Oppenheimer New York
Tax-Exempt Fund
Two World Trade Center, New York, NY 10048-0203
Telephone 1-800-525-7048
Oppenheimer New York Tax-Exempt Fund (the "Fund") is a mutual fund
with the investment objective of seeking the maximum current income exempt
from Federal, New York State and New York City income taxes for individual
investors that is consistent with preservation of capital. The Fund seeks
to achieve this objective by investing in municipal obligations, the
income from which is tax-exempt as described above. The Fund may also use
certain Hedging Instruments in an effort to protect against market risks,
but not for speculation.
The Fund offers two classes of shares which may be purchased at a
price equal to their respective net asset value per share, plus a sales
charge. The investor may elect to purchase shares with a sales charge
imposed (i) at the time of purchase (the "Class A shares"), or (ii) on a
contingent deferred basis (the "Class B shares"). Class B shares are also
subject to an additional asset-based sales charge. The contingent
deferred sales charge will be imposed on most redemptions of Class B
shares within six years of purchase. These alternatives permit an
investor to choose the method of purchasing shares that is more beneficial
to that investor depending on the amount of the purchase, the length of
time the investor expects to hold the shares and other circumstances. See
"How to Buy Shares - Alternative Sales Arrangements" below for further
details.
This Prospectus sets forth concisely information about the Fund that
a prospective investor should know before investing. A Statement of
Additional Information about the Fund (the "Additional Statement") dated
January 25, 1994 has been filed with the Securities and Exchange
Commission ("SEC") and is available without charge upon written request
to Oppenheimer Shareholder Services (the "Transfer Agent"), P.O. Box 5270,
Denver, Colorado 80217 or by calling the Transfer Agent at the toll-free
number shown above. The Additional Statement (which is incorporated by
reference in its entirety in this Prospectus) contains more detailed
information about the Fund and its management, including more complete
information as to certain risk factors.
Investors are advised to read and retain this Prospectus for future
reference. Shares of the Fund are not deposits or obligations of any
bank, are not guaranteed by any bank, and are not insured by the FDIC or
any other agency, and involve investment risks, including the possible
loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is effective January 25, 1994.
<PAGE>
Table Of Contents
Page
Fund Expenses
Condensed Financial Information
The Fund and Its Investment Policies
Special Investment Methods
Investment Restrictions
Management of the Fund
How to Buy Shares
Alternative Sales Arrangements
Class A Shares
Class A Sales Charge Table
Class A Contingent Deferred Sales Charge
Reduced Sales Charges for Class A Purchases
Class A Service Plan
Class B Shares
Class B Contingent Deferred Sales Charge
Class B Conversion Feature
Class B Distribution and Service Plan
Purchase Programs for Class A and Class B Shares
AccountLink
PhoneLink
Asset Builder Plans
How to Redeem Shares
Regular Redemption Procedures
Telephone Redemptions
Check Writing
Automatic Withdrawal and Exchange Plans
Repurchase
Reinvestment Privilege
General Information on Redemptions
Exchanges of Shares
Performance, Dividend and Tax Information
Additional Information
<PAGE>
Fund Expenses
The following table sets forth the fees that an investor in the Fund
might pay and the expenses paid by the Fund during its fiscal year ended
September 30, 1993 (as to Class A shares) and its fiscal period ended
September 30, 1993 (as to Class B shares). The public sale of Class B
shares commenced on March 1, 1993.
Shareholder Transaction Expenses
Class A Class B
Shares Shares
------- ------
Maximum Sales Charge on Purchases
(as a percentage of offering price) 4.75% None
Sales Charge on Reinvested Dividends None None
Maximum Contingent Deferred Sales
Charge on Redemptions None(1) 5.0%(2)
Redemption Fee None None
Exchange Fee $5.00 $5.00
Annual Fund Operating Expenses
(as a percentage of average
net assets)
Class A Class B
Shares Shares
-------- --------
Management Fees .52% .52%
12b-1 (Distribution and/or
Service Plan) Fees .24% 1.00%
Other Expenses .15% .21%
------ ------
Total Fund Operating Expenses .91% 1.73%
_______________
(1) Certain Class A share purchases of $1 million or more are not
subject to front-end sales charges, but a contingent deferred sales charge
(maximum of 1.0%) is imposed on the proceeds of such shares redeemed
within 18 months of the end of the calendar month of their purchase,
subject to certain conditions. See "How to Buy Shares - Class A
Contingent Deferred Sales Charge," below.
(2) A contingent deferred sales charge is imposed on the proceeds of
Class B shares redeemed within six years of their purchase, subject to
certain exceptions. That charge is imposed as a percentage of net asset
value at the time of purchase or redemption, whichever is less, and
declines from 5.0% in the first year that shares are held, to 4.0% in the
second year, 3.0% in the third and fourth years, 2.0% in the fifth year,
1.0% in the sixth year and eliminated thereafter. There is no charge on
Class B shares held for more than six years. See "How to Buy Shares -
Class B Contingent Deferred Sales Charge," below.
The purpose of this table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear
directly (shareholder transaction expenses) or indirectly (annual fund
operating expenses). The sales charge rate shown for Class A shares is
the current maximum rate applicable to purchases of Class A shares of the
Fund. Investors in Class A shares may be entitled to reduced sales
charges based on the amount purchased or the value of shares already owned
and may be subject to a contingent deferred sales charge in limited
circumstances (see "How to Buy Shares - Class A Contingent Deferred Sales
Charge"). Class B shares were not publicly offered prior to March 1,
1993. "Other Expenses" includes such expenses as custodial and transfer
agent fees, audit, legal and other business operating expenses, but
excludes extraordinary expenses. For further details, see "Dual Class
Methodology" and the Fund's financial statements, both included in the
Additional Statement.
The following examples apply the above-stated expenses and the
current maximum sales charges to a hypothetical $1,000 investment in
shares of the Fund over the time periods shown below, assuming a 5% annual
rate of return on the investment. The amounts shown below are the
cumulative costs of such hypothetical $1,000 investment for the periods
shown and, except as indicated in lines 3 and 4, assume that the shares
are redeemed at the end of each stated period.
1 year 3 years 5 years 10 years(1)
------- ---------- --------- -----------
1. Class A Shares $56 $75 $ 96 $154
2. Class B Shares $68 $84 $114 $162
3. Class A Shares, assuming
no redemption $56 $75 $ 96 $154
4. Class B Shares, assuming
no redemption $18 $54 $94 $162
_______________
(1) Class B shares convert to Class A shares under the terms and
conditions described under "How to Buy Shares - Class B Conversion
Feature." Therefore, years 7 through 10 reflect the Class A expenses
shown above. Long-term shareholders of Class B shares could pay the
economic equivalent, through the asset-based sales charge and contingent
deferred sales charge imposed on Class B shares, of more than the maximum
front-end sales charges permitted under applicable regulatory
requirements. The Class B Conversion Feature is intended to minimize the
likelihood that this will occur.
This example should not be considered a representation of past or
future expenses or performance. Expenses are subject to change and actual
performance and expenses may be less or greater than those illustrated
above.
<PAGE>
Financial Highlights
Selected data for a Class A and a Class B share of the Fund outstanding
throughout each period
The information in the table below has been audited by KPMG Peat
Marwick, independent auditors, whose report on the financial statements
of the Fund for the fiscal year ended September 30, 1993 (as to Class A
shares) and the fiscal period ended September 30, 1993 (as to Class B
shares), is included in the Additional Statement. The public sale of
Class B shares commenced March 1, 1993.
<TABLE>
<CAPTION>
Class A Class B
Ten
Months Period Period
Ended Ended Ended
September November September
Year Ended September 30, 30, 30, 30,
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984+ 1993+++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating
Data:
Net asset value,
beginning of
period $ 12.59 $ 12.21 $ 11.61 $ 11.87 $ 11.91 $ 11.60 $ 12.51 $ 10.98 $ 10.32 $10.00 $ 13.07
Income from
investment
operations:
Net investment
income .73 .79 .81 .83 .84++ .88++ .90++ .86 .76 .22 .36
Net realized and
unrealized gain
(loss) on
investments 1.01 .47 .64 (.25) .01 .45 (.79) 1.62 .67 .27 .44
Total income from
investment
operations 1.74 1.26 1.45 .58 .85 1.33 .11 2.48 1.43 .49 .80
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.75) (.75) (.81) (.83) (.83) (.94) (.88) (.86) (.77) (.17) (.37)
Distributions from
net realized gain
on investments (.08) (.13) (.04) (.01) (.06) (.08) (.14) (.09) -- -- --
Total dividends and
distributions to
shareholders (.83) (.88) (.85) (.84) (.89) (1.02) (1.02) (.95) (.77) (.17) (.37)
Net asset value,
end of period $ 13.50 $ 12.59 $ 12.21 $ 11.61 $ 11.87 $ 11.91 $ 11.60 $ 12.51 $ 10.98 $10.32 $ 13.50
Total Return, at
Net Asset Value** 14.33% 10.72% 12.93% 4.95% 6.91% 11.48% .29% 22.73% 13.37% 4.96%
6.56%
Ratios/Supplemental
Data:
Net assets, end of
period (in
thousands) $756,934 $530,260 $349,480 $250,012 $197,321 $116,931 $79,479 $50,810 $28,166 $3,132
$40,958
Average net assets
(in thousands) $652,327 $436,876 $292,134 $227,504 $156,572 $ 95,996 $65,102 $42,907 $15,240 $1,000
$20,454
Number of shares
outstanding at end
of period (in
thousands) 56,087 42,119 28,617 21,533 16,618 9,817 6,851 4,061 2,565 304 3,033
Ratios to average
net assets:
Net investment
income 5.66% 6.33% 6.81% 6.97% 7.07% 7.48% 7.33% 7.10% 8.05%* 8.40%*
4.45%*
Expenses .91% .96% .96% .99% .98%++ .90%++ .67%++ .86% 1.00%* .97%*
1.73%*
Portfolio turnover
rate*** 39.1% 30.5% 8.9% 13.3% 11.8% 11.7% 22.9% 29.7% 126.3% 17.1%
39.1%
<FN>
*Annualized.
**Assumes a hypothetical initial investment on the business day before the
first day of the fiscal year, 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 year. Sales
charges
are not reflected in the total returns.
***The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term
securities)
for the year ended September 30, 1993 were $477,133,982 and $250,274,906.
++Net investment income would have been $.83, $.87 and $.88 absent the
voluntary assumption of expenses, resulting in an expense ratio of 1.00%,
1.02% and .85% for 1989, 1988 and 1987, respectively.
+++For the period from March 1, 1993 (inception of offering) to September
30, 1993.
</TABLE>
<PAGE>
The Fund And Its Investment Policies
The Fund is an open-end, diversified management investment company
organized as a Massachusetts business trust in 1984. Its investment
objective is to seek maximum current income exempt from Federal, New York
State and New York City income taxes for individual investors consistent
with preservation of capital. Toward that objective, the Fund may use
certain Hedging Instruments (discussed below) in an effort to protect
against market risks. Since market risks are inherent in all securities
to varying degrees, assurance cannot be given that the Fund will achieve
its investment objective. The Fund's investment policies and practices are
not "fundamental" policies (as defined below) unless a particular policy
is identified as fundamental. The Board may change non-fundamental
investment policies without shareholder approval.
Municipal Securities
Under normal market conditions, the Fund attempts to invest 100% of
its assets, and as a matter of fundamental policy to invest at least 80%
of its assets, in municipal bonds, municipal notes (including tax
anticipation notes, bond anticipation notes, revenue anticipation notes,
construction loan notes and other short-term loans), tax-exempt commercial
paper, certificates of participation, participation interests and other
debt obligations issued by or on behalf of the State of New York, other
states and the District of Columbia, their political subdivisions, or any
commonwealth or territory of the United States, or their respective
agencies, instrumentalities or authorities, the interest from which is not
subject to Federal individual income tax, in the opinion of bond counsel
to the respective issuer (collectively, "Municipal Securities"). Under
normal market conditions, as a matter of fundamental policy, the Fund will
invest at least 65% of its total assets in obligations of the State of New
York and its political subdivisions, agencies, authorities or
instrumentalities, the interest from which is not subject to New York
State individual income tax in the opinion of bond counsel to the
respective issuer ("New York Municipal Securities"). The balance of the
Fund's assets may be invested in investments the income from which may be
taxable, including: (i) Municipal Securities issued to benefit a private
user ("Private Activity Municipal Securities"), the interest from which
may be subject to Federal alternative minimum tax (see "Dividends,
Distributions and Taxes"); (ii) certain temporary investments (described
below in "Temporary Investments"); (iii) Hedging Instruments (see "Covered
Calls and Hedging," below); and (iv) repurchase agreements (explained
below).
The two principal classifications of Municipal Securities are
"general obligations" (secured by the issuer's pledge of its full faith,
credit and taxing power for the payment of principal and interest) and
"revenue obligations" (payable only from the revenues derived from a
particular facility or class of facilities, or specific excise tax or
other revenue source). See "Investment Objective and Policies" in the
Additional Statement for further information about the Fund's investment
policies and about Municipal Securities.
The Fund may hold temporary investments pending the investment of
proceeds from the sale of Fund shares or portfolio securities, pending
settlement of purchases of Municipal Securities, or to meet anticipated
redemptions. Normally, the Fund will not invest more than 20% of its
total assets in Private Activity Municipal Securities and other taxable
investments described above. However, in times of unstable economic or
market conditions, when the Fund's investment adviser, Oppenheimer
Management Corporation (the "Manager"), determines it appropriate to do
so, the Fund may assume a temporary defensive position and invest an
unlimited amount of its assets in temporary defensive investments. See
"Temporary Investments," below.
Dividends paid by the Fund derived from interest attributable to New
York Municipal Securities will be exempt from Federal, New York State and
New York City individual income taxes. Dividends derived from interest
on Municipal Securities of other governmental issuers will be exempt from
Federal income tax for individuals, but will be subject to New York State
and New York City individual income taxes. Any net interest income on
taxable investments will be taxable as ordinary income when distributed
to shareholders (see "Dividends, Distributions and Taxes," below).
Municipal Securities purchased by the Fund must be rated within the
four highest rating categories of Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Corporation ("S&P") or, if unrated,
judged by the Manager to be of comparable quality to Municipal Securities
rated within such grades; see Appendix A of the Additional Statement for
a description of those rating categories. Investments in unrated
Municipal Securities will not exceed 20% of the Fund's total assets. A
subsequent reduction in the rating will not require disposition of a
security. Securities which have fallen below investment grade have a
greater risk that the ability of the issuers of those securities to meet
their debt obligations will be impaired. Municipal Securities purchased
for the Fund's portfolio generally will have an average weighted maturity
of approximately 7 to 30 years. Municipal Securities rated either "Baa"
or "MIG2" by Moody's or "BBB" or "SP-2" by S&P, although investment grade,
may be subject to greater market fluctuations and risks of loss of income
and principal than higher-rated Municipal Securities and may be considered
to have speculative characteristics. The foregoing ratings restrictions
do not apply to banks in which the Fund's cash is kept.
The values of Municipal Securities will vary as a result of changing
evaluations by rating services and investors of the ability of the issuers
of such securities to meet the interest and principal payments (see
"Special Considerations - New York Municipal Securities," below). Such
values also will change in response to changes in interest rates. Should
interest rates rise, the values of outstanding Municipal Securities will
decline and (if purchased at principal amount) would sell at a discount.
If interest rates fall, the values of outstanding Municipal Securities
will increase and (if purchased at principal amount) would sell at a
premium. Changes in the values of the Fund's Municipal Securities from
these or other factors will not affect interest income derived from these
securities but will affect the Fund's net asset value per share.
- Municipal Lease Securities. The Fund may invest in municipal lease
obligations. While some municipal lease securities may be deemed to be
"illiquid" securities (the purchase of which would be limited as described
below in "Repurchase Agreements"), from time to time the Fund may invest
more than 5% of its net assets in municipal lease obligations that the
Manager has determined to be liquid under guidelines set by the Fund's
Board of Trustees. Those guidelines require the Manager to evaluate: (1)
the frequency of trades and price quotations for such securities, (2) the
number of dealers or other potential buyers willing to purchase or sell
such securities; (3) the availability of market-makers; and (4) the nature
of the trades for such securities. The Manager will also evaluate the
likelihood of a continuing market for such securities throughout the time
they are held by the Fund and the credit quality of the instrument.
- When-Issued Securities. The Fund may invest in Municipal
Securities on a "when-issued" or "delayed delivery" basis. The price,
which is generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for when-issued securities
takes place at a later date (normally within 45 days of purchase). No
income accrues to the Fund until it takes delivery of when-issued
securities. The Fund is subject to the risk of adverse market fluctuation
between purchase and settlement. The Manager does not believe that the
Fund's net asset value or income will be materially adversely affected by
its purchase of Municipal Securities on a "when-issued" or "delayed
delivery" basis. See "When-Issued and Delayed Delivery Transactions" in
the Additional Statement for more details.
Special Considerations - New York Municipal Securities
Because the Fund concentrates its investments in New York Municipal
Securities, the market value and marketability of such Municipal
Securities and the interest income and repayment of principal to the Fund
from them could be adversely affected by a default or financial crisis
relating to any of such issuers. Investors should consider these matters
and the financial difficulties experienced in past years by New York State
and certain of its agencies and subdivisions (particularly New York City),
as well as economic trends in New York, summarized in the Additional
Statement under "Special Investment Considerations - New York Municipal
Securities." In addition, the Fund's portfolio securities are affected
by general changes in interest rates, which result in changes in the value
of portfolio securities held by the Fund, which can be expected to vary
inversely to changes in prevailing interest rates.
Covered Calls and Hedging
The Fund may sell ("write") covered call options to enhance income
for liquidity purposes. For hedging purposes, it may purchase certain put
and call options, Interest Rate Futures and Municipal Bond Index Futures
(described below), and options on Interest Rate Futures and Municipal Bond
Index Futures, all of which are referred to as "Hedging Instruments." In
general, the Fund may use Hedging Instruments: (i) to attempt to protect
against declines in the market value of the Fund's portfolio and thus
protect the Fund's net asset value against downward trends in the debt
securities market, or (ii) to establish a position in the debt securities
market as a temporary substitute for the purchase of particular debt
securities. The Fund will not use Hedging Instruments for speculation.
The Hedging Instruments the Fund may use are described below and in
greater detail under "Covered Calls and Hedging" in the Additional
Statement.
- Writing Covered Call Options. The Fund may write call options
("calls") if: (i) after any sale not more than 25% of the Fund's total
assets are subject to calls; (ii) the calls are listed on a domestic
securities exchange or quoted on the automatic quotation system of the
National Association of Securities Dealers, Inc. ("NASDAQ"); and (iii) the
calls are "covered," i.e., the Fund owns the securities or futures subject
to the call (or other securities acceptable for applicable escrow
requirements) while the call is outstanding. If a covered call written
by the
Fund is exercised, the Fund forgoes any profit from any increase in the
market price above the call price of the underlying investment on which
the call was written.
- Purchasing Puts and Calls. The Fund may purchase put options
("puts") which relate to: (i) securities held by it, or (ii) Interest Rate
Futures or Municipal Bond Index Futures (whether or not it holds such
futures in its portfolio). The Fund may not write puts other than those
it previously purchased. The Fund may purchase calls: (a) as to debt
securities, Interest Rate Futures or Municipal Bond Index Futures, or (b)
to effect a "closing purchase transaction" to terminate its obligation as
to a call it has previously written. A call or put may be purchased only
if, after such purchase, the value of all put and call options held by the
Fund would not exceed 5% of the Fund's total assets. "Covered Calls and
Hedging" in the Additional Statement contains more information about
options, including the payment of premiums for option trades, and on the
tax effect, risks and possible benefits to the Fund from options trading.
- Interest Rate Futures and Municipal Bond Index Futures. The Fund
may buy and sell futures contracts only if they relate to debt securities
("Interest Rate Futures") or municipal bond indices ("Municipal Bond Index
Futures").
- Risks of Options and Futures Trading. "Covered Calls and Hedging"
in the Additional Statement contains further information about the
characteristics, risks and possible benefits of Interest Rate Futures,
Municipal Bond Index Futures and options on such Futures, and the Fund's
other limitations (which are not fundamental policies) on investment in
such Futures and options thereon. The principal risks are: (i) possible
imperfect correlation between the prices of the Futures and the market
value of the Fund's portfolio securities; (ii) possible lack of a liquid
secondary market for closing out a Futures position; (iii) the need for
additional skills and techniques beyond normal portfolio management; and
(iv) losses resulting from market movements not anticipated by the
Manager.
Repurchase Agreements
The Fund may acquire securities that are subject to repurchase
agreements, to generate income for liquidity purposes. If the vendor
fails to pay the agreed-upon resale price upon the delivery date, the
Fund's risks in such event may include any costs of disposing of the
collateral, and any loss from any delay in foreclosing on the collateral.
The Fund will limit its holdings of illiquid securities, including debt
securities for which there is no established market and repurchase
agreements having a maturity beyond seven days, to 10% of its assets.
Normally, no more than 20% of the Fund's assets may be subject to
repurchase agreements. See "Repurchase Agreements" in the Additional
Statement for further details.
Loans of Portfolio Securities
To attempt to increase its income and for liquidity purposes, the
Fund may lend its portfolio securities (other than in repurchase
transactions) to qualified borrowers if the loan is collateralized in
accordance with applicable regulatory requirements and if, after any loan,
the value of the securities loaned does not exceed 25% of the value of the
Fund's total assets. The Fund presently does not intend that the value
of securities loaned will exceed 5% of the value of the Fund's total
assets during its current fiscal year. See "Loans of Portfolio
Securities" in the Additional Statement for further information on loans
of portfolio securities.
Temporary Investments
Temporary investments include: (i) obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, (ii) "prime"
commercial paper rated "A-1" by S&P or "Prime-1" by Moody's, (iii)
corporate debt securities rated within the three highest categories by an
established rating agency, and (iv) certificates of deposit of domestic
banks with assets of $1 billion or more. To the extent the Fund assumes
a temporary defensive position, a significant portion of the Fund's
distributions may be subject to Federal, New York State and local income
taxes.
Investment Restrictions
The Fund has certain investment restrictions which, together with its
investment objective, are fundamental policies changeable only by a vote
of a "majority" (as defined in the Investment Company Act of 1940 [the
"Investment Company Act"]) of the Fund's outstanding voting securities.
Under some of those restrictions, the Fund cannot: (1) Invest in
securities or any other investment other than the types described in "The
Fund and Its Investment Policies," above; (2) With respect to 75% of its
assets, purchase securities issued or guaranteed by any one issuer (other
than the U.S. Government or its agencies or instrumentalities), if more
than 5% of the Fund's total assets would be invested in securities of that
issuer or the Fund would then own more than 10% of that issuer's voting
securities; (3) Invest more than 25% of its assets in any industry;
however, for the purposes of this restriction, Municipal Securities and
U.S. Government obligations are not considered to be part of any single
industry; (4) Make loans, except that the Fund may (i) purchase debt
securities described in "The Fund and Its Investment Policies" and
repurchase agreements, and (ii) lend its portfolio securities as described
in "Loans of Portfolio Securities"; (5) Borrow money in excess of 10% of
the value of its total assets or make any investment when borrowings
exceed 5% of the value of its total assets; it may borrow only as a
temporary measure for extraordinary or emergency purposes; (6) Pledge,
mortgage or otherwise encumber, transfer or assign any of its assets to
secure a debt; collateral arrangements for premium and margin payments in
connection with Hedging Instruments are not deemed to be a pledge of
assets; or (7) Buy or sell futures contracts other than Interest Rate
Futures or Municipal Bond Index Futures. The percentage restrictions
described above and in the Additional Statement apply only at the time of
investment and require no action by the Fund as a result of subsequent
changes in value of the investments or the size of the Fund. A
supplementary list of investment restrictions is contained in "Investment
Restrictions" in the Additional Statement.
Management Of The Fund
The Fund's Board of Trustees has overall responsibility for the
management of the Fund under the laws of Massachusetts governing the
responsibilities of trustees of business trusts. Subject to the authority
of the Board of Trustees, the Manager is responsible for day-to-day
management of the Fund's business, supervises the investment operations
of the Fund and the composition of its portfolio and furnishes the Fund
advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities pursuant to an investment
advisory agreement (the "Agreement") with the Fund. Under the Agreement,
the Fund pays a management fee monthly to the Manager computed on the net
asset value of the Fund as of the close of each business day at the
following annual rates: 0.60% of the first $200 million of net assets;
0.55% of the next $100 million; 0.50% of the next $200 million; 0.45% of
the next $250 million; 0.40% of the next $250 million; and 0.35% of net
assets in excess of $1 billion. "Investment Management Services" in the
Additional Statement contains more information about the Agreement,
including a description of expense assumption arrangements, exculpation
provisions and portfolio transactions of the Fund.
Robert E. Patterson is a Senior Vice President of the Manager who
serves as the Portfolio Manager and a Vice President of the Fund. Since
November, 1985, he has been primarily responsible for the day-to-day
management of the Fund's portfolio. During the past five years, Mr.
Patterson has also served as an officer and portfolio manager for other
OppenheimerFunds. For more information about the Fund's other officers
and Trustees, see "Trustees and Officers" in the Additional Statement.
The Manager has operated as an investment adviser since April 30,
1959. The Manager and its affiliates currently advise U.S. investment
companies with assets aggregating over $25 billion as of September 30,
1993, and having more than 1.8 million shareholder accounts. The Manager
is owned by Oppenheimer Acquisition Corp., a holding company owned in part
by senior management of the Manager and ultimately controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company which also advises pension plans and investment companies.
How To Buy Shares
Alternative Sales Arrangements
Two classes of shares of the Fund are offered under the Fund's
"Alternative Sales Arrangements." The investor may elect to purchase
shares with a sales charge imposed (1) at the time of purchase or on a
contingent deferred basis on redemption of shares purchased in amounts
over $1 million (the "Class A shares"), or (2) on a contingent deferred
basis (the "Class B shares"). The contingent deferred sales charge will
be imposed on most redemptions of Class B shares within six years of
purchase. The Alternative Sales Arrangements permit an investor to choose
the method of purchasing shares that is more beneficial to that investor
depending on the amount of the purchase, the length of time the investor
expects to hold the shares and other relevant circumstances. The Fund's
distributor, Oppenheimer Funds Distributor, Inc. (the "Distributor"), will
not knowingly accept any order of $1 million or more for Class B shares
of one or more of the "Eligible Funds" listed in "Right of Accumulation"
below on behalf of a single investor (not including dealer "street name"
or omnibus accounts) because it generally will be more advantageous for
such investor to purchase Class A shares of such Eligible Funds instead.
Investors should understand that the purpose and function of the deferred
sales charge and asset-based sales charges with respect to Class B shares
are the same as those of the initial sales charges with respect to the
Class A shares. Any financial intermediary or other person entitled to
receive compensation for selling Fund shares may receive different
compensation with respect to one class of shares than the other.
The two classes of shares each represent an interest in the same
portfolio of investments of the Fund. However, as described in this
Prospectus, each class has different shareholder privileges and features.
The net income attributable to Class B shares and the dividends payable
on Class B shares will be reduced by incremental expenses borne solely by
that class, including the asset-based sales charge to which Class B Shares
are subject. For further information, see "Purchase, Redemption and
Pricing of Shares" in the Additional Statement.
The Fund's shares of either class may be purchased through any dealer
or broker which has a sales agreement with the Fund's Distributor, a
subsidiary of the Manager. There are two ways to make an initial
investment: either (1) complete an OppenheimerFunds New Account
Application and mail it with payment to the Distributor at P.O. Box 5270,
Denver, Colorado 80217 (if no dealer or broker is named in the
Application, the Distributor will be listed as the dealer of record), or
(2) order the shares through your dealer or broker. Be certain to specify
whether you intend to purchase Class A shares or Class B shares. If no
instructions are provided, initial investments will be made in Class A
shares and subsequent investments will be made in the same class as the
most recent previous investment.
The minimum initial investment is $1,000, except as otherwise
described in this Prospectus. Subsequent purchases must be at least $25
and may be made (1) through authorized dealers or brokers, (2) by
forwarding payment to the Distributor with the names of all account
owners, the account number and the name of the Fund, (3) automatically
through Asset Builder Plans, or (4) by telephone using AccountLink,
described below. Under an Asset Builder Plan, Automatic Exchange Plan,
403(b)(7) custodial plan or military allotment plan, initial and
subsequent investments must be at least $25. The minimum initial and
subsequent purchase requirements are waived on purchases made by
reinvesting dividends from any of the "Eligible Funds" listed in "Right
of Accumulation" below, or by reinvesting distributions from unit
investment trusts for which reinvestment arrangements have been made with
the Distributor. No share certificates will be issued for Class B shares,
and no share certificates will be issued for Class A shares unless
specifically requested in writing by an investor or the dealer or broker.
The net asset value per share of each class is determined as of 4:00
P.M. (all references to time in this Prospectus mean New York time) each
day the New York Stock Exchange is open (a "regular business day") by
dividing the value of the Fund's net assets attributable to that class by
the number of shares of that class outstanding. The Fund's Board of
Trustees has established procedures for valuing the Fund's securities. In
general, those valuations are based on market value, with special
provisions for: (i) securities not having readily-available market
quotations, (ii) short-term debt securities and (iii) covered calls and
Hedging Instruments. Further details are in "Purchase, Redemption and
Pricing of Shares" in the Additional Statement. The net asset values per
share of Class A and Class B shares are expected to be substantially the
same; however, from time to time the net asset values of each class may
differ due to differences in expenses borne by each class, as discussed
under "Dual Class Methodology" in the Additional Statement.
All purchase orders received by the Distributor at its office in
Denver, Colorado prior to 4:00 P.M. on a regular business day are
processed at that day's offering price. However, an order received by the
Distributor from a dealer or broker after the offering price is
determined that day will receive such offering price if the order was
received by the dealer or broker from its customer prior to 4:00 P.M., and
was transmitted to and received by the Distributor prior to its close of
business that day (normally 5:00 P.M.). Purchase orders received on other
than a regular business day will be executed on the next succeeding
regular business day. The Distributor, in its sole discretion, may accept
or reject any order for purchase of the Fund's shares. The sale of shares
will be suspended during any period when the determination of net asset
value is suspended and may be suspended by the Board of Trustees whenever
the Board judges it in the best interest of the Fund to do so.
Class A Shares
Class A shares are sold at their offering price, which (as that term
is used in this Prospectus and the Additional Statement) is net asset
value plus a front-end sales charge, except that as to certain purchases
described below that are not subject to a front-end sales charge, the
offering price is net asset value. The offering price is determined as of
4:00 P.M. each regular business day. Class A shares may not be converted
into Class B shares.
The following table shows the regular front-end sales charge rates
for Class A shares for a "single purchaser" (defined below in "Right of
Accumulation"), together with the dealer discounts paid to dealers and the
agency commissions paid to brokers (collectively, "commissions"):
Amount of Purchase Front-end Front-end Commission
Sales Charge Sales Charge as
as as Percentage
Percentage of Approximate Of Offering
of Offering Percentage Price
Price of Amount
Invested
- --------------------------------------------------------------------------
Less than $50,000 4.75% 4.98% 4.00%
$50,000 or more but
less than $100,000 4.50% 4.71% 4.00%
$100,000 or more but
less than $250,000 3.50% 3.63% 3.00%
$250,000 or more but
less than $500,000 2.50% 2.56% 2.25%
$500,000 or more but
less than $1 million 2.00% 2.04% 1.80%
$1 million or more None* None* None*
- --------------------------
*See "Class A Contingent Deferred Sales Charge," below.
The commissions shown in the table apply to sales through authorized
dealers and brokers. Under certain circumstances, commissions up to the
amount of the entire sales charge may be reallowed to dealers or brokers,
who then may be deemed to be "underwriters" as defined in the Securities
Act of 1933. Commission rates may vary among the funds for which the
Manager and its affiliates act as investment advisers.
The Distributor may advance up to 13 months' commissions to dealers
that have entered into special arrangements with the Distributor as to
purchases made by their clients under Oppenheimer Asset Builder Plans. If
a registered representative of a securities dealer sells more than $2.5
million of Class A shares of "Eligible Funds" other than "Money Market
Funds" (as that term is defined below) in a calendar year, the dealer firm
is eligible to send such representative, with a guest, to a three-day
sales conference (generally held in a resort), if one is sponsored and
held by the Distributor; or in lieu of sending such representative, that
firm may, at its option, receive the equivalent cash value of such award
as additional commission. The Distributor may, from time to time, enter
into arrangements with specific dealers whereby the Distributor may make
additional payments to that dealer based, in part, on that dealer meeting
certain sales criteria. Such additional payments may be based on sales for
a specific period of time, shares of certain or all of the "Eligible
Funds" (defined below) held by the dealer and/or its customers or some
combination thereof.
- Class A Contingent Deferred Sales Charge. On purchases of all
"Eligible Funds" by a "single purchaser" (defined below in "Right of
Accumulation") aggregating $1 million or more, the Distributor will pay
authorized dealers an amount equal to 1.0% of the first $2.5 million of
such purchases, plus 0.50% of the next $2.5 million, plus 0.25% of such
purchases in excess of $5 million. A contingent deferred sales charge
("Class A CDSC") will be deducted from the redemption proceeds of shares
as to whose purchase the Distributor has made such payments to dealers if
the shares are redeemed within 18 months of the end of the calendar month
of their purchase. The Class A CDSC shall be an amount equal to 1.0% of
the lesser of the aggregate net asset value of the redeemed shares (not
including shares purchased by reinvestment of dividends or capital gains)
or the original cost of such shares. However, the total Class A CDSC paid
on such shares shall not exceed the aggregate commissions paid to dealers
on all Class A shares of "Eligible Funds" purchased subject to a CDSC by
that "single purchaser."
The Class A CDSC does not apply to purchases at net asset value
described in "Other Circumstances" below and will be waived in the case
of redemptions of shares made for: (i) Automatic Withdrawal Plan payments
limited to no more than 12% of the original account value annually; and
(ii) involuntary redemptions of shares by operation of law or under
procedures set forth in the Fund's Declaration of Trust or as adopted by
the Board of Trustees (collectively, "Involuntary Redemptions"). See
"Transfers of Shares" in "Purchase, Redemption and Pricing of Shares" in
the Additional Statement.
Some or all of the proceeds of redeemed shares on which a Class A CDSC
was paid at the time of redemption and which are subsequently reinvested
under the "Reinvestment Privilege" (described below) may be reinvested
within 6 months of redemption without sales charge at net asset value on
the reinvestment date if the investor notifies the Distributor that the
privilege applies. Additionally, no Class A CDSC is charged on exchanges,
pursuant to the Fund's Exchange Privilege (described below), of shares
purchased subject to a Class A CDSC, except that if Class A shares
acquired by exchange are redeemed within 18 months of the end of the
calendar month of the initial purchase of the exchanged shares, the Class
A CDSC will apply. In determining whether a Class A CDSC is payable, and
the amount of any such charge, shares not subject to a Class A CDSC are
redeemed first, including shares purchased by reinvestment of dividends
and capital gains distributions, and then other shares are redeemed in the
order of purchase.
- Reduced Sales Charges for Class A Purchases. The Class A sales
charge rates in the table above may be reduced as follows:
Right of Accumulation. In calculating the sales charge rate applicable
to current purchases of Class A shares, a "single purchaser" (defined
below) is entitled to cumulate current purchases with the greater of: (1)
amounts previously paid for, or (2) the current value (at offering price)
of Class A shares of certain other "Eligible Funds" and the Fund if sold
subject to an initial sales charge and if the investment is still held in
one of the Eligible Funds. The Eligible Funds are those for which the
Distributor or an affiliate acts as the distributor and include the
following: (i) the Fund, Oppenheimer Time Fund, Oppenheimer Target Fund,
Oppenheimer Tax-Free Bond Fund, Oppenheimer California Tax-Exempt Fund,
Oppenheimer High Yield Fund, Oppenheimer Champion High Yield Fund,
Oppenheimer Total Return Fund, Inc., Oppenheimer Asset Allocation Fund,
Oppenheimer Mortgage Income Fund, Oppenheimer Discovery Fund, Oppenheimer
U.S. Government Trust, Oppenheimer Global Bio-Tech Fund, Oppenheimer
Global Environment Fund, Oppenheimer Global Growth & Income Fund,
Oppenheimer Pennsylvania Tax-Exempt Fund, Oppenheimer Florida Tax-Exempt
Fund, Oppenheimer Global Fund, Oppenheimer Fund, Oppenheimer Special Fund,
Oppenheimer Equity Income Fund, Oppenheimer Gold & Special Minerals Fund,
Oppenheimer Investment Grade Bond Fund, Oppenheimer Value Stock Fund,
Oppenheimer Intermediate Tax-Exempt Bond Fund, Oppenheimer Insured
Tax-Exempt Bond Fund, Oppenheimer Government Securities Fund, Oppenheimer
Main Street Income & Growth Fund, Oppenheimer Main Street California Tax-
Exempt Fund, Oppenheimer Strategic Income Fund, Oppenheimer Strategic
Short-Term Income Fund, Oppenheimer Strategic Income & Growth Fund,
Oppenheimer Strategic Investment Grade Bond Fund, and (ii) the following
"Money Market Funds": Centennial Money Market Trust, Centennial Tax Exempt
Trust, Centennial Government Trust, Centennial New York Tax Exempt Trust,
Centennial California Tax Exempt Trust, Centennial America Fund, L.P.,
Oppenheimer Money Market Fund, Inc., Daily Cash Accumulation Fund, Inc.,
Oppenheimer Cash Reserves and Oppenheimer Tax-Exempt Cash Reserves. There
is an initial sales charge on the purchase of Class A shares of each
Eligible Fund except Money Market Funds (under certain circumstances
described herein, redemption proceeds of Money Market Fund shares may be
subject to a CDSC). The reduced sales charge applies only to current
purchases.
The term "single purchaser" refers to: (i) an individual; (ii) an
individual and spouse purchasing shares of the Fund for their own account
or for trust or custodial accounts for their minor children; or (iii) a
fiduciary purchasing for any one trust, estate or fiduciary account,
including employee benefit plans created under Sections 401 or 457 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"),
including related plans of the same employer. To be entitled to a reduced
sales charge under the Right of Accumulation, at the time of purchase the
purchaser must ask the Distributor for such entitlement and provide the
account number(s) for shares of Eligible Funds owned by the "single
purchaser," and the age of any minor children for whom shares are held.
Letters of Intent. By initially investing at least $1,000 and
submitting a Letter of Intent (the "Letter") to the Distributor, a "single
purchaser" may purchase Class A shares of the Fund and other Eligible
Funds (other than the Money Market Funds) during a 13-month period at the
reduced sales charge rates, or at net asset value but subject to the Class
A CDSC, if applicable, applying to the aggregate amount of the intended
purchases stated in the Letter. The Letter may apply to purchases made
up to 90 days before the date of the Letter. The Fund and the Distributor
reserve the right to amend or terminate such program at any time without
prior notice. For further details, including escrow requirements, see
"Letters of Intent" in the Additional Statement.
Other Circumstances. No sales charge is imposed on Class A shares of
the Fund: (i) sold to the Manager or its affiliates, or to present or
former officers, trustees or directors and employees (and their "immediate
families," as defined in "Reduced Sales Charges" in the Additional
Statement) of the Fund, the Manager and its affiliates, and to retirement
plans established by them for employees; (ii) issued in plans of
reorganization, such as mergers, asset acquisitions and exchange offers,
to which the Fund is a party; (iii) sold to registered investment
companies or to separate accounts of insurance companies having an
agreement with the Manager or the Distributor; (iv) sold to dealers or
brokers that have a sales agreement with the Distributor, for their own
account or for retirement plans for their employees, or sold to employees
(and their spouses) of such dealers or brokers or of financial
institutions which have entered into a sales arrangement with such dealer
or broker or the Distributor (and are identified to the Distributor by
such dealer or broker); the purchaser must certify to the Distributor at
the time of purchase that such purchase is for its own account (or for the
benefit of such employee's spouse or minor children); (v) sold to dealers,
brokers or registered investment advisers that have entered into an
agreement with the Distributor providing specifically for the use of
shares of the Fund in particular investment products made available to the
clients of the dealer, broker or investment adviser; or (vi) purchased by
the reinvestment of (a) loan repayments by a participant in a retirement
plan for which the Manager or its affiliates act as Sponsor, or (b)
dividends or other distributions received from the Fund or other "Eligible
Funds" (other than the Cash Reserves Funds) or unit investment trusts for
which reinvestment arrangements have been made with the Distributor.
"Reduced Sales Charges" in the Additional Statement discusses this policy.
- Class A Service Plan. The Fund has adopted a service plan (the
"Class A Plan") pursuant to Rule 12b-1 of the Investment Company Act under
which the Fund will reimburse the Distributor quarterly for a portion of
its costs incurred in connection with the personal service and maintenance
of accounts that hold Class A shares at an annual rate not to exceed 0.25%
of the average annual net assets of Class A shares of the Fund. The
Distributor will use such fees received from the Fund in their entirety:
(i) to compensate brokers, dealers, banks and other institutions
(collectively, "Recipients") each quarter for providing personal service
and maintenance of accounts that hold Class A shares, and (ii) to
reimburse itself (to the extent authorized by the Board of Trustees) for
its other expenditures under the Plan and its direct costs for personal
service and maintenance of accounts. The services to be provided under
the Class A Plan include, but shall not be limited to, the following:
answering routine inquiries from the Recipient's customers concerning the
Fund, providing such customers with information on their investment in
Class A shares, assisting in the establishment and maintenance of accounts
or sub-accounts in the Fund, making the Fund's investment plans and
dividend payment options available, and providing such other information
and customer liaison services and the maintenance of accounts as the
Distributor or the Fund may reasonably request. Payments by the
Distributor to Recipients will be made quarterly and computed as of the
close of business each day at an annual rate not to exceed 0.25% of the
net assets of Class A shares of the Fund held in accounts of the Recipient
or its customers.
The Class A Plan has the effect of increasing annual expenses of Class
A shares of the Fund by up to 0.25% of the class's average annual net
assets from what its expenses would otherwise be. In addition, the Manager
and the Distributor may, under the Plan, from time to time from their own
resources (which, as to the Manager, may include profits derived from the
advisory fee it receives from the Fund) make payments to Recipients for
distribution and administrative services they perform. For further
details, see "Distribution and Service Plans" in the Additional Statement.
Class B Shares
Class B Shares are sold at net asset value per share without the
imposition of a sales charge at the time of purchase.
- Class B Contingent Deferred Sales Charge. A contingent deferred
sales charge (the "Class B CDSC") will be deducted from the redemption
proceeds of Class B shares redeemed within six years of the end of the
calendar month of their purchase (not including shares purchased by
reinvestment of dividends or capital gains). The charge will be assessed
on an amount equal to the lesser of the then current net asset value or
the original purchase price of the Class B shares being redeemed.
Accordingly, no Class B CDSC will be imposed on amounts representing
increases in net asset value above the initial purchase price. In
determining whether a Class B CDSC applies to a redemption, Class B Shares
are redeemed in the following order: (1) those acquired pursuant to
reinvestment of dividends or distributions, (2) those held for over six
years, and (3) those held longest during the six year period.
Proceeds from the Class B CDSC are paid to the Distributor to reimburse
it for its expenses related to providing distribution-related services to
the Fund in connection with the sale of Class B shares. The combination
of the Class B CDSC and the distribution fee retained by the Distributor
(as described under "Class B Distribution and Service Plan") facilitate
the sale of Class B Shares without a sales charge being deducted at the
time of purchase. Any Class B CDSC required to be imposed on Class B share
redemptions will be assessed according to the following schedule:
Year(s) Since Contingent Deferred
End of Month Sales Charge in That
In Which Purchase Year (as % of
Order Was Accepted Applicable Proceeds)
--------------------- ------------------------
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 or more None
In the table above, a "year" is twelve months. In determining the
amount of the Class B CDSC that applies and when Class B shares convert
as described in the following paragraph, all purchases shall be considered
as having been made on the first regular business day of the month in
which the purchase was made. The Class B CDSC will be waived upon the
request of the shareholder for redemptions of shares following the (i)
death or (ii) complete disability (as evidenced by a certificate from the
U.S. Social Security Administration) of all persons individually owning
such shares of record and not as fiduciaries or agents, that occurs since
the account was established. In addition, no CDSC is imposed on shares
of the Fund (1) sold to the Manager or its affiliates; (2) sold to
registered investment companies or separate accounts of insurance
companies having an agreement with the Manager or the Distributor; (3)
issued in plans of reorganization, such as mergers, asset acquisitions and
exchange offers to which the Fund is a party, or (iv) redeemed in
Involuntary Redemptions. See "Transfer of Shares" in the Additional
Statement for further details.
- Class B Conversion Feature. At the end of the month, seventy-two
months after the end of the month in which an investor's purchase order
for Class B shares is accepted, such "Matured Class B shares"
automatically will convert to Class A shares, on the basis of the relative
net asset value of the two classes, without the imposition of any sales
load or other charge. Each time any Matured Class B shares convert to
Class A shares, any Class B shares acquired by the reinvestment of
dividends or distributions on such Matured Class B shares that are still
held will also convert to Class A shares, on the same basis. The
conversion feature is intended to relieve holders of Matured Class B
shares of the asset-based sales charge under the Class B Distribution Plan
after such shares have been outstanding long enough that the Distributor
may have been compensated for distribution expenses related to such
shares.
The conversion of Matured Class B shares to Class A shares is subject
to the continuing availability of a private letter revenue ruling from the
Internal Revenue Service, or an opinion of counsel or tax adviser, to the
effect that the conversion of Matured Class B shares does not constitute
a taxable event for the holder under the Internal Revenue Code. If such
a private letter ruling or opinion is no longer available, the automatic
conversion feature may be suspended, in which event no further conversions
of Matured Class B shares would occur while such suspension remained in
effect. Although Matured Class B shares could then be exchanged for Class
A shares on the basis of relative net asset value of the two classes,
without the imposition of a sales charge or fee, such exchange could
constitute a taxable event for the holder, and absent such exchange, Class
B shares might continue to be subject to the asset-based sales charge for
longer than six years.
- Class B Distribution and Service Plan. The Fund has adopted a plan
of distribution (the "Class B Plan") under Rule 12b-1 of the Investment
Company Act, pursuant to which it will compensate the Distributor for its
services and costs incurred in connection with the distribution and
service of the Fund's Class B shares. Pursuant to the Class B Plan, the
Fund will pay the Distributor an asset-based sales charge of 0.75% per
annum on Class B shares outstanding for 6 years or less, plus a service
fee of 0.25% per annum, each of which is computed on the average annual
net assets of Class B shares of the Fund. The Distributor will use the
service fee payment to compensate Recipients for providing personal
service and the maintenance of shareholder accounts that hold Class B
shares, examples of which are described under "Class A Service Plan."
Service fee payments by the Distributor to Recipients will be made (i)
in advance for the first year Class B shares are outstanding, following
the purchase of shares, in an amount equal to 0.25% of the net asset value
of the shares purchased by the Recipient or its customers and (ii)
thereafter, on a quarterly basis, computed as of the close of business
each day at an annual rate of 0.25% of the net asset value of Class B
shares held in accounts of the Recipient or its customers. Other terms
and options under the Class B Plan for payment of the service fee by the
Distributor to Recipients, and other terms and conditions of the Class B
Plan are described under "Distribution and Service Plans" in the
Additional Statement. Asset-based sales charges and service fees will be
paid by the Fund to the Distributor monthly and quarterly, respectively.
The Class B Plan contains a provision which contractually obligates the
Fund to continue payments to the Distributor for certain expenses incurred
for Class B shares sold prior to termination of the Class B Plan.
The Distributor currently expects to pay sales commissions from its own
resources to authorized dealers or brokers at the time of sale equal to
3.75% of the purchase price of Fund shares sold by such dealer or broker,
and to advance the first year service fee of 0.25%. The asset-based sales
charge payments by the Fund to the Distributor under the Class B plan are
intended to allow it to recoup such sales commissions plus financing
costs. The Distributor anticipates that it will take a number of years to
recoup the sales commissions paid to authorized brokers or dealers from
the Fund's payments to the Distributor under the Class B Plan. If the
Class B Plan is terminated, the Distributor is entitled to continue to
receive the asset-based sales charge of 0.75% per annum on Class B shares
sold prior to termination until the Distributor has recovered its Class
B distribution expenses incurred (prior to termination) from such payments
and from the Class B CDSC.
The Fund believes that under applicable accounting standards, its
obligation under the Class B Plan to pay any asset-based sales charges in
future periods is not required to be recognized as a liability. In the
future, if applicable accounting standards should be deemed to require
that obligation to be recognized as a liability, a decrease in the net
asset value per share of Class B shares could result. Were that to occur,
such decrease would affect all Class B shares regardless of how long the
shares were held. Furthermore, Class B shareholders would continue to
remain subject to the Class B CDSC.
The Class B Plan has the effect of increasing annual expenses of Class
B shares of the Fund by up to 1.00% of the class's average annual net
assets from what its expenses would otherwise be. In addition, the Manager
and the Distributor may, under the Class B Plan, from time to time from
their own resources (which, as to the Manager, may include profits derived
from the advisory fee it receives from the Fund) make payments to
Recipients for distribution and administrative services they perform. For
further details, see "Distribution and Service Plans" in the Additional
Statement.
Asset-based sales charge payments are designed to permit an investor
to purchase shares of the Fund without the assessment of a front-end sales
load and at the same time permit the Distributor to compensate brokers and
dealers in connection with the sale of shares of the Fund. The
Distributor's actual distribution expenses for any given year may exceed
the aggregate of payments received pursuant to the Class B Plan and
contingent deferred sales charges, and such expenses will be carried
forward and paid in future years. The Fund will be charged only for
interest expenses, distribution expenses. At September 30, 1993, the end
of the Class B Plan year, the Distributor had incurred unreimbursed
expenses under the Class B Plan of $1,693,347 (equal to 4.13% of the
Fund's net assets attributable to Class B shares of the Fund on that
date), which have been carried over into the present Class B Plan year.
Purchase Programs for Class A and Class B Shares
- AccountLink. OppenheimerFunds AccountLink is a means to link a
shareholder's Fund account with an account at a U.S. bank or other
financial institution that is an Automated Clearing House ("ACH") member.
AccountLink can be used to transmit funds by electronic funds transfers
for account transactions, including subsequent share purchases. The
minimum investment by AccountLink is $25. Purchases of up to $250,000 may
be made by telephone using AccountLink (the maximum is $100,000 if the
transaction is done by PhoneLink, described below). To speak to service
operators to initiate such purchases, call the Distributor at 1-800-852-
8457. All such calls will be recorded. To initiate such purchases
automatically using PhoneLink, call 1-800-533-3310. Shares will be
purchased on the regular business day the Distributor is instructed to
initiate the ACH transfer to buy the shares. Dividends will begin to
accrue on such shares on the day the Fund receives Federal Funds for such
purchase through the ACH system before 4:00 P.M., which is normally 3 days
after the ACH transfer is initiated. If such Federal Funds are received
after that time, dividends will begin to accrue on the next regular
business day after such Federal Funds are received.
AccountLink may also be used as a means of transmitting redemption
proceeds to a designated bank account (see "How to Redeem Shares") or to
transmit distributions paid by the Fund directly to a bank account (see
"Dividends and Distributions"). AccountLink privileges must be requested
on the application used to buy shares or the dealer settlement
instructions establishing the account, or on subsequent
signature-guaranteed instructions to Oppenheimer Shareholder Services, the
Fund's Transfer Agent, from all shareholders of record for an account, and
such privileges thereupon apply to each shareholder of record and the
dealer representative of record unless and until the Transfer Agent
receives written instructions from a shareholder of record cancelling such
privileges. Changes of bank account information must be made by
signature-guaranteed instructions to the Transfer Agent by all
shareholders of record for an account. The Transfer Agent, the Fund and
the Distributor have adopted reasonable procedures to confirm that
telephone instructions under AccountLink (described above) and
"PhoneLink," "Telephone Redemptions" and the "Exchange Privilege"
(described below) are genuine, by requiring callers to provide tax
identification number(s) and other account data and by recording calls and
confirming such transactions in writing. If the Transfer Agent and the
Distributor do not use such procedures, they may be liable for losses due
to unauthorized transactions, but otherwise they will not be responsible
for losses or expenses arising out of telephone instructions reasonably
believed to be genuine. The Fund reserves the right to amend, suspend or
discontinue AccountLink privileges at any time without prior notice.
- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system which enables shareholders of the Fund to initiate account
transactions automatically by telephone, including exchanges between
existing accounts (see "Exchange Privilege," below), redemptions (see "How
To Redeem Shares - Telephone Redemptions," below) and purchases (see
"AccountLink," above). PhoneLink transactions may be done automatically
using a touchtone telephone provided that the shareholder uses a Personal
Identification Number ("PIN") which may be obtained through PhoneLink by
calling 1-800-533-3310. If an account has multiple owners, the Transfer
Agent or the Distributor may rely on any instructions initiated through
PhoneLink using a PIN. The Fund reserves the right to amend, suspend or
discontinue PhoneLink privileges at any time without prior notice.
- Asset Builder Plans. Investors may purchase shares of the Fund (and
up to four other Eligible Funds) automatically under Asset Builder Plans.
With AccountLink, Asset Builder Plans may be used to make regular monthly
investments ($25 minimum) from the investor's account at a bank or other
financial institution. See "AccountLink" above for details. To establish
an Asset Builder Plan from a bank account, a check (minimum $25) for the
initial purchase must accompany the application. Shares purchased by Asset
Builder Plan payments from bank accounts are subject to the redemption
restrictions for recent purchases described in "How To Redeem Shares."
Asset Builder Plans also enable shareholders of Oppenheimer Tax-Exempt
Cash Reserves or Oppenheimer Cash Reserves to use those accounts for
monthly automatic purchases of shares of the Fund and up to four other
Eligible Funds.
There is a sales charge on the purchase of certain Eligible Funds, and
an application should be obtained from the Transfer Agent and completed
and a prospectus of the selected fund(s) (available from the Distributor)
should be obtained before initiating payments. The amount of the Asset
Builder investment may be changed or the automatic investments terminated
at any time by writing to the Transfer Agent. A reasonable period
(approximately 15 days) is required after receipt of such instructions to
implement them. The Fund reserves the right to amend, suspend, or
discontinue offering such plans at any time without prior notice.
How to Redeem Shares
Regular Redemption Procedures
To redeem some or all shares in an account (whether or not represented
by certificates) under the Fund's regular redemption procedures, a
shareholder must send the following items to the Transfer Agent,
Oppenheimer Shareholder Services, P.O. Box 5270, Denver, Colorado 80217
[send courier or express mail deliveries to 10200 E. Girard Avenue,
Building D, Denver, Colorado 80231]: (1) a written request for redemption
signed by all registered owners exactly as the shares are registered,
including fiduciary titles, if any, and specifying the account number and
the dollar amount or number of shares to be redeemed; (2) a guarantee of
the signatures of all registered owners on the redemption request or on
the endorsement on the share certificate or accompanying stock power, by
a U.S. bank, trust company, credit union or savings association, or a
foreign bank having a U.S. correspondent bank, or by a U.S.-registered
dealer or broker in securities, municipal securities or government
securities, or by a U.S. national securities exchange, registered
securities association or clearing agency; (3) any share certificates
issued for any of the shares to be redeemed; and (4) any additional
documents which may be required by the Transfer Agent for redemption by
corporations, partnerships or other organizations, executors,
administrators, trustees, custodians, guardians, or if the redemption is
requested by anyone other than the shareholder(s) of record, or to
demonstrate eligibility for waivers of the Class B CDSC on the grounds of
age or disability. Transfers of shares are subject to similar
requirements.
A signature guarantee is not required for redemptions of $50,000 or
less, requested by and payable to all shareholders of record, to be sent
to the address of record for that account. To avoid delay in redemption
or transfer, shareholders having questions about these requirements should
contact the Transfer Agent in writing or by calling 1-800-525-7048 before
submitting a request. From time to time the Transfer Agent in its
discretion may waive any or certain of the foregoing requirements in
particular cases. Redemption or transfer requests will not be honored
until the Transfer Agent receives all required documents in proper form.
Shareholders owning shares of both classes must specify whether they
intend to redeem Class A or Class B shares.
Telephone Redemptions
To redeem shares by telephone through a service representative, call
the Transfer Agent at 1-800-852-8457. To use PhoneLink to redeem shares
automatically, without a service representative, call 1-800-533-3310.
Under either method of telephone redemptions, proceeds may be paid by
check or through AccountLink as described below. The Transfer Agent may
record any calls. Telephone redemptions may not be available if all lines
are busy, and shareholders would have to use the Fund's regular redemption
procedures described above. Requests received by the Transfer Agent prior
to 4:00 P.M. on a regular business day will be processed at the net asset
value per share determined that day. Telephone redemption privileges are
not available for newly-purchased (within the prior 15 days) shares, or
for shares represented by certificates.
Telephone redemption privileges apply automatically to each shareholder
and the dealer representative of record unless the Transfer Agent receives
cancellation instructions from a shareholder of record. If an account has
multiple owners, the Transfer Agent may rely on the instructions of any
one owner. Telephone redemption privileges may be amended, suspended or
discontinued by the Fund at any time without prior notice.
- Telephone Redemptions Paid by Check. For redemption proceeds paid
by check, amounts up to $50,000 may be redeemed by telephone, once in each
seven-day period. The check must be payable to the shareholder(s) of
record and sent to the address of record for the account. Telephone
redemptions paid by check are not available within 30 days of a change of
the address of record.
- Redemptions Paid Through AccountLink. If AccountLink privileges have
been established for an account, any amount may be redeemed by telephone,
wire or written instructions to the Transfer Agent, and the ACH transfer
of the redemption proceeds to the designated bank account normally will
be initiated by the Transfer Agent on the next bank business day after the
redemption. There are no dollar or frequency limitations on telephone
redemptions sent to a designated bank account through AccountLink. No
dividends are paid on the proceeds of redeemed shares awaiting transmittal
by ACH transfer. See "AccountLink" under "Purchase Programs for Class A
and Class B Shares" for instructions on establishing this privilege.
Check Writing
Upon request, the Transfer Agent will provide shareholders whose shares
are not represented by certificates with forms of drafts ("checks")
payable through a bank selected by the Fund (the "Bank"). Check writing
privileges are not available for accounts holding Class B shares or Class
A shares subject to a CDSC. Checks may be written by the shareholder in
any amount not less than $100, payable to the order of anyone, and will
be subject to the Bank's rules and regulations governing checks. A check
should not be written in an amount close to the total value of the account
because the Fund's net asset value fluctuates from day to day. If a check
is presented for an amount greater than the account value, it will not be
paid. The Fund will charge a handling fee of $10 for any check that is
not paid at the request of the shareholder or because of an insufficient
share balance or because the check was written for less than the stated
minimum. The Transfer Agent will arrange for checks to be honored by the
Bank after obtaining a specimen signature card from the shareholder(s).
Shareholders of joint accounts may elect to have checks honored with a
single signature. Checks issued for one account in the Fund must not be
used if the shareholder's account has been transferred to a new account
or if the account number or registration has changed. Shares purchased
by check or Asset Builder payments within the prior 15 days may not be
redeemed by Check Writing. A check that would require the redemption of
some or all of the shares so purchased is subject to non-payment.
When a check is presented to the Bank for clearance, the Bank will
request 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
procedure enables the shareholder to continue receiving dividends on those
shares equalling the amount being redeemed by check until such time as the
check is presented to the Fund. Checks may not be presented for payment
at the office of the Bank or the Fund's Custodian. This limitation does
not affect the use of checks for the payment of bills or cashing at other
banks. The Fund reserves the right to amend, suspend or discontinue this
privilege at any time without prior notice.
Automatic Withdrawal and Exchange Plans
Investors owning shares of the Fund valued at $5,000 or more can
authorize the Transfer Agent to redeem shares (minimum $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 by check payable to all shareholders of record and sent to
the address of record for the account (and if the address has not been
changed within the prior 30 days). 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 OppenheimerFunds New Account Application
or signature-guaranteed instructions. The Fund cannot guarantee receipt
of the payment on the date requested and reserves the right to amend,
suspend or discontinue offering such plans at any time without prior
notice. Because of the sales charge assessed on share purchases,
shareholders should not make regular additional purchases while
participating in an Automatic Withdrawal Plan. Class B shareholders
normally should not establish withdrawal plans because of the imposition
of the Class B CDSC on such withdrawals (except where the Class B CDSC is
waived as described in "Class B Contingent Deferred Sales Charge"). For
further details, refer to "Automatic Withdrawal Plan Provisions" in the
Additional Statement.
Shareholders can also authorize the Transfer Agent to exchange a
pre-determined amount of shares of the Fund for shares of up to five other
"Eligible Funds" (minimum purchase is $25 per fund account) automatically
on a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. Exchanges made pursuant to such Plans are otherwise subject
to the conditions and terms applicable to exchanges described in "Exchange
Privilege" below.
Repurchase
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price will be the net asset
value next computed after the receipt of an order placed by such dealer
or broker, except that orders received by the Distributor from dealers or
brokers after 4:00 P.M. on a regular business day will be processed at
that day's net asset value if such orders are received by the dealer or
broker from its customers prior to 4:00 P.M. and are transmitted to and
are received by the Distributor prior to its close of business that day
(normally 5:00 P.M.). Payment ordinarily will be made within seven days
after the Distributor's receipt of the required documents, with
signature(s) guaranteed as described above.
Reinvestment Privilege
Within six months of a redemption, a shareholder may reinvest all or
part of the redemption proceeds of (i) Class A shares, or (ii) Class B
shares that were subject to the Class B CDSC when redeemed, in Class A
shares of the Fund or any of the Eligible Funds into which shares of the
Fund are exchangeable as described below, at the net asset value next
computed after receipt by the Transfer Agent of the reinvestment order.
The shareholder must ask the Distributor for such entitlement at the time
of reinvestment. A realized gain on the redemption is taxable, and the
reinvestment will not alter any capital gains tax payable on that gain.
If there has been a loss on the redemption, some or all of the loss may
not be tax deductible, depending on the timing and amount reinvested in
the Fund. 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 Eligible Fund within 90 days of payment of the sales
charge, the shareholder's basis in the Fund shares redeemed may not
include the amount of the sales charge paid, thereby reducing the loss or
increasing the gain recognized from the redemption. 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.
General Information on Redemptions
The redemption price will be the net asset value per share of the class
next determined after the Transfer Agent receives redemption instructions
in proper form. The market value of the securities in the Fund's portfolio
is subject to daily fluctuations and the net asset value of each class of
the Fund's shares will fluctuate accordingly. Therefore, the redemption
value may be more or less than the investor's cost. Under certain unusual
circumstances, shares may be redeemed in kind (i.e., by payment in
portfolio securities). The Fund may involuntarily redeem small accounts
(if the value of the account has fallen below $500 for reasons other than
market value fluctuations) and may redeem shares in amounts sufficient to
compensate the Distributor for any loss due to cancellation of a share
purchase order; for details, see "Purchase, Redemption and Pricing of
Shares" in the Additional Statement. Under the Internal Revenue Code, the
Fund may be required to impose "backup" withholding of Federal income tax
at the rate of 31% from taxable dividends, distributions and redemption
proceeds (including exchanges), if the shareholder has not furnished the
Fund a certified tax identification number or has not complied with
provisions of the Internal Revenue Code relating to reporting dividends.
Payment for redeemed shares is made ordinarily in cash and forwarded
within seven days of the Transfer Agent's receipt of redemption
instructions in proper form, except under unusual circumstances as
determined by the SEC. The Transfer Agent may delay forwarding a
redemption check for recently purchased shares only until the purchase
payment has cleared, which may take up to 15 days or more from the
purchase date. Such delay may be avoided if the shareholder arranges
telephone or written assurance satisfactory to the Transfer Agent from the
bank on which the purchase payment was drawn. The Fund makes no charge
for redemption. Dealers or brokers may charge a fee for handling
redemption transactions, but such charge can be avoided by requesting the
redemption directly by the Fund through the Transfer Agent. Under certain
circumstances, the Class A and Class B CDSCs described under "How to Buy
Shares" may apply to the proceeds of redemptions.
Exchanges of Shares
Exchange Privilege
Shares of the Fund and of the other Eligible Funds listed under "Right
of Accumulation" may be exchanged at net asset value per share at the time
of exchange, without sales charge, if all of the following conditions are
met: (1) shares of the fund selected for exchange are available for sale
in the shareholder's state of residence; (2) the respective prospectuses
of the funds whose shares are to be exchanged and acquired offer the
Exchange Privilege to the investor; (3) newly-purchased (by initial or
subsequent investment) shares are held in an account for at least 7 days
and all other shares at least 1 day prior to the exchange; and (4) the
aggregate net asset value of shares surrendered for exchange is at least
equal to the minimum investment requirements of the fund whose shares are
to be acquired.
In addition to the conditions stated above, shares of a particular
class of Eligible Funds having more than one class of shares may be
exchanged only for shares of the same class of another Eligible Fund. All
the Eligible Funds offer Class A shares, but only certain Eligible Funds
offer Class B shares. The names of those Eligible Funds can be obtained
by calling the Distributor at 1-800-525-7048. In addition, Class A shares
of Eligible Funds may be exchanged for shares of any Money Market Fund;
shares of any Money Market Fund purchased without a sales charge may be
exchanged for shares of Eligible Funds offered with a sales charge upon
payment of the sales charge or, if applicable, may be used to purchase
shares of Eligible Funds subject to a CDSC; and shares of this Fund
acquired by reinvestment of dividends or distributions from any other
Eligible Fund or from any unit investment trust for which reinvestment
arrangements have been made with the Distributor may be exchanged at net
asset value for shares of any Eligible Fund. No CDSC is imposed on
exchanges of shares of either class purchased subject to a CDSC. However,
when Class A shares acquired by exchange of Class A shares purchased
subject to a Class A CDSC are redeemed within 18 months of the end of the
calendar month of the initial purchase of the exchanged Class A shares,
the Class A CDSC is imposed on the redeemed shares (see "Class A
Contingent Deferred Sales Charge," above), and the Class B CDSC is imposed
on Class B shares redeemed within six years of the end of the calendar
month of the initial purchase of exchanged Class B shares (see "Class B
Contingent Deferred Sales Charge," above).
- How to Exchange Shares. An exchange may be made by either: (1)
submitting an OppenheimerFunds Exchange Authorization Form to the Transfer
Agent, signed by all registered owners, or (2) telephone exchange
instructions to the Transfer Agent by a shareholder or the dealer
representative of record for an account. The Fund may modify, suspend or
discontinue either of these exchange privileges at any time on 60 days'
notice if such notice is required by regulations adopted under the
Investment Company Act. The Fund reserves the right to reject telephone
or written requests submitted in bulk on behalf of 10 or more accounts.
Telephone and written exchange requests must be received by the Transfer
Agent by 4:00 P.M. on a regular business day to be effected that day. The
number of shares exchanged may be less than the number requested if the
number requested would include shares subject to a restriction cited above
or shares covered by a certificate that is not tendered with such request.
Only the shares available for exchange without restriction will be
exchanged.
When Class B shares are redeemed to effect an exchange, the priorities
described in "How to Buy Shares" for the imposition of the Class B CDSC
for redeeming such shares will be followed in determining the order in
which shares are exchanged. Shareholders should take into account the
effect of any exchange on the applicability and rate of any CDSC that may
be imposed in the subsequent redemption of remaining shares. Shareholders
owning shares of both classes must specify whether they intend to exchange
Class A or Class B shares.
- Telephone Exchanges. Telephone exchange requests may be placed
through a service representative by calling the Transfer Agent at
1-800-852-8457 or automatically by PhoneLink, by calling 1-800-533-3310.
If all telephone exchange lines are busy (which might occur, for example,
during periods of substantial market fluctuations), shareholders might not
be able to request telephone exchanges and would have to submit written
exchange requests. Telephone exchange calls may be recorded by the
Transfer Agent. Telephone exchanges are subject to the rules described
above. By exchanging shares by telephone, the shareholder is
acknowledging receipt of a prospectus of the fund to which the exchange
is made and that for full or partial exchanges, any special account
features such as Asset Builder Plans, Automatic Withdrawal or Exchange
Plans will be switched to the new account unless the Transfer Agent is
otherwise instructed. Telephone exchange privileges automatically apply
to each shareholder of record and the dealer representative of record
unless and until the Transfer Agent receives written instructions from a
shareholder of record cancelling such privileges. If an account has
multiple owners, the Transfer Agent may rely on the instructions of any
one owner. The Transfer Agent reserves the right to require shareholders
to confirm in writing their election of telephone exchange privileges for
an account. Shares acquired by telephone exchange must be registered
exactly as the account from which the exchange was made. Certificated
shares are not eligible for telephone exchange.
- General Information on Exchanges. 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 in its discretion reserves the right to
refuse any exchange request that will disadvantage it, for example, if the
receipt of multiple exchange requests from a dealer might require the
disposition of securities at a time or at a price disadvantageous to the
Fund.
The Eligible Funds have different investment objectives and policies.
For complete information, including sales charges and expenses, a
prospectus of the fund into which the exchange is being made should be
read prior to an exchange. A $5 service charge will be deducted from the
account to which the exchange is made to help defray administrative costs.
That charge is waived for telephone exchanges made by PhoneLink between
existing accounts. Dealers or brokers who process exchange orders on
behalf of customers may charge for their services. Those charges may be
avoided by requesting the Fund directly to exchange shares. For Federal
tax purposes an exchange is treated as a redemption and purchase of shares
(see "How to Redeem Shares -- Reinvestment Privilege" for a discussion
of certain tax effects of exchanges). No sales commissions are paid by the
Distributor on exchanges of shares (unless a front-end sales charge is
assessed on the exchange).
Dividends, Distributions And Taxes
This discussion relates solely to Federal tax laws and is not
exhaustive; a qualified tax adviser should be consulted. A portion of the
Fund's dividends and distributions may be subject to Federal and state
taxation. Information about the possible applicability of Alternative
Minimum Tax to the Fund's dividends is contained in "Investment Objective
and Policies -- Private Activity Municipal Securities" in the Additional
Statement. See "Yield, Total Return and Tax Information" in the
Additional Statement for further discussion of tax matters affecting the
Fund and its distributions.
Dividends and Distributions
The Fund intends to declare dividends separately for Class A and Class
B shares from net investment income on each regular business day and to
pay such dividends monthly on a date set by the Board of Trustees, which
normally will be the tenth business day of each month. The amount of a
class's distributions may vary from time to time depending upon market
conditions, the composition of the Fund's portfolio, and expenses borne
by the Fund, or borne separately by that class, as described under "Dual
Class Methodology" in the Additional Statement. 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 shares are expected to be lower
than on Class A shares on a pro rata basis as a result of the asset-based
sales charge on Class B shares, and such dividends will also differ in
amount as a consequence of any difference between the net asset values of
Class A and Class B shares.
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." An investor purchasing Fund shares immediately prior
to the declaration of a dividend or capital gain distribution, which has
the effect of reducing the fund's net asset value per share by the amount
of the dividend or distribution, should consider the tax consequences of
receiving such distribution. Daily dividends on newly purchased shares
will not be declared or paid 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. Dividends will be declared on shares repurchased by a dealer
or broker for four business days following the trade date (i.e., 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.
Distributions from net realized short-term or long-term capital gains,
if any, will be paid at least once each year. If net capital losses are
realized in any year, they are charged against principal and not against
net investment income, which is distributed regardless of capital gains
or losses. Long-term gains, if any, will be identified separately when
tax information is distributed. Receipt of tax-exempt income must be
reported on the taxpayer's Federal income tax return. There is no fixed
dividend rate and there can be no assurance as to the payment of any
dividends or the realization of any capital gains.
All dividends and capital gains distributions are automatically
reinvested in shares of the same class at net asset value, as of a date
selected by the Board of Trustees, unless the shareholder notifies the
Transfer Agent in writing to pay dividends and capital gains distributions
in cash, or to reinvest them in another Eligible Fund, as described in
"Additional Information" in the Additional Statement. That request must
be received prior to the record date for a dividend to be effective as to
that dividend. Dividends and distributions may be automatically
transferred to a designated account at a financial institution. See
"AccountLink" in "How to Buy Shares" and the OppenheimerFunds New Account
Application for more details. For existing accounts, such privileges may
be established only by signature-guaranteed instructions from all
shareholders to the Transfer Agent. Dividends, distributions and the
proceeds of the redemption of Fund shares represented by checks returned
to the Transfer Agent by the Postal Service as undeliverable are
reinvested in shares of Oppenheimer Money Market Fund, Inc., as promptly
as possible after the return of such checks to the Transfer Agent, to
enable the investor to earn a return on otherwise idle funds.
During the Fund's fiscal year ended September 30, 1993, the Fund
maintained the practice, to the extent consistent with the amount of the
Fund's net investment income and other distributable income, of attempting
to pay dividends on Class A shares at a constant level, although the
amount of such dividends were subject to change 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 that Class. The
practice of attempting to pay dividends on Class A shares at a constant
level required the Manager, consistent with the Fund's investment
objective and investment restrictions, to monitor the Fund's portfolio and
select higher-yielding securities when deemed appropriate to maintain
necessary net investment income levels. This practice did not effect net
asset values of either Class of the Fund's shares. The Board of Trustees
may change the Fund's targeted dividend level at any time, without prior
notice to shareholders; the Fund does not otherwise have a fixed dividend
rate and there can be no assurance as to the payment of any dividends or
the realization of any capital gains.
Tax Status of the Fund's Dividends and Distributions
The Fund intends to qualify under the Internal Revenue Code during each
fiscal year to pay "exempt-interest dividends" to its shareholders.
Exempt-interest dividends which are derived from net investment income
earned by the Fund on Municipal Securities will be excludable from gross
income of shareholders for Federal income tax purposes. Net investment
income includes the allocation of amounts of income from the Municipal
Securities in the Fund's portfolio which are free from Federal income
taxes. This allocation will be made by the use of one designated
percentage applied uniformly to all income dividends made during the
Fund's tax year. Such designation will normally be made following the end
of each fiscal year as to income dividends paid in the prior year. The
percentage of income designated as tax-exempt may substantially differ
from the percentage of the Fund's income that was tax-exempt for a given
period. A portion of the exempt-interest dividends paid by the Fund may
be an item of tax preference for shareholders subject to the alternative
minimum tax. All of the Fund's dividends (excluding capital gains
distributions) paid during 1993 were exempt from Federal income taxes, and
87.4% were not tax preference items. Corporate shareholders and
"substantial users" of facilities financed by Private Activity Municipal
Securities should see "Private Activity Municipal Securities" in the
Additional Statement before purchasing shares.
A shareholder receiving a dividend from income earned by the Fund from
one or more of: (i) certain taxable investments; (ii) income from
securities loans; and (iii) an excess of net short-term capital gain over
net long-term capital loss from the Fund, treats the dividend as a receipt
of either ordinary income or long-term capital gain in the computation of
gross income, regardless of whether the dividend is reinvested. The
Fund's dividends will not be eligible for the dividends-received deduction
for corporations. Shareholders receiving Social Security benefits should
be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to Federal income tax. Losses realized
by shareholders on the redemption of Fund shares within six months of
purchase (which period may be shortened by regulation) will be disallowed
for Federal income tax purposes to the extent of exempt-interest dividends
received on such shares.
Long-term capital gains distributions, if any, are taxable as long-term
capital gains whether received in cash or reinvested and regardless of how
long Fund shares have been held. Dividends paid by the Fund derived from
net short-term capital gains are taxable to shareholders as ordinary
income, whether received in cash or reinvested. For information on
"backup withholding" on taxable dividends, see "How To Redeem Shares."
Interest on loans used to purchase shares of the Fund may not be deducted
for Federal income tax purposes. Under rules used by the Internal Revenue
Service to determine when borrowed funds are deemed used for the purpose
of purchasing or carrying particular assets, the purchase of Fund shares
may be considered to have been made with borrowed funds even though the
borrowed funds are not directly traceable to the purchase of shares.
Tax Status of the Fund
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on
amounts paid by it as dividends and distributions. The Fund qualified
during its last fiscal year and intends to qualify in current and future
fiscal years, but reserves the right not to do so. The Code contains a
number of complex tests relating to qualification which the Fund might not
meet in any particular year. For example, if the Fund derives 30% or more
of its gross income from the sale of securities held less than three
months, it may fail to qualify (see "Tax Aspects of Hedging Instruments"
in Additional Statement for more information). If it did not qualify, the
Fund would be treated for tax purposes as an ordinary corporation, would
receive no tax deduction for distributions paid to shareholders and would
be unable to pay "exempt-interest dividends" as discussed below.
Fund Performance
Yield and Total Return Information
From time to time the "standardized yield," "tax-equivalent yield,"
"dividend yield," "average annual total return," "total return" and "total
return at net asset value" of an investment in each class of shares of the
Fund may be advertised. Under rules adopted by the SEC, "yield" is
computed in a standardized manner for mutual funds, by dividing the net
investment income per share earned during a 30-day base period by the
maximum offering price per share on the last day of the period. This
yield calculation is compounded on a semi-annual basis, and multiplied by
2 to provide an annualized yield. "Tax-equivalent yield" is determined
by dividing that portion of the "yield" of each class (calculated as
described above) that is tax-exempt by a factor that includes the
applicable income tax rate (after adjusting for any portion of the Fund's
yield that is not tax-exempt). The "tax- equivalent yield" is then
compounded and annualized in the same manner as yield. The "dividend
yield" of shares of a class represents dividends derived from net
investment income during a stated period divided by the maximum offering
price on the last day of the period, to show the rate of return based on
actual distributions paid to shareholders of that class.
The "average annual total return" of each class for a particular period
is computed by determining the average annual compounded rate of return
over the period, using the initial amount invested at the beginning of the
period and the redeemable value of the investment at the end of the
period. The "total return" of each class for a period is a cumulative rate
of return over the entire period, also using the initial amount invested
and redeemable value at the end of the period. In both cases, the payment
of either the Fund's current maximum initial sales charge applicable to
Class A shares, or the Class B CDSC applicable to the period for which the
Class B shares are outstanding, is taken into account with respect to the
performance of that class. The Fund may also quote a "total return at net
asset value" of each class, which is total return calculated without
considering either initial sales charges (for Class A shares) or the Class
B CDSC (for Class B shares). The redeemable value of the investment
assumes that all dividends and capital gains distributions have been
reinvested at net asset value without sales charge. The "average annual
total return," "total return" and "total return at net asset value"
indicate the investment results that an investor holding shares of that
class would have experienced over the stated period from changes in share
price and reinvestment of dividends and distributions.
Yields and returns are based on historical per share earnings and are
not intended to indicate future performance. Yields and returns are
calculated separately and will differ for shares of each class, and the
higher anticipated expenses of Class B shares should result in shares of
that class having lower yields than Class A shares for the same period of
time. "Yield, Total Return and Tax Information" in the Additional
Statement contains more detailed information on calculating the Fund's
yields and returns, and other performance information.
Management's Discussion of Performance
During the Fund's fiscal year ended September 30, 1993, the Manager
emphasized investment in higher quality bond offerings with an emphasis
on essential service revenue bonds. These included utilities, water
projects, education and transportation bond issues. A number of economic
factors influenced the performance of the municipal bond market during the
Fund's fiscal year, including a low interest rate environment, which
increased the supply of municipal securities.
Oppenheimer New York Tax-Exempt Fund and Lehman Bros. Municipal Bond Index
Average Annual Total Return at 9/30/93
1 Year 5 Year Life of Fund
------ ------- --------------
Class A 8.83% 8.82% 10.83%(1)
Class B 1.24%(2)
- -------------------
(1) Since August 16, 1984.
(2) Since March 1, 1993.
(Charts comparing total return of Class A and Class B shares
of Oppenheimer New York Tax-Exempt Fund to
performance of Lehman Bros. Municipal Bond Index)
Past performance is not predictive of future performance.
The Lehman Bros. Municipal Bond Index is an unmanaged index of a broad
range of investment grade municipal bonds, widely regarded as a measure
of the performance of the general municipal bond market, and includes a
factor for the reinvestment of interest but does not reflect expenses.
The Fund's return reflects deduction of the current maximum sales charge
of 4.75% and includes reinvestment of all dividends and capital gains
distributions, but does not consider taxes.
Additional Information
Description of the Fund and Its Shares
The Fund's Board of Trustees is empowered to issue full and fractional
shares of one or more series and classes of series. Shares of one series
having two classes (Class A and Class B) have been authorized, which
constitute the shares of beneficial interest described herein. Series
have separate assets and liabilities. Classes of a series represent an
identical interest in a particular series but, as explained in this
Prospectus, each class has different dividends, distributions and
expenses, and may have different net asset values. Class B shares will
automatically convert to Class A shares seventy-two months after an
investor's purchase order for Class B shares is accepted. See "How to Buy
Shares -- Class B Conversion Feature," above.
Shares of the Fund represent an interest in the Fund proportionately
equal to the interest of each other share of the same class and entitle
their holders to one vote per share (and a fractional vote for a
fractional share) on matters submitted to their vote. Only shareholders
of a particular class vote on matters affecting only that class. The
Trustees may divide or combine the shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial interest
in the Fund. When issued, such shares are fully-paid and nonassessable
(except as described in "Additional Information" in the Additional
Statement), and do not have cumulative voting rights or preemptive or
subscription rights. The Fund does not anticipate holding annual
meetings.
Under certain circumstances, shareholders of the Fund have the right
to remove a Trustee and may be held personally liable as "partners" for
the Fund's obligations; however, the risk of a shareholder incurring any
financial loss is limited to the relatively remote circumstances in which
the Fund is unable to meet its obligations. See "Additional Information"
in the Additional Statement for details.
The Custodian and the Transfer Agent
The Custodian of the assets of the Fund is Citibank, N.A. The Manager
and its affiliates have banking relationships with the Custodian. See
"Additional Information" in the Additional Statement for further
information. The Fund's cash balances with the Custodian in excess of
$100,000 are not protected by Federal deposit insurance. Such uninsured
balances may at times be substantial.
The Transfer Agent, a division of the Manager, acts as transfer and
shareholder servicing agent on an at-cost basis for the Fund and certain
other open-end funds advised by the Manager. It also acts as transfer
agent for unit investment trusts for the accumulation of shares and one
of such funds. Shareholders should direct any inquiries to the Transfer
Agent at the address or toll-free phone number listed on the back cover
of this Prospectus.
<PAGE>
APPENDIX TO PROSPECTUS OF
OPPENHEIMER NEW YORK TAX-EXEMPT FUND
Graphic material included in Prospectus of Oppenheimer New York Tax-
Exempt Fund: "Comparison of Total Return of Oppenheimer New York Tax-
Exempt Fund and the S&P 500 Index - Change in Value of a $10,000
Hypothetical Investment"
A linear graph will be included in the Prospectus of Oppenheimer New
York Tax-Exempt Fund (the "Fund") depicting the initial account value and
subsequent account value of a hypothetical $10,000 investment in (i) Class
A shares of the Fund since August 16, 1984 to the end of each of the
Fund's most recently completed ten fiscal years and (ii) Class B shares
of the Fund from March 1, 1993 to September 30, 1993, and comparing such
values with the same investments over the same time periods in the Lehman
Bros. Municipal Bond Index. Set forth below are the relevant data points
that will appear on the linear graph. Additional information with respect
to the foregoing, including a description of the Lehman Bros. Municipal
Bond Index, is set forth in the Prospectus under "Fund Information -
Management's Discussion of Performance."
Oppenheimer New
York Tax-Exempt Fund Lehman Bros.
Fiscal Year Class A Municipal
(Period) Ended Shares Bond Index
- ---------------- ----------------------- ---------------
08/16/84 $ 9,525 $10,000
09/30/84 9,583(1) 9,933
09/30/85 11,401 11,546
09/30/86 14,060 14,392
09/30/87 14,152 14,469
09/30/88 15,849 16,347
09/30/89 17,022 17,765
09/30/90 17,864 18,973
09/30/91 20,164 21,476
09/30/92 22,302 23,720
09/30/93 25,550 26,742
Oppenheimer New
York Tax-Exempt Fund Lehman Bros.
Fiscal Year Class B Municipal
(Period) Ended Shares Bond Index
- ---------------- ----------------------- -----------
03/01/93 $10,000 $10,000
09/30/93 10,124(2) 10,564
- ---------------------
(1) For the period from August 16, 1984 (commencement of operations) to
September 30, 1984.
(2) For the period from March 1, 1993 (commencement of class) to
September 30, 1993.
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick
707 Seventeenth Street
Denver, Colorado 80202
Counsel
Gordon Altman Butowsky
Weitzen Shalov & Wein
114 West 47th Street
New York, New York 10036
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in
this Prospectus or the Additional Statement, and if given or made, such
information and representations must not be relied upon as having been
authorized by the Fund, Oppenheimer Management Corporation, Oppenheimer
Funds Distributor, Inc., or any affiliate thereof. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby in any state to any person to whom it is
unlawful to make such an offer in such state.
PR360.0194.N * Printed on recycled paper
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OPPENHEIMER NEW YORK TAX-EXEMPT FUND
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
This Statement of Additional Information (the "Additional Statement")
is not a Prospectus. This Additional Statement should be read in
conjunction with the Prospectus dated January 25, 1994 (the "Prospectus")
of Oppenheimer New York Tax-Exempt Fund (the "Fund"), which may be
obtained upon written request to Oppenheimer Shareholder Services (the
"Transfer Agent"), P.O. Box 5270, Denver, Colorado 80217 or by calling the
Transfer Agent at the toll-free number listed above.
TABLE OF CONTENTS
Page
---------
Investment Objective and Policies
Special Investment Methods
Investment Restrictions
Trustees and Officers
Investment Management Services
Purchase, Redemption and Pricing of Shares
Distribution and Service Plan
Performance and Tax Information
Additional Information
Automatic Withdrawal Plan Provisions
Letters of Intent
Report of Independent Auditors
Financial Statements
Appendix A: Description of Ratings
Appendix B: Equivalent Yield Table
This Additional Statement is effective January 25, 1994.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described in
the Prospectus. Supplemental information about those policies is set
forth below. Certain capitalized terms used in this Additional Statement
are defined in the Prospectus.
Municipal Securities
Municipal Bonds. The principal classifications of long-term
municipal bonds are "general obligation" and "revenue" or "industrial
development" bonds.
General Obligation Bonds. Issuers of general obligation bonds
include states, counties, cities, towns, and regional districts. The
proceeds of these obligations are used to fund a wide range of public
projects, including construction or improvement of schools, highways and
roads, and water and sewer systems. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and
taxing power for the payment of principal and interest. The taxes that
can be levied for the payment of debt service may be limited or unlimited
as to the rate or amount of special assessments.
Revenue Bonds. The principal security for a revenue bond is
generally the net revenues derived from a particular facility, group of
facilities, or, in some cases, the proceeds of a special excise or other
specific revenue source. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, water and sewer
systems; highways, bridges, and tunnels; port and airport facilities;
colleges and universities; and hospitals. Although the principal security
behind these bonds may vary, many provide additional security in the form
of a debt service reserve fund whose money may be used to make principal
and interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security, including partially or fully
insured mortgages, rent subsidized and/or collateralized mortgages, and/or
the net revenues from housing or other public projects. Some authorities
provide further security in the form of a state's ability (without
obligation) to make up deficiencies in the debt service reserve fund.
Industrial Development Bonds. Industrial development bonds, which
are considered municipal bonds if the interest paid is exempt from federal
income tax, are issued by or on behalf of public authorities to raise
money to finance various privately operated facilities for business and
manufacturing, housing, sports, and pollution control. These bonds are
also used to finance public facilities such as airports, mass transit
systems, ports, and parking. The payment of the principal and interest
on such bonds is dependent solely on the ability of the facility's user
to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment.
Municipal Notes. Municipal Securities having a maturity when 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
and include:
Tax Anticipation Notes. Tax anticipation notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of various seasonal tax revenue, such as income, sales, use
of business taxes, and are payable from these specific future taxes.
Revenue Anticipation Notes. Revenue anticipation notes are issued
in expectation of receipt of other types of revenue, such as federal
revenues available under the Federal revenue sharing programs.
Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. In
most cases, the long-term bonds then provide the money for the repayment
of the notes.
Construction Loan Notes. Construction loan notes are sold to provide
construction financing. After successful completion and acceptance, many
projects receive permanent financing through the Federal Housing
Administration.
Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a short-
term obligation with a stated maturity of 365 days or less. It is issued
by state and local governments or their agencies to finance seasonal
working capital needs or as short-term financing in anticipation of
longer-term financing.
Participation Interests. The Fund may purchase participation
interests in all or part of specific holdings of short-term Municipal
Securities from banks or other financial institutions, as described in the
Prospectus. Such banks or other financial institutions frequently
provide, or secure from another financial institution, letters of credit
or guarantees to secure the interests, and give the buyer the right to
demand payment of the principal amount of the participation interests plus
accrued interest on short notice (normally within seven days). In the
event of a failure by the issuer to pay scheduled interest or principal
payments on the underlying municipal security, the Fund could experience
a decline in its net asset value. In the event of a failure by the
financial institution to perform its obligations in connection with the
participation interest, the Fund might incur certain costs and delays in
realizing payment or may suffer a loss of principal and/or interest.
Certificates of Participation. The Fund may invest in certificates
of participation, which are tax-exempt obligations that evidence the
holder's right to share in lease, installment loan or other financing
payments by a public entity. Projects financed with certificates of
participation generally are not subject to state constitutional debt
limitations or other statutory requirements that may be applicable to
Municipal Securities.
Private Activity Municipal Securities. The Tax Reform Act of 1986
(the "Tax Reform Act") reorganized, as well as amended, the rules
governing tax exemption for interest on Municipal Securities. The Tax
Reform Act generally does not change the tax treatment of bonds issued in
order to finance governmental operations. Thus, interest on obligations
issued by or on behalf of state or local government, the proceeds of which
are used to finance the operations of such governments (e.g., general
obligation bonds) continues to be tax-exempt. However, the Tax Reform Act
further limited the use of tax-exempt bonds for non-governmental (private)
purposes. More stringent restrictions were placed on the use of proceeds
of such bonds. Interest on certain private activity bonds (other than
those specified as "qualified" tax-exempt private activity bonds, e.g.,
exempt facility bonds including certain industrial development bonds,
qualified mortgage bonds, qualified Section 501(c)(3) bonds, qualified
student loan bonds, etc.) is taxable under the revised rules.
Interest on certain private activity bonds issued after August 7,
1986, which continues to be tax-exempt, will be treated as a tax
preference item subject to the alternative minimum tax (discussed below)
to which certain taxpayers are subject. Further, a private activity bond
which would otherwise be a qualified tax-exempt private activity bond will
not, under Internal Revenue Code Section 147(a), be a qualified bond for
any period during which it is held by a person who is a "substantial user"
of the facilities or by a "related person" of such a substantial user.
This "substantial user" provision is applicable primarily to exempt
facility bonds, including industrial development bonds. The Fund may not
be an appropriate investment for entities which are "substantial users"
(or persons related thereto) of such exempt facilities, and such persons
should consult their own tax advisers before purchasing shares. A
"substantial user" of such facilities is defined generally as a "non-
exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be
a "related person" under the Internal Revenue Code unless such investor
or the investor's immediate family (spouse, brothers, sisters and
immediate descendants) own directly or indirectly in the aggregate more
than 50% in value of the equity of a corporation or partnership which is
a "substantial user" of a facility financed from the proceeds of exempt
facility bonds. In addition, the Tax Reform Act revised downward the
limitations as to the amount of private activity bonds which each state
may issue, which will reduce the supply of such bonds. The value of the
Fund's portfolio could be affected if there is a reduction in the
availability of such bonds. That value may also be affected by a 1988
U.S. Supreme Court decision upholding the constitutionality of the
imposition of a Federal tax on the interest earned on Municipal Securities
issued in bearer form.
A Municipal Security is treated as a taxable private activity bond
under a test for: (a) a trade or business use and security interest, or
(b) a private loan restriction. Under the trade or business use and
security interest test, an obligation is a private activity bond if: (i)
more than 10% of bond proceeds are used for private business purposes and
(ii) 10% or more of the payment of principal or interest on the issue is
directly or indirectly derived from such private use or is secured by the
privately used property or the payments related to the use of the
property. For certain types of uses, a 5% threshold is substituted for
this 10% threshold. (The term "private business use" means any direct or
indirect use in a trade or business carried on by an individual or entity
other than a state or municipal governmental unit.) Under the private
loan restriction, the amount of bond proceeds which may be used to make
private loans is limited to the lesser of 5% or $5.0 million of the
proceeds. Thus, certain issues of Municipal Securities could lose their
tax-exempt status retroactively if the issuer fails to meet certain
requirements as to the expenditure of the proceeds of that issue or use
of the bond-financed facility.
The Federal alternative minimum tax is designed to ensure that all
taxpayers pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference
items in arriving at alternative minimum taxable income. The Tax Reform
Act made tax-exempt interest from certain private activity bonds a tax
preference item for purposes of the alternative minimum tax on individuals
and corporations. Any exempt-interest dividend paid by a regulated
investment company will be treated as interest on a specific private
activity bond to the extent of its proportionate share of the interest on
such bonds received by the regulated investment company. The Treasury is
authorized to issue regulations implementing this provision. In addition,
corporate taxpayers subject to the alternative minimum tax may, under some
circumstances, have to include exempt-interest dividends in calculating
their alternative minimum taxable income in situations where the "adjusted
current earnings" of the corporation exceeds its alternative minimum
taxable income. The Fund may hold Municipal Securities the interest on
which (and thus a proportionate share of the exempt-interest dividends
paid by the Fund) will be subject to the alternative minimum tax on
individuals and corporations. The Fund anticipates that under normal
circumstances it will not purchase any such securities in an amount
greater than 20% of the Fund's total assets.
Changes in Ratings. Subsequent to its purchase by the Fund, a
Municipal Security may cease to be rated or its rating may be reduced
below the minimum required for purchase by the Fund. Neither event
requires the Fund to sell the security, but Oppenheimer Management
Corporation (the "Manager") will consider such events in determining
whether the Fund should continue to hold the security. To the extent that
ratings given by Moody's or S&P change as a result of changes in such
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.
Special Investment Considerations - New York Municipal Securities. As
explained in the Prospectus, the Fund is highly sensitive to the fiscal
stability of New York State (the "State") and its subdivisions, agencies,
instrumentalities or authorities, including New York City, which issue the
Municipal Securities in which the Fund concentrates its investments. The
following information on risk factors in concentrating in New York
Municipal Securities is only a summary, based on publicly available
information, and official statements relating to offerings of New York
issuers of Municipal Securities prior to January 25, 1994, and no
representation is made as to the accuracy of such information.
During the mid-1970's the State, some of its agencies,
instrumentalities and public benefit corporations (the "Authorities"), and
certain of its municipalities faced serious financial difficulties. To
address many of these financial problems, the State developed various
programs, many of which were successful in ameliorating the financial
crisis. Any further financial problems experienced by these Authorities
or municipalities could have a direct adverse effect on the New York
Municipal Securities in which the Fund invests.
New York City
General. More than any other municipality, the fiscal health of New
York City (the "City") has a significant effect on the fiscal health of
the State. The national economic downturn which began in July 1990
adversely affected the local economy which had been declining since late
1989. As a result, the City experienced job losses in 1990 and 1991 and
real Gross City Product ("GCP") fell in those two years. Beginning in
1992, the improvement in the national economy helped stabilize conditions
in the City. Employment losses moderated toward year-end and real GCP
increased, boosted by strong wage gains. The City now projects, and its
current four-year financial plan assumes that the City's economy will
continue to improve during calendar year 1993 and that a modest employment
recovery will begin by the end of calendar year 1993.
For each of the 1981 through 1993 fiscal years, the City achieved
balanced operating results as reported in accordance with generally
accepted accounting principles ("GAAP") and the City's 1994 fiscal year
results are projected to be balanced in accordance with GAAP. The City
was required to close substantial budget gaps in recent years in order to
maintain balanced operating results. There can be no assurance that the
City will continue to maintain a balanced budget, or that it can maintain
a balanced budget without additional tax or other revenue increases or
reductions in City services, which could adversely affect the City's
economic base.
The Mayor is responsible for preparing the City's four-year financial
plan, including the City's current financial plan for the 1994 through
1997 fiscal years (the "1994-1997 Financial Plan", "Financial Plan" or
"City Plan").
The City's projections set forth in the City Plan are based on
various assumptions and contingencies which are uncertain and which may
not materialize. Changes in major assumptions could significantly affect
the City's ability to balance its budget as required by State law and to
meet its annual cash flow and financing requirements. Such assumptions
and contingencies include the timing of any regional and local economic
recovery, the impact on real estate tax revenues of the current downturn
in the real estate market, wage increases for City employees consistent
with those assumed in the City Plan, employment growth, provision of State
and Federal aid and mandate relief and the impact on the New York City
region of the tax increases contained in President Clinton's economic
plan.
Implementation of the City Plan is also dependent upon the City's
ability to market its securities successfully in the public credit
markets. The City's financing program for fiscal years 1994 through 1997
contemplates the issuance of $11.7 billion of general obligation bonds
primarily to reconstruct and rehabilitate the City's infrastructure and
physical assets and to make capital investments. In addition, the City
issues revenue and tax anticipation notes to finance seasonal working
capital requirements. The success of projected public sales of City bonds
and notes will be subject to prevailing market conditions, and no
assurance can be given that such sales will be completed. If the City
were unable to sell its general obligation bonds and notes, it would be
prevented from meeting its planned operating and capital expenditures.
The City Comptroller and other agencies and public officials have
issued reports and make public statements which, among other things, state
that projected revenues may be less and future expenditures may be greater
than forecast in the City Plan. In addition, the Control Board staff and
others have questioned whether the City has the capacity to generate
sufficient revenues in the future to provide the level of services
included in the Financial Plan. It is reasonable to expect that such
reports and statements will continue to be issued and to engender public
comment.
1994-1997 Financial Plan. The 1994-1997 Financial Plan projects
revenues and expenditures for the 1994 fiscal year balanced in accordance
with GAAP. The Financial Plan sets forth actions to close a projected gap
of approximately $2.0 billion in the 1994 fiscal year. The gap-closing
actions for the 1994 fiscal year include agency actions, including
productivity savings and savings from restructuring the delivery of City
services; service reductions; the sale of delinquent real property tax
receivables; discretionary transfers from the 1993 fiscal year; reduced
debt service costs, resulting from refinancings and other actions;
proposed increased Federal assistance; a proposed continuation of the
personal income tax surcharge; proposed increased State aid; and various
revenue actions.
The Financial Plan also sets forth projections for the 1995 through
1997 fiscal years and outlines a proposed gap-closing program to close
projected budget gaps of $1.7 billion, $2.5 billion and $2.7 billion for
the 1995 through 1997 years, respectively. These projections take into
account expected increases in Federal and State assistance. Various
actions proposed in the City Plan, including the proposed continuation of
the personal income tax surcharge and the proposed increase in State aid,
are subject to approval by the Governor and the State Legislature, and the
proposed increase in Federal aid is subject to approval by Congress and
the President. The State Legislature has failed to approve proposals for
the State assumption of certain Medicaid costs, mandate relief and
reallocation in State education aid in previous sessions, thereby
increasing the uncertainty as to the receipt of the State assistance
included in the City Plan. If these actions cannot be implemented, the
City will be required to take other actions to decrease expenditures or
increase revenues to maintain a balanced financial plan.
The Financial Plan reflects certain cost and expenditure increases
including increases in salaries and benefits paid to City employees
pursuant to certain collective bargaining agreements. In the event of a
collective bargaining impasse, the terms of wage settlements could be
determined through the impasse procedure in the New York City Collective
Bargaining Law, which can impose a binding settlement.
Ratings. As of December 9, 1993, Moody's rated the City's general
obligation bonds Baa1, S&P rated such bonds A- and Fitch has rated such
bonds A-. Such ratings reflect only the views of these rating agencies,
from which an explanation of the significance of such ratings may be
obtained. There is no assurance that such ratings will continue for any
given period of time or that they will be revised downward or withdrawn
entirely. Any such downward revision or withdrawal could have an adverse
effect on the market prices of bonds.
Outstanding Net Indebtedness. As of September 30, 1993, the City and
the Municipal Assistance Corporation for the City of New York had,
respectively, $19.977 billion and $4.542 billion of outstanding net long-
term debt.
The City depends on the State for State aid both to enable the
City to balance its budget and to meet its cash requirements. If the
State experiences revenue shortfalls or spending increases beyond its
projections during its 1994 fiscal year or subsequent years, such
developments could result in reductions in anticipated State aid to the
City. In addition, there can be no assurance that State budgets in future
fiscal years will be adopted by the April 1 statutory deadline and that
there will not be adverse effects on the City's cash flow and additional
City expenditures as a result of such delays.
Litigation. The City is a defendant in a significant number of
lawsuits. Such litigation includes, but is not limited to, routine
litigation incidental to the performance of its government and other
functions, actions commenced and claims asserted against the City arising
out of alleged constitutional violations, alleged torts, alleged breaches
of contracts and other violations of law and condemnation proceedings and
other tax and miscellaneous actions. While the ultimate outcome and
fiscal impact, if any, on the proceedings and claims are not currently
predictable, adverse determination in certain of them might have a
material adverse effect upon the City's ability to carry out the City
Plan. As of June 30, 1993, the City estimated its potential future
liability on account of all outstanding claims to be approximately $2.2
billion.
New York State
Recent Developments. The State has faced serious financial
difficulties in recent years. The effect of the national recession has
been more severe in the State than in other parts of the nation, and the
1993-94 New York State Financial Plan (the "State Plan") is based on an
economic projection that the State will perform more poorly than the
nation as a whole. Real gross domestic product grew modestly during
calendar year 1992 and is expected to show increased growth in calendar
year 1993. The State's economy, as measured by employment, is expected
to commence growth late in calendar year 1993. Many uncertainties exist
in forecasts of both the national and State economies, including consumer
attitudes toward spending, Federal financial and monetary policies, the
availability of credit and the condition of world economy, which could
have an adverse effect on the State. There can be no assurance that the
State economy will not experience worse-than-predicted results in the
1993-1994 fiscal year, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
1993-1994 Fiscal Year. The State completed its 1993 fiscal year with
a cash-basis positive balance of $671 million in the State's General Fund
(the major operating fund of the State). The State's 1994 fiscal year
budget, as enacted, projects a balanced General Fund.
The State Plan projects General Fund receipts and transfers from
other funds at $32.367 billion and disbursements and transfers to other
funds at $32.300 billion. Excess receipts of $67 million will be used for
a required repayment to the State's Tax Stabilization Reserve Fund. In
comparison to the recommended 1993-94 Executive Budget, released by the
Governor in early 1993, the 1993-94 State budget, as enacted, reflects
increases in both receipts and disbursements in the General Fund of $811
million. The $811 million increase in projected receipts reflects many
factors and assumptions, including (i) improving economic conditions and
higher-than-expected tax collections, (ii) improved 1992-93 results, (iii)
additional payments from the Federal government to reimburse the State for
the cost of providing indigent medical care, (iv) the payment of
additional personal income tax refunds in the 1992-93 fiscal year which
would otherwise have been paid in fiscal year 1993-94; offset by (v)
revenue-raising recommendations in the Executive Budget that were not
enacted and thus are not included in the State Plan. The $811 million
increase in projected disbursements reflects (i) an increase in projected
school-aid payments, (ii) an increase in projected payments for Medicaid
assistance and other social service programs, (iii) additional spending
on the judiciary and criminal justice, (iv) a net increase in projected
disbursements for all other programs and purposes, and (v) establishment
of a new contingency reserve.
There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant
disparity between tax revenues projected from a lower recurring receipts
base and the spending required to maintain state programs at current
levels. To address any potential budgetary imbalance, the State may need
to take significant actions to align recurring receipts and disbursements
in future fiscal years.
Composition of State Cash Receipts and Disbursements. Substantially
all State non-pension financial operations are accounted for in the
State's governmental funds group. Governmental funds include the General
Fund, which receives all income not required by law to be deposited in
another fund and which for the State's 1993-94 fiscal year comprises
approximately 52% of total projected governmental fund receipts; Special
Revenue Funds, which receive the preponderance of moneys received by the
State from the Federal government and other income the use of which is
legally restricted to certain purposes and which comprised approximately
39% of total projected governmental funds receipts in the 1993-94 fiscal
year; Capital Projects Funds, used to finance the acquisition and
construction of major capital facilities by the State and to aid in
certain of such projects conducted by local governments or public
authorities; and Debt Service Funds, which are used for the accumulation
of moneys for the payment of principal of and interest on long-term debt
and to meet lease-purchase and other contractual-obligation commitments.
Receipts in Capital Projects and Debt Service Funds comprise an aggregate
of approximately 9% of total projected governmental funds receipts in the
1993-94 fiscal year.
A legislative change implemented in August 1990 affects the way in
which a portion of the State's sales and use tax collections are recorded
as receipts in the General Fund. Pursuant to legislation creating the
Local Government Assistance Corporation ("LGAC"), the Comptroller is
required to credit the equivalent of one percentage point of the four
percent sales and use tax collections to the Local Government Assistance
Tax Fund (the "Tax Fund"), which is a Debt Service Fund, for purposes of
making payments to LGAC to provide for the payment of debt service on its
bonds and notes. To the extent that these moneys are not necessary for
payment to LGAC, they are transferred from the Tax Fund to the General
Fund and are reported in the General Fund as a transfer from other funds,
rather than as sales and use tax receipts. During the State's 1991-92 and
1992-93 fiscal years $1.435 billion and $1.504 billion, respectively, in
sales and use tax receipts were credited to the Tax Fund, and $1.527
billion is estimated to be credited to the Tax Fund during the State's
1993-94 fiscal year. For the 1991-92 fiscal year, the amount transferred
to the General Fund from the Tax Fund was $1.316 billion, after providing
for the payment of $119 million to LGAC for the purpose of meeting debt
service on its bonds and its other cash requirements. For the 1992-93
fiscal year, $1.280 billion was transferred to the General Fund from the
Tax Fund after providing for payment of $224 million to LGAC for debt
services and other cash requirements, while $1.262 billion is estimated
to be transferred in 1993-94, after payment of $247 million to LGAC for
debt service and other cash requirements.
The enacted 1993-94 Executive Budget includes several changes in the
manner in which General Fund tax receipts are recorded. Receipts from
user taxes and fees are reduced by approximately $434 million to reflect
receipts that are dedicated for highway and bridge capital purposes, which
are to be deposited in the Capital Projects Funds. Also, business taxes
are reduced by approximately $176 million to reflect tax receipts that are
dedicated for transportation purposes and which will be deposited in the
Special Revenue and Capital Project Funds.
Authorities. The fiscal stability of the State is related to the
fiscal stability of its Authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional
restrictions on the incurrence of debt which apply to the State itself,
and may issue bonds and notes within the amounts of, and as otherwise
restricted by, their legislative authorization. As of September 30, 1992,
the latest data available, there were 18 Authorities that had outstanding
debt of $100 million or more. The aggregate outstanding debt, including
refunding bonds, of these 18 Authorities was $62.2 billion as of September
30, 1992, of which approximately $8.2 billion was moral obligation debt
and approximately $17.1 billion was financed under lease-purchase or
contractual-obligation financing arrangements.
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges,
highway tolls and rentals for dormitory rooms and housing. In recent
years, however, the State has provided financial assistance through
appropriations, in some cases of a recurring nature, to certain of the 18
Authorities for operating and other expenses and, in fulfillment of its
commitments on moral obligation indebtedness or otherwise, for debt
service. This operating assistance is expected to continue to be required
in future years.
The State's experience has been that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities
to obtain financing in the public credit markets and the market price of
the State's outstanding bonds and notes may be adversely affected. The
New York State Housing Finance Agency ("HFA") and the New York State Urban
Development Corporation ("UDC") have in the past required substantial
amounts of assistance from the State to meet debt service costs or to pay
operating expenses. Further assistance, possibly in increasing amounts,
may be required for these, or other, Authorities in the future. In
addition, certain statutory arrangements provide for State local
assistance payments otherwise payable to localities to be made under
certain circumstances to certain Authorities. The State has no obligation
to provide additional assistance to localities whose local assistance
payments have been paid to Authorities under these arrangements. However,
in the event that such local assistance payments are so diverted, the
affected localities could seek additional State funds.
Ratings. On June 6, 1990, Moody's changed its rating on all State's
outstanding general obligation bonds from A1 to A. On March 26, 1990,
Standard & Poor's changed its rating of all of the State's outstanding
general obligation bonds from AA- to A. On January 13, 1992, Standard &
Poor's changed its rating of all of the State's outstanding general
obligation bonds from A to A-. Ratings reflect only the respective views
of such organizations, and an explanation of the significance of such
ratings may be obtained from the rating agency furnishing the same. There
is no assurance that a particular rating will continue for any given
period of time or that any such rating will not be revised downward or
withdrawn entirely, if in the judgment of the agency originally
establishing the rating, circumstances so warrant. A downward revision
or withdrawal of such ratings, or either of them, may have an effect on
the market price of the State Municipal Securities in which the New York
Fund invests.
General Obligation Debt. As of September 30, 1993, the State had
approximately $5.134 billion in general obligation bonds, excluding
refunding bonds, and $224 million in bond anticipation notes outstanding.
On May 4, 1993, the State issued $850 million in tax and revenue
anticipation notes which will mature on December 31, 1993. Principal and
interest due on general obligation bonds and interest due on bond
anticipation notes and on tax and revenue anticipation notes were $890.0
million and $818.8 million for the 1991-92 and 1992-93 fiscal years,
respectively, and are estimated to be $785.1 million for the State's 1993-
94 fiscal year, not including interest on refunding bonds to the extent
that such interest is to be paid from escrowed funds.
Litigation. As a result of the United States Supreme Court decision
in the case of State of Delaware v. State of New York, the State may be
required to make certain significant payments during the 1993-94 fiscal
year or thereafter.
On November 16, 1993, the Court of Appeals, the State's highest
court, affirmed the decision of the Appellate Division (Third Department)
of the State's Supreme Court in three actions (McDermott, et. al. v.
Regan, et. al.; v. Puma, et al.; and Guzdek, et al. v. Regan, et al.)
declaring unconstitutional certain legislation enacted in 1990. That
legislation mandated a change in the actuarial funding method for
determining contributions by the State and its local governments to the
State and local retirement systems from the aggregate cost (AC) method,
previously used by the Comptroller, to the projected unit credit (PUC)
method, and it required the application of the surplus reported under the
PUC method as a credit to employer contributions. As a result,
contributions to the retirement systems have been significantly reduced
since the State's 1990 -91 fiscal year. The Court of Appeals held, among
other things, that the State Constitution, which prohibits the benefits
of membership in the retirement systems from being impaired or diminished,
was violated because the PUC legislation impaired "the means designed to
assure benefits to public employees by depriving the Comptroller of his
personal responsibility to maintain "the security and sources of benefits"
of the pension fund." As a result of this decision, the Comptroller has
developed a plan to return to the AC method and to restore prior funding
levels of the retirement systems. The Comptroller expects to achieve this
objective in a manner that, consistent with his fiduciary
responsibilities, will neither require the State to make additional
contributions in its 1993-94 fiscal year nor materially and adversely
affect the financial condition of the State thereafter. The Comptroller's
plan calls for a return to the AC method, using a four-year phase-in the
New York State and Local Employees' Retirement System (ERS), with State
AC contributions capped at a percentage of payroll that increases each
year during the phase-in. Although State contributions capped at a
percentage of payroll that increases each year during the phase-in.
Although State contributions to ERS under the plan are expected to be
lower during the phase-in period than they would have been if the AC
method were reinstated immediately, they are expected to exceed PUC levels
by $30 million in fiscal 1994-95, $63 million in fiscal 1995-96, $116
million in fiscal 1996-97, and $193 million in fiscal year 1997-98. The
excess over PUC levels is expected to peak at $241 million in fiscal 1998-
99, when State contributions under the Comptroller's plan are first
projected to exceed levels that would have been required by an immediate
return to the AC method. The excess over PUC levels is projected to
decline after fiscal 1998-99, and, beginning in fiscal 2001-02, State
contributions required under the Comptroller's plan are projected to be
less than PUC requirements would have been. The State is a defendant in
numerous legal proceedings pertaining to matters incidental to the
performance of routine governmental operations. Such litigation includes,
but is not limited to, claims asserted against the State arising from
alleged torts, alleged breaches of contracts, condemnation proceedings and
other alleged violations of State and Federal laws. Included in the
State's outstanding litigation are a number of cases challenging the
constitutionality or the adequacy and effectiveness of a variety of
significant social welfare programs primarily involving the State's mental
hygiene programs. Adverse judgments in these matters generally could
result in injunctive relief coupled with prospective changes in patient
care which could require substantial increased financing of the litigated
programs in the future. Because of the prospective nature of these
matters, no provision for this potential exposure has been made in the
State's audited financial statements for the 1991-92 fiscal year.
Adverse developments in any of these proceedings or the initiation
of new proceedings could affect the ability of the State to maintain a
balanced State Plan. In its audited financial statements for the 1992-93
fiscal year, the State reported its estimated liability for awarded and
anticipated unfavorable judgments as $721 million.
Other Localities. Certain localities in addition to the City could
have financial problems leading to requests for additional State
assistance during the State's 1993-94 fiscal year and thereafter. The
potential impact on the State of such actions by localities is not
included in the projections of the State receipts and disbursements in the
State's 1993-94 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for the City of
Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions
taken by the Governor or the State Legislature to assist Yonkers could
result in allocation of State resources in amounts that cannot yet be
determined.
SPECIAL INVESTMENT METHODS
When-Issued and Delayed Delivery Transactions. As stated in the
Prospectus, the Fund may purchase securities on a "when-issued" basis, and
may purchase or sell such securities on a "delayed delivery" basis.
Although the Fund will enter into such transactions for the purpose of
acquiring securities for its portfolio or for delivery pursuant to options
contracts it has entered into, the Fund may dispose of a commitment prior
to settlement. "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, but delivery and payment for the
securities take place at a later date. During the period between
commitment by the Fund and settlement (generally within two months but not
to exceed 120 days), no payment is made for the securities purchased by
the purchaser, and no interest accrues to the purchaser from the
transaction. Such securities are subject to market fluctuation; the value
at delivery may be less than the purchase price. The Fund will maintain
a segregated account with its Custodian, consisting of cash, U.S.
Government securities or other high grade debt obligations at least equal
to the value of purchase commitments until payment is made.
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 consummate the transaction. Failure to do so may result
in the Fund losing the opportunity to obtain a price and yield considered
to be advantageous. If the Fund chooses to (i) dispose of the right to
acquire a when-issued security prior to its acquisition or (ii) 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 and reflects the value of the security purchased,
or if a sale, the proceeds to be received in determining its net asset
value.
To the extent the Fund engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring or selling
securities consistent with its investment objective and policies and not
for the purposes of investment leverage. The Fund enters into such
transactions only with the intention of actually receiving or delivering
the securities, although (as noted above), when-issued securities and
forward commitments may be sold prior to settlement date. In addition,
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.
When-issued transactions and forward commitments can be used by the
Fund as a defensive technique to use 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,
thereby obtaining the benefit of currently higher cash yields.
Repurchase Agreements. In a repurchase transaction, the Fund acquires a
security from, and simultaneously resells it to, an approved vendor (a
U.S. commercial bank or U.S. branch of a foreign bank with total domestic
assets of a least $1 billion or broker-dealer with net capital of at least
$50 million which has been designated a primary dealer in government
securities) for delivery on an agreed-on 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. The majority of these transactions run from day
to day, and delivery pursuant to resale typically will occur within one
to five days of the purchase. Repurchase agreements are considered loans
under the Investment Company Act, collateralized by the underlying
security. The Fund's repurchase agreements require that at all times
while the repurchase agreement is in effect, the value of the collateral
must equal or exceed the repurchase price to fully collateralize the
repayment obligation. Additionally, the Manager will continuously monitor
the collateral's value and will impose creditworthiness requirements to
confirm that the vendor is financially sound.
Loans of Portfolio Securities. The Fund may lend its portfolio securities
subject to the restrictions stated in the Prospectus. Under applicable
regulatory requirements (which are subject to change), the loan collateral
must, on each business day, be at least equal the market value of the
loaned securities and 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.
Such terms and the issuing bank must be satisfactory to the Fund. The
Fund receives an amount equal to the dividends or interest on loaned
securities and also receives one or more of: (a) negotiated loan fees, (b)
interest on securities used as collateral, or (c) interest on short-term
debt securities purchased with such loan collateral; either type of
interest may be shared with the borrower. The Fund may also pay
reasonable finder's custodian and administrative fees. The terms of the
Fund's loans must meet certain tests under the Internal Revenue Code and
permit the Fund to reacquire loaned securities on five days' notice or in
time to vote on any important matter. Income from securities loans is not
included in the exempt-interest dividends paid by the Fund. The Fund will
not enter into any securities loans having a duration of more than one
year.
Covered Calls and Hedging. As described in the Prospectus, the Fund may
write covered calls or employ one or more types of Hedging Instruments.
When hedging to attempt to protect against declines in the market value
of the Fund's portfolio, to permit the Fund to retain unrealized gains in
the value of portfolio securities which have appreciated, or to facilitate
selling securities for investment reasons, the Fund may: (i) sell Interest
Rate Futures or Municipal Bond Index Futures, (ii) buy puts on such
Futures or securities, or (iii) write covered calls on securities,
Interest Rate Futures or Municipal Bond Index Futures (as described in the
Prospectus). Covered calls may also be written on debt securities to
attempt to increase the Fund's income. When hedging to permit the Fund
to establish a position in the debt securities market as a temporary
substitute for purchasing individual debt securities (which the Fund will
normally purchase, and then terminate that hedging position), the Fund
may: (i) buy Interest Rate Futures or Municipal Bond Index Futures, or
(ii) buy calls on such Futures or on securities. The Fund's strategy of
hedging with Futures and options on Futures will be incidental to the
Fund's activities in the underlying cash market. Additional information
about the covered calls and Hedging Instruments the Fund may use is
provided below.
Writing Covered Call Options. When the Fund writes a call on a
security, it receives a premium and agrees to sell the underlying
investment to a purchaser of a corresponding call during the call period
(usually not more than nine months) at a fixed exercise price (which may
differ from the market price of the underlying investment) regardless of
market price changes during the call period. To terminate its obligation
on a call it has written, the Fund may purchase a corresponding call in
a "closing purchase transaction." A profit or loss will be realized,
depending upon whether the net of the option transaction costs and the
premium received on the call written was more or less than the price of
the call subsequently purchased. 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 gains for Federal tax purposes, as are premiums on lapsed
calls, and when distributed by the Fund are taxable as ordinary income.
If the Fund could not effect a closing purchase transaction due to a lack
of a market, it would have to hold the underlying investment until the
call lapsed or were exercised.
Interest Rate Futures. The Fund may buy and sell futures contracts
relating to debt securities ("Interest Rate Futures") and municipal bond
indices ("Municipal Bond Index Futures," discussed below). An Interest
Rate Future obligates the seller to deliver and the purchaser to take the
related debt securities at a specified price on a specified date. No
amount is paid or received upon the purchase or sale of an Interest Rate
Future. Upon entering into a Futures transaction, the Fund will be
required to deposit an initial margin payment, equal to a specified
percentage of the contract amount, with the futures commission merchant
(the "futures broker"). The initial margin will be deposited with the
Fund's Custodian in an account registered in the futures broker's name;
however, the futures broker can gain access to that account only under
specified conditions. As the Future is marked to market to reflect
changes in its market value, subsequent margin payments, called variation
margin, will be made to and from the futures broker on a daily basis. At
any time prior to the expiration of the Future, the Fund may elect to
close out its position by taking an opposite position, at which time a
final determination of variation margin is made and additional cash is
required to be paid by or released to the Fund. Any gain or loss is then
realized. Although Interest Rate Futures by their terms call for
settlement by the delivery of debt securities, in most cases the
obligation is fulfilled by entering into an offsetting transaction. All
futures transactions are effected through a clearinghouse associated with
the exchange on which the contracts are traded.
Municipal Bond Index Futures. A "municipal bond index" assigns
relative values to the municipal bonds in the index, and is used as the
basis for trading long-term municipal bond futures contracts. Municipal
Bond Index Futures are similar to Interest Rate Futures except that
settlement is made in cash. The obligation under such contracts may also
be satisfied by entering into an offsetting contract to close out the
futures position. Net gain or loss on options on Municipal Bond Index
Futures depends on the price movements of the securities included in the
index. The strategies which the Fund employs regarding Municipal Bond
Index Futures are similar to those described above with regard to Interest
Rate Futures.
Purchasing Calls and Puts. When the Fund purchases a call (other
than in a closing purchase transaction), it pays a premium and, except as
to calls on Municipal Bond Index Futures, 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 the call is sold at a profit or if, during the call
period, the market price of the underlying investment is above the sum of
the call price plus the transaction costs and premium paid for the call,
and the call is exercised. If the call is not exercised or sold (whether
or not at a profit), it will become worthless at its expiration date and
the Fund will lose its premium payment and the right to purchase the
underlying investment.
When the Fund purchases a call or put on a municipal bond index,
Municipal Bond Index Future or Interest Rate Future, it pays a premium,
but settlement is in cash rather than by delivery of the underlying
investment to the Fund. Gain or loss depends on changes in the index in
question (and thus on price movements in the debt securities market
generally) rather than on price movements in individual futures contracts.
When the Fund buys a put, it pays a premium and, except as to puts
on municipal bond indices, 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. Buying a put on a debt security,
Interest Rate Future or Municipal Bond Index Future the Fund owns enables
the Fund to protect itself during the put period against a decline in the
value of the underlying investment below the exercise price by selling
such underlying investment at the exercise price to a seller of a
corresponding put. 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
and the Fund will lose its premium payment and the right to sell the
underlying investment. The put may, however, be sold prior to expiration
(whether or not at a profit).
An option position may be closed out only on a market which provides
secondary trading for options of the same series, and there is no
assurance that a liquid secondary market will exist for any particular
option. The Fund's option activities may affect its turnover rate and
brokerage commissions. The exercise of calls written by the Fund may
cause it to sell underlying investments, thus increasing its turnover rate
in a manner beyond its control. The exercise by the Fund of puts may also
cause the sale of underlying investments, also causing turnover, since the
underlying investment might be sold for reasons which would not exist in
the absence of the put. The Fund will pay a brokerage commission each
time it buys a call or a put or sells a call. Premiums paid for options
are small in relation to the market value of the related investments and,
consequently, put and call options offer large amounts of leverage. The
leverage offered by trading in options could cause the Fund's net asset
value to be more sensitive to changes in the value of the underlying
investments.
Additional Information about Hedging Instruments and Their Use. The
Fund's Custodian, or a securities depository acting for the Custodian,
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, so that 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. An option position
may be closed out only on a market which provides secondary trading for
options of the same series and there is no assurance that a liquid
secondary market will exist for any particular option. 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 portfolio
turnover rate. The exercise by the Fund of puts on securities will cause
the sale of related investments, increasing portfolio turnover. Although
such exercise is within the Fund's control, holding a put might cause the
Fund to sell the related investments for reasons which would not exist in
the absence of the put. The Fund will pay a brokerage commission each
time it buys a call or put, sells a call, or buys or sells an underlying
investment in connection with the exercise of a call or put. Such
commissions may be higher on a relative basis than those which would apply
to direct purchases or sales of such underlying investments. Premiums
paid for options as to underlying investments are small in relation to the
market value of such investments and 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.
Regulatory Aspects of Hedging Instruments. The use of Futures and
options thereon to attempt to protect against the market risk of a decline
in the value of portfolio securities is referred to as having a "short
futures position," and the use of such instruments to protect against the
risk that assets are not fully invested in debt securities when such debt
securities increase in value is referred to as having a "long futures
position." The Fund must operate within certain restrictions as to its
long and short positions in Futures and options thereon under a rule
("CFTC Rule") adopted by the Commodity Futures Trading Commission ("CFTC")
under the Commodity Exchange Act (the "CEA"), which excludes the Fund from
registration with the CFTC as a "commodity pool operator" (as defined
under the CEA), if it complies with the CFTC Rule. Under those
restrictions, the Fund will not, as to any positions, whether long, short
or a combination thereof, enter into Futures contracts and options thereon
for which the aggregate initial margins and premiums exceed 5% of the fair
market value of its net assets, with certain exclusions as defined in the
CFTC Rule. Under the restrictions, the Fund also must, as to its short
positions, use Futures and options thereon solely for bona fide hedging
purposes within the meaning and intent of the applicable provisions under
the CEA.
Transactions in options by the Fund are subject to limitations
established by each of the exchanges governing the maximum number of
options which may be written or held by a single investor or group of
investors acting in concert, 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 which 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 affiliated investment adviser. Position limits also apply to
Futures. An exchange may order the liquidation of positions found to be
in violation of those limits and may impose certain other sanctions. Due
to requirements under the Investment Company Act, when the Fund purchases
an Interest Rate Future or Municipal Bond Index Future, the Fund will
maintain, in a segregated account or accounts with its Custodian, cash or
readily marketable short-term (maturing in one year or less) debt
instruments in an amount equal to the market value of the investments
underlying such Future, less the margin deposit applicable to it.
Tax Aspects of Hedging Instruments and Covered Calls. The Fund
intends to qualify as a "regulated investment company" under the Internal
Revenue Code. One of the tests for such qualification is that less than
30% of its gross income (irrespective of losses) must be derived from
gains realized on the sale of securities held for less than three months.
Due to this limitation, the Fund will limit the extent to which it engages
in the following activities, but will not be precluded from them: (i)
selling investments, including Interest Rate Futures and Municipal Bond
Index Futures, held for less than three months, whether or not they were
purchased on the exercise of a call held by the Fund; (ii) writing calls
on investments held less than three months; (iii) purchasing calls or puts
which expire in less than three months; (iv) effecting closing
transactions with respect to calls or puts purchased less than three
months previously; and (v) exercising puts or calls held by the Fund for
less than three months.
Possible Risk Factors in Hedging. In addition to the risks with
respect to Futures and options discussed in the Prospectus and above,
there is a risk in using short hedging by selling Interest Rate Futures
and Municipal Bond Index Futures that the prices of such Futures or the
applicable index will correlate imperfectly with the behavior of the cash
(i.e., market value) prices of the Fund's securities. The ordinary
spreads between prices in the cash and futures markets are subject to
distortions due to differences in the natures of those markets. First,
all participants in the futures market 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. Second, the liquidity of the futures market depends
on participants entering into offsetting transactions rather than making
or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Third, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased participation
by speculators in the futures market may cause temporary price
distortions.
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 if
the historical volatility of the prices of such debt securities being
hedged is more than the historical volatility of the applicable index.
It is also possible that where 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 this 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 for a
very 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.
If the Fund uses Hedging Instruments to establish a position in the debt
securities markets as a temporary substitute for the purchase of
individual debt securities (long hedging) by buying Interest Rate Futures,
Municipal Bond Index Futures and/or calls on such Futures or debt
securities, it is possible that the market may decline; if the Fund then
concludes not to invest in such securities at that time because of
concerns as to possible 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 price of the debt securities purchased.
INVESTMENT RESTRICTIONS
The Fund's significant investment restrictions are described in the
Prospectus. The following investment restrictions are also fundamental
policies of the Fund, and, together with the fundamental policies and
investment objective described in the Prospectus, 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: (i) 67% or more of the shares
present or represented by proxy at such meeting, if the holders of more
than 50% of the outstanding shares are present, or (ii) more than 50% of
the outstanding shares.
Under these additional restrictions, the Fund cannot: (1) Invest in
real estate, but the Fund may invest in Municipal Securities or other
permitted securities secured by real estate or interests therein; (2)
Purchase securities other than Hedging Instruments on margin; however, the
Fund may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities; (3) Make short sales of
securities; (4) Underwrite securities or invest in securities subject to
restrictions on resale; (5) Invest in or hold securities of any issuer if
those officers and trustees of the Fund or its adviser beneficially owning
individually more than .5% of the securities of such issuer together own
more than 5% of the securities of such issuer; or (6) Invest in securities
of any other investment company, except in connection with a merger with
another investment company.
Diversification. For purposes of diversification under the
Investment Company Act and the investment restrictions set forth in the
Prospectus and above, 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
the subdivision, and the security is backed only by the assets and
revenues of the subdivision, such subdivision would be deemed to be the
sole issuer. Similarly, in the case of an industrial development bond,
if that bond is backed only by the assets and revenues of the
nongovernmental user, then such nongovernmental user would be deemed the
sole issuer. However, if in either case the creating government or some
other entity guarantees the security, such a guarantee would be considered
a separate security and would be treated as an issue of such government
or other agency. In applying these restrictions to its investments, the
Manager will consider a nongovernmental user of facilities financed by
industrial development bonds as being in a particular industry, despite
the fact that there is no industry concentration limitation as to
Municipal Securities. Although this application of the restriction is not
technically a fundamental policy of the Fund, it will not be changed
without shareholder approval. The Manager has no present intention of
investing more than 25% of the Fund's assets in securities paying interest
from revenues of similar type projects, or in industrial development
bonds. This is not a fundamental policy, and therefore may be changed
without shareholder approval. Should any such change be made, the
Prospectus and/or this Additional Statement will be supplemented
accordingly.
TRUSTEES AND OFFICERS
The Trustees and officers of the Fund and their principal occupations
and business affiliations during the past five years are set forth below.
The address of each, except as noted, is Two World Trade Center, New York,
New York 10048-0203. Except for Mr. Patterson, each serves in similar
capacities with Oppenheimer Fund, Oppenheimer Time Fund, Oppenheimer
Special Fund, Oppenheimer Tax-Free Bond Fund, Oppenheimer California Tax-
Exempt Fund, Oppenheimer Pennsylvania Tax-Exempt Fund, Oppenheimer Florida
Tax-Exempt Fund, Oppenheimer Global Fund, Oppenheimer Money Market Fund,
Inc., Oppenheimer U.S. Government Trust, Oppenheimer Gold & Special
Minerals Fund, Oppenheimer Target Fund, Oppenheimer Asset Allocation Fund,
Oppenheimer Mortgage Income Fund, Oppenheimer Global Bio-Tech Fund,
Oppenheimer Discovery Fund, Oppenheimer Global Environment Fund,
Oppenheimer Global Growth & Income Fund, Oppenheimer Multi-Government
Trust and Oppenheimer Multi-Sector Income Trust (collectively, the "New
York-based OppenheimerFunds"). As of December 31, 1993, the Trustees and
officers as a group beneficially owned less than 1% of the outstanding
shares of the Fund.
LEON LEVY, Chairman of the Board of Trustees
General Partner of Odyssey Partners, L.P. (investment partnership);
Chairman of Avatar Holdings, Inc. (real estate development).
LEO CHERNE, Trustee
386 Park Avenue South, New York, New York 10016
Chairman Emeritus of the International Rescue Committee (philanthropic
organization); formerly Executive Director of the Research Institute of
America.
EDMUND T. DELANEY, Trustee
5 Gorham Road, Chester, Connecticut 06412
Attorney-at-Law; formerly a Member of the Connecticut State Historical
Commission and Counsel to Copp, Berall & Hempstead (a law firm).
ROBERT G. GALLI, Trustee*
Vice Chairman of the Manager and Vice President of Oppenheimer Acquisition
Corp. ("OAC") the Manager's parent holding company; formerly he held the
following positions: a director of Oppenheimer Funds Distributor, Inc.
(the "Distributor"), Vice President and a director of HarbourView Asset
Management Corporation ("HarbourView") and Centennial Asset Management
Corporation ("Centennial"), investment adviser subsidiaries of the
Manager, a director of Shareholder Financial Services, Inc. ("SFSI") and
Shareholder Services, Inc. ("SSI"), transfer agent subsidiaries of the
Manager, an officer of other OppenheimerFunds and Executive Vice President
and General Counsel of the Manager and the Distributor.
BENJAMIN LIPSTEIN, Trustee
591 Breezy Hill Road, Hillsdale, NY 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University.
ELIZABETH B. MOYNIHAN, Trustee
801 Pennsylvania Avenue, N.W., Washington, DC 20004
Author and architectural historian; a trustee of the American Schools of
Oriental Research and the Freer Gallery of Art, Smithsonian Institution;
a member of the Indo-U.S. Sub-Commissions on Education and Culture; a
trustee of the Institute of Fine Arts, New York University, and a trustee
of the Preservation League of New York State.
KENNETH A. RANDALL, Trustee
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Northeast Bancorp, Inc. (bank holding company), Dominion
Resources, Inc. (electric utility holding company) and Kemper Corporation
(insurance and financial services company); formerly Chairman of the Board
of ICL, Inc. (information systems).
EDWARD V. REGAN, Trustee
40 Park Avenue, New York, New York 10016
President of Jerome Levy Institute, Bard College; Member of the U.S.
Competitiveness Policy Council; formerly New York State Comptroller.
RUSSELL S. REYNOLDS, JR., Trustee
200 Park Avenue, New York, New York 10166
Founder Chairman of Russell Reynolds Associates, Inc. (executive
recruiting); Chairman of Directors Publication, Inc. (consulting and
publishing); a Trustee of Mystic Seaport Museum, International House,
Greenwich Historical Society and Greenwich Hospital.
___________________________
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
SIDNEY M. ROBBINS, Trustee
50 Overlook Road, Ossining, New York 10562
Chase Manhattan Professor Emeritus of Financial Institutions, Graduate
School of Business, Columbia University; Visiting Professor of Finance,
University of Hawaii; a director of The Korea Fund, Inc. and The Malaysia
Fund, Inc. (closed-end investment companies); a member of the Board of
Advisors, Olympus Private Placement Fund, L.P.; Professor Emeritus of
Finance, Adelphi University.
DONALD W. SPIRO, President and Trustee*
Chairman Emeritus of the Manager; formerly Chairman and President of the
Manager and President and a Director of the Distributor.
PAULINE TRIGERE, Trustee
550 Seventh Avenue, New York, New York 10018
Chairman and Chief Executive Officer of Trigere, Inc. (design and sale of
women's fashions).
CLAYTON K. YEUTTER, Trustee
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel, Hogan & Hartson (a law firm); a director of B.A.T. Industries,
Ltd. (tobacco and financial services), Caterpillar, Inc. (machinery),
ConAgra, Inc. (food and agricultural products), FMC Corp. (chemicals and
machinery), Lindsay Manufacturing Co. and Texas Instruments, Inc.
(electronics); formerly (in descending chronological order) Deputy
Chairman, Bush/Quayle Presidential Campaign, Counsellor to the President
(Bush) for Domestic Policy, Chairman of the Republican National Committee,
Secretary of the U.S. Department of Agriculture, and U.S. Trade
Representative, Executive Office of the President.
ROBERT E. PATTERSON, Vice President and Portfolio Manager
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
ANDREW J. DONOHUE, Secretary
Executive Vice President and General Counsel of the Manager and the
Distributor; an officer of other OppenheimerFunds; formerly Senior Vice
President and Associate General Counsel of the Manager and the
Distributor; Partner in, Kraft & McManimon (a law firm); an officer of
First Investors Corporation (a broker-dealer) and First Investors
Management Company, Inc. (broker-dealer and investment adviser); director
and an officer of First Investors Family of Funds and First Investors Life
Insurance Company.
GEORGE C. BOWEN, Treasurer
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer and Assistant Secretary and a director Centennial; Vice
President/Treasurer and Secretary of SSI and SFSI; an officer of other
OppenheimerFunds; formerly Senior Vice President/Comptroller and Secretary
of Oppenheimer Asset Management Corporation.
LYNN M. COLUCCY Assistant Treasurer
3410 South Galena Street, Denver, Colorado 80231
Vice President and Assistant Treasurer of the Manager; an officer of other
OppenheimerFunds; formerly Vice President/Director of Internal Audit of
the Manager.
ROBERT G. ZACK, Assistant Secretary
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other OppenheimerFunds.
Remuneration of Trustees. The officers of the Fund (including Mr. Spiro)
are affiliated with the Manager and receive no salary or fee from the
Fund. During the fiscal year ended September 30, 1993, the remuneration
(including expense reimbursements) paid by the Fund to all Trustees of the
Fund (excluding Messrs. Spiro and Galli) as a group and as members of one
or more committees, totaled $47,114. The Fund has adopted a retirement
plan under which each Trustee who is not an "interested person" of the
Fund and who retires after a minimum required period of service would be
entitled to retirement payments upon reaching age 70, based upon length
of service and computed as a percentage of the average of the five highest
years of compensation, subject to a maximum amount per year. No Trustee
has retired since adoption of the program and no payments have been made
by the Fund under it. In the fiscal year ended September 30, 1993, the
Fund accrued $5,268 for retirement plan benefits for its Trustees under
the plan.
Major Shareholders. As of December 31, 1993, no person owns of record or
is known by the Fund to own beneficially 5% or more of the Fund's
outstanding shares.
INVESTMENT MANAGEMENT SERVICES
The Manager is wholly-owned by Oppenheimer Acquisition Corp., a
holding company controlled by Massachusetts Mutual Life Insurance Company.
OAC is also owned in part by certain of the Manager's directors and
officers, some of whom may also serve as officers of the Fund, and two of
whom (Messrs. Spiro and Galli) serve as Trustees of the Fund.
The management fee is payable monthly to the Manager under the terms
of the investment advisory agreement between the Manager and the Fund (the
"Agreement") and is computed on the net assets of the Fund as of the close
of business each day. Expenses not expressly assumed by the Manager under
the Agreement or by the Distributor are paid by the Fund. The Agreement
lists examples of expenses paid by the Fund, the major categories of which
relate to interest, taxes, brokerage commissions, fees to independent
Trustees, legal and audit expenses, custodian and transfer agent expenses,
share issuance costs, certain printing and registration costs and non-
recurring expenses, including litigation. For the fiscal years ended
September 30, 1991, 1992 and 1993, the management fees paid by the Fund
to the Manager were $1,687,920, $2,432,697 and $3,486,365, respectively.
The Agreement contains no expense limitation.
The Agreement provides that in the absence of willful misfeasance,
bad faith, gross negligence or reckless disregard for its obligations
thereunder, the Manager is not liable for any loss sustained by reason of
any good faith error or omission in connection with any matter 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 its other activities. If the
Manager shall no longer act as investment adviser to the Fund, the right
of the Fund to use the name "Oppenheimer" as part of its name may be
withdrawn.
Portfolio Transactions. Portfolio decisions are based upon
recommendations of the Manager and the judgment of the portfolio manager.
As most purchases made by the Fund are principal transactions at net
prices, the Fund incurs little or no brokerage costs. The Fund usually
deals directly with the selling or purchasing principal or market maker
without incurring charges for the services of a broker on its behalf
unless it is determined that a better price or execution may be obtained
by utilizing the services of a broker. Purchases of portfolio securities
from underwriters include a commission or concession paid by the issuer
to the underwriter, and purchases from dealers include a spread between
the bid and asked price. The Fund seeks to obtain prompt execution of
orders at the most favorable net price.
If a broker is used for the Fund's portfolio transactions, the
Agreement contains provisions relating to the selection of brokers,
dealers and futures commission merchants (collectively referred to as
"brokers") for the Fund's futures, put and call transactions. The Manager
is authorized by the Agreement to employ brokers as may, in its best
judgment based on all relevant factors, implement the policy of the Fund
to obtain, at reasonable expense, the "best execution" (prompt and
reliable execution at the most favorable price obtainable) of such
transactions. The Manager need not seek competitive commission bidding
but is expected to minimize the commissions paid to the extent consistent
with the interest and policies of the Fund.
The Agreement allows affiliates of the Manager to act as the Fund's
brokers and receive brokerage commissions. Commissions paid to affiliates
are calculated in accordance with "Procedures" adopted pursuant to
Securities and Exchange Commission ("SEC") Rule 17e-1 under the Act, which
requires that commissions paid to an affiliate or an affiliate of an
affiliate of the Manager must be "reasonable and fair compared to the
commission, fee or other remuneration received or to be received by other
brokers in connection with comparable transactions involving similar
securities during a comparable period of time." When the Fund engages in
an option transaction, ordinarily the same broker will be used for the
purchase or sale of the option and any transactions in the securities to
which the option relates. Where possible, concurrent orders to purchase
or sell the same security by more than one of the accounts managed by the
Manager or its affiliates are combined. The transactions effected
pursuant to such combined orders are averaged as to price and allocated
in accordance with the purchase or sale orders actually placed for each
account.
Under the Agreement, the Manager is authorized to select brokers
other than affiliates which provide brokerage and/or research services for
the Fund and/or the other accounts over which the Manager or its
affiliates have investment discretion. The commissions paid to such
brokers may be higher than another qualified broker would have charged if
a good faith determination is made by the Manager that the commission is
reasonable and fair in relation to the services provided. There is no
formula under which any of the brokers selected by the Manager are
entitled to the allocation of a particular amount of commissions. Subject
to the foregoing considerations, the Manager may also consider the
willingness of particular broker-dealers to sell shares of the Fund and
other funds advised by the Manager and its affiliates as a factor in their
selection.
The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its
affiliates, and investment research for the commissions of these other
accounts may be useful both to the Fund and one or more of such other
accounts. Such research, which may be supplied by a third party at the
instance of a broker, includes information and analyses on particular
companies, issuers and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio
evaluations, information systems, computer hardware and similar products
and services. It serves to broaden the scope and supplement the research
activities of the Manager, to make available additional views for
consideration and comparisons, and to enable the Manager to obtain market
information for the valuation of securities held in the Fund's portfolio
or being considered for purchase. 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 for in commission dollars. The Board and the
independent Trustees of the Fund annually review information furnished by
the Manager relative to the commissions paid to brokers furnishing such
services in an effort to ascertain that the amount of such commissions was
reasonably related to the value or benefit of such services. The Board
of Trustees has permitted the Manager to use concessions on fixed-price
offerings to obtain research, in the same manner as is permitted for
agency transactions.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Net Asset Value Per Share. The net asset values per
share of Class A and Class B shares of the Fund is determined each day the
New York Stock Exchange (the "NYSE") is open as of 4:00 P.M. (all
references to time mean New York time) that day by dividing the value of
the Fund's net assets attributable to that class by the number of shares
of that class outstanding. The NYSE's most recent annual holiday schedule
(which is subject to change) states that it will close New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. The NYSE may also close on other
days. Dealers other than NYSE members may conduct trading in Municipal
Securities on certain days on which the NYSE is closed (including weekends
and holidays), so that securities of the same type held by the Fund may
be traded, and the net asset values per share of its Class A and Class B
shares may be significantly affected on such days when shareholders do not
have the ability to purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of its securities: (i) long-term debt securities, and short-term
debt securities having a remaining maturity in excess of 60 days, are
valued at the mean between the asked and bid prices determined by a
portfolio pricing service approved by the Board or obtained from active
market makers in the security; (ii) short-term debt securities having a
remaining maturity of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (iii) securities
(including restricted securities) not having readily-available market
quotations are valued at fair value under the Board's procedures. In the
case of Municipal Securities, U.S. Government securities and corporate
bonds, where last sale information is not generally available, such
pricing procedures may include "matrix" comparisons to the prices for
comparable instruments on the basis of quality, yield, maturity and other
special factors involved. With the approval of the Fund's Board of
Trustees, the Manager may employ a pricing service, bank or broker-dealer
experienced in such matters to price any of the types of securities
described above. The Trustees will monitor the accuracy of pricing
services by comparing prices used for portfolio evaluation to actual sales
prices of selected securities. The Fund values puts, calls, Interest Rate
Futures and Municipal Bond Index Futures at the last sale prices on the
principal exchange or on the NASDAQ on which they are traded, or if there
are no sales that day, at values based on the last sale price of the
preceding trading day or closing bid and asked prices.
Dual Class Methodology. The methodology for calculating the net asset
value, dividends and distributions of the Fund's Class A and Class B
shares recognizes two types of expenses. General expenses that do not
pertain specifically to either class are allocated pro rata to the shares
of each class, based on the percentage of the Fund's aggregate net assets
represented by the net assets of that class. Such general expenses
include (i) management fees, (ii) legal, bookkeeping and audit fees, (iii)
printing and mailing costs of shareholder reports, Prospectuses,
Additional Statements and other materials for current shareholders, (iv)
fees to unaffiliated Trustees, (v) custodian expenses, (vi) share issuance
costs, (vii) organization and start-up costs, (viii) interest, taxes and
brokerage commissions, and (ix) non-recurring expenses, such as litigation
costs. Other expenses that are directly attributable to a class are
allocated equally to each outstanding share within that class. Such
expenses include (i) Distribution and/or Service Plan fees, (ii)
incremental transfer and shareholder servicing agent fees and expenses,
(iii) registration fees and (iv) shareholder meeting expenses, to the
extent that such expenses pertain to a specific class rather than to the
Fund as a whole.
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 circumstances
described in the Prospectus because the Distributor, dealer or broker
incurs little or no selling expenses. The term "immediate family" refers
to one's spouse, children, grandchildren, parents, grandparents, parents-
in-law, brothers and sisters, sons- and daughters-in-law, a sibling's
spouse and a spouse's siblings.
Redemptions. The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. However, if the Board of Trustees
determines that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment wholly or partly in
cash, the Fund may pay the redemption proceeds in whole or in part by a
distribution in kind of securities from the portfolio of the Fund, in lieu
of cash, in conformity with applicable SEC rules. The Fund has elected
to be governed by Rule 18f-1 under the Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or
1% of the net assets of that 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 converting the assets to cash.
The method of valuing securities used to make redemptions in kind will be
the same as the method of valuing portfolio securities described under
"Determination of Net Asset Value Per Share," and such valuation will be
made as of the same time the redemption price is determined.
The Fund's Board of Trustees has the right to cause the involuntary
redemption of shares held in any account if the aggregate net asset value
of such shares (taken at cost or value as determined by the Board) is less
than $500 or such lesser amount as the Board may fix. The Fund's Board
of Trustees will not cause the involuntary redemption of shares held in
an account if the aggregate net asset value of such shares has fallen
below $500 solely as a result of market fluctuations. Should the Board
elect to exercise this right, it may also fix, in accordance with the
Investment Company Act, the requirements for any notice to be given to the
shareholders in question (not less than 30 days) or may set requirements
for permission to allow the shareholder to increase his investment so that
the shares would not be involuntarily redeemed.
Cancellation of Purchase Orders. Cancellation of purchase orders for Fund
shares (for example, when submitted to purchase shares are returned to the
Fund unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the date of cancellation is less than on the purchase
date. That loss is equal to the difference in 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 by seeking other redress.
Transfer of Shares. Shareholders owning shares of both classes must
specify whether they intend to transfer Class A or Class B shares. Shares
are not subject to the payment of a CDSC of either class at the time of
transfer (by absolute assignment, gift or bequest, not involving, directly
or indirectly, a public sale). The transferred shares will remain subject
to the CDSC, 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 CDSC if redeemed at the time of transfer, then shares will be
transferred in the order described in "How to Buy Shares - Class B
Contingent Deferred Sales Charge" in the Prospectus for the imposition of
the Class B CDSC on redemptions.
Exchanges of Class B Shares. As stated in the Prospectus, shares of a
particular class of Eligible Funds having more than one class of shares
may be exchanged only for shares of the same class or another Eligible
Fund. All of the Eligible Funds offer Class A shares, but only the
following other Eligible Funds offer Class B shares:
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Tax-Free Bond Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Government Securities Fund
Oppenheimer High Yield Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves
Oppenheimer Special Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Discovery Fund (avail. 4/1/94)
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a separate Plan for each class of shares under
Rule 12b-1 of the Investment Company Act, pursuant to which the Fund will
reimburse the Distributor quarterly for all or a portion of its costs
incurred in connection with the distribution and/or servicing of the
shares of that class, as described in the Prospectus. Each Plan has been
approved: (i) by a vote of the Board of Trustees of the Fund, including
a majority of the "Independent Trustees" (those Trustees of the Fund who
are not "interested persons," as defined in the Investment Company Act,
and who have no direct or indirect financial interest in the operation of
the Plans or in any agreements relating to the Plans), cast in person at
a meeting called for the purpose of voting on that Plan; and (ii) by the
vote of the holders of a "majority" (as defined in the Investment Company
Act) of the shares of each class [for the Distribution and Service Plan
for the Class B shares (the "Class B Plan"), such vote having been cast
by the Manager as the sole initial holder of Class B shares of the Fund].
Each Plan shall, unless terminated as described below, continue in
effect from year to year but only as long as such continuance is
specifically approved at least annually by the Fund's Board of Trustees
and its Independent Trustees by a vote cast in person at a meeting called
for the purpose of voting on such continuance. Either Plan may be
terminated at any time by the vote of a majority of the Independent
Trustees or by the vote of the holders of a "majority" (as defined in the
Investment Company Act) of the outstanding shares of the Class affected
by the amendment. All material amendments must be approved by the
Independent Trustees.
While the Plans are in effect, the Treasurer of the Fund shall
provide separate written reports to the Fund's Board of Trustees at least
quarterly on the amount of all payments made pursuant to the Plan, the
purpose for which each payment was made and the identity of each Recipient
that received any such payment. The report for the Class B Plan shall
also include the distribution costs for that quarter, and such costs for
previous fiscal periods that are carried forward, as explained in the
Prospectus and below. Those reports, including the allocations on which
they are based, will be subject to the review and approval of the
Independent Trustees in the exercise of their fiduciary duty. Each Plan
further provides 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 such selection and nomination if the
final decision as to any such selection or nomination is approved by a
majority of the Independent Trustees.
Under the Plans, no payment will be made to any Recipient in any
quarter if the aggregate net asset value of all Fund shares held by the
Recipient for itself and its customers did not exceed a minimum amount,
if any, that may be determined from time to time by a majority of the
Fund's Independent Trustees. Initially, the Board of Trustees has set the
fee at the maximum rate and set no minimum amount. The Plans permit the
Distributor and the Manager to make additional distribution payments to
Recipients from their own resources (including profits from advisory fees)
at no cost to the Fund. The Distributor and the Manager may, in their
sole discretion, increase or decrease the amount of distribution
assistance payments they make to Recipients from their own assets.
For the fiscal year ended September 30, 1993, payments under the
Class A Plan totaled $1,554,094, all of which was paid by the Distributor
to Recipients including $22,168 paid to an affiliate of the Distributor.
Payments received by the Distributor under the Class A Plan will not be
used to pay any interest expense, carrying charges, or other financial
costs, or allocation of overhead by the Distributor. Any unreimbursed
expenses incurred with respect to Class A shares for any fiscal quarter
by the Distributor may not be recovered under the Class A Plan in
subsequent fiscal quarters.
The Class B Plan allows the service fee payment to be paid by the
Distributor to Recipients in advance for the first year Class B shares are
outstanding, and thereafter on a quarterly basis, as described in the
Prospectus. The advance payment is based on the net assets of the Class
B shares sold. An exchange of shares does not entitle the Recipient to
an advance service fee payment. In the event Class B shares are redeemed
during the first year such shares are outstanding, the Recipient will be
obligated to repay a pro rata portion of such advance payment to the
Distributor. Although the Class B Plan permits the Distributor to retain
both the asset-based sales charges and the service fee on Class B shares,
or to pay Recipients the service fee on a quarterly basis, without payment
in advance, the Distributor intends to pay the service fee to Recipients
in the manner described above. A minimum holding period may be
established from time to time under the Class B Plan by the Board.
Initially, the Board has set no minimum holding period. All payments
under the Class B Plan are subject to the limitations on such plans
imposed by the National Association of Securities Dealers, Inc. Rules of
Fair Practice. The Class B Plan allows for the carry-forward of
distribution expenses, to be recovered from asset-based sales charges in
subsequent fiscal periods, as described in the Prospectus. For the fiscal
period from March 1, 1993 (inception of the class) to September 30, 1993
(the "fiscal period ended September 30, 1993"), $119,923 was retained as
reimbursement for Class B distribution-related expenses and sales
commissions under the Class B 12b-1 Plan.
The asset-based sales charge paid to the Distributor by the Fund
under the Class B Plan is intended to allow the Distributor to recoup the
cost of sales commissions paid to authorized brokers and dealers at the
time of sale, plus financing costs, as described in the Prospectus. Such
payments may also be used to pay for the following expenses in connection
with the distribution of Class B shares: (i) financing the advance of the
service fee payment to Recipients under the Class B Plan, (ii)
compensation and expenses of personnel employed by the Distributor to
support distribution of Class B shares, and (iii) costs of sales
literature, advertising and prospectuses (other than those furnished to
current shareholders) and state "blue sky" registration fees.
The Glass-Steagall Act and other applicable laws and regulations,
among other things generally prohibit Federally-chartered or supervised
banks from engaging in the business of underwriting, selling or
distributing securities as principals. Accordingly, the Distributor may
pay banks only for sales made on an agency basis or for the performance
of administrative and shareholder servicing functions. While the matter
is not free from doubt, the Manager understands that such laws and
regulations do not prohibit banks and other financial institutions from
providing the services required of a Recipient. However, judicial or
administrative decisions or interpretations of such laws, as well as
changes in either Federal or state statutes or regulations relating to the
permissible activities of banks or their subsidiaries or affiliates, could
prevent certain banks from continuing to perform all or a part of these
services. If a bank were so prohibited, shareholders of the Fund who were
clients of such bank would be permitted to remain as shareholders, and if
that bank could no longer provide those service functions, alternate means
for continuing the servicing of such shareholders would be sought. In
such event, shareholders serviced by such bank might no longer be able to
avail themselves of any automatic investment or other services then being
provided by such bank. The Fund's Board of Trustees will consider
appropriate modifications to the Fund's operations, including
discontinuance of payments under the Plans to such institutions, in the
event of any future change in such laws or regulations that may adversely
affect the ability of such institutions to provide those services. It is
not expected that shareholders would suffer any adverse financial
consequences as a result of any of those occurrences. In addition,
certain banks and financial institutions may be required to register as
dealers under state law.
PERFORMANCE AND TAX INFORMATION
Yield and Total Return Information. As described in the Prospectus, from
time to time the "yield," "tax-equivalent yield," "dividend yield,"
"average annual total return," "total return" and "total return at net
asset value" of an investment in each class of Fund shares may be
advertised. An explanation of how yields and total returns are calculated
and the components of those calculations are set forth below.
The Fund's standardized yield for the 30-day period ended September
30, 1993 was 4.99% and 4.41% on Class A and Class B shares, respectively.
Such yields are calculated using the following formula set forth under SEC
rules:
a-b 6
Yield = 2 ((---- + 1) -1)
cd
The symbols above represent the following factors:
a = dividends and interest earned during the 30-day period.
b = expenses accrued for the period (net of any expense
reimbursements).
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 the class on the
last day of the period, adjusted for undistributed net
investment income.
The yield of a class of shares for a 30-day period may differ from
its yield for any other period. The SEC formula assumes that the 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. This "standardized"
yield is not based on distributions paid by the Fund to shareholders in
the 30-day period, but is a hypothetical yield based upon the Fund's
portfolio investments, and may differ from the "dividend yield," described
below.
"Tax-equivalent yield" of a class of shares adjusts the yield, as
calculated above, by a stated Federal tax rate. The tax-equivalent yield
is based on a 30-day period, and is computed by dividing the tax-exempt
portion of the yield (as calculated above) by one minus a stated income
tax rate and adding the result to the portion (if any) of the yield that
is not tax exempt. The tax equivalent yield may be used to compare the
tax effects of income derived from shares of a class with income from
taxable investments at the tax rates stated. For the 30-day period ended
September 30, 1993, the tax-equivalent yield was 9.42% and 8.33% for the
Class A and Class B shares, respectively, for an individual New York City
resident in the 47.05% combined effective tax bracket. Appendix B
includes a tax-equivalent yield table, based on various effective tax
brackets for individual taxpayers.
From time to time the Fund may quote a "dividend yield" or a
"distribution return" for each class. Dividend yield is based on the
Class A or Class B share dividends derived from net investment income
during a stated period and distribution return includes dividends derived
from net investment income and from realized capital gains declared during
a stated period. Under those calculations, the dividends and/or
distributions for that class declared during a stated period of one year
or less (for example, 30 days) are added together, and the sum is divided
by the maximum offering price per share of that class on the last day of
the period. The result may be annualized if the period of measurement is
less than one year. The dividend yield is calculated as follows:
Dividend Yield of the Class =
Dividends of the Class
- ----------------------------------------------------
Max Offering Price of the Class (last day of period)
Divided by number of days (accrual period) x 365
In the formula above, "Dividend" is the sum of the class's dividends
declared during the stated dividend period, and "MOP" is the maximum
offering price on the last day of the period. For the 30-day period ended
September 30, 1993, the dividend yield on Class A and Class B shares was
5.54% and 5.01%, respectively. From time to time similar calculations may
also be made using the Fund's Class A net asset value (instead of its
maximum offering price) at the end of the period. The dividend yield at
net asset value on Class A shares for the 30-day period ended September
30, 1993 was 5.81%.
The "average annual total return" of a class is an average annual
compounded rate of return. It is the rate of return based on factors
which include a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") with an Ending Redeemable
Value ("ERV") of that investment, according to the following formula:
( ERV ) 1/n
(-----) -1 = Average Annual Total Return
( P )
The "total return" calculation uses the same factors, but does not
average the rate of return on an annual basis. Total return measures the
cumulative (rather than the average) change in value of a hypothetical
investment over a stated period. Total return is determined as follows:
ERV - P
- ------- = Total Return
P
Both formulas assume (i) for Class A shares, the payment of the
current maximum sales charge of 4.75% (as a percentage of the offering
price) on the initial investment ("P") and (ii) for Class B shares assume
the payment of the contingent deferred sales charge of 5.0% for the first
year, 4.0% for the second year, 3.0% for the third and fourth years, 2%
for the fifth year, and 1.0% in the sixth year, and none thereafter. The
formulas also assume that all dividends and capital gains distributions
during the period are reinvested at net asset value per share, and that
the investment is redeemed at the end of the period. The average annual
total return on an investment in Class A shares for the one and five year
periods ended September 30, 1993 and for the period August 16, 1984
(commencement of operations) to September 30, 1993 were 8.90%, 8.85% and
10.83%, respectively. The total return on Class A shares for that period
was 155.50%. The average annual total return on an investment in Class B
shares from inception (March 1, 1993) to the period ended September 30,
1993, was 2.15%. The total return for the period ended September 30,
1993, was 1.24%.
From time to time a "total return at net asset value" may be quoted
for a class of shares. It is based on the difference in net asset value
per share at the beginning and the end of the period for that class
(without considering the sales charge) and takes into consideration the
reinvestment of dividends and capital gains (as with total return,
described above). The total return at net asset value on Class A shares
for the year ended September 30, 1993 was 14.33%. The total return at net
asset value on Class B shares for the period ended September 30, 1993 was
6.24%.
From time to time the Fund may publish the ranking of its Class A or
Class B shares by Lipper Analytical Services, Inc. ("Lipper"), a widely-
recognized independent service, which monitors the performance of
regulated investment companies, including the Fund, and ranks their
performance for various periods based on categories relating to investment
objectives. The performance of the Fund's classes of shares is ranked
against all other funds other than money market funds. The Lipper
performance analysis includes the reinvestment of capital gains
distributions and income dividends but does not take sales charges or
taxes into consideration.
From time to time the Fund may publish the ranking of its Class A or
Class B shares by Morningstar, Inc., an independent mutual fund monitoring
service, that ranks various mutual funds, including the Fund, based upon
the Fund's three, five and ten-year average annual total returns (when
available) and a risk factor that reflects fund performance relative to
three-month U.S. Treasury bill monthly returns. Such returns are adjusted
for fees and sales loads. There are five ranking categories with a
corresponding number of stars: highest (5), above average (4), neutral
(3), below average (2) and lowest (1). Morningstar ranks the Class A and
Class B shares of the Fund in relation to other fixed-income funds.
Yield and total return information may be useful to investors in
reviewing the Fund's performance. However, a number of factors should be
considered before using such information as a basis for comparison with
other investments. An investment in the Fund is not insured; its yield
and total return are not guaranteed and normally will fluctuate on a daily
basis. Yield and total return for any given past period are not an
indication or representation by the Fund of future yields or rates of
return on its classes of shares. The yield and total return of a class
of shares are affected by portfolio quality, portfolio maturity, type of
investments held and operating expenses. When comparing yield, total
return of an investment in Class A or B shares of the Fund on an
investment in the Fund with those of other investment instruments,
investors should understand that certain other investment alternatives
such as money market instruments, certificates of deposit ("CDs"), U.S.
Government securities or bank accounts provide yields that are fixed or
that may vary above a stated minimum, and may be insured or guaranteed.
Tax Status of the Fund. The Fund intends to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code. By
so qualifying, the Fund will not be subject to Federal income taxes on
amounts paid by it as dividends and distributions, as described in the
Prospectus. In order to qualify as a "regulated investment company," at
the end of each quarter of its taxable year, at least 50% of the aggregate
value of the Fund's total assets must consist of cash, cash items,
government securities and other securities, the latter limited with
respect to each issuer at the time of purchase to not more than 5% of the
Fund's total assets. The Fund will endeavor to insure that its assets are
so invested so that this requirement is satisfied, but there can be no
assurance that it will be successful in doing so.
Tax Status of the Fund's Dividends and Distributions. Under the Internal
Revenue Code, by December 31 each year, the Fund must distribute 98% of
its taxable investment income earned from January 1 through December 31
of that year and 98% of its capital gains realized from the prior
November 1 through October 31 of that year or else the Fund must pay an
excise tax on the amounts not distributed. While it is presently
anticipated that the Fund's distributions will meet those requirements,
the Manager may determine that in a particular year that it would be in
the best interests of the Fund not distribute income or capital gains at
the mandated levels and to pay the excise tax, which would reduce the
amount available for distribution to shareholders.
ADDITIONAL INFORMATION
Description of the Fund. The Fund's Declaration of Trust contains an
express disclaimer of shareholder or Trustee liability for the Fund's
obligations, and provides for indemnification and reimbursement of
expenses out of its property for any shareholder held personally liable
for its obligations. The Declaration of Trust also provides that the Fund
shall, upon request, assume a defense of any claim made against any
shareholder for any act or obligation of the Fund and satisfy any judgment
thereon. Thus, while Massachusetts law permits a shareholder of a trust
(such as the Fund) to be held personally liable as a partner for the
Fund's obligations under certain circumstances, the risk of a Fund
shareholder incurring any financial loss on account of shareholder
liability is limited to the relatively remote circumstances in which the
Fund itself would be unable to meet the obligations described above. Any
person doing business with the Fund, and any shareholder of the Fund,
agrees under the Fund's Declaration of Trust to look solely to the assets
of the Fund for satisfaction of any claim or demand which may arise out
of any dealings with the Fund, and the Trustees shall have no personal
liability to any such person to the extent permitted by law.
It is not contemplated that regular annual meetings of shareholders
will be held. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a shareholder
meeting is called by the Trustees or upon proper request of the
shareholders. Shareholders have the right, upon the declaration in
writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record
holders of 10% of its outstanding shares. In addition, if the Trustees
receive a request from at least 10 shareholders (who have been
shareholders at least six months) holding shares of the Fund valued at
$25,000 or more or holding 1% or more of the Fund's outstanding shares,
whichever is less, that they wish to communicate with other shareholders
to request a meeting to remove a Trustee, the Trustees will then give the
applicants access to the Fund's shareholder list, mail their communication
to all other shareholders at the applicants' expense, or take such
alternative action as set forth in Section 16(c) of the Investment Company
Act.
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 any of the other funds listed in the Prospectus as
"Eligible Funds," at net asset value without sales charge. Class B
shareholders should be aware that as of the date of this Additional
Statement, not all Eligible Funds offer Class B shares. The names of such
Funds are listed under "Exchanges of Class B Shares" above. To elect this
option, the shareholder must notify the Transfer Agent in writing and
either must have an existing account in the fund selected for reinvestment
or must obtain a prospectus for that fund and an application from the
Distributor to establish an account. The investment will be made at the
net asset value per share in effect at the close of business on the
payable date of the dividend or distribution. Dividends and/or
distributions from other Eligible Funds may be used to purchase shares of
this Fund on the same basis.
The Custodian and the Transfer Agent. The Custodian's responsibilities
include safeguarding and controlling the Fund's portfolio securities and
cash, collecting income on the portfolio securities and handling the
delivery of portfolio securities to and from the Fund. The Manager has
represented to the Fund that its banking relationships with the Custodian
have been and will continue to be unrelated to and unaffected by the
relationship between the Fund and the Custodian. It will be 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 or its
affiliates.
The Transfer Agent, a division of the Manager, is responsible for
maintaining the Fund's shareholders registry and shareholder accounting
records, and for shareholder servicing and administrative functions.
General Distributor's Agreement. Under the General Distributor's
Agreement between the Fund and the Distributor, the Distributor acts as
the Fund's principal underwriter in the continuous public offering of the
Fund's Class A and Class B shares, but is not obligated to sell a specific
number of shares. Expenses normally attributable to sales (other than
those paid under the Distribution Plan), including advertising and the
cost of printing and mailing prospectuses (other than those furnished to
existing shareholders), are borne by the Distributor. During the Fund's
fiscal years ended September 30, 1991, 1992 and 1993, the aggregate
amounts of sales charges on sales of the Fund's Class A shares were
$3,502,042, $6,102,413 and $8,118,017, respectively, of which the
Distributor and an affiliated broker-dealer retained, in the aggregate,
$664,145, $1,165,277 and $1,410,798 in 1991, 1992, and 1993, respectively.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They act as auditors for certain other investment companies advised by the
Manager.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the shareholder agrees
to the terms and conditions applicable to such plans, as stated below and
elsewhere in the Application for such Plans, and the Prospectus and this
Statement of Additional Information as they may be amended from time to
time by the Fund and/or the Distributor. When adopted, such amendments
will automatically apply to existing Plans.
Fund shares will be redeemed as necessary to meet withdrawal
payments. Shares acquired without a sales charge will be redeemed first
and thereafter shares acquired with reinvested dividends and distributions
followed by shares acquired with a sales charge will be redeemed to the
extent necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made to
shareholders under such plans should not be considered as a yield or
income on investment. Purchases of additional shares concurrently with
withdrawals are undesirable because of sales charges on purchases when
made. Accordingly, a shareholder may not maintain an Automatic Withdrawal
Plan while simultaneously making regular purchases. The Fund reserves the
right to amend, suspend or cease offering such plans at any time without
prior notice.
1. The Transfer Agent of the Fund, will administer the Automatic
Withdrawal Plan (the "Plan") as agent for the person (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent.
2. 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 now held by the 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. Those
shares will be carried on the Planholder's Plan Statement.
3. 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 may be paid in cash or reinvested.
4. Redemptions of shares in connection with disbursement payments
will be made at the net asset value per share determined on the redemption
date.
5. Checks or ACH payments will be transmitted three business days
prior to the date selected for receipt of the monthly or quarterly payment
(the date of receipt is approximate), according to the choice specified
in writing by the Planholder.
6. The amount and the interval of disbursement payments and the
address to which checks are to be mailed may be changed at any time by the
Planholder on written notification to the Transfer Agent. The Planholder
should allow at least two weeks' time in mailing such notification before
the requested change can be put in effect.
7. The Planholder may, at any time, instruct the Transfer Agent by
written notice (in proper form in accordance with the requirements of the
then-current Prospectus of the Fund) to redeem all, or any part of, the
shares held under the Plan. In such case, the Transfer Agent will redeem
the number of shares requested at the net asset value per share in effect
in accordance with the Fund's usual redemption procedures and will mail
a check for the proceeds of such redemption to the Planholder.
8. The Plan may, at any time, be terminated by the Planholder on
written notice to the Transfer Agent, or by the Transfer Agent upon
receiving directions to that effect from the Fund. The Transfer Agent
will also terminate the Plan upon receipt of evidence satisfactory to it
of the death or legal incapacity of the Planholder. Upon termination of
the Plan by the Transfer Agent or the Fund, shares remaining unredeemed
will be held in an uncertificated account in the name of the Planholder,
and the account will continue as a dividend-reinvestment, uncertificated
account unless and until proper instructions are received from the
Planholder, his executor or guardian, or as otherwise appropriate.
9. For purposes of using shares held under the Plan as collateral,
the Planholder may request issuance of a portion of his shares in
certificated form. Upon written request from the Planholder, the Transfer
Agent will determine the number of shares as to which a certificate may
be issued, so as not to cause the withdrawal checks to stop because of
exhaustion of uncertificated shares needed to continue payments. Should
such uncertificated shares become exhausted, Plan withdrawals will
terminate.
10. The Transfer Agent shall incur no liability to the Planholder
for any action taken or omitted by the Transfer Agent in good faith.
11. In the event that the Transfer Agent shall cease to act as
transfer agent for the Fund, the Planholder will be deemed to have
appointed any successor transfer agent to act as his agent in
administering the Plan.
LETTERS OF INTENT
In submitting a Letter of Intent to purchase Class A shares of the
Fund and other OppenheimerFunds at a reduced sales charge, the investor
agrees to the terms of the Prospectus, the Application used to buy such
shares, and the language in this Additional Statement as to Letters of
Intent, as they may be amended from time to time by the Fund. Such
amendments will apply automatically to existing Letters of Intent.
A Letter of Intent ("Letter") is the investor's statement of
intention to purchase Class A shares of the Fund (and other eligible
OppenheimerFunds sold with a sales charge) during the 13-month period from
the investor's first purchase pursuant to the Letter (the "Letter of
Intent period"), which may, at the investor's request, include purchases
made up to 90 days prior to the date of the Letter. The investor states
the intention to make the aggregate amount of purchases (excluding any
reinvestments of dividends or distributions or purchases made at net asset
value without sales charge), which together with the investor's holdings
of such funds (calculated at their respective public offering prices
calculated on the date of the Letter) will equal or exceed the amount
specified in the Letter to obtain the reduced sales charge rate (as set
forth in "How To Buy Shares" in the Prospectus) applicable to purchases
of shares in that amount (the "intended amount"). Each purchase under the
Letter will be made at the public offering price applicable to a single
lump-sum purchase of shares in the intended amount, as described in the
applicable prospectus.
In submitting a Letter, the investor makes no commitment to purchase
shares, but if the investor's purchases of shares within the Letter of
Intent period, when added to the value (at offering price) of the
investor's holdings of such fund shares on the last day of that period,
do not equal or exceed the intended amount, the investor agrees to pay the
additional amount of sales charge applicable to such purchases, as set
forth in "Terms of Escrow," below, as those terms may be amended from time
to time. The investor agrees that shares equal in value to 5% of the
intended amount will be held in escrow by the Fund's transfer agent
subject to the Terms of Escrow.
If the total eligible purchases made during the Letter of Intent
period do not equal or exceed the intended amount, the commissions
previously paid to the dealer of record for the account and the amount of
sales charge retained by the Distributor will be adjusted to the rates
applicable to actual total purchases. If total eligible purchases during
the Letter of Intent period exceed the intended amount and exceed the
amount needed to qualify for the next sales charge rate reduction set
forth in the applicable prospectus, the sales charges paid will be
adjusted to the lower rate, but only if and when the dealer returns to the
Distributor the excess of the amount of commissions allowed or paid to the
dealer over the amount of commissions that apply to the actual amount of
purchases. The excess commissions returned to the Distributor will be
used to purchase additional shares for the investor's account at the net
asset value per share in effect on the date of such purchase, promptly
after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter,
shares redeemed by the investor prior to the termination of the Letter of
Intent period will be deducted. It is the responsibility of the dealer
of record and/or the investor to refer to the Letter in placing any
purchase orders for the investor during the Letter of Intent period. All
of such purchases must be made through the Distributor.
Terms of Escrow
1. Out of the initial purchase (or subsequent purchases if
necessary) made pursuant to a Letter, shares of the Fund equal in value
to 5% of the intended amount specified in the Letter shall be held in
escrow by the Fund's transfer agent. For example, if the intended amount
specified under the Letter is $50,000, the escrow shall be shares valued
in the amount of $2,500 (computed at the public offering price adjusted
for a $50,000 purchase). Any dividends and capital gains distributions
on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is
completed within the thirteen-month Letter of Intent period, the escrowed
shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the
total purchases pursuant to the Letter are less than the intended amount
specified in the Letter, the investor must remit to the Distributor an
amount equal to the difference between the dollar amount of sales charges
actually paid and the amount of sales charges which would have been paid
if the total amount purchased had been made at a single time. Such sales
charge adjustment will apply to any shares redeemed prior to the
completion of the Letter. If such difference in sales charges is not paid
within twenty days after a request from the Distributor or the dealer, the
Distributor will, within sixty days of the expiration of the Letter,
redeem the number of escrowed shares necessary to realize such difference
in sales charges. Full and fractional shares remaining after such
redemption will be released from escrow. If a request is received to
redeem escrowed shares prior to the payment of such additional sales
charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and
appoints the transfer agent of the Fund as attorney-in-fact to surrender
for redemption any or all escrowed shares.
5. The funds whose shares are eligible for purchase under the Letter
(or the holding of which may be counted toward completion of the Letter)
do not include any fund whose shares are sold without a front-end sales
charge or without being subject to a Class A contingent deferred sales
charge unless (for the purpose of determining completion of the obligation
to purchase shares under the Letter) the shares were acquired in exchange
for shares of a fund (described as an "Eligible Fund" in the Prospectus)
whose shares were acquired by payment of a sales charge.
6. Shares held in escrow hereunder will automatically be exchanged
for shares of another fund to which an exchange is requested, as described
in the section of the Prospectus entitled "Exchange Privilege," and the
escrow will be transferred to that other fund.
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders of Oppenheimer New York Tax-Exempt
Fund:
We have audited the accompanying statements of investments and assets and
liabilities of Oppenheimer New York Tax-Exempt Fund as of September 30,
1993, and the related statement of operations 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 eight-year period then ended, the ten-month period ended September 30,
1985 and the period from August 16, 1984 (commencement of operations) to
November 30, 1984. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 and financial highlights. Our
procedures included confirmation of securities owned as of September 30,
1993, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Oppenheimer New York Tax-Exempt Fund as of September 30, 1993, the
results of its operations for the year then ended, the changes in its net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the eight-year period then
ended, the ten-month period ended September 30, 1985 and the period from
August 16, 1984 (commencement of operations) to November 30, 1984, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick
Denver, Colorado
October 21, 1993
<PAGE>
Statement of Investments September 30, 1993
<TABLE>
<CAPTION>
Ratings
Moody's/S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
<S> <C> <C> <C>
Municipal Bonds and Notes -- 96.9%
New York -- 76.2% Albany, New York Municipal Water
Finance Authority Water and Sewer
System Revenue Bonds, Series 1986A,
MBIA Insured, 7.50%,12/1/17 Aaa/AAA $ 695,000 $ 811,736
City of New York General Obligation Bonds:
Series A, 7.75%, 8/15/16 Baa1/A- 2,500,000 2,921,850
Series B, FSA Insured, 7.632%,10/7/07 (2) Aaa/AAA 7,500,000 8,678,729
Series B, 8.25%, 6/1/07 Baa1/A- 1,750,000 2,173,351
Series B, 6.75%, 10/1/15 Baa1/A- 10,550,000 11,487,209
Series B, 6.75%, 10/1/17 Baa1/A- 7,600,000 8,247,033
Series F, 8.25%, 11/15/17 Baa1/A- 680,000 817,148
Prerefunded, Series F, 8.25%, 11/15/17 Aaa/A- 7,820,000 10,039,198
8.043%, 8/1/08 (2) Baa1/A- 9,250,000 9,295,620
9.019%, 8/8/13 (2) Baa1/A- 5,000,000 5,354,120
9.019%, 8/1/14 (2) Baa1/A- 8,150,000 8,727,215
Dormitory Authority of the State of New York:
City University System Consolidated
Revenue Bonds:
Series A, 5.75%, 7/1/18 Baa1/BBB 2,500,000 2,533,877
Series A, 5.75%, 7/1/18 Baa1/BBB 6,750,000 6,841,468
Series A, 7.625%, 7/1/20 Baa1/BBB 5,000,000 5,807,770
City University System Revenue Bonds,
Series C, 6%, 7/1/16 Baa1/BBB 7,000,000 7,190,532
City University System Revenue
Refunding Bonds:
Series B, 7.50%, 7/1/06 Baa1/BBB 750,000 842,711
Series B, 6%, 7/1/14 Baa1/BBB 10,875,000 11,330,444
Series U, 6.375%, 7/1/08 Baa1/BBB 3,000,000 3,229,638
Cornell University Revenue Bonds,
Series 1986, 6.875%, 7/1/14 Aa/AA 7,000,000 7,546,350
Department of Health Revenue
Bonds, 7.70%, 7/1/20 Baa1/BBB 2,750,000 3,189,540
Judicial Facilities Revenue Bonds,
Prerefunded, MBIA Insured, 7.375%, 7/1/16 Aaa/AAA 2,300,000 2,812,997
Revenue Bonds, Pooled Capital Program,
FGIC Insured, 7.80%, 12/1/05 Aaa/AAA 8,730,000 10,113,225
Rochester General Hospital Revenue Bonds,
FHA Insured, 8.75%, 2/1/25 Aa/AA 1,120,000 1,231,267
Rockefeller University Revenue Bonds,
7.375%,7/1/14 Aaa/AAA 4,000,000 4,600,856
State University Educational Facilities
Revenue Refunding Bonds:
Series A, 5.25%, 5/15/15 Baa1/BBB+ 23,090,000 22,110,313
Series A, 5.25%, 5/15/21 Baa1/BBB+ 5,010,000 4,771,378
Series B, 7%, 5/15/16 Baa1/BBB+ 9,020,000 9,988,801
Prerefunded, Series B, 7.25%, 5/15/15 Baa1/BBB+ 1,735,000 2,074,550
Prerefunded, Series B, 7.25%, 5/15/15 Baa1/BBB+ 15,230,000 18,181,147
Grand Central District Management Assn., Inc.,
New York Business District Capital Improvement
Revenue Bonds, 6.50%, 1/1/22 A1/A 2,000,000 2,171,902
Metropolitan Transportation Authority of New York:
Commuter Facilities Revenue Bonds, Series A,
MBIA Insured, 6.125%, 7/1/12 Aaa/AAA 4,090,000 4,438,696
Ratings
Moody's/S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
Municipal Bonds and Notes (continued)
New York Service Contract Revenue Bonds,
(continued) Transportation Facilities:
Series 3, 6%, 7/1/19 Baa1/BBB $ 3,930,000 $ 4,030,293
6%, 7/1/21 Baa1/BBB 12,950,000 13,383,047
New York City Health and Hospital Corp.
Revenue Bonds, Series A, 7.94%, 2/15/23 (2) Aaa/AAA 8,300,000 8,824,941
New York City Housing Development Corp.
Multifamily Housing Revenue Bonds:
1985 First Series, FHA Insured, 9.875%, 10/1/17 Aa/AA 500,000 531,740
Keith Plaza Project, 6.50%, 2/15/18 NR/NR 2,038,879 2,165,782
Seaview Project, 6.50%, 1/15/18 NR/NR 3,087,346 3,096,178
New York City Municipal Water Finance
Authority Water and Sewer System Revenue Bonds:
Series A, MBIA Insured, 7.25%, 6/15/15 Aaa/AAA 7,000,000 8,119,411
Series B, 6.375%, 6/15/22 A/A-/A 5,750,000 6,202,271
Prerefunded, Series C, 7.75%, 6/15/20 Aaa/A- 11,500,000 14,254,353
New York State Energy Research and
Development Authority:
Electric Facilities Revenue Bonds, Consolidated
Edison Co. of New York, Inc. Project:
9%, 8/15/20 Aa2/AA-/AA- 8,400,000 9,358,297
Series B, 6.375%, 12/1/27 Aa2/AA- 10,000,000 10,849,460
Series C, 7.25%, 11/1/24 Aa2/AA- 3,450,000 3,879,263
Gas Facilities Revenue Bonds, Regents RIBS,
Brooklyn Union Gas Co. Project:
Series B, 10.993%, 7/1/26 (2) A1/A 6,000,000 7,794,977
Series D, MBIA Insured, 8.047%, 7/8/26 (2) Aaa/AAA 2,000,000 2,119,388
Series 1985, 9%, 5/15/15 A1/A 1,250,000 1,378,867
Long Island Lighting Co.:
Series A, 7.15%, 12/1/20 Baa3/BBB- 7,500,000 8,451,022
Series C, 6.90%, 8/1/22 Baa3/BBB- 9,200,000 10,306,069
Pollution Control Revenue Bonds:
Niagara Mohawk Power Corp. Project,
Series 1984A, 11.25%, 7/1/14 Baa2/BBB/BBB- 1,000,000 1,087,358
Orange and Rockland Utilities, Inc. Projects:
Series 1984, 10.25%, 10/1/14 A2/A+ 1,700,000 1,840,799
Series 1985, 9%, 8/1/15 A2/A+/A+ 500,000 557,930
Rochester Gas and Electric Project,
Series B, MBIA Insured, 6.50%, 5/15/32 Aaa/AAA 5,000,000 5,511,015
New York State Housing Finance Agency
Revenue Refunding Bonds:
New York City Health Facility:
Series A, 7.90%, 11/1/99 Baa/A- 3,500,000 3,942,721
Series A, 8%, 11/1/08 Baa/A- 3,240,000 3,756,022
State University Construction, Prerefunded,
Series A, 7.90%, 11/1/06 Aaa/AAA 1,750,000 2,182,971
Statements of Investments (continued)
Ratings
Moody's/S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
Municipal Bonds and Notes (continued)
New York New York State Local Government Assistance
(continued) Corp. Revenue Bonds:
Series A, 6.50%, 4/1/20 A/A/A+ $ 6,135,000 $ 6,736,892
Series B, 5.50%, 4/1/21 A/A/A+ 12,500,000 12,412,350
Prerefunded, Series C, 7%, 4/1/21 Aaa/AAA/A+ 9,455,000 11,255,136
Series C, 5.50%, 4/1/22 A/A /A+ 16,175,000 16,128,770
Series D, 6.75%, 4/1/21 A/A/A+ 4,700,000 5,301,346
New York State Medical Care Facilities
Finance Agency:
Hospital and Nursing Home FHA Mortgage
Revenue Bonds, Series B, 6.20%, 8/15/22 NR/AAA 11,470,000 12,284,724
Hospital and Nursing Home Insured Mortgage
Revenue Bonds, Series C, 6.375%, 8/15/29 NR/AAA 10,000,000 10,911,989
Insured Hospital and Nursing Home Mortgage
Revenue Bonds, Series B, FHA Insured,
9.125%, 2/15/25 Aa/A 995,000 1,087,765
Revenue Bonds:
Mental Health Services Facilities Improvement:
Series A, 7.70%, 2/15/18 Baa1/BBB+ 1,625,000 1,812,707
Series A, FGIC Insured, 6.375%, 8/15/17 Aaa/AAA/AAA 5,000,000 5,497,275
St. Francis Hospital Project, Series 1988A,
FGIC Insured, 7.625%, 11/1/21 Aaa/AAA/AAA 3,000,000 3,464,520
St. Luke's-Roosevelt Hospital Center Mortgage
Revenue Bonds, Prerefunded, Series B,
FHA Insured, 7.45%, 2/15/29 NR/AA 7,500,000 8,993,527
Revenue Refunding Bonds:
Long-Term Health Care, Series C, CGIC Insured,
6.40%, 11/1/14 NR/AAA 3,000,000 3,287,409
Mental Health Services Facilities:
Series A, 8.875%, 8/15/07 Baa1/BBB+ 13,000,000 15,499,717
Series B, 7.875%, 8/15/20 Baa1/BBB+ 4,945,000 5,822,624
New York State Mortgage Agency Revenue Bonds:
Eighth Series C, Verex Pool Insured,
8.40%, 10/1/17 Aa/NR 2,020,000 2,241,186
Ninth Series B, 8.30%, 10/1/17 Aa/NR 2,075,000 2,212,588
Homeowner Mortgage Agency:
Series 1, 7.95%, 10/1/21 AA/NR 2,270,000 2,468,441
Series GG, 7.60%, 10/1/18 Aa/NR 775,000 826,660
Series UU, 7.75%, 10/1/23 Aa/NR 2,000,000 2,223,080
New York State Power Authority Revenue and
General Purpose Bonds:
Series V, 8%, 1/1/17 Aa/AA 3,400,000 3,944,921
Series Y, 6.50%, 1/1/11 Aa/AA 2,500,000 2,755,657
Series Y, 6%, 1/1/20 Aa/AA 3,000,000 3,148,731
New York State Thruway Authority Service
Contract Revenue Bonds, Series A, 5.75%, 1/1/19 A1/A 10,000,000 10,375,549
Ratings
Moody's/S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
Municipal Bonds and Notes (continued)
New York New York State Urban Development Corp.
(continued) Correction Facilities:
Revenue Bonds:
Series G, 7.25%, 1/1/14 Baa1/BBB $ 700,000 $ 783,452
Series G, 7%, 1/1/17 Baa1/BBB 2,000,000 2,207,578
Revenue Refunding Bonds:
5.50%, 1/1/15 Baa1/BBB/A 10,000,000 9,826,929
5.50%, 1/1/18 Baa1/BBB/A 17,490,000 17,166,853
Onondaga County, New York Resources
Recovery Agency Revenue Bonds, Resources
Recovery Facilities Project, 7%, 5/1/15 Baa/NR/A- 14,500,000 15,881,618
Port Authority of New York and New Jersey
Consolidated Revenue Bonds:
Sixty Series, 8.25%, 4/1/23 A1/AA-/AA- 8,775,000 9,507,352
Sixty-Second Series, 8%, 12/1/23 A1/AA-/AA- 1,370,000 1,515,928
Sixty-Third Series, 7.875%, 3/1/24 A1/AA-/AA- 9,000,000 10,009,674
Eighty-Fifth Series, 5.375%, 3/1/28 A1/AA-/AA- 9,000,000 9,141,857
Interest Certificates, Series Fifty-One E,
5%, 6/1/94 A1/NR 900,000 190,800
Suffolk County, New York Southwest Sewer
District General Obligation Refunding Bonds,
Prerefunded, Series B, 22.875%, 2/1/95 NR/AAA 2,500,000 3,134,015
Triborough Bridge and Tunnel Authority of
New York General Purpose Revenue Bonds:
Series A, 5%, 1/1/12 Aa/A+ 8,000,000 7,839,919
Series A, 5%, 1/1/15 Aa/A+ 7,500,000 7,289,032
Series X, 6%, 1/1/14 Aa/A+ 14,510,000 15,299,444
Series X, 6.50%, 1/1/19 Aa/A+ 2,500,000 2,743,670
Series Y, 5.50%, 1/1/17 Aa/A+ 5,000,000 5,159,475
United Nations Development Corp.
Refunding Bonds, Sr. Lien:
Series A, 6%, 7/1/12 A/NR/A+ 1,000,000 1,054,285
Series A, 6%, 7/1/26 A/NR/A+ 5,000,000 5,258,054
607,888,345
U.S. Possessions Puerto Rico Commonwealth Aqueduct and
- -- 20.7% Sewer Authority Revenue Bonds,
Prerefunded, 10.25%, 7/1/09 Aaa/AAA 500,000 702,342
Puerto Rico Commonwealth General
Obligation Refunding Bonds:
5.25%, 7/1/18 Baa1/A 20,000,000 19,698,639
Prerefunded, 7.70%, 7/1/20 NR/AAA 5,000,000 6,098,045
Series A, 6%, 7/1/14 Baa1/A 12,000,000 12,630,359
YCNS, FSA Insured, 8.882%, 7/1/20 (2) Aaa/AAA 11,500,000 12,880,793
Puerto Rico Commonwealth Highway and
Transportation Authority Revenue Bonds:
Prerefunded, Series S, 6.50%, 7/1/22 Baa1/A 13,500,000 15,688,983
Prerefunded, Series T, 6.50%, 7/1/22 UR/AAA 2,515,000 2,922,799
Series W, 7.712%, 7/1/10 (2) Baa1/A 9,000,000 9,214,991
Puerto Rico Commonwealth Infrastructure
Financing Authority Special Tax Revenue
Bonds, Series A, 7.75%, 7/1/08 Baa1/BBB+ 6,000,000 6,903,036
Statement of Investments (continued)
Ratings
Moody's/S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
Municipal Bonds and Notes (continued)
U.S. Possessions Puerto Rico Electric Power Authority
(continued) Revenue Refunding Bonds:
Series N, 5%, 7/1/12 Baa1/A- $ 6,545,000 $ 6,238,130
Series O, 7.125%, 7/1/14 Baa1/A- 9,380,000 10,473,445
Series P, 7%, 7/1/21 Baa1/A- 6,000,000 6,819,660
Puerto Rico Housing Bank and Finance
Agency Single Family Mortgage Revenue Bonds,
FHA Insured Homeownership-Fourth Portfolio,
Prerefunded, 8.50%, 12/1/18 Aaa/NR 1,580,000 2,054,744
Puerto Rico Housing Finance Corp. Single
Family Mortgage Revenue Bonds, 6.85%, 10/15/24 Aaa/AAA 3,250,000 3,446,026
Puerto Rico Industrial, Medical and
Environmental Pollution Control Facilities
Financing Authority Revenue Bonds:
American Airlines, Inc Project, Series 1985A,
8.75%, 12/1/25 Baa1/BB+ 850,000 940,718
Warner Lambert Co. Project, 7.60%, 5/1/14 Aa3/NR 3,000,000 3,426,750
Puerto Rico Public Buildings Authority:
Guaranteed Public Education and Health Facilities
Revenue Bonds:
Series J, 7.25%, 7/1/17 Baa1/A 6,000,000 6,941,568
Series M, 5.75%, 7/1/15 Baa1/A 11,500,000 11,815,536
Guaranteed Revenue Refunding Bonds,
Series L, 5.75%, 7/1/16 Baa1/A 12,100,000 12,431,999
Puerto Rico Telephone Authority Revenue Bonds:
8.02%, 1/16/15 (2) Aaa/AAA 11,000,000 11,484,494
Series L, 6.125%, 1/1/22 A/A+ 2,000,000 2,135,098
164,948,155
Total Municipal Bonds and Notes (Cost $708,223,302) 772,836,500
Short-Term Tax-Exempt Obligations -- 1.6%
City of New York General Obligation Bonds,
Sub. Series A-4, 3.45% (1) 1,300,000 1,300,000
Dormitory Authority of the State of New York
Revenue Bonds, Cornell University,
Series B, 3.50% (1) 4,100,000 4,100,000
Nassau County, New York Industrial
Development Agency Civic Facilities
Revenue Bonds, Cold Spring Harbor Laboratory
Project, 3.50% (1) 1,000,000 1,000,000
New York City Housing Development Corp.
Special Obligation Revenue Bonds,
East 96th Street Project, Series A, 2.80% (1) 700,000 700,000
New York City Trust Cultural Resources
Revenue Bonds:
American Museum of Natural History, Series B,
MBIA Insured, 2.65% (1) 900,000 900,000
Carnegie Hall Project, 3.50% (1) 500,000 500,000
Ratings
Moody's/S&P's/Fitch's Face Market Value
(Unaudited) Amount See Note 1
Short-Term Tax-Exempt Obligations (continued)
New York State Energy Research and
Development Authority Pollution Control
Revenue Bonds, Niagara Mohawk Power Corp.
Project, Series A, 3.50% (1) $1,100,000 $ 1,100,000
New York State Housing Finance Agency
Revenue Refunding Bonds, Normandie Court I
Project, 3% (1) 300,000 300,000
North Hempstead, New York Solid Waste
Management Authority Revenue Bonds, 2.90% (1) 400,000 400,000
Seneca County, New York Industrial Development
Agency Civic Facilities Revenue Bonds, New York
Chiropractic College, 2.75% (1) 300,000 300,000
Syracuse, New York Industrial Development Agency
Civic Facility Revenue Bonds, Multi-
Modal-Syracuse
University Project, 3.50% (1) 2,300,000 2,300,000
Total Short-Term Tax-Exempt Obligations (Cost $12,900,000) 12,900,000
Total Investments, at Value (Cost $721,123,302)
98.5% 785,736,500
Other Assets Net of Liabilities
1.5 12,155,585
Net Assets
100.0% $797,892,085
<FN>
(1) Floating or variable rate obligation maturing in more than one year.
The
interest rate, which is based on specific, or an index of, market
interest
rates, is subject to change periodically and is the effective rate on
September 30, 1993. A demand feature allows the recovery of principal
at
any time, or at specified intervals not exceeding one year, on up to
30
days' notice.
(2) Represents the current interest rate for a variable rate security.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statement of Assets and Liabilities September 30, 1993
<TABLE>
<S> <C> <C>
Assets Investments, at value (cost $721,123,302) - see accompanying statement $785,736,500
Cash 1,741
Receivables:
Interest 14,078,050
Shares of beneficial interest sold 4,039,368
Other 24,733
Total assets 803,880,392
Liabilities Payables and other liabilities:
Shares of beneficial interest redeemed 2,601,791
Dividends 2,600,650
Distribution assistance - Note 4 467,872
Other 317,994
Total liabilities 5,988,307
Net Assets $797,892,085
Composition of Paid-in capital $725,939,165
Net Assets Undistributed net investment income 1,237,047
Accumulated net realized gain from investment transactions 6,102,675
Net unrealized appreciation of investments - Note 3 64,613,198
Net Assets $797,892,085
Net Asset Value Class A Shares:
Per Share Net asset value and redemption price per share
(based on net assets of $756,934,404 and 56,086,649
shares of beneficial interest outstanding) $ 13.50
Maximum offering price per share
(net asset value plus sales charge of 4.75% of offering price) $ 14.17
Class B Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $40,957,681 and 3,033,381 shares
of beneficial interest outstanding) $ 13.50
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statement of Operations For the Year Ended September 30, 1993
<TABLE>
<S> <C> <C>
Investment Income Interest $43,553,894
Expenses Management fees - Note 4 3,486,365
Distribution assistance:
Class A - Note 4 1,554,094
Class B - Note 4 119,923
Transfer and shareholder servicing agent fees - Note 4 506,035
Shareholder reports 183,251
Custodian fees and expenses 109,312
Registration and filing fees:
Class A 47,501
Class B 12,647
Trustees' fees and expenses 47,114
Legal and auditing fees 44,257
Other 24,084
Total expenses 6,134,583
Net Investment Income 37,419,311
Realized and Net realized gain on investments 10,840,246
Unrealized Gain Net change in unrealized appreciation of investments:
on Investments Beginning of year 22,497,324
End of year - Note 3 64,613,198
Net change 42,115,874
Net Realized and Unrealized Gain on Investments 52,956,120
Net Increase in Net Assets Resulting from Operations $90,375,431
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended September 30,
1993 1992
<S> <C> <C> <C>
Operations Net investment income $ 37,419,311 $ 27,660,141
Net realized gain on investments 10,840,246 3,835,979
Net change in unrealized appreciation or depreciation
of investments 42,115,874 12,865,643
Net increase in net assets resulting from operations 90,375,431 44,361,763
Dividends and Dividends from net investment income:
Distributions to Class A ($.75 per share) (37,617,756) (26,049,096)
Shareholders Class B ($.37 per share) (558,098) --
Distributions from net realized gain on investments:
Class A ($.078 and $.131 per share, respectively) (3,645,107) (5,169,994)
Beneficial Interest Net increase in net assets resulting from Class A
Transactions beneficial interest transactions - Note 2 179,235,850 167,637,307
Net increase in net assets resulting from Class B
beneficial interest transactions -- Note 2 39,841,699 --
Net Assets Total increase 267,632,019 180,779,980
Beginning of year 530,260,066 349,480,086
End of year (including undistributed net investment
income of $1,237,047 and $1,993,590, respectively) $797,892,085 $530,260,066
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Class A Class B
Ten
Months Period Period
Ended Ended Ended
September November September
Year Ended September 30, 30, 30, 30,
1993 1992 1991 1990 1989 1988 1987 1986 1985 1984+ 1993+++
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Per Share Operating
Data:
Net asset value,
beginning of
period $ 12.59 $ 12.21 $ 11.61 $ 11.87 $ 11.91 $ 11.60 $ 12.51 $ 10.98 $ 10.32 $10.00 $ 13.07
Income from
investment
operations:
Net investment
income .73 .79 .81 .83 .84++ .88++ .90++ .86 .76 .22 .36
Net realized and
unrealized gain
(loss) on
investments 1.01 .47 .64 (.25) .01 .45 (.79) 1.62 .67 .27 .44
Total income from
investment
operations 1.74 1.26 1.45 .58 .85 1.33 .11 2.48 1.43 .49 .80
Dividends and
distributions to
shareholders:
Dividends from net
investment income (.75) (.75) (.81) (.83) (.83) (.94) (.88) (.86) (.77) (.17) (.37)
Distributions from
net realized gain
on investments (.08) (.13) (.04) (.01) (.06) (.08) (.14) (.09) -- -- --
Total dividends and
distributions to
shareholders (.83) (.88) (.85) (.84) (.89) (1.02) (1.02) (.95) (.77) (.17) (.37)
Net asset value,
end of period $ 13.50 $ 12.59 $ 12.21 $ 11.61 $ 11.87 $ 11.91 $ 11.60 $ 12.51 $ 10.98 $10.32 $ 13.50
Total Return, at
Net Asset Value** 14.33% 10.72% 12.93% 4.95% 6.91% 11.48% .29% 22.73% 13.37% 4.96%
6.56%
Ratios/Supplemental
Data:
Net assets, end of
period (in
thousands) $756,934 $530,260 $349,480 $250,012 $197,321 $116,931 $79,479 $50,810 $28,166 $3,132
$40,958
Average net assets
(in thousands) $652,327 $436,876 $292,134 $227,504 $156,572 $ 95,996 $65,102 $42,907 $15,240 $1,000
$20,454
Number of shares
outstanding at end
of period (in
thousands) 56,087 42,119 28,617 21,533 16,618 9,817 6,851 4,061 2,565 304 3,033
Ratios to average
net assets:
Net investment
income 5.66% 6.33% 6.81% 6.97% 7.07% 7.48% 7.33% 7.10% 8.05%* 8.40%*
4.45%*
Expenses .91% .96% .96% .99% .98%++ .90%++ .67%++ .86% 1.00%* .97%*
1.73%*
Portfolio turnover
rate*** 39.1% 30.5% 8.9% 13.3% 11.8% 11.7% 22.9% 29.7% 126.3% 17.1%
39.1%
<FN>
*Annualized.
**Assumes a hypothetical initial investment on the business day before the
first day of the fiscal year, 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 year. Sales
charges
are not reflected in the total returns.
***The lesser of purchases or sales of portfolio securities for a period,
divided by the monthly average of the market value of portfolio securities
owned during the period. Securities with a maturity or expiration date at
the
time of acquisition of one year or less are excluded from the calculation.
Purchases and sales of investment securities (excluding short-term
securities)
for the year ended September 30, 1993 were $477,133,982 and $250,274,906.
++Net investment income would have been $.83, $.87 and $.88 absent the
voluntary assumption of expenses, resulting in an expense ratio of 1.00%,
1.02% and .85% for 1989, 1988 and 1987, respectively.
+++For the period from March 1, 1993 (inception of offering) to September
30, 1993.
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
Oppenheimer New York Tax-Exempt Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment adviser is
Oppenheimer Management Corporation (the Manager). The Fund offers both
Class A and Class B shares. Class A shares are sold with a front-end sales
charge. Class B shares may be subject to a contingent deferred sales
charge. Both classes of shares have identical rights to earnings, assets
and voting privileges, except that each class has its own distribution
plan, expenses directly attributable to a particular class and exclusive
voting rights with respect to matters affecting a single class. Class B
shares will automatically convert to Class A shares six years after the
date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund. Investment Valuation - Portfolio securities are
valued at 4:00 p.m. (New York time) on each trading day. Long-term debt
securities are valued by a portfolio pricing service approved by the Board
of Trustees. Long-term debt securities which cannot be valued by the
approved portfolio pricing service are valued by averaging the mean
between the bid and asked prices obtained from two active market makers
in such securities. Short-term debt securities having a remaining maturity
of 60 days or less are valued at cost (or last determined market value)
adjusted for amortization to maturity of any premium or discount.
Securities for which market quotes are not readily available are valued
under procedures established by the Board of Trustees to determine fair
value in good faith.
Allocation of Income, Expenses and Gains and Losses -- Income, expenses
(other than those attributable to a specific class) and gains and losses
are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses
directly attributable to a specific class are charged against the
operations of that class.
Federal Income Taxes - The Fund intends to continue to comply with
provisions of the Internal Revenue Code applicable to regulated investment
companies and to distribute all of its taxable income, including any net
realized gain on investments not offset by loss carryovers, to
shareholders. Therefore, no federal income tax provision is required.
Trustees' Fees and Expenses - The Fund has adopted a nonfunded retirement
plan for the Fund's independent trustees. Benefits are based on years of
service and fees paid to each trustee during the years of service. During
the year ended September 30, 1993, a provision of $5,268 was made for the
Fund's projected benefit obligations, resulting in an accumulated
liability of $104,618. No payments have been made under the plan.
Distributions to Shareholders - The Fund intends to declare dividends
separately for Class A and Class B shares from net investment income each
regular business day and pay such dividends monthly. Distributions from
net realized gains on investments, if any, will be declared at least once
each year.
Other - Investment transactions are accounted for on the date the
investments are purchased or sold (trade date). Original issue discount
on securities purchased is amortized over the life of the respective
securities, in accordance with federal income tax requirements. Realized
gains and losses on investments and unrealized appreciation and
depreciation are determined on an identified cost basis, which is the same
basis used for federal income tax purposes.
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of
beneficial interest of each class. Transactions in shares of beneficial
interest were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, 1993+ September 30, 1992
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Class A:
Sold 18,532,060 $238,699,747 16,859,508 $209,120,247
Dividends and
distributions reinvested 2,235,515 28,846,483 1,797,348 22,284,672
Redeemed (6,800,016) (88,310,380) (5,154,578) (63,767,612)
Net increase 13,967,559 $179,235,850 13,502,278 $167,637,307
Class B:
Sold 3,044,196 $ 39,986,285 -- $ --
Dividends reinvested 22,045 292,115 -- --
Redeemed (32,860) (436,701) -- --
Net increase 3,033,381 $ 39,841,699 -- $ --
<FN>
+ For the year ended September 30, 1993 for Class A shares and for the
period from March 1, 1993 (inception of offering) to September 30, 1993
for Class B shares.
</TABLE>
3. Unrealized Gains and Losses on Investments
At September 30, 1993, net unrealized appreciation of investments of
$64,613,198 was composed of gross appreciation of $66,833,704, and gross
depreciation of $2,220,506.
<PAGE>
Notes to Financial Statements (continued)
4. Management Fees and Other Transactions with Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for an annual fee of .60%
on the first $200 million of net assets, .55% on the next $100 million,
.50% on the next $200 million, .45% on the next $250 million, .40% on the
next $250 million and .35% on net assets in excess of $1 billion.
For the year ended September 30, 1993, commissions (sales charges paid by
investors) on sales of Class A shares totaled $8,118,017, of which
$1,410,798 was retained by Oppenheimer Funds Distributor, Inc. (OFDI), a
subsidiary of the Manager, as general distributor, and by an affiliated
broker-dealer. During the period ended September 30, 1993, OFDI received
contingent deferred sales charges of $17,005 upon redemption of Class B
shares.
Oppenheimer Shareholder Services (OSS), a division of the Manager, is the
transfer and shareholder servicing agent for the Fund, and for other
registered investment companies. OSS's total costs of providing such
services are allocated ratably to these companies.
Under separate approved plans of distribution, each class may expend up
to .25% of its net assets annually to reimburse OFDI for costs incurred
in distributing shares of the Fund, including amounts paid to brokers,
dealers, banks and other institutions. In addition, Class B shares are
subject to an asset-based sales charge of .75% of net assets annually, to
reimburse OFDI for sales commissions paid from its own resources at the
time of sale and associated financing costs. In the event of termination
or discontinuance of the Class B plan of distribution, the Fund would be
contractually obligated to pay OFDI for any expenses not previously
reimbursed or recovered through contingent deferred sales charges. During
the year ended September 30, 1993, OFDI paid $22,168 to an affiliated
broker-dealer as reimbursement for Class A distribution-related expenses
and retained $119,923 as reimbursement for Class B distribution-related
expenses and sales commissions.
<PAGE>
APPENDIX A
RATINGS OF INVESTMENTS
Municipal Bonds
Moody's Investors Service Inc. The four highest ratings of Moody's for
Municipal Bonds are "Aaa," "Aa," "A" and "Baa". Municipal Bonds rated
"Aaa" are judged to be of the "best quality." The rating of "Aa" is
assigned to bonds which are of high quality by all standards, but as to
which margins of protection or other elements make long-term risks appear
somewhat larger than "Aaa" rated Municipal Bonds. The "Aaa" and "Aa"
rated bonds comprise what are generally known as high grade bonds.
Municipal Bonds which are rated "A" by Moody's possess many favorable
investment attributes and are considered upper medium grade obligations.
Factors giving security to principal and interest of "A" rated bonds are
considered adequate, but elements may be present which suggest a
susceptibility to impairment at some time in the future. Municipal Bonds
rated Baa are considered medium grade obligations. They are neither
highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements
may be lacking or may be characteristically unreliable over any great
length of time. Moody's applies numerical modifiers "1," "2" and "3" in
its bond rating system. The modifier "1" indicates that the security
ranks in the higher end of its generic rating category; the modifier "2"
indicates a mid-range ranking; and the modifier "3" indicates that the
issue ranks in the lower end of its generic rating category.
In addition to the alphabetical rating system described above,
Municipal Bonds rated by Moody's which have a demand feature that provides
the holder with the ability to periodically tender ("put") the portion of
the debt covered by the demand feature, may also have a short-term rating
assigned to such demand feature. The short-term rating uses the symbol
"VMIG" to distinguish characteristics which include payment upon periodic
demand rather than fund or scheduled maturity dates and potential reliance
upon external liquidity, as well as other factors. The highest investment
quality is designated by the "VMIG 1" rating and the lowest by "VMIG4."
Standard & Poor's Corporation. The four highest ratings of Standard &
Poor's for Municipal Bonds are "AAA" (Prime), "AA" (High Grade), "A" (Good
Grade), and "BBB" (Medium Grade). Municipal Bonds rated "AAA" are
obligations of the highest quality. The rating of "AA" is accorded issues
with investment characteristics only slightly less marked than those of
the prime quality issues. The category of A describes the third strongest
capacity for payment of debt service. Principal and interest payments on
bonds in this category are regarded as safe. It differs from the two
higher ratings because, with respect to general obligations bonds, there
is some weakness, either in the local economic base, in debt burden, in
the balance between revenues and expenditures, or in quality of
management. Under certain adverse circumstances, any one such weakness
might impair the ability of the issuer to meet debt obligations at some
future date. With respect to revenue bonds, debt service coverage is
good, but not exceptional. Stability of the pledged revenues could show
some variations because of increased competition or economic influences
on revenues. Basic security provisions, while satisfactory, are less
stringent. Management performance appears adequate.
The "BBB" rating is the lowest investment grade security rating. The
difference between "A" and "BBB" ratings is that the latter shows more
than one fundamental weakness, or one very substantial fundamental
weakness, whereas the former shows only one deficiency among the factors
considered. With respect to revenue bonds, debt coverage is only fair.
Stability of the pledged revenues could show variations, with the revenue
flow possibly being subject to erosion over time. Basic security
provisions are no more than adequate. Management performance could be
stronger. The ratings "AA," "A," and "BBB" may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
Municipal Notes
Moody's Investors Service, Inc. Moody's ratings for state and Municipal
Notes and other short-term loans are Moody's Investment Grade ("MIG").
Notes bearing the designation "MIG-1" are of the best quality, enjoying
strong protection from established cash flows of funds for their servicing
or from established and broad-based access to the market for financing.
Notes bearing the designation "MIG-2" are of high quality, with ample
margins of protection, although not so large as notes rated "MIG-1." Such
short-term notes which have demand features may also carry a rating using
the symbol "VMIG" as described above, with the designation "MIG 1/VMIG 1"
denoting best quality, with superior liquidity support in addition to
those characteristics attributable to the designation "MIG-1."
Standard & Poor's Corporation. Standard & Poor's rating for Municipal
Notes due in three years or less are "SP-1" and "SP-2." "SP-1" describes
issues with a very strong capacity to pay principal and interest and
compares with bonds rated "A" by Standard & Poor's; if modified by a plus
sign, it compares with bonds rated "AA" or "AAA" by Standard & Poor's.
"SP-2" describes issues with a satisfactory capacity to pay principal and
interest, and compares with bonds rated "BBB" by Standard & Poor's.
Corporate Debt
The "other debt securities" included in the definition of temporary
investments are corporate (as opposed to municipal) debt obligations rated
"Aaa," "Aa" or "A" by Moody's or "AAA," "AA" or "A" by Standard & Poor's.
Corporate debt obligations rated "AAA" by Standard & Poor's are highest
grade obligations. Obligations bearing the rating of "AA" also qualify
as high grade obligations and in the majority of instances differ from
"AAA" issues only in small degrees. Corporate debt obligations rated "A"
by Standard & Poor's are regarded as upper medium grade and have
considerable investment strength, but are not entirely free from adverse
effects of changes in economic and trade conditions. The Moody's
corporate debt ratings of "Aaa," "Aa" and "A" do not differ materially
from those set forth above for Municipal Bonds.
Commercial Paper
The commercial paper ratings of "A-1" by Standard & Poor's and
"Prime-1" by Moody's are the highest commercial paper ratings of the
respective agencies. The issuer's earnings, quality of long-term debt,
management and industry position are among the factors considered in
assigning such ratings.
<PAGE>
APPENDIX B
TAX EQUIVALENT YIELD TABLES
The equivalent yield tables below compare tax-free income with taxable
income under Federal, New York State and New York City income tax rates
effective January 1, 1993. Combined taxable income refers to the net
amount subject to Federal, New York State and New York City income tax
after deductions and exemptions. The tables assume that an investor's
highest tax bracket applies to the change in taxable income resulting from
a switch between taxable and non-taxable investments, that the investor
is not subject to the Alternative Minimum Tax and that New York State and
local income tax payments are fully deductible for Federal income tax
purposes. They do not reflect the phaseout of itemized deductions and
personal exemptions at higher income levels, resulting in higher effective
tax rates and tax equivalent yields.
<TABLE>
<CAPTION>
New York State Residents
- ------------------------
Combined Taxable Income
- ---------------------- An Oppenheimer New York
Tax-Exempt Fund Yield
Single Return Joint Return of:
- ------------- ------------ Combined 3.0% 3.5%
Effective Is Approximately
Not Not Tax Equivalent to a Taxable
Over Over Over Over Bracket Yield of:
- ---- ---- ---- ---- --------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 16,000 $ 22,000 20.10% 3.75% 4.38%
$ 22,000 $ 26,000 20.95% 3.80% 4.43%
$ 13,000 $ 22,750 $ 26,000 $ 38,000 21.69% 3.83% 4.47%
$ 22,750 $ 55,100 $ 38,000 $ 91,850 33.67% 4.52% 5.28%
$ 55,100 $115,000 $ 91,850 $140,000 36.43% 4.72% 5.51%
$115,000 $250,000 $140,000 $250,000 41.04% 5.09% 5.94%
$250,000 $250,000 44.36% 5.39% 6.29%
</TABLE>
<TABLE>
<CAPTION>
New York State Residents
- -----------------------
Combined Taxable Income
- ---------------------- An Oppenheimer New York
Tax-Exempt Fund Yield
Single Return Joint Return of:
- ------------- ------------ Combined 4.5% 5.0%
Effective Is Approximately
Not Not Tax Equivalent to a Taxable
Over Over Over Over Bracket Yield of:
- ---- ---- ---- ---- --------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 16,000 $ 22,000 20.10% 5.63% 6.26%
$ 22,000 $ 26,000 20.95% 5.69% 6.33%
$ 13,000 $ 22,750 $ 26,000 $ 38,000 21.69% 5.75% 6.39%
$ 22,750 $ 55,100 $ 38,000 $ 91,850 33.67% 6.78% 7.54%
$ 55,100 $115,000 $ 91,850 $140,000 36.43% 7.08% 7.87%
$115,000 $250,000 $140,000 $250,000 41.04% 7.63% 8.48%
$250,000 $250,000 44.36% 8.09% 8.99%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
New York City Residents
- -----------------------
Combined Taxable Income
- ---------------------- An Oppenheimer New York
Tax-Exempt Fund Yield
Single Return Joint Return of:
- ------------- ------------ Combined 3.0% 3.5%
Effective Is Approximately
Not Not Tax Equivalent to a Taxable
Over Over Over Over Bracket Yield of:
- ---- ---- ---- ---- --------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 16,000 $ 22,000 23.21% 3.91% 4.56%
$ 22,000 $ 26,000 24.06% 3.95% 4.61%
$ 26,000 $ 27,000 24.80% 3.99% 4.65%
$ 15,000 $ 22,750 $ 27,000 $ 38,000 25.33% 4.02% 4.69%
$ 22,750 $ 25,000 $ 38,000 $ 45,000 36.75% 4.74% 5.53%
$ 25,000 $ 55,100 $ 45,000 $ 91,850 36.84% 4.75% 5.54%
$ 55,100 $ 60,000 $ 91,850 $108,000 39.47% 4.96% 5.78%
$ 60,000 $115,000 $108,000 $140,000 39.51% 4.96% 5.79%
$115,000 $250,000 $140,000 $250,000 43.89% 5.35% 6.24%
$250,000 $250,000 47.05% 5.67% 6.61%
</TABLE>
<TABLE>
<CAPTION>
New York City Residents
- ------------------------
Combined Taxable Income
- ---------------------- An Oppenheimer New York
Tax-Exempt Fund Yield
Single Return Joint Return of:
- ------------- ------------ Combined 4.5% 5.0%
Effective Is Approximately
Not Not Tax Equivalent to a Taxable
Over Over Over Over Bracket Yield of:
- ---- ---- ---- ---- --------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 16,000 $ 22,000 23.21% 5.86% 6.51%
$ 22,000 $ 26,000 24.06% 5.93% 6.58%
$ 26,000 $ 27,000 24.80% 5.98% 6.65%
$ 15,000 $ 22,750 $ 27,000 $ 38,000 25.33% 6.03% 6.70%
$ 22,750 $ 25,000 $ 38,000 $ 45,000 36.75% 7.11% 7.91%
$ 25,000 $ 55,100 $ 45,000 $ 91,850 36.84% 7.12% 7.92%
$ 55,100 $ 60,000 $ 91,850 $108,000 39.47% 7.43% 8.26%
$ 60,000 $115,000 $108,000 $140,000 39.51% 7.44% 8.27%
$115,000 $250,000 $140,000 $250,000 43.89% 8.02% 8.91%
$250,000 $250,000 47.05% 8.50% 9.44%
</TABLE>
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
KPMG Peat Marwick
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
