial or complete responsibility. The State mandate provisions of Proposition 1A do not apply to schools or community colleges or to mandates relating to employee rights.

The State is subject to an annual appropriations limit imposed by Article XIII B of the State Constitution (the "Appropriations Limit"). The Appropriations Limit does not restrict appropriations to pay debt service on voter-authorized bonds.

Article XIII B prohibits the State from spending "appropriations subject to limitation" in excess of the Appropriations Limit. "Appropriations subject to limitation" are authorizations to spend "proceeds of taxes," which consist of tax revenues and certain other funds, including proceeds from regulatory licenses, user charges or other fees to the extent that such proceeds exceed "the cost reasonably borne by that entity in providing the regulation, product or service," but "proceeds of taxes" exclude most State subventions to local governments, tax refunds and some benefit payments such as unemployment insurance. No limit is imposed on appropriations of funds which are not "proceeds of taxes," such as reasonable user charges or fees and certain other non-tax funds. Various types of appropriations are excluded from the Appropriations Limit.

The State's Appropriations Limit in each year is based on the Limit for the prior year, adjusted annually for changes in State per capita personal income and changes in population, and adjusted, when applicable, for any transfer of financial responsibility for providing services to or from another unit of government or any transfer of the financial source for the provisions of services from tax proceeds to non-tax proceeds.

The Legislature has enacted legislation to implement Article XIII B which defines certain terms used in Article XIII B and sets forth the methods for determining the Appropriations Limit. California Government code Section 7912 requires an estimate of the Appropriations Limit to be included in the Governor's Budget, and thereafter to be subject to the budget process and established in the Budget Act.

On November 8, 1988, voters of the State approved Proposition 98, a combined initiative constitutional amendment and statute called the "Classroom Instructional Improvement and Accountability Act." Proposition 98 changed State funding of public education below the university level and the operation of the State appropriations funding, primarily by guaranteeing K-14 schools a minimum share of General Fund revenues. Proposition 98 permits the Legislature by two-thirds vote of both houses, with the Governor's concurrence, to suspend the K-14 schools' minimum funding formula for a one-year period. Proposition 98 also contains provisions transferring certain State tax revenues in excess of the Article XIII B limit to K-14 schools.

Because of the complexities of Article XIII B, the ambiguities and possible inconsistencies in its terms, the applicability of its exceptions and exemptions and the impossibility of predicting future appropriations, it is not possible to predict the impact of this or related legislation on the bonds in the Fund's portfolio.

Articles XIII A, XIII B, XIII C and XIII D were each adopted as measures that qualified for the ballot pursuant to the State's initiative process. Other Constitutional amendments affecting State and local taxes and appropriations have been proposed from time to time. If any such initiatives were adopted, the State could be pressured to provide additional financial assistance to local Governments or appropriate revenues as mandated by such initiatives. Propositions such as Proposition 98 and others that may be adopted in the future may place increasing pressure on the State's budget over future years, potentially reducing resources available for other State programs, especially to the extent the Article XIII B spending limit would restrain the State's ability to fund such other programs by raising taxes.

Effect of other State Laws on Bond Obligations. Some of the tax-exempt securities that the Fund can invest in may be obligations payable solely from the revenues of a specific institution or secured by specific properties. These are subject to provisions of California law that could adversely affect the holders of such obligations. For example, the revenues of California health care institutions may be adversely affected by State laws, and California law limits the remedies of a creditor secured by a mortgage or deed of trust on real property. Debt obligations payable solely from revenues of health care institutions may also be insured by the State but no guarantee exists that adequate reserve funds will be appropriated by the State legislature for such purpose.

The State is a party to numerous legal proceedings, many of which normally occur in governmental operations. In addition, the State is involved in certain other legal proceedings that, if decided against the State might require the State to make significant future expenditures or impair future revenue sources. Because of the prospective nature of these proceedings, it is not possible to predict the outcome of such litigation or estimate the potential impact on the ability of the State to pay debt service costs on its obligations.

On August 8, 2005, a lawsuit titled California Teachers Association et al. v. Arnold Schwarzenegger et al. was filed. Plaintiffs – California Teachers Association, California Superintendent of Public Instruction Jack O'Connell and various other individuals – allege that the California Constitution's minimum school funding guarantee was not followed for the 2004-05 fiscal year and the 2005-06 fiscal year in the aggregate amount of approximately $3.1 billion. Plaintiffs seek a writ of mandate requiring the State to recalculate the minimum-funding guarantee in compliance with the California Constitution. On May 10, 2006, counsel for all parties executed a settlement agreement, and the action has been stayed pending implementation legislation. The settlement calls for payment of the outstanding balance of the minimum funding obligation to school districts and community college districts (approximately $3 billion in the aggregate) through the 2013-14 fiscal year.

The State of California has adopted legislation incorporating the federal provisions relating to regulated investment companies as of January 1, 2005. Thus, to the extent the Fund distributes its income, it will be exempt from the California franchise and corporate income taxes as a regulated investment company under section 24870 of the California Revenue and Taxation Code.

The portion of dividends constituting California exempt-interest dividends is that portion derived from interest on obligations issued by California and its municipalities and localities (as well as certain territories and possessions of the United States such as Puerto Rico, the Virgin Islands, and Guam), the interest on which (when held by an individual) is excludable from California personal income under California law. Distributions from the Fund that are attributable to sources other than those described in the preceding sentence generally will be taxable to such shareholders as ordinary income. In addition, distributions other than exempt-interest dividends to such shareholders are includable in income that may be subject to the California alternative minimum tax. The total amount of California exempt-interest dividends paid by the Fund to all of its shareholders with respect to any taxable year cannot exceed the amount of interest received by the Fund during such year on California municipal obligations less any expenses and expenditures. California exempt-interest dividends are excludable from income for California personal income tax purposes only. Any dividends paid to shareholders subject to the California franchise tax will be taxed as ordinary dividends to such shareholders for franchise tax purposes notwithstanding that all or a portion of such dividends are exempt from the California personal income tax.

To the extent any portion of the dividends distributed to the shareholders by the Fund is derived from taxable interest for California purposes or net short-term capital gains, such portion will be taxable to the shareholders as ordinary income. The character of long-term capital gains realized and distributed by the Fund will flow through to its shareholders regardless of how long the shareholders have held their shares (currently, only federal law, not California law, has special rates for long-term capital gains) if the Fund complies with certain rulings. If a shareholder of the Fund received any California exempt-interest dividends on shares thereafter sold within six months of acquisition, then any realized loss, to the extent of the amount of exempt-interest dividends received prior to such sale, will be disallowed. Interest on indebtedness incurred by shareholders to purchase or carry shares of the Fund will not be deductible for California personal income tax purposes. Any loss realized upon the redemption of shares within 30 days before or after the acquisition of other shares of the same series may be disallowed under the "wash sale" rules.

The foregoing is only a summary of some of the important California personal income tax considerations generally affecting the Fund and its shareholders. No attempt is made to present a detailed explanation of the California personal income tax treatment of the Fund or its shareholders, and this discussion is not intended as a substitute for careful planning. Accordingly, potential investors in the Fund should consult their tax advisers with respect to the application of California taxes to the receipt of the Fund's dividends and as to their own California tax situation.

A significant portion of the Fund may be general obligations and/or revenue bonds of issuers located in the Commonwealth of Puerto Rico. These bonds may be affected by political, social and economic conditions in Puerto Rico. The following is a brief summary of factors affecting the economy of the Commonwealth of Puerto Rico and does not purport to be a complete description of such factors.

Puerto Rico is the fourth largest island in the Caribbean and an estimated 3.9 million people call it home. Puerto Rico's economy continues to track those of states on the U.S. mainland and as such has slowed. Tourism has improved in the last year. The number of rented hotel rooms has increased as has the number of rooms available. The Commonwealth has recently opened a new convention center, which it hopes will attract new business and continue to improve tourism. Since 2002, the Commonwealth reports its economy has been expanding at a moderate annual rate of 2.3%, but recently, several key economic indicators have begun to indicate a slowing of activity. The Planning Board recently lowered its real gross national product forecast to a decline of 1.4% in 2007 followed by a small improvement of 0.8% in 2008. It is possible this will be revised downward.

The island's unemployment rate dropped from 13.6% in 1998 down to an average of 10.6%, 11.7%, and 11.2% in 2005, 2006 and 2007, respectively. As of January 2008, unemployment was 10.9%. The largest employment sectors include government (29%), services (31%), trade (16%) and manufacturing (11%). The manufacturing sector has undergone some major changes as pharmaceuticals, biotech and technology have proven to be growth areas for the Commonwealth.

The Commonwealth's financial stresses continue. Its financial situation reached a low point in May 2006, when the government disclosed a significant budget gap of $738 million for the then current fiscal year. After a political impasse on how to handle the deficit, the Governor ordered the closing of certain non-essential government offices and schools due to the lack of money available for operations on May 1, 2006. During the shutdown, the Governor and legislative leaders were unable to agree on a loan from the Government Development Bank of Puerto Rico (GDB) and what sources would be used for repayment. After an impasse, a four-person commission of non-elected citizens was charged with resolving the fiscal crisis. The commission decided on a special 1% sales tax to repay the GDB loan, and the sales tax was expected to be part of a larger sales tax that could generate a net $300-$400 million for the General Fund. Employees went back to work on May 15, 2006. After much political wrangling, including taking the sales tax to court, the legislature and Governor were able to agree on a sales tax rate, agree on spending reductions and enable a loan from the GDB.

The budgeted General Fund expenses for fiscal year 2008 were $9.227 billion. Preliminary actual expenditures during fiscal year 2008 were $9.057 billion. Preliminary General Fund revenues for fiscal year 2008 totaled $8.253 billion, which is $418 million less than the Department of the Treasury's revised estimate for that period of $8.671 billion. This amount includes $4.359 billion in revenues from individual and corporate income taxes, $1.088 billion from non-resident withholding taxes, $864 million from excise taxes and $911 million of sales tax revenues. The foregoing difference between the preliminary General Fund revenues and preliminary actual expenses for fiscal year 2008 was covered by a recovery of approximately $287 million more in federal funds than had been budgeted, $150 million from the pending sale of certain government properties, cash flow savings resulting from restructuring of certain outstanding debt, and certain cash management procedures, which include delaying payments to certain vendors for a short period of time (carrying them over into the next fiscal year). The federal funds recovery represented reimbursement of amounts advanced by the Commonwealth's Department of Education during fiscal years 2006 and 2007.
On July 20, 2008, the Governor signed into law the General Fund budget for fiscal year 2009 of $9.484 billion, or approximately $257 million more than budgeted expenditures for fiscal year 2009 of $9.227 billion. The increase in budgeted expenditures over fiscal year 2008 is mainly due to $105 million from University of Puerto Rico, judiciary and municipal increases based on the legislated formulas and salary increases mandated by law or collective bargaining agreements. An additional $41.2 million is budgeted for the State Election Commission. The General Fund revenue projection for fiscal year 2009 is $8.488 billion, an increase of $235 million, or 2.9%, from preliminary net revenues for fiscal year 2008 of $8.253 billion. The Commonwealth's budgeted expenditures for fiscal year 2009 of $9.484 billion exceed projected revenues of $8.488 by approximately $1 billion. The Commonwealth's economic team is working to enforce spending control measures that have been established to attempt to minimize the budget risk. In connection with the budget approval and in order to cover the approximately $1 billion difference between approved expenditures and projected revenues, legislation was approved and signed by the Governor authorizing the Commonwealth (i) to sell and or transfer delinquent tax receivables up to $1 billion, and (ii) as an exception to the general prohibition against borrowings to balance the budget, to issue limited special obligations of the Commonwealth payable from and collateralized with tax receivables. There is no guaranty that the Commonwealth will be able to issue such limited special obligations in amounts sufficient to cover the expected revenue shortfall in a timely manner, and, if that is the case, other funding sources, such as possible support from Government Development Bank, will have to be secured.

While Puerto Rico's debt per capita levels are at the higher end of the spectrum compared to U.S. states, this is partly explained by the fact that Puerto Rico generally centralizes the majority of its debt issuance at the territory level. These debt levels have increased as Puerto Rico financed significant capital and infrastructure improvements. Puerto Rico continues to maintain a large unfunded pension liability of almost $10 billion that risks running out of money as early as 2014. The Commonwealth issued pension obligation bonds in early 2008, which will help but not solve the pension issues. The bonds are secured by future employer contributions.

Puerto Rico will continue to face challenges from the 1996 passage of a bill eliminating Section 936 of the Internal Revenue Code. This section had given certain U.S. corporations operating in Puerto Rico significant tax advantages. These incentives had helped drive Puerto Rico's economic growth, especially with the development of its manufacturing sector. U.S. firms that had benefited from these incentives provided a significant portion of Puerto Rico's revenues, employment and deposits in local financial institutions.

In March 2008, the Governor of Puerto Rico and several other individuals were named in federal grand jury indictments relating to the use of political contributions and campaign funds during the period when the Governor was Resident Commissioner in Washington, D.C. In addition, on August 19, 2008, the Governor and other individuals were named in federal grand jury indictments relating to the use of political contributions and campaign funds during the Governor's campaign and after his election as Governor. The Governor has denied any wrongdoing and has stated his intention to remain in his position and present his defense. It is not expected that such developments will have any impact on the fiscal affairs of the Commonwealth or on the payment of any obligations issued by the Commonwealth. On November 4, 2008, Luis G. Fortuno, the current Resident Commissioner of the Commonwealth, was elected as the next governor of Puerto Rico. Mr. Fortuno will assume his position as governor on January 1, 2009.

The island of Guam has an estimated population of 173,000. Its economy is driven by tourism and U.S. Military activity. The government of Guam also receives significant support from the U.S. Treasury. Japan accounts for a substantial amount of Guam's tourism (78% of visitors), which makes the island's economy very sensitive to fluctuations in the Japanese economy. Economic weakness in Japan and other parts of Asia has had a negative impact on Guam tourism. Combined with a typhoon in 1997, a super-typhoon in 2002, September 11, 2001 (9/11), SARS and the war in Iraq, tourism declined in the early to mid-part of this decade. However, tourism has seen improvement in recent years, helped by favorable weather and a steadying Japanese economy. In August 2007, visitor arrivals hit the highest mark since 9/11 and calendar year 2007 arrivals increased 1.1% from 2006. However, since then, arrivals have dropped off. In February 2008, arrivals were down 2.5% from a year earlier.

Employment has been quite volatile on Guam since 1998. Total employment reached a peak of 62,350 in March of 1999. Small increases followed in 2000 and 2001, but then employment fell by nearly 10% in early 2002. Employment has slowly increased during the past four years, reaching 58,040 in June 2007. Unemployment rates remain high and were 6.9% in March 2006, the last time it was calculated by the U.S. Bureau of Labor Statistics.

The U.S. Military presence on Guam has always been a positive contributor to the economy. Its strategic location close to Asia has increased its importance in the overall military strategy of the U.S. As a result, the U.S. government is in the process of a significant buildup of personnel and facilities on Guam. The Marines are planning on relocating some 8,000 Marines and their 9,000 dependents to Guam from Okinawa, Japan by 2014, and the U.S. Navy has stationed several submarines and carrier strike forces on the island. This planned growth requires a substantial amount of new facilities, upgrades to existing facilities and infrastructure improvements, possibly totaling as much as $10 billion. The short- and long-term implications of this growth are expected to be positive.

Guam's overall financial condition has deteriorated due to a slew of misfortunes and mismanagement. Natural disasters, the economic crisis in Japan, and the events of 9/11 have all contributed to Guam's financial hardship. Guam has seen negative financial results for most of the past decade. As a result, its fiscal year 2006 accumulated deficit had grown to almost $540 million. It has a large unfunded liability in its pension fund and a large liability to its residents for unpaid tax refunds. The government issued debt in 2007 to fund some of these liabilities, restructure debt and pay debt service on current obligations for which cash was not available. Guam has identified several steps that can be taken to improve its financial condition, but successful implementation is uncertain. The improvement in tourism and expected economic boost from the military buildup could also improve the territory's financial picture, but it is unclear whether Guam will be able to erase this deficit in the foreseeable future.

Approximately 112,801 people reside in the 70 small islands and cays that make up the U.S. Virgin Islands. The U.S. Virgin Islands continue to experience higher unemployment rates and lower wealth levels than realized in the U.S., although both of these measurements have improved in the past few years. The economy of the U.S. Virgin Islands is driven by tourism, which accounts for approximately 80% of gross domestic product and a significant share of employment. The islands' tourism industry was hit hard after the events of 9/11, but tourism activity experienced a modest recovery beginning in 2004. The majority of the islands' visitors arrive via cruise ships, and total cruise ship arrivals increased 11.9% in 2004. Total cruise ship arrivals decreased slightly in 2005 and 2006 and increased marginally in 2007. Air arrivals reached an all-time high in 2005 before decreasing slightly in 2006. Total air arrivals increased by a little more than 3.0% in 2007. Taking both air and cruise arrivals into account, tourism activity increased 1.4% in 2007. Hotel occupancy rates have been above 60% since 2004, including average rates of 60.6% in 2006 and 64.9% in 2007. In the five years prior to 2004, hotel occupancy had ranged between 55% and 58%. The unemployment rate peaked at 9.4% in 2003, but had fallen to 6.2% by the end of 2006 due to increased tourism. Private sector jobs comprise 72.7% of all non-farm jobs with 44.0% comprising services, including tourism employment. Manufacturing represents just more than 5.1% of employment, and construction represents about 6.9%.

The U.S. Virgin Islands government carries a large public sector payroll and relies heavily on taxes as a revenue source (roughly 91% of all revenues). These factors, together with the lingering effects of several major hurricanes in the past two decades, have contributed to the government's poor financial performance. The government has suffered numerous years of budget imbalances over the past decade, resulting in recurring annual General Fund deficits. The cash-flow crisis in the government intensified in fiscal year 2002 due to the slumping economy and lower tax receipts. In fiscal year 2003, the government stabilized cash flows with the help of approximately $81.5 million of financing proceeds. For the fiscal year 2003, the government reduced its operating deficit from $164.4 million to $109.8 million, and used transfers and bank anticipation notes proceeds to increase the fund balance by $68.3 million. The ending fund balance of $97.2 million was equal to 16.85% of expenditures. Financial results continued to be positive in fiscal year 2004 and fiscal year 2005. In fiscal year 2004, the General Fund balance increased by more than $30 million, and an additional increase of $52.4 million was achieved in fiscal year 2005. By the end of fiscal year 2005, the General Fund balance had reached $180.1 million, which was equal to 28.8% of expenditures. It should be noted that expenditures remain elevated and the General Fund is still producing operating deficits each year. However, securitized tax revenues have been sufficient to cover debt service and supplement the General Fund, and the fund balance should remain strong under these conditions. Financial results for fiscal years 2006 and 2007 are not available at this time.

In October 1999, the government and the U.S. Department of Interior entered into a Memorandum of Understanding stipulating that federal grants will be awarded contingent on several financial performance and accountability standards being met that will demonstrate improvement in the economic and financial condition of the islands. In recent years, the government has tried to improve its financial profile by implementing several cost-cutting measures, including renegotiating debt obligations, consolidating departments, cutting healthcare costs, hiring freezes, and a reduction in overtime.

The Mariana Islands became a U.S. territory in 1975. At that time, the U.S. government agreed to exempt the islands from federal minimum wage and immigration laws in an effort to help stimulate industry and the economy. The islands' minimum wage is currently $4.20 per hour below the U.S. level. Immigration from various Asian countries, however, has provided cheap labor for the islands' industries over the last several decades. Foreign workers have accounted for approximately four times the number of indigenous workers.

It is estimated that the garment industry contributes about 30% of General Fund expenditures compared to 40% just a few years ago and is expected to decline further in 2008. The decline is largely a result of the elimination of quota restrictions for World Trade Organization members in 2005. The export value of the industry dropped 13% in 2005, 26% in 2006 and an estimated 10% drop in 2007. Employment in the industry has dropped from 17,000 workers in 2001 to about 7,000 in 2007, and the number of factories has dropped from 34 to 16 over the same period. There is also additional legislation being considered in Congress that could negatively affect this industry further if passed, including implementation of the federal minimum wage rate in the Commonwealth of the Northern Mariana Islands (CNMI) and the implementation of federal immigration laws in the islands. The Commonwealth's gross business revenues were $1.4 billion in 1993, then increased to a high of $2.6 billion in 1997. Gross business revenues have since declined to $1.3 billion for 2006.

The tourism industry is the other large contributor to the CNMI economy. Tourism, which is largely driven by trends in Asia, is estimated to account for up to 35% of the economy. Visitors to the islands have declined over the last several years from 694,888 in 1997 to 459,458 in 2003 and 435,494 in 2006. Arrivals declined another 22% in 2007. The decline is a result of many factors including the weakening of the Asian economy, SARS, the war in Iraq and most recently the reduction in flights available from Japan to CNMI. The year-over-year decline in Japanese arrivals as of January 2008 has improved as flights from Osaka started in late December. It is important that available flights from Japan continue to increase since Japan makes up the largest visitor segment. The CNMI is trying to diversify its visitor profile and is working closely with Chinese officials to open up this channel and is currently seeing strong growth from Korea and Russia.

The Commonwealth's financials have been in a deficit position since 1994. The most recent audited financial statement is from 2006 and it identified a $174 million negative unreserved fund balance which is 88% of annual expenditures after transfers. The $16 million 2006 deficit was smaller, however, than the 2005 deficit. The Commonwealth attributes the deficit for 2006 to disbursements from bond proceeds received in 2004 and the inclusion of $11.9 million in employer retirement contributions even though employer retirement contributions had been suspended under public law.

In certain cases, the initial sales charge that applies to purchases of Class A shares² of the Oppenheimer funds or the contingent deferred sales charge that may apply to Class A, Class B or Class C shares may be waived.³ That is because of the economies of sales efforts realized by OppenheimerFunds Distributor, Inc., (referred to in this document as the "Distributor"), or by dealers or other financial institutions that offer those shares to certain classes of investors. Not all waivers apply to all funds.

For the purposes of some of the waivers described below and in the Prospectus and Statement of Additional Information of the applicable Oppenheimer funds, the term "Retirement Plan" refers to the following types of plans:

1) plans created or qualified under Sections 401(a) or 401(k) of the Internal Revenue Code,

3)     employee benefit plans⁴
4)     Group Retirement Plans⁵
5)     403(b)(7) custodial plan accounts, and
6)     Individual Retirement Accounts ("IRAs"), including traditional IRAs, Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans

The interpretation of these provisions as to the applicability of a special arrangement or waiver in a particular case is in the sole discretion of the Distributor or the transfer agent (referred to in this document as the "Transfer Agent") of the particular Oppenheimer fund. These waivers and special arrangements may be amended or terminated at any time by a particular fund, the Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the "Manager").

Waivers that apply at the time shares are redeemed must be requested by the shareholder and/or dealer in the redemption request.

Purchases of Class A Shares of Oppenheimer Funds That Are Not Subject to Initial Sales Charge but May Be Subject to the Class A Contingent Deferred Sales Charge (unless a waiver applies).

There is no initial sales charge on purchases of Class A shares of any of the Oppenheimer funds in the cases listed below. However, these purchases may be subject to the Class A contingent deferred sales charge if redeemed within 18 months (24 months in the case of shares of Oppenheimer Rochester National Municipals and Rochester Fund Municipals purchased prior to October 22, 2007) of the beginning of the calendar month of their purchase, as described in the Prospectus (unless a waiver described elsewhere in this Appendix applies to the redemption). Additionally, on shares purchased under these waivers that are subject to the Class A contingent deferred sales charge, the Distributor will pay the applicable concession described in the Prospectus under "Class A Contingent Deferred Sales Charge."⁶ This waiver provision applies to:

1) through a broker, dealer, bank or registered investment adviser that has made special arrangements with the Distributor for those purchases, or

2) by a direct rollover of a distribution from a qualified Retirement Plan if the administrator of that Plan has made special arrangements with the Distributor for those purchases.

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 the plan sponsor signs that agreement, the Plan has 500 or more eligible employees (as determined by the Merrill Lynch plan conversion manager).

A. Waivers of Initial and Contingent Deferred Sales Charges for Certain Purchasers.

Class A shares purchased by the following investors are not subject to any Class A sales charges (and no concessions are paid by the Distributor on such purchases):

B. Waivers of the Class A Initial and Contingent Deferred Sales Charges in Certain Transactions.

C. Waivers of the Class A Contingent Deferred Sales Charge for Certain Redemptions.

The Class A contingent deferred sales charge is also waived if shares that would otherwise be subject to the contingent deferred sales charge are redeemed in the following cases:

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.

5) Under a Qualified Domestic Relations Order, as defined in the Internal Revenue Code, or, in the case of an IRA, a divorce or separation agreement described in Section 71(b) of the Internal Revenue Code.

7) To make "substantially equal periodic payments" as described in Section 72(t) of the Internal Revenue Code.

9) Separation from service.⁸
10) Participant-directed redemptions to purchase shares of a mutual fund (other than a fund managed by the Manager or a subsidiary of the Manager) if the plan has made special arrangements with the Distributor.

11) Plan termination or "in-service distributions," if the redemption proceeds are rolled over directly to an OppenheimerFunds-sponsored IRA.

The Class B, Class C and Class N contingent deferred sales charges will not be applied to shares purchased in certain types of transactions or redeemed in certain circumstances described below.

The Class B, Class C and Class N contingent deferred sales charges will be waived for redemptions of shares in the following cases:

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.

4)     To make hardship withdrawals, as defined in the plan.¹⁰
5)     To make distributions required under a Qualified Domestic Relations Order or, in the case of an 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.¹¹
9)     On account of the participant's separation from service.¹²
10)     Participant-directed redemptions to purchase shares of a mutual fund (other than a fund managed by the Manager or a subsidiary of the Manager) offered as an investment option in a Retirement Plan if the plan has made special arrangements with the Distributor.
11)     Distributions made on account of a plan termination or "in-service" distributions, if the redemption proceeds are rolled over directly to an OppenheimerFunds-sponsored IRA.
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, adjusted annually.
13)     Redemptions of Class B shares under an Automatic Withdrawal Plan for an account other than a Retirement Plan, if the aggregate value of the redeemed shares does not exceed 10% of the account's value, adjusted annually.
14)     For distributions from 401(k) plans sponsored by broker-dealers that have entered into a special arrangement with the Distributor allowing this waiver.

The contingent deferred sales charge is also waived on Class B and Class C shares sold or issued in the following cases:

The initial and contingent deferred sales charge rates and waivers for Class A, Class B and Class C shares described in the Prospectus or Statement of Additional Information of the Oppenheimer funds are modified as described below for certain persons who were shareholders of the former Quest for Value Funds. To be eligible, those persons must have been shareholders on November 24, 1995, when OppenheimerFunds, Inc. became the investment adviser to those former Quest for Value Funds. Those funds include:

Oppenheimer Rising Dividends Fund, Inc. Oppenheimer Small- & Mid- Cap Value Fund

Oppenheimer Quest Balanced Fund Oppenheimer Quest International Value Fund, Inc.

These arrangements also apply to shareholders of the following funds when they merged (were reorganized) into various Oppenheimer funds on November 24, 1995:

Quest for Value U.S. Government Income Fund Quest for Value New York Tax-Exempt Fund

Quest for Value Investment Quality Income Fund Quest for Value National Tax-Exempt Fund

All of the funds listed above are referred to in this Appendix as the "Former Quest for Value Funds." The waivers of initial and contingent deferred sales charges described in this Appendix apply to shares of an Oppenheimer fund that are either:

Purchases by Groups and Associations. The following table sets forth the initial sales charge rates for Class A shares purchased by members of "Associations" formed for any purpose other than the purchase of securities. The rates in the table apply if that Association purchased shares of any of the Former Quest for Value Funds or received a proposal to purchase such shares from OCC Distributors prior to November 24, 1995.

For purchases by Associations having 50 or more eligible employees or members, there is no initial sales charge on purchases of Class A shares, but those shares are subject to the Class A contingent deferred sales charge described in the applicable fund's Prospectus.

Purchases made under this arrangement qualify for the lower of either the sales charge rate in the table based on the number of members of an Association, or the sales charge rate that applies under the Right of Accumulation described in the applicable fund's Prospectus and Statement of Additional Information. Individuals who qualify under this arrangement for reduced sales charge rates as members of Associations also may purchase shares for their individual or custodial accounts at these reduced sales charge rates, upon request to the Distributor.

Investors who purchased Class A shares from a dealer that is or was not permitted to receive a sales load or redemption fee imposed on a shareholder with whom that dealer has a fiduciary relationship, under the Employee Retirement Income Security Act of 1974 and regulations adopted under that law.

A shareholder's account will be credited with the amount of any contingent deferred sales charge paid on the redemption of any Class A, Class B or Class C shares of the Oppenheimer fund described in this section if the proceeds are invested in the same Class of shares in that fund or another Oppenheimer fund within 90 days after redemption.

The initial and contingent deferred sales charge rates and waivers for Class A and Class B shares described in the respective Prospectus (or this Appendix) of the following Oppenheimer funds (each is referred to as a "Fund" in this section):

Oppenheimer U. S. Government Trust,
Oppenheimer Core Bond Fund,
Oppenheimer Value Fund and

are modified as described below for those Fund shareholders who were shareholders of the following funds (referred to as the "Former Connecticut Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the investment adviser to the Former Connecticut Mutual Funds:

Connecticut Mutual Government Securities Account CMIA LifeSpan Capital Appreciation Account

Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account

1) persons whose purchases of Class A shares of a Fund and other Former Connecticut Mutual Funds were $500,000 prior to March 18, 1996, as a result of direct purchases or purchases pursuant to the Fund's policies on Combined Purchases or Rights of Accumulation, who still hold those shares in that Fund or other Former Connecticut Mutual Funds, and

2) persons whose intended purchases under a Statement of Intention entered into prior to March 18, 1996, with the former general distributor of the Former Connecticut Mutual Funds to purchase shares valued at $500,000 or more over a 13-month period entitled those persons to purchase shares at net asset value without being subject to the Class A initial sales charge.

Any of the Class A shares of a Fund and the other Former Connecticut Mutual Funds that were purchased at net asset value prior to March 18, 1996, remain subject to the prior Class A CDSC, or if any additional shares are purchased by those shareholders at net asset value pursuant to this arrangement they will be subject to the prior Class A CDSC.

1) any purchaser, provided the total initial amount invested in the Fund or any one or more of the Former Connecticut Mutual Funds totaled $500,000 or more, including investments made pursuant to the Combined Purchases, Statement of Intention and Rights of Accumulation features available at the time of the initial purchase and such investment is still held in one or more of the Former Connecticut Mutual Funds or a Fund into which such Fund merged;

2) any participant in a qualified plan, provided that the total initial amount invested by the plan in the Fund or any one or more of the Former Connecticut Mutual Funds totaled $500,000 or more;

3) Directors of the Fund or any one or more of the Former Connecticut Mutual Funds and members of their immediate families;

4) employee benefit plans sponsored by Connecticut Mutual Financial Services, L.L.C. ("CMFS"), the prior distributor of the Former Connecticut Mutual Funds, and its affiliated companies;

5) one or more members of a group of at least 1,000 persons (and persons who are retirees from such group) engaged in a common business, profession, civic or charitable endeavor or other activity, and the spouses and minor dependent children of such persons, pursuant to a marketing program between CMFS and such group; and

6) an institution acting as a fiduciary on behalf of an individual or individuals, if such institution was directly compensated by the individual(s) for recommending the purchase of the shares of the Fund or any one or more of the Former Connecticut Mutual Funds, provided the institution had an agreement with CMFS.

Purchases of Class A shares made pursuant to (1) and (2) above may be subject to the Class A CDSC of the Former Connecticut Mutual Funds described above.

Additionally, Class A shares of a Fund may be purchased without a sales charge by any holder of a variable annuity contract issued in New York State by Connecticut Mutual Life Insurance Company through the Panorama Separate Account which is beyond the applicable surrender charge period and which was used to fund a qualified plan, if that holder exchanges the variable annuity contract proceeds to buy Class A shares of the Fund.

In addition to the waivers set forth in the Prospectus and in this Appendix, above, the contingent deferred sales charge will be waived for redemptions of Class A and Class B shares of a Fund and exchanges of Class A or Class B shares of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund provided that the Class A or Class B shares of the Fund to be redeemed or exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by exchange from an Oppenheimer fund that was a Former Connecticut Mutual Fund. Additionally, the shares of such Former Connecticut Mutual Fund must have been purchased prior to March 18, 1996:

2) upon the disability of a shareholder, as defined in Section 72(m)(7) of the Internal Revenue Code;

3) for retirement distributions (or loans) to participants or beneficiaries from retirement plans qualified under Sections 401(a) or 403(b)(7)of the Code, or from IRAs, deferred compensation plans created under Section 457 of the Code, or other employee benefit plans;

5) in whole or in part, in connection with shares sold to any state, county, or city, or any instrumentality, department, authority, or agency thereof, that is prohibited by applicable investment laws from paying a sales charge or concession in connection with the purchase of shares of any registered investment management company;

6) in connection with the redemption of shares of the Fund due to a combination with another investment company by virtue of a merger, acquisition or similar reorganization transaction;

7) in connection with the Fund's right to involuntarily redeem or liquidate the Fund;

8) in connection with automatic redemptions of Class A shares and Class B shares in certain retirement plan accounts pursuant to an Automatic Withdrawal Plan but limited to no more than 12% of the original value annually; or

9) as involuntary redemptions of shares by operation of law, or under procedures set forth in the Fund's Articles of Incorporation, or as adopted by the Board of Directors of the Fund.

Shareholders of Oppenheimer AMT-Free Municipals, Oppenheimer U.S. Government Trust, Oppenheimer Strategic Income Fund and Oppenheimer Capital Income Fund who acquired (and still hold) shares of those funds as a result of the reorganization of series of Advance America Funds, Inc. into those Oppenheimer funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on March 30, 1990, may purchase Class A shares of those four Oppenheimer funds at a maximum sales charge rate of 4.50%.

Oppenheimer Convertible Securities Fund (referred to as the "Fund" in this section) may sell Class M shares at net asset value without any initial sales charge to the classes of current Class M shareholders, listed below who, prior to March 11, 1996, owned shares of the Fund's then-existing Class A and were permitted to purchase those shares at net asset value without a sales charge:

1 In accordance with Rule 12b-1 of the Investment Company Act, the term "Independent Trustee" in this SAI refers to those Trustees who are not "interested persons" of the Fund and who do not have any direct or indirect financial interest in the operation of the distribution plan or any agreement under the plan.

² Certain waivers also apply to Class M shares of Oppenheimer Convertible Securities Fund.

³ In the case of Oppenheimer Senior Floating Rate Fund, a continuously-offered closed-end fund, references to contingent deferred sales charges mean the Fund's Early Withdrawal Charges and references to "redemptions" mean "repurchases" of shares.

⁴ An "employee benefit plan" means any plan or arrangement, whether or not it is "qualified" under the Internal Revenue Code, under which Class N shares of an Oppenheimer fund or funds are purchased by a fiduciary or other administrator for the account of participants who are employees of a single employer or of affiliated employers. These may include, for example, medical savings accounts, payroll deduction plans or similar plans. The fund accounts must be registered in the name of the fiduciary or administrator purchasing the shares for the benefit of participants in the plan.

⁵ The term "Group Retirement Plan" means any qualified or non-qualified retirement plan for employees of a corporation or sole proprietorship, members and employees of a partnership or association or other organized group of persons (the members of which may include other groups), if the group has made special arrangements with the Distributor and all members of the group participating in (or who are eligible to participate in) the plan purchase shares of an Oppenheimer fund or funds through a single investment dealer, broker or other financial institution designated by the group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and 403(b) plans other than plans for public school employees. The term "Group Retirement Plan" also includes qualified retirement plans and non-qualified deferred compensation plans and IRAs that purchase shares of an Oppenheimer fund or funds through a single investment dealer, broker or other financial institution that has made special arrangements with the Distributor.

⁶ However, that concession will not be paid on purchases of shares in amounts of $1 million or more (including any right of accumulation) by a Retirement Plan that pays for the purchase with the redemption proceeds of Class C shares of one or more Oppenheimer funds held by the Plan for more than one year.

⁸ This provision only applies to qualified retirement plans and 403(b)(7) custodial plans after your separation from service in or after the year you reached age 55.

⁹ The distribution must be requested prior to Plan termination or the elimination of the Oppenheimer funds as an investment option under the Plan.

¹¹ This provision does not apply to loans from 403(b)(7) custodial plans and loans from the OppenheimerFunds-sponsored Single K retirement plan.

¹² This provision does not apply to 403(b)(7) custodial plans if the participant is less than age 55, nor to IRAs.

Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036

Average Annual Total Returns for the periods ended December 31, 2007	1 Year	5 Years (or life of class, if less)
Class A Shares (inception 2/25/04)
Return Before Taxes	-3.41%	4.23%
Return After Taxes on Distributions	-3.41%	4.23%
Return After Taxes on Distributions and Sale of Fund Shares	-0.83%	4.26%
Class B Shares (inception 2/25/04)	-4.58%	4.38%
Class C Shares (inception 2/25/04)	-1.59%	4.36%
Barclays Capital Municipal Bond Index	3.36%	3.67%
(reflects no deduction for fees, expenses or taxes)
Consumer Price Index	4.08%	3.19%
(reflects no deduction for fees, expenses or taxes)

Shareholder Fees (charges paid directly from your investment):
	Class A Shares	Class B Shares	Class C Shares
Maximum Sales Charge (Load) on purchases (as % of offering price)	3.50%	None	None
Maximum Deferred Sales Charge (Load) (as % of the lower of the original offering price or redemption proceeds)	None¹	4%²	1%³

If shares are redeemed:	1 Year	3 Years	5 Years	10 Years
Class A Shares	$453	$671	$907	$1,583
Class B Shares	$597	$809	$1,147	$1,818*
Class C Shares	$287	$578	$994	$2,156

If shares are not redeemed:	1 Year	3 Years	5 Years	10 Years
Class A Shares	$453	$671	$907	$1,583
Class B Shares	$197	$609	$1,047	$1,818*
Class C Shares	$187	$578	$994	$2,156

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 $100,000	3.50%	3.63%	3.00%
$100,000 or more but less than $250,000	3.00%	3.09%	2.50%
$250,000 or more but less than $500,000	2.50%	2.56%	2.00%
$500,000 or more but less than $1 million	2.00%	2.04%	1.50%


Oppenheimer Limited Term California Municipal Fund

Prospectus dated November 28, 2008
Oppenheimer Limited Term California Municipal Fund is a mutual fund that seeks a high a level of income exempt from federal income and California individual income taxes by investing primarily in a portfolio of investment-grade municipal securities intended to have an average effective maturity of five years or less.
This prospectus contains important information about the Fund's objective, investment policies, strategies and risks. It also contains important information about how to buy and sell shares of the Fund and other account features. Please read this prospectus carefully before you invest and keep it for future reference about your account.
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.

Oppenheimer Limited Term California Municipal Fund

Contents


	ABOUT THE FUND
3	The Fund's Investment Objective and Principal Investment Strategies
5	Main Risks of Investing in the Fund
12	The Fund's Past Performance
13	Fees and Expenses of the Fund
15	About the Fund's Investments
22	How the Fund is Managed

	ABOUT YOUR ACCOUNT
24	About Your Account
25	Choosing a Share Class
30	The Price of Fund Shares
32	How to Buy, Sell and Exchange Shares
44	Dividends, Capital Gains and Taxes
47	Financial Highlights

Annual Fund Operating Expenses (deducted from Fund assets): (% of average daily net assets)
	Class A Shares	Class B Shares	Class C Shares
Management Fees	0.46%	0.46%	0.46%
Disribution and/or Service (12b-1) Fees	0.25%	1.00%	1.00%
Total Other Expenses	0.33%	0.46%	0.36%
Interest and Related Expenses from Inverse Floaters⁴	0.15%	0.15%	0.15%
Other Expenses	0.18%	0.31%	0.21%
Total Annual Operating Exenses	1.04%	1.92%	1.82%

Years since Beginning of Month in Which Purchase Order was Accepted	Contingent Deferred Sales Charge on Redemptions in That Year (As % of Amount Subject to Charge)
0-1	4.0%
1-2	3.0%
2-3	2.0%
3-4	2.0%
4-5	1.0%
More than 5	None

Telephone:	Call OppenheimerFunds Services toll-free: 1.800.CALL OPP (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

Contents	Page

About the Fund
Additional Information About the Fund's Investment Policies and Risks	2
The Fund's Investment Policies	2
Other Investment Techniques and Strategies	12
Other Investment Restrictions	27
Disclosure of Portfolio Holdings	29
How the Fund is Managed	33
Organization and History	33
Board of Trustees and Oversight Committees	35
Trustees and Officers of the Fund	37
The Manager	48
Brokerage Policies of the Fund	52
Distribution and Service Plans	54
Payments to Fund Intermediaries	59
Performance of the Fund	63

About Your Account
How To Buy Shares	70
How To Sell Shares	78
How to Exchange Shares	82
Dividends, Capital Gains and Taxes	85
Additional Information About the Fund	90

Financial Information About the Fund
Report of Independent Registered Public Accounting Firm	92
Financial Statements	93

Appendix A: Municipal Bond Ratings Definitions	A-1
Appendix B: Special Considerations Relating to Municipal Obligations in California and U.S. Territories, Commonwealths and Possessions	B-1
Appendix C: OppenheimerFunds Special Sales Charge Arrangements and Waivers	C-1

ABG Securities	Fixed Income Securities	Nomura Securities
ABN AMRO	Fortis Securities	Oppenheimer & Co.
AG Edwards	Fox-Pitt, Kelton	Oscar Gruss
Allen & Co	Friedman, Billing, Ramsey	OTA
American Technology Research	Gabelli	Pacific Crest Securities
Auerbach Grayson	Garp Research	Piper Jaffray Inc.
Avondale	Gartner	Portales Partners
Banc of America Securities	George K Baum & Co.	Punk Ziegel & Co
Barra	Goldman Sachs	Raymond James
BB&T	Howard Weil	RBC
Bear Stearns	HSBC	Reuters
Belle Haven	ISI Group	RiskMetrics/ISS
Bloomberg	ITG	Robert W. Baird
BMO Capital Markets	Janco	Roosevelt & Cross
BNP Paribas	Janney Montgomery	Russell
Brean Murray	Jefferies	Sandler O'Neill
Brown Brothers	JMP Securities	Sanford C. Bernstein
Buckingham Research Group	JNK Securities	Scotia Capital Markets
Canaccord Adams	Johnson Rice & Co	Sidoti
Caris & Co.	JP Morgan Securities	Simmons
CIBC World Markets	Kaufman Brothers	Sanders Morris Harris
Citigroup Global Markets	Keefe, Bruyette & Woods	Societe Generale
CJS Securities	Keijser Securities	Soleil Securities Group
Cleveland Research	Kempen & Co. USA Inc.	Standard & Poors
Cogent	Kepler Equities/Julius Baer Sec	Stanford Group
Collins Stewart	KeyBanc Capital Markets	State Street Bank
Cowen & Company	Lazard Freres & Co	Stephens, Inc.
Craig-Hallum Capital Group LLC	Leerink Swann	Stifel Nicolaus
Credit Agricole Cheuvreux N.A. Inc.	Lehman Brothers	Stone & Youngberg
Credit Suisse	Loop Capital Markets	Strategas Research
Data Communique	Louise Yamada Tech Research	Sungard
Daiwa Securities	MainFirst Bank AG	Suntrust Robinson Humphrey
Davy	Makinson Cowell US Ltd	SWS Group
Deutsche Bank Securities	McAdams Wright	Think Equity Partners
Dougherty Markets	Merrill Lynch	Thomas Weisel Partners
Dowling	Miller Tabak	Thomson Financial
Empirical Research	Mizuho Securities	UBS
Enskilda Securities	Moodys Research	Virtusa Corporation
Exane BNP Paribas	Morgan Stanley	Wachovia Securities
Factset	Natixis Bleichroeder	Wedbush
Fidelity Capital Markets	Ned Davis Research Group	Weeden
First Albany	Needham & Co	William Blair

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

Independent Trustees
Name, Position(s) Held with the Fund, Length of Service, Age	Principal Occupation(s) During the Past 5 Years; Other Trusteeships/Directorships Held; Number of Portfolios in the Fund Complex Currently Overseen	Dollar Range of Shares Beneficially Owned in the Fund	Aggregate Dollar Range Of Shares Beneficially Owned in Supervised Funds
		As of December 31, 2007
Brian F. Wruble, Chairman of the Board of Trustees since 2007, Trustee since 2005 Age: 65	General Partner of Odyssey Partners, L.P. (hedge fund) (September 1995-December 2007); Director of Special Value Opportunities Fund, LLC (registered investment company) (affiliate of the Manager' s parent company) (since September 2004); Chairman (since August 2007) and Trustee (since August 1991) of the Board of Trustees of The Jackson Laboratory (non-profit); Treasurer and Trustee of the Institute for Advanced Study (non-profit educational institute) (since May 1992); Member of Zurich Financial Investment Management Advisory Council (insurance) (2004-2007); Special Limited Partner of Odyssey Investment Partners, LLC (private equity investment) (January 1999-September 2004). Oversees 62 portfolios in the OppenheimerFunds complex.	$0	Over $100,000
David K. Downes, Trustee since 2007 Age: 68	Independent Chairman GSK Employee Benefit Trust (since April 2006); Director of Correctnet (since January 2006); Trustee of Employee Trusts (since January 2006); President, Chief Executive Officer and Board Member of CRAFund Advisors, Inc. (investment management company) (since January 2004); Director of Internet Capital Group (information technology company) (since October 2003); Independent Chairman of the Board of Trustees of Quaker Investment Trust (registered investment company) (2004-2007); President of The Community Reinvestment Act Qualified Investment Fund (investment management company) (2004-2007); Chief Operating Officer and Chief Financial Officer of Lincoln National Investment Companies, Inc. (subsidiary of Lincoln National Corporation, a publicly traded company) and Delaware Investments U.S., Inc. (investment management subsidiary of Lincoln National Corporation) (1993-2003); President, Chief Executive Officer and Trustee of Delaware Investment Family of Funds (1993-2003); President and Board Member of Lincoln National Convertible Securities Funds, Inc. and the Lincoln National Income Funds, TDC (1993-2003); Chairman and Chief Executive Officer of Retirement Financial Services, Inc. (registered transfer agent and investment adviser and subsidiary of Delaware Investments U.S., Inc.) (1993-2003); President and Chief Executive Officer of Delaware Service Company, Inc. (1995-2003); Chief Administrative Officer, Chief Financial Officer, Vice Chairman and Director of Equitable Capital Management Corporation (investment subsidiary of Equitable Life Assurance Society) (1985-1992); Corporate Controller of Merrill Lynch & Company (financial services holding company) (1977-1985); held the following positions at the Colonial Penn Group, Inc. (insurance company): Corporate Budget Director (1974-1977), Assistant Treasurer (1972-1974) and Director of Corporate Taxes (1969-1972); held the following positions at Price Waterhouse & Company (financial services firm): Tax Manager (1967-1969), Tax Senior (1965-1967) and Staff Accountant (1963-1965); United States Marine Corps (1957-1959). Oversees 64 portfolios in the OppenheimerFunds complex.	$0	Over $100,000
Matthew P. Fink, Trustee since 2005 Age: 67	Trustee of the Committee for Economic Development (policy research foundation) (since 2005); Director of ICI Education Foundation (education foundation) (October 1991-August 2006); President of the Investment Company Institute (trade association) (October 1991-June 2004); Director of ICI Mutual Insurance Company (insurance company) (October 1991-June 2004). Ove rsees 52 portfolios in the OppenheimerFunds complex.	$0	Over $100,000
Phillip A. Griffiths, Trustee since 1999 Age: 70	Fellow of the Carnegie Corporation (since 2007); Distinguished Presidential Fellow for International Affairs (since 2002) and Member (since 1979) of the National Academy of Sciences; Council on Foreign Relations (since 2002); Director of GSI Lumonics Inc. (precision technology products company) (since 2001); Senior Advisor of The Andrew W. Mellon Foundation (since 2001); Chair of Science Initiative Group (since 1999); Member of the American Philosophical Society (since 1996); Trustee of Woodward Academy (since 1983); Foreign Associate of Third World Academy of Sciences; Director of the Institute for Advanced Study (1991-2004); Director of Bankers Trust New York Corporation (1994-1999); Provost at Duke University (1983-1991). Oversees 54 portfolios in the OppenheimerFunds complex.	$0	None
Mary F. Miller, Trustee since 2004 Age: 66	Trustee of International House (not-for-profit) (since June 2007); Trustee of the American Symphony Orchestra (not-for-profit) (since October 1998); and Senior Vice President and General Auditor of American Express Company (financial services company) (July 1998-February 2003). Oversees 54 portfolios in the OppenheimerFunds complex.	$0	Over $100,000
Joel W. Motley, Trustee since 2002 Age: 56	Managing Director of Public Capital Advisors, LLC (privately held financial advisor) (since January 2006); Managing Director of Carmona Motley, Inc. (privately-held financial advisor) (since January 2002); Director of Columbia Equity Financial Corp. (privately-held financial advisor) (2002-2007); Managing Director of Carmona Motley Hoffman Inc. (privately-held financial advisor) (January 1998-December 2001); Member of the Finance and Budget Committee of the Council on Foreign Relations, Member of the Investment Committee of the Episcopal Church of America, Member of the Investment Committee and Board of Human Rights Watch and Member of the Investment Committee of Historic Hudson Valley. Oversees 54 portfolios in the OppenheimerFunds complex.	$0	Over $100,000
Russell S. Reynolds, Jr., Trustee since 1989 Age: 76	Chairman of RSR Partners (formerly "The Directorship Search Group, Inc.") (corporate governance consulting and executive recruiting) (since 1993); Life Trustee of International House (non-profit educational organization); Former Trustee of The Historical Society of the Town of Greenwich; Former Director of Greenwich Hospital Association. Oversees 54 portfolios in the OppenheimerFunds complex.	$0	Over $100,000
Mary Ann Tynan, Trustee since 2008 Age: 63	Vice Chair of Board of Trustees of Brigham and Woman's Hospital (non-profit hospital) (since 2000); Chair of Board of Directors of Faulkner Hospital (non-profit hospital) (since 1990); Member of Audit and Compliance Committee of Partners Health Care System (non-profit) (since 2004); Board of Trustees of Middlesex School (educational institution) (since 1994); Board of Directors of Idealswork, Inc. (financial services provider) (since 2003); Member of Capital Campaign Committee of Island Medical Center (medical facility) (2006 to 2008); Partner, Senior Vice President and Director of Regulatory Affairs of Wellington Management Company, LLP (global investment manager) (1976 to 2002); Vice President and Corporate Secretary, John Hancock Advisers, Inc. (mutual fund investment adviser) (1970-1976). Oversees 54 portfolios in the OppenheimerFunds complex.	None*	None*
Joseph M. Wikler, Trustee since 2005 Age: 67	Director of C-TASC (bio-statistics services (since 2007); Director of the following medical device companies: Medintec (since 1992) and Cathco (since 1996); Director of Lakes Environmental Association (environmental protection organization) (since 1996); Member of the Investment Committee of the Associated Jewish Charities of Baltimore (since 1994); Director of Fortis/Hartford mutual funds (1994-December 2001). Oversees 54 portfolios in the OppenheimerFunds complex.	$0	Over $100,000
Peter I. Wold, Trustee since 2005 Age: 60	President of Wold Oil Properties, Inc. (oil and gas exploration and production company) (since 1994); Vice President of American Talc Company, Inc. (talc mining and milling) (since 1999); Managing Member of Hole-in-the-Wall Ranch (cattle ranching) (since 1979); Vice President, Secretary and Treasurer of Wold Trona Company, Inc. (soda ash processing and production) (1996 - 2006); Director and Chairman of the Denver Branch of the Federal Reserve Bank of Kansas City (1993-1999); and Director of PacifiCorp. (electric utility) (1995-1999). Oversees 54 portfolios in the OppenheimerFunds complex.	$0	Over $100,000

Interested Trustee and Officer
Name, Position(s) Held with Fund, Length of Service, Age	Principal Occupation(s) During the Past 5 Years; Other Trusteeships/Directorships Held; Number of Portfolios in the Fund Complex Currently Overseen	Dollar Range of Shares Beneficially Owned in the Fund	Aggregate Dollar Range Of Shares Beneficially Owned in Supervised Funds
		As of December 31, 2007
John V. Murphy, Trustee since 2001 and President and Principal Executive Officer since 2001 Age: 59	Chairman, Chief Executive Officer and Director of the Manager since June 2001; President of the Manager (September 2000-February 2007); President and a director or trustee of other Oppenheimer funds; President and Director of Oppenheimer Acquisition Corp. ("OAC") (the Manager's parent holding company) and of Oppenheimer Partnership Holdings, Inc. (holding company subsidiary of the Manager) (since July 2001); Director of OppenheimerFunds Distributor, Inc. (subsidiary of the Manager) (November 2001-December 2006); Chairman and Director of Shareholder Services, Inc. and of Shareholder Financial Services, Inc. (transfer agent subsidiaries of the Manager) (since July 2001); President and Director of OppenheimerFunds Legacy Program (charitable trust program established by the Manager) (since July 2001); Director of the following investment advisory subsidiaries of the Manager: OFI Institutional Asset Management, Inc., Centennial Asset Management Corporation, Trinity Investment Management Corporation and Tremont Capital Management, Inc. (since November 2001), HarbourView Asset Management Corporation and OFI Private Investments, Inc. (since July 2001); President (since November 1, 2001) and Director (since July 2001) of Oppenheimer Real Asset Management, Inc.; Executive Vice President of Massachusetts Mutual Life Insurance Company (OAC's parent company) (since February 1997); Director of DLB Acquisition Corporation (holding company parent of Babson Capital Management LLC) (since June 1995); Member of the Investment Company Institute's Board of Governors (since October , 2003); Chairman of the Investment Company's Institute's Board of Governors (since October 2007). Oversees 103 portfolios in the OppenheimerFunds complex.	$0	Over $100,000

Other Officers of the Fund
Name, Position(s) Held with Fund Length of Service, Age	Principal Occupation(s) During Past 5 Years
Ronald H. Fielding, Vice President and Senior Portfolio Manager since 2002 Age: 57	Senior Vice President of the Manager and Chairman of the Rochester Division of the Manager since January 1996; Vice President of the Fund since July 2002. Chief Strategist, Senior Portfolio Manager and a trader for the Fund and other Oppenheimer funds. A portfolio manager and officer of 18 portfolios in the OppenheimerFunds complex.
Daniel G. Loughran, Vice President since October 2005 and Senior Portfolio Manager since 2002 Age: 45	Senior Vice President of the Manager since July 2007. Vice President of the Manager from April 2001 to July 2007; Vice President of the Rochester division of the Manager since January 1996. Vice President of the Fund since October 2005. Team leader, a Senior Portfolio Manager and a trader for the Fund and other Oppenheimer funds. A portfolio manager and officer of 18 portfolios in the OppenheimerFunds complex.
Scott S. Cottier, Vice President since October 2005 and Senior Portfolio Manager since 2002 Age: 37	Vice President of the Manager since 2002; Vice President of the Fund since October 2005. Portfolio manager and trader at Victory Capital Management (1999-2002). Senior Portfolio Manager and trader for the Fund and other Oppenheimer Funds. An officer of 18 portfolios in the OppenheimerFunds complex.
Troy E. Willis, Vice President since October 2005 and Senior Portfolio Manager since 2003 Age: 33	Assistant Vice President of the Manager since July 2005; Senior Portfolio Manager with the Manager since 2003; Vice President of the Fund since October 2005. A corporate attorney for Southern Resource Group (1999-2003). A portfolio manager and officer of 18 portfolios in the OppenheimerFunds complex.
Richard Stein Vice President since 2007 Age : 51	Director of the Rochester Credit Analysis team (since 2003) and a Vice President of the Manager (since 1997); Headed Rochester's Credit Analysis team (since 1993).
Richard Stein Vice President since 2007 Age : 51	Director of the Rochester Credit Analysis team (since 2003) and a Vice President of the Manager (since 1997); Headed Rochester's Credit Analysis team (since 1993).
Mark S. Vandehey, Vice President and Chief Compliance Officer since 2004 Age: 58	Senior Vice President and Chief Compliance Manager of the Manager (since March 2004); Chief Compliance Officer of OppenheimerFunds Distributor, Inc., Centennial Asset Management and Shareholder Services, Inc. (since March 2004); Vice President of OppenheimerFunds Distributor, Inc., Centennial Asset Management Corporation and Shareholder Services, Inc. (since June 1983). Former Vice President and Director of Internal Audit of the Manager (1997-February 2004). An officer of 103 portfolios in the OppenheimerFunds complex.
Brian W. Wixted, Treasurer and Principal Financial & Accounting Officer since 2004 Age: 49	Senior Vice President and Treasurer of the Manager (since March 1999); Treasurer of the following: HarbourView Asset Management Corporation, Shareholder Financial Services, Inc., Shareholder Services, Inc., Oppenheimer Real Asset Management, Inc. and Oppenheimer Partnership Holdings, Inc. (since March 1999), OFI Private Investments, Inc. (since March 2000), OppenheimerFunds International Ltd. (since May 2000), OppenheimerFunds plc (since May 2000), OFI Institutional Asset Management, Inc. (since November 2000), and OppenheimerFunds Legacy Program (charitable trust program established by the Manager) (since June 2003); Treasurer and Chief Financial Officer of OFI Trust Company (trust company subsidiary of the Manager) (since May 2000); Assistant Treasurer of the following: OAC (since March 1999),Centennial Asset Management Corporation (March 1999-October 2003) and OppenheimerFunds Legacy Program (April 2000-June 2003). An officer of 103 portfolios in the OppenheimerFunds complex.
Brian Petersen, Assistant Treasurer since 2004 Age: 38	Vice President of the Manager (since February 2007); Assistant Vice President of the Manager (August 2002-February 2007); Manager/Financial Product Accounting of the Manager (November 1998-July 2002). An officer of 103 portfolios in the OppenheimerFunds complex.
Stephanie Bullington, Assistant Treasurer since 2008 Age: 31	Assistant Vice President of the Manager (since October 2005); Assistant Vice President of ButterField Fund Services (Bermuda) Limited, part of The Bank of N.T. Butterfield & Son Limited (Butterfield) (February 2004-June 2005; Fund Accounting Officer of Butterfield Fund Services (Bermuda) Limited (September 2003-February 2004 ). An officer of 101 portfolios in the OppenheimerFunds complex.
Robert G. Zack, Secretary since 2001 Age: 60	Executive Vice President (since January 2004) and General Counsel (since March 2002) of the Manager; General Counsel and Director of the Distributor (since December 2001); General Counsel of Centennial Asset Management Corporation (since December 2001); Senior Vice President and General Counsel of HarbourView Asset Management Corporation (since December 2001); Secretary and General Counsel of OAC (since November 2001); Assistant Secretary (since September 1997) and Director (since November 2001) of OppenheimerFunds International Ltd. and OppenheimerFunds plc; Vice President and Director of Oppenheimer Partnership Holdings, Inc. (since December 2002); Director of Oppenheimer Real Asset Management, Inc. (since November 2001); Senior Vice President, General Counsel and Director of Shareholder Financial Services, Inc. and Shareholder Services, Inc. (since December 2001); Senior Vice President, General Counsel and Director of OFI Private Investments, Inc. and OFI Trust Company (since November 2001); Vice President of OppenheimerFunds Legacy Program (since June 2003); Senior Vice President and General Counsel of OFI Institutional Asset Management, Inc. (since November 2001); Director of OppenheimerFunds International Distributor Limited (since December 2003); Senior Vice President (May 1985-December 2003). An officer of 103 portfolios in the OppenheimerFunds complex.
Kathleen T. Ives, Assistant Secretary since 2001 Age: 43	Vice President (since June 1998), Deputy General Counsel (since May 2008) and Assistant Secretary (since October 2003) of the Manager; Vice President (since 1999) and Assistant Secretary (since October 2003) of the Distributor; Assistant Secretary of Centennial Asset Management Corporation (since October 2003); Vice President and Assistant Secretary of Shareholder Services, Inc. (since 1999); Assistant Secretary of OppenheimerFunds Legacy Program and Shareholder Financial Services, Inc. (since December 2001); Senior Counsel of the Manager (October 2003-May 2008). An officer of 103 portfolios in the OppenheimerFunds complex.
Lisa I. Bloomberg, Assistant Secretary since 2004 Age: 40	Vice President (since May 2004) and Deputy General Counsel (since May 2008); of the Manager; Associate Counsel of the Manager (May 2004-May 2008); First Vice President (April 2001-April 2004), Associate General Counsel (December 2000-April 2004) of UBS Financial Services Inc. (formerly, PaineWebber Incorporated). An officer of 103 portfolios in the OppenheimerFunds complex.
Taylor V. Edwards, Assistant Secretary since 2008 Age : 41	Vice President and Assistant Counsel of the Manager (since February 2007); Assistant Vice President and Assistant Counsel of the Manager (January 2006-January 2007); Formerly an Associate at Dechert LLP (September 2000-December 2005). An officer of 101 portfolios in the OppenheimerFunds complex.
Randy G. Legg, Assistant Secretary since 2008 Age : 43	Vice President (since June 2005) and Associate Counsel (since January 2007) of the Manager; Assistant Vice President (February 2004-June 2005 and Assistant Counsel (February 2004-January 2007) of the Manager. An officer of 101 portfolios in the OppenheimerFunds complex.
Adrienne M. Ruffle, Assistant Secretary since 2008 Age : 31	Vice President (since February 2007) and Assistant Counsel (since February 2005) of the Manager; Assistant Vice President of the Manager (February 2005-February 2007); Associate (September 2002-February 2005) at Sidley Austin LLP. An officer of 101 portfolios in the OppenheimerFunds complex.

Name and Other Fund Position(s) (as applicable)	Aggregate Compensation From the Fund⁽¹⁾	Retirement Benefits Accrued as Part of Fund Expenses	Estimated Annual Benefits Upon Retirement⁽²⁾	Total Compensation From the Fund and Fund Complex
Name and Other Fund Position(s) (as applicable)	Fiscal year ended July 31, 2008		Estimated Annual Benefits Upon Retirement⁽²⁾	Year ended December 31, 2007
Brian F. Wruble(3) Chairman of the Board	$729 ⁽⁴⁾	N/A	$65,868⁽⁵⁾	$335,190 ⁽⁶⁾
David K. Downes⁽⁷⁾Audit Committee Chairman and Regulatory & Oversight Committee Member	$543	N/A	^{$26,112⁽⁸⁾}	^{$180,587⁽⁹⁾}
Matthew P. Fink Regulatory & Oversight Committee Chairman and Governance Committee Member	$563	N/A	^{$10,004⁽¹⁰⁾}	^$154,368
Robert G. Galli Regulatory & Oversight Committee Chairman & Governance Committee Member	$665	N/A	$137,599⁽¹¹⁾	$330,533 ⁽¹²⁾
Phillip A. Griffiths Audit Committee Member and Regulatory & Oversight Committee Member	$662⁽¹³⁾	N/A	$51,621⁽¹⁴⁾	$198,211
Mary F. Miller Audit Committee Member and Governance Committee Member	$544⁽¹⁵⁾	N/A	$13,201⁽¹⁴⁾	$152,698
Joel W. Motley Governance Committee Chairman and Regulatory & Oversight Committee Member	$576⁽¹⁶⁾	N/A	$32,741⁽¹⁴⁾	$171,223
Kenneth A. Randall⁽¹⁷⁾	$0	N/A	$96,401⁽¹⁸⁾	$117,520
Russell S. Reynolds, Jr. Audit Committee Member and Governance Committee Member	$544	N/A	$77,288	$153,530
Joseph M. Wikler Audit Committee Member and Regulatory & Oversight Committee Member	$544⁽¹⁹⁾	N/A	$28,814⁽¹⁴⁾	$150,770
Peter I. Wold Audit Committee Member and Governance Committee Member	$544⁽²⁰⁾	N/A	$28,814⁽¹⁴⁾	$150,770

Fiscal Year ended July 31:	Management Fees Paid to OppenheimerFunds, Inc.
2006	$704,638
2007	$1,147,857
2008	$1,386,807

Portfolio Manager	Registered Investment Companies Managed	Total Assets in Registered Investment Companies Managed¹	Other Pooled Investment Vehicles Managed	Total Assets in Other Pooled Investment Vehicles Managed¹	Other Accounts Managed²	Total Assets in Other Accounts Managed^1,²
Ronald H. Fielding	17	$29,968,735,912	None	None	None	None
Daniel G. Loughran	17	$29,968,735,912	None	None	None	None
Scott Cottier	17	$29,968,735,912	None	None	None	None
Troy Willis	17	$29,968,735,912	None	None	None	None
Mark DeMitry	17	$29,968,735,912	None	None	None	None
Marcus Franz	17	$29,968,735,912	None	None	None	None
Michael Camarella	17	$29,968,735,912	None	None	None	None

Fiscal Year Ended July 31,	Total Brokerage Commissions Paid by the Fund^*
2006	$0
2007	$0
2008	$0

Fiscal Year Ended July 31:	Aggregate Front-End Sales Charges on Class A Shares	Class A Front-End Sales Charges Retained by Distributor¹	Concessions on Class A Shares Advanced by Distributor²	Concessions on Class B Shares Advanced by Distributor²	Concessions on Class C Shares Advanced by Distributor²
2006	$712,892	$132,085	$258,563	$23,103	$362,613
2007	$452,198	$94,173	$154,505	$7,319	$162,640
2008	$483,404	$98,971	$163,754	$12,779	$150,733

Fiscal Year Ended July 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
2006	$2,364	$5,466	$37,869
2007	$15,589	$11,911	$22,728
2008	$36,574	$9,718	$23,392

Distribution and Service Fees Paid to the Distributor for the Fiscal Year Ended July 31, 2008
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	$20,703	$16,827	$203	$0	0.00%
Class C Plan	$713,147	$216,139	$11,593	$860,985	1.11%

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

1st Global Capital Co.	Lincoln Investment Planning, Inc.
AG Edwards	Lincoln National Life Insurance Co.
ACS HR Solutions	Linsco Private Ledger Financial
ADP	Massachusetts Mutual Life Insurance Company
AETNA Life Ins & Annuity Co.	Matrix Settlement & Clearance Services
Alliance Benefit Group	McDonald Investments, Inc.
American Enterprise Investments	Mercer HR Services
American Express Retirement Service	Merrill Lynch
American United Life Insurance Co.	Mesirow Financial, Inc.
Ameriprise Financial Services, Inc.	MetLife
Ameritrade, Inc.	MFS Investment Management
AMG (Administrative Management Group)	Mid Atlantic Capital Co.
AST (American Stock & Transfer)	Milliman USA
AXA Advisors	Morgan Keegan & Co, Inc.
Bear Stearns Securities Co.	Morgan Stanley Dean Witter
Benefit Administration Company, LLC	Mutual of Omaha Life Insurance Co.
Benefit Administration, Inc.	Nathan & Lewis Securities, Inc.
Benefit Consultants Group	National City Bank
Benefit Plans Administration	National Deferred Comp
Benetech, Inc.	National Financial
Bisys	National Investor Services Co.
Boston Financial Data Services	Nationwide Life Insurance Company
Charles Schwab & Co, Inc.	Newport Retirement Services, Inc.
Citigroup Global Markets Inc.	Northwest Plan Services, Inc.
CitiStreet	NY Life Benefits
City National Bank	Oppenheimer & Co, Inc.
Clark Consulting	Peoples Securities, Inc.
CPI Qualified Plan Consultants, Inc.	Pershing LLC
DA Davidson & Co.	PFPC
DailyAccess Corporation	Piper Jaffray & Co.
Davenport & Co, LLC	Plan Administrators, Inc.
David Lerner Associates, Inc.	Plan Member Securities
Digital Retirement Solutions, Inc.	Primevest Financial Services, Inc.
DR, Inc.	Principal Life Insurance Co.
Dyatech, LLC	Prudential Investment Management Services LLC
E*Trade Clearing LLC	PSMI Group, Inc.
Edward D Jones & Co.	Quads Trust Company
Equitable Life / AXA	Raymond James & Associates, Inc.
ERISA Administrative Svcs, Inc.	Reliance Trust Co.
ExpertPlan, Inc.	Reliastar Life Insurance Company
FASCore LLC	Robert W Baird & Co.
Ferris Baker Watts, Inc.	RSM McGladrey
Fidelity	Scott & Stringfellow, Inc.
First Clearing LLC	Scottrade, Inc.
First Southwest Co.	Southwest Securities, Inc.
First Trust – Datalynx	Standard Insurance Co
First Trust Corp	Stanley, Hunt, Dupree & Rhine
Franklin Templeton	Stanton Group, Inc.
Geller Group	Sterne Agee & Leach, Inc.
Great West Life	Stifel Nicolaus & Co, Inc.
H&R Block Financial Advisors, Inc.	Sun Trust Securities, Inc.
Hartford Life Insurance Co.	Symetra Financial Corp.
HD Vest Investment Services	T. Rowe Price
Hewitt Associates LLC	The 401k Company
HSBC Brokerage USA, Inc.	The Princeton Retirement Group Inc.
ICMA - RC Services	The Retirement Plan Company, LLC
Independent Plan Coordinators	TruSource Union Bank of CA
Ingham Group	UBS Financial Services, Inc.
Interactive Retirement Systems	Unified Fund Services (UFS)
Invesmart (Standard Retirement Services, Inc.)	US Clearing Co.
Janney Montgomery Scott, Inc.	USAA Investment Management Co.
JJB Hillard W L Lyons, Inc.	USI Consulting Group
John Hancock	VALIC Retirement Services
JP Morgan	Vanguard Group
July Business Services	Wachovia
Kaufman & Goble	Web401K.com
Legend Equities Co.	Wedbush Morgan Securities
Legg Mason Wood Walker	Wells Fargo Bank
Lehman Brothers, Inc.	Wilmington Trust
Liberty Funds Distributor, Inc./Columbia Management

The Fund's Yields for the 30-Day Periods Ended 07/31/08
Class of Shares	Standardized Yield		Dividend Yield		Tax-Equivalent Yield (41.05% Combined Federal/State Tax Bracket)
Class of Shares	Without Sales Charge	After Sales Charge	Without Sales Charge	After Sales Charge	Without Sales Charge	After Sales Charge
Class A	4.01%	3.87%	4.49%	4.34%	6.79%	6.56%
Class B	2.90%	N/A	3.41%	N/A	4.91%	N/A
Class C	3.20%	N/A	4.77%	N/A	5.42%	N/A

ATV_D ^l/n	- 1	= Average Annual Total Return (After Taxes on Distributions)
P

ATV_DR ^l/n	- 1	= Average Annual Total Return (After Taxes on Distributions and Redemptions)
P

The Fund's Total Returns for the Periods Ended July 31, 2008
Class of Shares	Cumulative Total Returns (10 Years or life-of-class, if less)		Average Annual Total Returns
			1-Year		5-Years (or life-of-class if less)		10-Years (or life-of-class if less)
	After Sales Charge	Without Sales Charge	After Sales Charge	Without Sales Charge	After Sales Charge	Without Sales Charge		After Sales Charge	Without Sales Charge
Class A¹	16.53%	20.76%	-5.28%	-1.85%	3.51%	4.35%		N/A	N/A
Class B²	17.51%	18.51%	-6.46%	-2.69%	3.71%	3.91%		N/A	N/A
Class C³	16.54%	16.54%	-3.53%	-2.59%	3.51%	3.51%		N/A	N/A

Average Annual Total Returns for Class A Shares (After Sales Charge) For the Periods Ended July 31, 2008
	1-Year	5-Years	10-Years
After Taxes on Distributions	-5.28%	3.51%	N/A
After Taxes on Distributions and Redemption of Fund Shares	-2.03%	3.65%	N/A

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

LifeCycle Funds
Oppenheimer Transition 2010 Fund
Oppenheimer Transition 2015 Fund
Oppenheimer Transition 2020 Fund
Oppenheimer Transition 2025 Fund
Oppenheimer Transition 2030 Fund
Oppenheimer Transition 2040 Fund
Oppenheimer Transition 2050 Fund

And the following money market funds:
Oppenheimer Cash Reserves	Centennial Government Trust
Oppenheimer Institutional Money Market Fund	Centennial Money Market Trust
Oppenheimer Money Market Fund, Inc.	Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust	Centennial Tax Exempt Trust

Number of Eligible Employees or Members	Initial Sales Charge as a % of Offering Price	Initial Sales Charge as a % of Net Amount Invested	Concession as % of Offering Price
9 or Fewer	2.50%	2.56%	2.00%
At least 10 but not more than 49	2.00%	2.04%	1.60%