LB LandBridge Company LLC

The municipal market continued to rally for much of this reporting period, despite sluggish economic growth and declining muni prices in the first quarter of 2013. For the first nine months of this reporting period, investor demand remained strong and net inflows were the norm as income-seeking investors redirected assets into municipal bond funds.

AAA-rated municipal securities remained “cheap to Treasuries” during this reporting period, a condition that exists when nominal, pre-tax muni yields exceed available Treasury yields. As of March 28, 2013, the average yield on 30-year, AAA-rated muni

bonds was 3.19%, down 32 basis points from March 30, 2012, the last business day of the Fund’s previous 12-month reporting period. On March 28, 2013, the average yield on 10-year, AAA-rated muni bonds was 1.96%, down 18 basis points from the March 2012 date, and the average yield on 2-year, AAA-rated muni bonds was 0.33%, down 6 basis points from the March 2012 date. The current market conditions allow investors to earn higher nominal yields on their muni holdings than on Treasuries and to benefit further from the federal, state and, where applicable, local tax exemptions on municipal investment income.

The Federal Reserve (the “Fed”) also provided good news for current muni bondholders this reporting period as it repeatedly extended its timeframe for changing the Fed Funds target rate, the short-term interest rate it controls. At the outset of this reporting period, the rate stood at zero to 0.25% and the Fed’s expectation was that the rate would likely remain very low until late 2014.

In September 2012, this timeframe was lengthened to mid-2015 and then, in December 2012, linked to the unemployment rate. Rates will not move until unemployment is below 6.5%, the Fed announced, unless inflation rises above 2.5%. Given the current rates, the only plausible change would be an increase. We remind investors that a change in the Fed Funds rate does not automatically translate into a change in longer-term interest rates, which are determined by the marketplace.

At a March 20, 2013, press conference, Federal Reserve Chairman Ben S. Bernanke discussed the Fed’s thinking: “We’re not measuring success in terms of the stock market. We’re measuring success in terms of our mandate, which is stable employment and price stability.”

In the first half of this reporting period, North Carolina lawmakers passed a $20.2 billion state budget for fiscal 2013, over the objections of then-Gov. Beverly Perdue. The budget process was, for the third consecutive

year, highly contentious as the executive and legislative branches held divergent positions about school funding. Citing the state’s “already divisive environment” and its inability to reach bipartisan solutions for state funding, Gov. Perdue announced that she would not run for a second term.

In January 2013, Pat McCrory became North Carolina’s 74th governor. Gov. McCrory, the former mayor of Charlotte, is the first Republican to govern the state in 25 years. In February 2013, the state saved more than $45 million in debt service costs by refunding $319 million in general obligation (G.O.) bonds. In a refunding, a municipal issuer seeks to reduce its debt service obligations by exercising the call feature on higher coupon bonds and then borrowing at lower interest rates. The G.O. bonds issued in February replaced earlier bonds that financed a variety of transportation, university and community college projects.

Late in this reporting period, Gov. McCrory released his first budget, which included proposals to hire more teachers, close five rural prisons, reduce the size of the attorney general’s office, and give state employees a 1% salary increase. If enacted as is, more than half of the budget would support North Carolina’s school system, and $813 million would be added to the state’s rainy day fund over the next two fiscal years. Legislators’ initial reactions to the proposed spending plan were mixed and largely correlated with party affiliations.

Throughout this reporting period, North Carolina’s G.O. debt maintained AAA ratings from Standard & Poor’s and Fitch Ratings and Aaa by Moody’s Investors Service.

The average distribution yield in Lipper’s North Carolina Municipal Debt Funds category was 2.99% at the end of this reporting period. At 4.23%, the distribution yield for this Fund’s Class A shares was 124 basis points higher than the category average.

Successful investors, we have found, maintain a long-term perspective regardless of the specific developments associated with any given reporting period. To maximize the benefits of municipal bond fund investing, many investors reinvest their dividends and allow the income generated from their investments to compound over time.

FUND PERFORMANCE

Oppenheimer Rochester North Carolina Municipal Fund held more than 200 securities as of March 28, 2013. The Fund was invested in a broad range of sectors, providing shareholders with a diversity of holdings that we believe would be difficult and costly to replicate in an individual portfolio.

As bond prices rose this reporting period, declining municipal interest rates put pressure on the Class A dividend. The dividend, which stood at 5.3 cents per Class A share as of April 1, 2012, was lowered three times this reporting period: it declined to 5.0 cents

per share in June 2012; to 4.5 cents per share in October 2012, and to 4.3 cents per share for the March 2013 payout.

Issuers’ preference for refundings remained strong this reporting period, further pressuring dividends throughout the muni bond fund industry. These transactions made it difficult for the Fund to replace the called bonds with bonds that had equally attractive coupons. If the current climate persists, we believe that muni dividends industry-wide will continue to be similarly pressured.

Despite this pressure, Oppenheimer Rochester North Carolina Municipal Fund’s Class A shares generated a distribution yield of 4.23% at NAV, at the end of this reporting period. Lipper’s North Carolina Municipal Debt Funds category reported an average distribution yield of 2.99% at month’s end, and the Class A shares had the second highest distribution yield in the category, trailing only the Y shares of this Fund.

Securities issued in the Commonwealth of Puerto Rico, which are exempt from federal, state and local income taxes, represented 32.0% of the Fund’s net assets at the end of this reporting period. The Fund’s holdings, some of which are insured, come from many different sectors as well as general obligation (G.O.) debt. Most of the Fund’s investments in securities issued in Puerto Rico are supported by taxes and other revenues and are designed to help finance electric utilities, highways and education. Bonds issued in Puerto Rico contributed positively to the Fund’s performance this reporting period.

The Fund’s holdings also included many sales tax revenue bonds that were issued in Puerto Rico. In all, this sector represented 11.6% of the Fund’s total assets this reporting period and included bonds issued in North Carolina and in Guam. Debt-service payments on securities in this sector are paid using the issuing municipality’s sales tax revenues. An investment in this sector requires Fund managers to consider the economic conditions that a municipality has experienced (and will likely experience) and the aggregate face value of the sales tax revenue bonds being issued relative to the municipality’s historic and likely sales tax balances. During this reporting period, Puerto Rico used an innovative lottery system to encourage the population to pay sales taxes on purchased goods. This sector also contributed positively to the Fund’s performance this reporting period.

Although the market continued to react favorably to improved fiscal management under the leadership of former Gov. Luis Fortuño, the governor was not as popular with the voters. In November 2012, Alejandro Garcia Padilla was elected Governor of the Commonwealth. During the last quarter of this reporting period, Gov. Padilla continued many of the positive fiscal management policies of his predecessor. He agreed to privatize the island’s main airport, proposed aggressive pension reform and announced plans to raise taxes.

Even before Gov. Padilla’s inauguration, however, Moody’s had made a new assessment of the creditworthiness of Puerto Rico’s revenue-backed debt, lowering the ratings on those securities to below investment grade. Moody’s also changed its assessment

for Puerto Rico’s G.O. debt, which is backed by the full faith and taxing authority of the Commonwealth. Investors should note that Moody’s maintained an investment-grade rating for the G.O. debt during this reporting period, as did S&P and Fitch, the other national credit ratings agencies. Late in this reporting period, S&P downgraded the revenue-backed bonds issued by the Puerto Rico Aqueduct and Sewer Authority (PRASA), a decision that we believe is at odds with the authority’s current and projected financial health. Other revenue-backed bonds continued to hold investment-grade ratings from S&P. Fitch maintained its investment-grade ratings for Puerto Rico’s revenue-backed bonds.

The Fund was invested in the hospital/healthcare sector, representing 21.5% of the

Fund’s total assets at the end of this reporting period and contributing positively to Fund performance. Our holdings in this sector consist of securities across the credit spectrum. For most of this reporting period, the debate about the Affordable Care Act of 2010 continued, even though the Supreme Court had upheld the Act’s “individual mandate” in late June 2012. The voices of those who were suggesting that Congress would revisit and perhaps seek to override the legislation were largely silenced after Election Day.

Municipal bonds backed by proceeds from the tobacco Master Settlement Agreement (the MSA), the national litigation settlement with U.S. tobacco manufacturers, represented 10.0% of the Fund’s total assets at the end of this reporting period and contributed pos-

itively to Fund performance. Late in 2012, tobacco manufacturers that had been withholding a portion of their MSA payments since 2005 announced an agreement in principle to release $1.5 billion from escrow over the next 5 years. In other positive news for the tobacco sector, the rate of decline for cigarette consumption in 2012 was the lowest this rate has been in 6 years. The rate of decline was also less than the rate that was baked into the assumptions used to draft the MSA in 1998.

We like that “tobacco bonds” can provide tax-exempt income for investors as well as benefits to the issuing states and territories. We believe the securities we hold in this sector are fundamentally sound credits. Our long-term view of the sector remains bullish and, given attractive valuations, we believe that it is likely we will continue to hold a greater percentage of tobacco bonds in our portfolios than our peers. As in prior reporting periods, the tobacco bonds this Fund held during this reporting period made all scheduled payments of interest and principal on time and in full. Investors should note that we believe the sector is well positioned to provide high levels of tax-free income to the long-term benefit of our yield-seeking investors.

The adult living facilities sector represented 7.8% of the Fund’s total assets as of March 28, 2013, and contributed positively to the Fund’s performance this reporting period. These bonds finance various projects at senior living centers and tend to outper-

form in densely populated geographies with strong real estate values.

The Fund continued to favor the higher education sector, which represented 7.1% of the Fund’s total assets as of March 28, 2013, and was a positive contributor to the Fund’s performance this reporting period. The investment-grade bonds we hold in this sector have regularly provided high levels of tax-free income with what we believe to be far less credit risk than their external ratings would suggest.

The Fund continued to be invested in the municipal leases sector this reporting period, which accounted for 6.1% of the Fund’s total assets as of March 28, 2013. As state and local governments seek new ways to reduce costs and improve near-term cash flow, many lease all types of assets, including office space for public sector employees. The bonds held by this Fund are backed by the proceeds of these lease arrangements and contributed positively to the Fund’s performance this reporting period.

General obligation (G.O.) debt backed by the full faith and taxing authority of state and local governments comprised 6.0% of the Fund’s total assets at the end of this reporting period. The Fund’s holdings include bonds issued by the Commonwealth of Puerto Rico and many North Carolina municipalities. Despite challenging economic conditions and tight budgets, elected municipal officials consistently safeguarded the debt service payments on their G.O.

debt. This sector also contributed positively to the Fund’s performance this reporting period.

At the end of this reporting period, the Fund’s investments in the multifamily and single-family housing sectors represented 5.2% and 5.1% of the Fund’s total assets, respectively. Despite the ongoing difficulties in the national housing market this reporting period, securities in these sectors continued to provide competitive levels of tax-free income, and both sectors contributed positively to the Fund’s performance. We continue to believe that long-term investors should ultimately benefit from this Fund’s carefully selected holdings in the housing sectors.

During this reporting period, the Fund remained invested in municipal inverse-floating rate securities, which are tax-exempt securities with interest payments that move inversely to changes in short-term interest rates. “Inverse floaters” generally offer higher tax-free yields than fixed-rate bonds of comparable maturity and credit quality, but they face greater price volatility, too. During this reporting period, “inverse floaters” provided attractive levels of tax-free income and contributed positively to the Fund’s total return. This outcome illustrates why we believe that “inverse floaters” belong in this Fund’s portfolio.

Our approach to municipal bond investing is flexible and responsive to market conditions. Shareholders should note that market conditions during this reporting period did not

affect the Fund’s overall investment objectives or cause it to pay any capital gain distributions. In closing, we believe that our time-tested strategies and the Fund’s structure and sector composition will continue to benefit fixed-income investors through interest rate and economic cycles.

INVESTMENT STRATEGY

The Rochester investment team focuses exclusively on municipal bonds and has consistently used a time-tested, value-oriented and security-specific approach to fund management. We know that market conditions can and do fluctuate, but we do not waver in our belief in the power of tax-free yield to help investors achieve their long-term objectives.

The Fund invests primarily in investment-grade municipal securities and may invest up to 25% of its total assets in below-investment grade securities, or “junk” bonds; the percentage of assets is measured at the time of purchase and the credit quality of the securities is based on Nationally Recognized Statistical Rating Organization (“NRSRO”) ratings or, if no NRSRO rating, on internal ratings.

Our approach to municipal bond investing is flexible and responsive to market conditions.

Our team continually searches for undervalued bonds that we believe will provide a meaningful level of tax-free income until

maturity. Rather than making allocation shifts based on expected market conditions, we search the marketplace for what we believe to be the best values for generating income. It remains important to note that we do not manage our funds based on predictions of interest rate changes.

Instead, our investment approach involves scouring the market for municipal securities that meet our stringent credit criteria and buying bonds that we believe will deliver above-average yields relative to peer funds. We focus on identifying inefficiencies in market pricing that can lead to investment advantages. We seek to maintain a thoughtful mix of industry sectors, maturities and credit ratings in this Fund’s portfolio.

The Rochester team also prospects for yield-enhancing opportunities in the secondary market, often picking up odd lots that we believe can add significant incremental yield to our portfolios. We will also look for non-

rated issues with solid credit qualities, which we believe can often help enhance a fund’s tax-free yield. Investors should note that non-rated or unrated securities may or may not be the equivalent of investment-grade securities.

The Rochester Way, we believe, distinguishes our approach to municipal investing from those of our competitors.

Daniel G. Loughran,

Senior Vice President, Senior Portfolio Manager and Team Leader, on behalf of the rest of the Rochester portfolio management team: Scott S. Cottier, Troy E. Willis, Mark R. DeMitry, Michael L. Camarella, Charles S. Pulire and research analyst Elizabeth S. Mossow.