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Oppenheimer New York Tax-Exempt Fund
Two World Trade Center, New York, New York 10048-0203
1-800-525-7048
Statement of Additional Information dated January 27, 1995
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Fund and supplements
information in the Prospectus dated January 27, 1995. It should be read
together with the Prospectus, which may be obtained by writing to the
Fund's Transfer Agent, Oppenheimer Shareholder Services, at P.O. Box 5270,
Denver, Colorado 80217 or by calling the Transfer Agent at the toll-free
number shown above.
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Contents
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About The Fund
Investment Objective and Policies . . . . . . . . . . . . . . 2
Investment Policies and Strategies.. . . . . . . . . . . 2
Special Investment Considerations -
New York Municipal Securities . . . . . . . . . . . . . . 5
Other Investment Techniques and Strategies . . . . . . . 11
Other Investment Restrictions. . . . . . . . . . . . . . 17
How the Fund is Managed . . . . . . . . . . . . . . . . . . . 18
Organization and History . . . . . . . . . . . . . . . . 18
Trustees and Officers of the Fund. . . . . . . . . . . . 19
The Manager and Its Affiliates . . . . . . . . . . . . . 23
Brokerage Policies of the Fund. . . . . . . . . . . . . . . . 24
Performance of the Fund . . . . . . . . . . . . . . . . . . . 25
Distribution and Service Plans. . . . . . . . . . . . . . . . 29
About Your Account
How To Buy Shares . . . . . . . . . . . . . . . . . . . . 31
How To Sell Shares. . . . . . . . . . . . . . . . . . . . 37
How To Exchange Shares. . . . . . . . . . . . . . . . . . 40
Dividends, Capital Gains and Taxes. . . . . . . . . . . . 42
Additional Information About the Fund . . . . . . . . . . 45
Financial Information About the Fund
Independent Auditors' Report. . . . . . . . . . . . . . . . . 46
Financial Statements. . . . . . . . . . . . . . . . . . . . . 47
Appendix A: Municipal Bond Ratings . . . . . . . . . . . . . A-1
Appendix B: Equivalent Yield Chart . . . . . . . . . . . . . B-1
Appendix C: Industry Classifications . . . . . . . . . . . . C-1
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ABOUT THE FUND
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and policies
of the Fund are described in the Prospectus. Set forth below is
supplemental information about those policies and the types of securities
in which the Fund invests, as well as the strategies the Fund may use to
try to achieve its objective. Certain capitalized terms used in this
Additional Statement have the same meaning as those terms used 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.
-- Municipal Lease Obligations. 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 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.
Municipal leases may take the form of a lease or an installment purchase
contract issued by a state or local government authority to obtain funds
to acquire a wide variety of equipment and facilities. Although lease
obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for,
appropriate and make the payments due under the lease obligation.
However, certain lease obligations contain "non-appropriation" clauses
which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated
for such purpose on a yearly basis. In addition to the risk of "non-
appropriation," municipal lease securities do not yet have a highly
developed market to provide the degree of liquidity of conventional
municipal bonds. Municipal leases, like other municipal debt obligations,
are subject to the risk of non-payment. The ability of issuers of
municipal leases to make timely lease payments may be adversely affected
in general economic downturns and as relative governmental cost burdens
are reallocated among federal, state and local governmental units. Such
non-payment would result in a reduction of income to the Fund, and could
result in a reduction in the value of the municipal lease experiencing
non-payment and a potential decrease in the net asset value of the Fund.
-- 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.
-- Ratings of Municipal Securities. Moody's and S&P's ratings (see
Appendix A) represent their respective opinions of the quality of the
Municipal Securities they undertake to rate. However, such ratings are
general and are not absolute standards of quality. Consequently, Municipal
Securities with the same maturity, coupon and rating may have different
yields, while Municipal Securities of the same maturity and coupon with
different ratings may have the same yield. Investment in lower quality
securities may produce a higher yield than securities rated in the higher
rating categories described in the Prospectus (or judged by the Manager
to be of comparable quality). However, the added risk of lower quality
securities might not be consistent with a policy of preservation of
capital.
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 Trust 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 Trust 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 18, 1995, and no
representation is made as to the accuracy of such information.
- -- 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. In order to achieve a balanced budget as required by the laws of
the State for the 1992 fiscal year, the City increased taxes and reduced
services during the 1991 fiscal year to close a then projected gap of $3.3
billion in the 1992 fiscal year which resulted from, among other things,
lower than projected tax revenue of approximately $1.4 billion, reduced
State aid for the City and greater than projected increases in legally
mandated expenditures, including public assistance and Medicaid
expenditures. Beginning in calendar year 1992, the improvement in the
national economy helped stabilize conditions in the City. Employment
losses moderated toward year-end and real Gross City Product ("GCP")
increased, boosted by strong wage gains. The City's current four-year
financial plan assumes that, after noticeable improvements in the City's
economy during calendar year 1994, economic growth will slow in calendar
years 1995 and 1996 with local employment increasing modestly. In
December 1994, the City experienced substantial shortfalls in payments of
non-property tax revenues from those forecasted. Through December 1994,
collections of non-property taxes were approximately $200 million lower
than projected.
For each of the 1981 through 1994 fiscal years, the City achieved
balanced operating results as reported in accordance with then applicable
generally accepted accounting principles ("GAAP"). The City was required
to close substantial budget gaps in recent years in order to maintain
balanced operating results. For fiscal year 1995, the City adopted a
budget which halted the trend in recent years of substantial increases in
City spending from one year to the next. There can be no assurance that
the City will continue to maintain a balanced budget as required by State
law 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 1995 through
1998 fiscal years (the "1995-1998 Financial Plan", "Financial Plan" or
"City Plan").
The City Comptroller and other agencies and public officials have
issued reports and made public statements which, among other things, state
that projected revenues may be different from those 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 City Plan. It is
reasonable to expect that such reports and statements will continue to be
issued and to engender public comment.
-- 1995-1998 Financial Plan. On October 25, 1994, the City published
the City Plan for the 1995-1998 fiscal years which is a proposed
modification to a financial plan submitted to the Control Board on July
8, 1994 (the "July City Plan") and which relates to the City, the Board
of Education ("BOE") and the City University of New York ("CUNY").
The City's July City Plan set forth proposed actions for the 1995
fiscal year to close a previously projected gap of approximately $2.3
billion for the 1995 fiscal year, which included City actions aggregating
$1.9 billion, a $288 million increase in State actions over the 1994 and
1995 fiscal years, and a $200 million increase in Federal assistance. The
City actions included proposed agency actions aggregating $1.1 billion,
including productivity savings; tax and fee enforcement initiatives;
service reductions; and savings from the restructuring of City services.
City actions also included savings of $45 million resulting from proposed
tort reform, the projected transfer to the 1995 fiscal year of $171
million of the projected 1994 fiscal year surplus, savings of $200 million
for employee health care costs, $51 million in reduced pension costs,
savings of $225 million from refinancing City bonds and $65 million from
the proposed sale of certain City assets.
The 1995-1998 City Plan published on October 25, 1994 reflects actual
receipts and expenditures and changes in forecast revenues and
expenditures since the July City Plan and projects revenues and
expenditures for the 1995 fiscal year balanced in accordance with GAAP.
For the 1995 fiscal year, the City Plan includes actions to offset an
additional potential $1.1 billion budget gap, resulting principally from
a $104 million decrease in the $171 million projected surplus from the
1994 fiscal year to be transferred to the 1995 fiscal year, due primarily
to lower projected tax revenues for the 1994 fiscal year; reductions in
projected tax revenues for the 1995 fiscal year totalling $170 million;
$60 million of increased City pension contributions resulting from lower
than expected earnings on pension fund assets for the 1994 fiscal year;
a $166 million shortfall in projected increased Federal assistance due
primarily to the failure to enact national health care reform; the failure
of the State Legislature to approve tort reform; the failure to achieve
the projected savings of $200 million for employee health care costs; a
$165 million increase in projected overtime expenditures; and additional
agency spending requirements, primarily for increased costs for foster
care and homeless services, and other decreased projected revenues.
The gap closing measures for the 1995 fiscal year include additional
proposed agency actions aggregating $851 million, which together with the
$1.1 billion of agency actions proposed in the July City Plan, are
substantial and may be difficult to implement. The City Plan is subject
to the ability of the City to implement proposed reductions in City
personnel and other cost reduction initiatives. In addition, legislation
has been adopted by the State Legislature that would impose a maintenance
of effort requirement on the level of funding required of the City for the
BOE. This legislation has not been forwarded to the Governor for
signature. If enacted into law, this legislation would require the City
to increase its fiscal year 1995 funding for the BOE by approximately $500
million over the amount included in the 1995-1998 City Plan, and could
also result in increased funding for the BOE in subsequent years.
The City Plan also sets forth projections for the 1996 through 1998
fiscal years and outlines a proposed gap-closing program to close
projected budget gaps of $1.0 billion, $1.5 billion and $2.0 billion for
the 1996 through 1998 fiscal years, respectively, after successful
implementation of the $1.1 billion gap-closing program for the 1995 fiscal
year. 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 in previous legislative sessions failed to approve
proposals for the State assumption of certain Medicaid costs and
reallocation in State education aid, 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.
In January, 1993, the City announced settlement with a coalition of
municipal unions covering approximately 44% of the City's workforce.
Subsequently, the City reached agreement with all but four of its major
bargaining units under terms generally consistent with the coalition
agreement. Taken together, these agreements cover approximately 95% of
the City's workforce. Contract disputes with the four major bargaining
units that did not reach agreement with the City are in arbitration. The
City Plan reflects the costs associated with these settlements, provides
for similar increases for all City-funded employees, and provides no
additional wage increases for City employees after the 1995 fiscal year.
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.
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 financial requirements. Such assumptions
and contingencies include the timing and pace of any regional and local
economic recovery, the impact of real estate tax revenues on the real
estate market, wage increases for City employees consistent with those
assumed in the City Plan, employment growth, the results of a pending
actuarial audit of the City's pension system which is expected to
significantly increase the City's annual pension costs, the ability to
implement proposed reductions in City personnel and other cost reduction
initiatives, which may require in certain cases the cooperation of the
City's municipal unions, and provision of State and Federal aid and
mandate relief.
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 1995 through 1998
contemplates the issuance of $11.3 billion of general obligation bonds
primarily to reconstruct and rehabilitate the City's infrastructure and
physical assets and to make other capital investments. In addition, the
City issues revenue and tax anticipation notes to finance its 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 capital and operating expenditures.
-- Ratings. In 1975, Standard & Poor's suspended its A rating of
City bonds. This suspension remained in effect until March 1981, at which
time the City received an investment grade rating of BBB from Standard &
Poor's. On July 2, 1985, Standard & Poor's revised its rating of City
bonds upward to BBB+ and on November 19, 1987, to A-. Moody's ratings of
City bonds were revised in November 1981 from B (in effect since 1977) to
Ba1, in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to A
and again in February 1991 to Baa1. Since July 15, 1993, Fitch has rated
City bonds A-.
On January 17, 1995, mayor Rudolph Giuliani announced that the City
would borrow money to help close its budget gap instead of turning to the
BOE to find savings this school year, which announcement resulted in
Standard & Poor's placing City bonds on a negative credit watch. Standard
& Poor's further indicated that it would reconsider the City's bond rating
in April 1995.
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 not 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, 1994, the City
and the Municipal Assistance Corporation for the City of New York had,
respectively, $21.218 billion and $4.146 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 1995 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, 1994, the City estimated its potential future
liability on account of all outstanding claims to be approximately $2.6
billion.
- -- New York State
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State economy has grown more slowly
than that of the nation as a whole, resulting in the gradual erosion of
its relative economic affluence. The causes of this relative decline are
varied and complex, in many cases involving national and international
developments beyond the State's control. Part of the reason for the long-
term relative decline in the State economy has been attributed to the
combined State and local tax burden, which is one of the highest in the
nation. The existence of this tax burden limits the State's ability to
impose higher taxes in the event of future financial difficulties.
Recently, the State has been relatively successful in bringing the rate
of growth in the public sector in the State in line with changes in the
private economy.
As a result of the national and regional economic recession, the
State's tax receipts for its 1991 and 1992 fiscal years were substantially
lower than projected, which resulted in reductions in State aid to
localities for the State's 1992 and 1993 fiscal years from amounts
previously projected and increases in certain states taxes and fees. The
State completed its 1993 fiscal year with a positive margin of $671
million in the General Fund, which was deposited into a tax refund reserve
account. The State's economy, as measured by employment, started to
recover near the start of the 1993 calendar year and the State completed
its 1994 fiscal year with a cash-basis balanced budget in the State's
General Fund (the major operating fund of the State), after depositing
$1.5 billion in various reserve funds.
The State's 1994-95 Financial Plan, which is based upon the enacted
State budget, projects a balanced General Fund. The State's 1994-95
Financial Plan provided the City with savings through various actions,
which include increased State education aid and State assumption of
certain costs previously paid by the City and restoration of certain prior
year revenue sharing reductions. However, the State Legislature failed
to enact a substantial portion of the proposed State assumption of local
Medicaid costs, other significant mandate relief items, and the proposed
tort reform legislation, which would have provided the City with
additional savings. The State's second quarterly update was released on
October 28, 1994. It projects a year-end surplus in the General Fund of
$14 million. The update revises the projected General Fund receipt and
disbursements contained in the 1994-95 State Financial Plan as revised by
the first quarterly update issued on July 29, 1994. Receipts are now
projected at $34.054 billion, a decreased of $267 million from the State's
first quarterly update, reflecting primarily recent weakness in the
financial services sector. The State's estimated disbursements are
projected at $33.967 billion, a decrease of $281 million from July,
attributable largely to anticipated decreases in social services spending.
However, the State Division of the Budget cautioned that its projections
were subject to the risk that increases in interest rates could impede
economic growth. It has been reported the State will face a potential
budget gap for its 1995-96 fiscal year which could approximate $4 billion.
As a result, the State would be required to take actions to increase
receipts and/or reduce disbursements from projected levels when it
proposes its budget for the 1995-96 fiscal year, which could result in
reductions in State aid to localities.
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.
-- Ratings. On January 13, 1992, Standard & Poor's reduced its
ratings on the State's general obligation bonds from A to A- and, in
addition, reduced its ratings on the State's moral obligation, lease
purchase, guaranteed and contractual obligation debt. Standard & Poor's
also continued its negative rating outlook assessment on State general
obligation debt. On April 26, 1993, Standard & Poor's revised the rating
outlook assessment to stable. On February 14, 1994, Standard & Poor's
raised its outlook to positive and, on June 27, 1994, confirmed its A-
rating.
On January 6, 1992, Moody's reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from
A to Baa1. On June 27, 1994, Moody's reconfirmed its A rating on the
State's general obligation long-term indebtedness.
Ratings reflect only the respective views of such organizations. See
"New York City - Ratings," above on page 8.
-- Litigation.
Abandoned Property Law. On May 31, 1988, the Supreme Court of the
United States took jurisdiction of a claim of the State of Delaware that
certain unclaimed dividends, interest and other distributions made by
issuers of securities and held by New York-based brokers incorporated in
Delaware for beneficial owners who cannot be identified or located, had
been, and were being, wrongfully taken by the State of New York pursuant
to New York's Abandoned Property Law (State of Delaware v. State of New
York). Texas intervened, claiming a portion of such distributions and
similar property taken by the State of New York from New York-based banks
and depositories incorporated in Delaware. All other states and the
District of Columbia moved to intervene. In a decision dated March 30,
1993, the United States Supreme Court granted all pending motions of the
states and the District of Columbia to intervene and remanded the case to
a Special Master for further proceedings consistent with the Court's
decision. The Court determined that the abandoned property should be
remitted first to the state of the beneficial owner's last known address,
if ascertainable and, if not, then to the state of incorporation of the
intermediary bank, broker or depository. New York and Delaware have
executed a settlement agreement which provides for payments by New York
to Delaware of $35 million in the State's 1993-94 fiscal year and five
annual payments thereafter of $33 million. New York and Massachusetts
have executed a settlement agreement which provides for aggregate payments
by New York of $23 million, payable over five consecutive years. The
claims of the other states and the District of Columbia remain.
Public Authority Financing Programs. On June 30, 1994, the Court of
Appeals unanimously affirmed the rulings of the trial court and the
Appellate Division on favor of the State in case of Schulz et al. v. State
of New York, et al. (commencement May 24, 1993) and upheld the
constitutionality of certain highway, bridge and mass transportation
bonding programs of the New York State Thruway Authority and the
Metropolitan Transportation Authority authorized by Chapter 56 of the Laws
of 1993.
In upholding the State's position, the Court of Appeals found that,
because the State itself does not become "indebted" in financing
arrangements with public authorities where the State's obligation to make
payments is subject to appropriation, such as lease-purchase and
contractual-obligation financing arrangements described in the State's
Annual Information Statement, those financing arrangements do not
constitute indebtedness of the State for purposes of the State
constitutional limits on debt and are thus not required to be submitted
to the voters for approval at a general election.
Plaintiffs' motion for reargument before the Court of Appeals was
denied on September 1, 1994. The time for appeal to the United States
Supreme Court by petition for a writ of certiorari has not yet expired.
Medicaid Cases. In Matter of New York Association of Homes and
Services for the Aging, Inc. v. Commissioner, by decision dated June 30,
1994, the Court of Appeals held invalid the State Department of Health's
retroactive application to rate years 1989 through 1991 of the nursing
home Medicaid reimbursement rate recalibration adjustment set forth in 10
NYCRR Section 86-2.31(a).
Other Investment Techniques and Strategies
-- 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.
-- Hedging with Options and Futures. As described in the Prospectus,
the Fund may 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.
The Fund may concurrently buy and sell Futures contracts in the
expectation that the Future purchased will outperform the Future sold.
For example, the Fund might simultaneously buy Municipal Bond Futures and
sell U.S. Treasury Bond Futures. This type of transaction would be
profitable to the Fund if municipal bonds, in general, outperform U.S.
Treasury bonds. Risks of this type of Futures strategy include the
possibility that the Manager does not correctly assess the relative
durations of the investments underlying the Futures, with the result that
the strategy changes the overall duration of the Fund's portfolio in a
manner that increases the volatility of the Fund's price per share.
Duration is a volatility measure that refers to the expected percentage
change in the value of a bond resulting from a change in general interest
rates (measured by each 1% change in the rates on U.S. Treasury
securities). For example, if a bond has an effective duration of three
years, a 1% increase in general interest rates would be expected to cause
the bond to decline about 3%.
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 exercise 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. When the Fund
writes an over-the-counter("OTC") option, it intends to into an
arrangement with a primary U.S. Government securities dealer, which would
establish a formula price at which the Fund would have the absolute right
to repurchase that OTC option. This formula price would generally be
based on a multiple of the premium received for the option, plus the
amount by which the option is exercisable below the market price of the
underlying security ("in-the-money"). For any OTC option the Fund writes,
it will treat as illiquid (for purposes of its restriction on illiquid
securities, stated in the Prospectus) the mark-to-market value of any OTC
option held by it. The Securities and Exchange Commission is evaluating
the general issue of whether or not OTC options should be considered as
liquid securities, and the procedure described above could be affected by
the outcome of that evaluation.
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 Fund is required
to operate within certain guidelines and restrictions with respect to its
use of futures and options thereon as established by the Commodities
Futures Trading Commission ("CFTC"). In particular, the Fund is excluded
from registration as a "commodity pool operator" if it complies with the
requirements of Rule 4.5 adopted by the CFTC. The Rule does not limit the
percentage of the Fund's assets that may be used for Futures margin and
related options premiums for a bona fide hedging position. However, under
the Rule the Fund must limit its aggregate initial futures margin and
related option premiums to no more than 5% of the Fund's net assets for
hedging strategies that are not considered bona fide hedging strategies
under the Rule.
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.
Other 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) 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 (5) 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. 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.
For purposes of the Fund's policy not to concentrate its assets,
described under restriction number (3) in the Prospectus, the Fund has
adopted the industry classifications set forth in Appendix C to this
Statement of Additional Information.
How the Fund is Managed
Organization and History. As a Massachusetts business trust, the Fund is
not required to hold, and does not plan to hold, regular annual meetings
of shareholders. 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 for at least six months) holding shares of the Fund valued
at $25,000 or more or holding at least 1% of the Fund's outstanding
shares, whichever is less, stating that they wish to communicate with
other shareholders to request a meeting to remove a Trustee, the Trustees
will then either make the Fund's shareholder list available to the
applicants or mail their communication to all other shareholders at the
applicants' expense, or the Trustees may take such other action as set
forth under Section 16(c) of the Investment Company Act.
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 the 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 business trust (such as the
Fund) to be held personally liable as a "partner" under certain
circumstances, the risk of a Fund shareholder incurring financial loss on
account of shareholder liability is limited to the relatively remote
circumstances in which the Fund would be unable to meet its obligations
described above. Any person doing business with the Trust, and any
shareholder of the Trust, agrees under the Trust's Declaration of Trust
to look solely to the assets of the Trust for satisfaction of any claim
or demand which may arise out of any dealings with the Trust, and the
Trustees shall have no personal liability to any such person, to the
extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and
their principal occupations and business affiliations during the past five
years are listed below. The address of each Trustee and officer is Two
World Trade Center, New York, New York 10048-0203, unless another address
is listed below. All of the Trustees are also trustees or directors of
Oppenheimer Fund, Oppenheimer Time Fund, Oppenheimer Growth Fund,
Oppenheimer Global Fund, Oppenheimer Money Market Fund, Inc., Oppenheimer
U.S. Government Trust, Oppenheimer Gold & Special Minerals Fund,
Oppenheimer Discovery Fund, Oppenheimer Target Fund, Oppenheimer Asset
Allocation Fund, Oppenheimer Mortgage Income Fund, Oppenheimer Global
Emerging Growth Fund, Oppenheimer Global Growth & Income Fund, Oppenheimer
Tax-Free Bond Fund, Oppenheimer California Tax-Exempt Fund, Oppenheimer
Multi-State Tax-Exempt Trust, Oppenheimer Multi-Sector Income Trust and
Oppenheimer Multi-Government Trust (collectively, the "New York-based
OppenheimerFunds). Messrs. Spiro, Donohue, Bowen, Zack, Bishop and Farrar
respectively, hold the same offices with the other New York-based
OppenheimerFunds as with the Fund. As of December 31, 1994, the officers
and Trustees of the Fund as a group owned of record or beneficially 2.88%
of the Class A shares of the Fund and less than 1% of the Class B shares
of the Fund. The foregoing statement does not reflect ownership of shares
held of record by an employee benefit plan for employees of the Manager
(for which plan one of the officers listed above, Mr. Donohue, is a
trustee) other than the shares beneficially owned under that plan by the
officers of the Fund listed above.
Leon Levy, Chairman of the Board of Trustees; Age 69
General Partner of Odyssey Partners, L.P. (investment partnership);
Chairman of Avatar Holdings Inc. (real estate development).
Leo Cherne, Trustee, Age 82
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.
Robert G. Galli, Trustee*, Age 61
Vice Chairman of the Manager and Vice President and Counsel of
Oppenheimer Acquisition Corp., the Manager's parent holding company;
formerly he held the following positions: a director of the Manager
and Oppenheimer Funds Distributor, Inc. (the "Distributor"), Vice
President and a director of HarbourView Asset Management Corporation
("HarbourView") and Centennial Asset Management Corporation
("Centennial"), investment advisory 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, Age 71
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of Business
Administration, New York University; Director of Sussex Publishers,
Inc. (Publishers of Psychology Today and Mother Earth News) and a
Director of Spy Magazine, L.P.
Elizabeth B. Moynihan, Trustee; Age 65
801 Pennsylvania Avenue, N.W., Washington, D.C. 20004
Author and architectural historian; a trustee of the Freer Gallery
of Art (Smithsonian Institute), the Institute of Fine Arts (New York
University) and the National Building Museum; a member of the
Trustees Council, Preservation League of New York State; a member of
the Indo-U.S. Sub-Commission on Education and Culture.
Kenneth A. Randall, Trustee; Age 67
6 Whittaker's Mill, Williamsburg, Virginia 23185
A director of Dominion Resources, Inc. (electric utility holding
company), Dominion Energy, Inc. (electric power and oil & gas
producer), Enron-Dominion Cogen Corp. (cogeneration company), Kemper
Corporation (insurance and financial services company), and Fidelity
Life Association (mutual life insurance company); formerly Chairman
of the Board of ICL, Inc. (information systems) and President and
Chief Executive Officer of The Conference Board, Inc. (international
economic and business research).
Edward V. Regan, Trustee; Age 64
40 Park Avenue, New York, New York 10016
President of Jerome Levy Economics Institute; a member of the U.S.
Competitiveness Policy Council; a director of GranCare, Inc. (health
care provider); formerly New York State Comptroller and a trustee,
New York State and Local Retirement Fund.
Russell S. Reynolds, Jr., Trustee; Age 63
200 Park Avenue, New York, New York 10166
Founder and 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 Hospital and the Greenwich Historical Society.
Sidney M. Robbins, Trustee; Age 82
50 Overlook Road, Ossining, NY 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*; Age 69
Chairman Emeritus and a director of the Manager; formerly Chairman
of the Manager and the Distributor.
Pauline Trigere, Trustee; Age 82
498 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; Age 64
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), Farmers
Insurance Company (insurance), FMC Corp. (chemicals and machinery),
Lindsay Manufacturing Co. (irrigation equipment), Texas Instruments,
Inc. (electronics) and The Vigoro Corporation (fertilizer
manufacturer); formerly (in descending chronological order)
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.
Andrew J. Donohue, Secretary; Age: 44
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, prior to which he was a 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), and a director and an officer of First
Investors Family of Funds and First Investors Life Insurance Company.
Robert E. Patterson, Vice President and Portfolio Manager; Age 51
Senior Vice President of the Manager; an officer of other
OppenheimerFunds.
George C. Bowen, Treasurer; Age 58
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, Assistant Secretary and a director of
Centennial; Vice President, Secretary and Treasurer of SSI and SFSI;
an officer of other OppenheimerFunds.
Robert G. Zack, Assistant Secretary; Age 46
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI, SFSI; an officer of other
OppenheimerFunds.
Robert Bishop, Assistant Treasurer; Age 36
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; previously a Fund Controller for
the Manager, prior to which he was an Accountant for Yale &
Seffinger, P.C., an accounting firm, and an Accountant and
Commissions Supervisor for Stuart James Company Inc., a broker-
dealer.
Scott Farrar, Assistant Treasurer; Age 29
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund Accounting; an
officer of other OppenheimerFunds; previously a Fund Controller for
the Manager, prior to which he was an International Mutual Fund
Supervisor for Brown Brothers Harriman Co., a bank, and previously
a Senior Fund Accountant for State Street Bank & Trust Company.
[FN]
- ------------------
*A Trustee who is an "interested person" of the Fund as defined in the
Investment Company Act.
-- Remuneration of Trustees. The officers of the Fund are affiliated
with the Manager; they and the Trustees of the Fund who are affiliated
with the Manager (Messrs. Galli and Spiro; Mr. Spiro is also an officer)
receive no salary or fee from the Fund. The Trustees of the Fund
(including Mr. Delaney, a former Trustee, but excluding Messrs. Galli and
Spiro) received the total amounts shown below from all 19 of the New York-
based OppenheimerFunds (including the Fund) listed in the first paragraph
of this section (and from Oppenheimer Global Environment Fund, a former
New York-based OppenheimerFund), for services in the positions shown:
<TABLE>
<CAPTION>
Total Compensation
From All
New York-based
Name Position OppenheimerFunds1
<S> <C> <C>
Leon Levy Chairman and Trustee $141,000.00
Leo Cherne Audit Committee Member and Trustee$ 68,800.00
Edmund T. Delaney Study Committee Member and Trustee2$ 86,200.00
Benjamin Lipstein Study Committee Member and Trustee$ 86,200.00
Elizabeth B. MoynihanStudy Committee Member and3 Trustee$ 60,625.00
Kenneth A. Randall Audit Committee Member and Trustee$ 78,400.00
Edward V. Regan Audit Committee Member3 and Trustee$ 56,275.00
Russell S. Reynolds, Jr.Trustee $ 52,100.00
Sidney M. Robbins Study Committee Chairman, Audit$122,100.00
Committee Vice-Chairman and Trustee
Pauline Trigere Trustee $ 52,100.00
Clayton K. Yeutter Trustee $ 52,100.00
______________________
1For the 1994 calendar year.
2Board and committee positions held during a portion of the period shown.
3Committee position held during a portion of the period shown.
</TABLE>
The Fund has adopted a retirement plan that provides for payment to
a retired Trustee of up to 80% of the average compensation paid during
that Trustee's five years of service in which the highest compensation was
received. A Trustee must serve in that capacity for any of the New York-
based OppenheimerFunds for at least 15 years to be eligible for the
maximum payment. No payments have been made by the Fund under the plan as
of September 30, 1994. The total accrued liability for the New York-based
OppenheimerFunds referred to in the preceding paragraph for their
collective projected benefit obligations under the plan as of December 31,
1994 was $1,714,000.
-- Major Shareholders. As of December 31, 1994, no person owned of
record or is known by the Fund to own beneficially 5% or more of the
Fund's outstanding Class A or Class B shares.
The Manager and Its Affiliates. The Manager is 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. Galli and Spiro) serve as Trustees
of the Fund.
-- The Investment Advisory Agreement. The investment advisory
agreement between the Manager and the Fund requires the Manager, at its
expense, to provide the Fund with adequate office space, facilities and
equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
administration for the Fund, including the compilation and maintenance of
records with respect to its operations, the preparation and filing of
specified reports, and the composition of proxy materials and registration
statements for continuous public sale of shares of the Fund.
Expenses not expressly assumed by the Manager under the advisory
agreement or by the Distributor under the General Distributor's Agreement
are paid by the Fund. The advisory agreement lists examples of expenses
paid by the Fund, the major categories of which relate to interest, taxes,
fees to certain Trustees, legal and audit expenses, custodian and transfer
agent expenses, share issuance costs, certain printing and registration
costs, brokerage commissions, and non-recurring expenses, such as
litigation.
The advisory agreement contains no provision limiting the Fund's
expenses. However, independently of the advisory agreement, the Manager
has voluntarily undertaken that the total expenses of the Fund in any
fiscal year (including the management fee, but excluding taxes, interest,
brokerage commissions, distribution plan payments and extraordinary
expenses such as litigation costs) shall not exceed the most stringent
expense limitation imposed under state law applicable to the Fund.
Currently, the most stringent state expense limitation is imposed by
California, and limits the Fund's expenses (with specific exclusions) to
2.5% of the first $30 million of average annual net assets, 2% of the next
$70 million, and 1.5% of average annual net assets in excess of $100
million. The Manager reserves the right to change or eliminate the
undertaking at any time. Any assumption of the Fund's expenses under that
limitation would lower the Fund's overall expense ratio and increase its
total return during any period in which expenses are limited.
For the fiscal years ended September 30, 1992, 1993 and 1994 the
management fees paid by the Fund to the Manager were $2,432,697,
$3,486,365, and $4,074,417, respectively.
The advisory 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 investment of Fund assets made with due care and in good
faith. The advisory 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 one or more additional companies for
which it may act as investment adviser or general distributor. If the
Manager shall no longer act as investment adviser to the Fund, the right
of the Fund to use the name "Oppenheimer" as part of its name may be
withdrawn.
-- The Distributor. Under its General Distributor's Agreement with
the Fund, the Distributor acts as the Fund's principal underwriter in the
continuous public offering of the Fund's Class A and Class B shares, but
is not obligated to sell a specific number of shares. Expenses normally
attributable to sales (excluding payments under the Distribution and
Service Plans but including advertising and the cost of printing and
mailing prospectuses other than those furnished to existing shareholders),
are borne by the Distributor. During the fiscal years ended September 30,
1992, 1993 and 1994, the aggregate sales charges on sales of the Fund's
Class A shares were $6,102,413, $8,118,017 and $2,933,373, respectively,
of which the Distributor and an affiliated broker-dealer retained in the
aggregate $1,165,277, $1,410,798 and $551,881 in those respective years.
During the Fund's fiscal year ended September 30, 1994, the contingent
deferred sales charge collected on the Fund's Class B shares totaled
$149,477, all of which the Distributor retained. For additional
information about distribution of the Fund's shares and the expenses
connected with such activities, please refer to "Distribution and Service
Plans," below.
-- The Transfer Agent. Oppenheimer Shareholder Services, the Fund's
Transfer Agent, is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder servicing
and administrative functions.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the
duties of the Manager under the advisory agreement is to arrange the
portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers ("brokers") to
effect the Fund's portfolio transactions. In doing so, the Manager is
authorized by the advisory agreement to employ broker-dealers, including
"affiliated" brokers, as that term is defined in the Investment Company
Act, 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
as established by its Board of Trustees.
Under the advisory agreement, the Manager is authorized to select
brokers that 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 and the commission is fair and
reasonable in relation to the services provided. Subject to the foregoing
considerations, the Manager may also consider sales of shares of the Fund
and other investment companies managed by the Manager or its affiliates
as a factor in the selection of brokers for the Fund's portfolio
transactions.
Description of Brokerage Practices Followed by the Manager. Subject to
the provisions of the advisory agreement, the procedures and rules
described above, allocations of brokerage are generally made by the
Manager's portfolio traders based upon new recommendations from the
Manager's portfolio managers. In certain instances, portfolio managers
may directly place trades and allocate brokerage, also subject to the
provisions of the advisory agreement and the procedures and rules
described above. In each case, brokerage is allocated under the
supervision of the Manager's executive officers. 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
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. 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
transaction in the securities to which the option relates. When 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.
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 received for the commissions of those
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 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. If a research service also assists the Manager in a non-
research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the
Manager in the investment decision-making process may be paid in
commission dollars. 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.
The research services provided by brokers broadens the scope and
supplement the research activities of the Manager, by making available
additional views for consideration and comparisons, and enabling the
Manager to obtain market information for the valuation of securities held
in the Fund's portfolio or being considered for purchase. The Board of
Trustees, including the "independent" Trustees of the Fund (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 advisory agreement or the Distribution Plans described
below) annually reviews information furnished by the Manager as to the
commissions paid to brokers furnishing such services so that the Board may
ascertain whether the amount of such commissions was reasonably related
to the value or benefit of such services.
Performance of the Fund
As described in the Prospectus, from time to time the "standardized
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 for each class and the components of those
calculations is set forth below.
-- Standardized Yields
-- Yield. The Fund's "yield" (referred to as "standardized yield")
for a given 30-day period for a class of shares is calculated using the
following formula set forth in rules adopted by the Securities and
Exchange Commission that apply to all funds that quote yields:
(a-b) 6
Standardized 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 that class on the last
day of the period, adjusted for undistributed net investment
income.
The standardized 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 standardized yield for a 30-day period occurs at a constant rate for
a six-month period and is annualized at the end of the six-month period.
This standardized yield is not based on actual distributions paid by the
Fund to shareholders in the 30-day period, but is a hypothetical yield
based upon the net investment income from the Fund's portfolio investments
calculated for that period. The standardized yield may differ from the
"dividend yield" of that class, described below. Additionally, because
each class of shares is subject to different expenses, it is likely that
the standardized yields of the Fund's classes of shares will differ. For
the 30-day period ended September 30, 1994, the standardized yields for
the Fund's Class A and Class B shares were 5.24% and 4.72%, respectively.
-- Tax-Equivalent Yield. The Fund's "tax-equivalent yield" adjusts
the Fund's current yield, as calculated above, by a stated combined
Federal, state and city tax rate. The tax equivalent yield is based on
a 30-day period, and is computed by dividing the tax-exempt portion of the
Fund's current yield (as calculated above) by one minus a stated income
tax rate and adding the result to the portion (if any) of the Fund's
current yield that is not tax exempt. The tax equivalent yield may be
used to compare the tax effects of income derived from the Fund with
income from taxable investments at the tax rates stated. Appendix B
includes a tax equivalent yield table, based on various effective tax
brackets for individual taxpayers. Such tax brackets are determined by
a taxpayer's Federal, state and city taxable income (the net amounts
subject to Federal and state income taxes after deductions and
exemptions). The tax equivalent yield table assumes that the investor is
taxed at the highest bracket, regardless of whether a switch to non-
taxable investments would cause a lower bracket to apply. For taxpayers
with income above certain levels, otherwise allowable itemized deductions
are limited. The Fund's tax-equivalent yields (after expense assumptions
by the Manager) for its Class A and Class B shares for the 30-day period
ended September 30, 1994, for an individual New York City resident in the
47.05% combined tax bracket were 9.90% and 8.91%, respectively.
-- Dividend Yield and Distribution Return. 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. 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. When the result is
annualized for a period of 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
The maximum offering price for Class A shares includes the maximum
front-end sales charge. For Class B shares, the maximum offering price
is the net asset value per share, without considering the effect of
contingent deferred sales charges.
From time to time similar yield or distribution return calculations
may also be made using the Class A net asset value (instead of its
respective maximum offering price) at the end of the period.
The dividend yields on Class A shares for the 30-day period ended
September 30, 1994, were 5.79% and 6.08% when calculated at maximum
offering price and at net asset value, respectively. The dividend yield
on Class B shares for the 30-day period ended September 30, 1994, was
5.30%. Distribution returns for the 30-day period ended September 30,
1994 are the same as the above-quoted dividend yields. No portion of the
Class A or Class B dividends for the three months ended September 30, 1994
were derived from realized capital gains.
-- Total Return Information
-- Average Annual Total Returns. The "average annual total return"
of each class is an average annual compounded rate of return for each year
in a specified number of years. It is the rate of return based on the
change in value of a hypothetical initial investment of $1,000 ("P" in the
formula below) held for a number of years ("n") to achieve an Ending
Redeemable Value ("ERV"), according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
-- Cumulative Total Returns. The cumulative "total return"
calculation measures the change in value of a hypothetical investment of
$1,000 over an entire period of years. Its calculation uses some of the
same factors as average annual total return, but it does not average the
rate of return on an annual basis. Total return is determined as follows:
ERV - P
------- = Total Return
P
In calculating total returns for Class A shares, the current maximum
sales charge of 4.75% (as a percentage of the offering price) is deducted
from the initial investment ("P") (unless the return is shown at net asset
value, as discussed below). For Class B shares, payment of 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, 2.0% in the fifth year, 1.0%
in the sixth year and none thereafter is applied, as described in the
Prospectus. Total returns also assume that all dividends and capital
gains distributions during the period are reinvested to buy additional
shares 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
of the Fund for the one, five and ten year periods ended September 30,
1994 were -10.04%, 6.18% and 9.07%, respectively. The cumulative "total
return" on Class A shares for the ten year period ended September 30, 1994
was 138.24%. The average annual total returns on an investment in Class
B shares for the fiscal year ended September 30, 1994 and for the period
March 1, 1993 (the date Class B shares were first publicly offered)
through September 30, 1994 were -10.63% and -2.56%, respectively. The
cumulative total return on Class B shares for the period March 1, 1993
through September 30, 1994 was -4.02%.
-- Total Returns at Net Asset Value. From time to time the Fund may
also quote an average annual total return at net asset value or a
cumulative total return at net asset value for Class A or Class B shares.
Each is based on the difference in net asset value per share at the
beginning and the end of the period for a hypothetical investment in that
class of shares (without considering front-end or contingent sales
charges) and takes into consideration the reinvestment of dividends and
capital gains distributions.
The average annual total returns at net asset value for Class A
shares for the one, five and ten-year periods ended September 30, 1994
were -5.55%, 7.22% and 9.6%, respectively. The cumulative total return
at net asset value for Class A shares for the ten-year period ended
September 30, 1994 was 150.13%.
The average annual total returns at net asset value for Class B
shares for the fiscal year ended September 30, 1994 and for the period
March 1, 1993 (the date Class B shares were first publicly offered)
through September 30, 1994 were -6.22% and -0.23%, respectively. The
cumulative total return at net asset value for Class B shares for the
period March 1, 1993 through September 30, 1994 was -0.36%.
-- Other Performance Comparisons. 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 mutual fund
monitoring service. Lipper 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 is ranked against (1) all other funds,
excluding money market funds, and (ii) all other New York municipal bond
funds. The Lipper performance rankings are based on total returns that
include the reinvestment of capital gains distributions and income
dividends but do not take sales charges or taxes into consideration. From
time to time the Fund may include in its advertisement and sales
literature performance information about the Fund cited in other
newspapers and periodicals such as The New York Times, which may include
performance quotations from other sources, including Lipper and
Morningstar.
From time to time the Fund may publish the ranking of the performance
of its Class A or Class B shares by Morningstar, Inc., an independent
mutual fund monitoring service that ranks mutual funds, including the
Fund, monthly in broad investment categories (equity, taxable bond,
municipal bond and hybrid) based upon risk-adjusted investment returns.
Investment return measures a fund's three, five and ten-year average
annual total returns (when available) in excess of 90-day U.S. Treasury
bill returns after considering sales charges and expenses. Risk reflects
fund performance below 90-day U.S. Treasury bill returns. Risk and return
are combined to produce star rankings reflecting performance relative to
the average fund in a given fund's category. Five stars is the "highest"
ranking (top 10%), four stars is "above average" (next 22.5%), three stars
is "average" (next 35%), two stars is "below average" (next 22.5%) and one
star is "lowest" (bottom 10%). Morningstar ranks the Fund in relation to
other rated municipal bond funds. Rankings are subject to change.
Investors may also wish to compare the Fund's Class A or Class B
return to the return on fixed income investments available from banks and
thrift institutions, such as certificates of deposit, ordinary interest-
paying checking and savings accounts, and other forms of fixed or variable
time deposits, and various other instruments such as Treasury bills.
However, the Fund's returns and share price are not guaranteed and will
fluctuate daily, while bank depository obligations may be insured by the
FDIC and may provide fixed rates of return, and Treasury bills are
guaranteed as to principal and interest by the U.S. government. When
redeemed, an investor's shares may be worth more or less than their
original cost. Returns for any given past period are not a prediction or
representation by the Fund of future returns. The returns of Class A and
Class B shares of the Fund are affected by portfolio quality, the type of
investments the Fund holds and its operating expenses allocated to a
particular class.
From time to time, the Fund's Manager may publish rankings or ratings
of the Manager (or the Transfer Agent), by independent third-parties, on
the investor services provided by them to shareholders of the
OppenheimerFunds, other than the performance rankings of the
OppenheimerFunds themselves. These ratings or rankings of
shareholder/investor services may compare the OppenheimerFunds services
to those of other mutual fund families selected by the rating or ranking
services, and may be based upon the opinions of the rating or ranking
service itself, using its own research or judgment, or based upon surveys
of investors, brokers, shareholders or others. in relation to other equity
funds.
Distribution and Service Plans
The Fund has adopted a Service Plan for Class A shares and a
Distribution and Service Plan for Class B shares under Rule 12b-1 of the
Investment Company Act pursuant to which the Fund will reimburse the
Distributor 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 by a vote of (i) the Board
of Trustees of the Fund, including a majority of the Independent Trustees,
cast in person at a meeting called for the purpose of voting on that Plan,
and (ii) 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, that vote was cast by the Manager as the sole
initial holder of Class B shares of the Fund.
In addition, under the Plans the Manager and the Distributor, in
their sole discretion, from time to time may use their own resources
(which, in the case of the Manager, may include profits from the advisory
fee it receives from the Fund) to make payments to brokers, dealers or
other financial institutions (each is referred to as a "Recipient" under
the Plans) for distribution and administrative services they perform. The
Distributor and the Manager may, in their sole discretion, increase or
decrease the amount of payments they make to Recipients from their own
resources.
Unless terminated as described below, each Plan continues 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 that class. Neither Plan may be amended
to increase materially the amount of payments to be made unless such
amendment is approved by shareholders 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 each Plan, the
purpose for which the 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 on any such selection or nomination is approved by a
majority of such 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 allowed under the Plans and set no minimum amount.
For the fiscal year ended September 30, 1994, payments under the Class A
Plan totaled $1,780,777, all of which was paid by the Distributor to
Recipients, including $26,802 paid to an affiliate of the Distributor.
Any unreimbursed expenses incurred with respect to Class A shares for any
fiscal year by the Distributor may not be recovered in subsequent years.
Payments received by the Distributor under the Plan for Class A shares
will not be used to pay any interest expense, carrying charge, or other
financial costs, or allocation of overhead by the Distributor.
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. 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 .25% of the average daily net asset
value of Class B shares held in accounts of the Recipient or its
customers. 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. For the fiscal year ended September 30, 1994, payments made
under the Class B Plan totaled $612,760, of which the Distributor paid
$902 to an affiliate of the Distributor and retained $582,434 as
reimbursement for Class B sales commissions and service fee advances, as
well as financing costs; the balance of such Class B Plan payments was
paid by the Distributor to Recipients not affiliated with 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 imposed by the Rules of Fair Practice
of the National Association of Securities Dealers, Inc. on payments of
asset-based sales charges and service fees. The Distributor anticipates
that it will take a number of years for it to recoup (from the Fund's
payments to the Distributor under the Class B Plan and recoveries of the
contingent deferred sales charge) the sales commissions paid to authorized
brokers or dealers.
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 Class B 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 from
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, carrying charges or other financial costs that are
directly related to the carry-forward of actual distribution expenses.
For example, if the Distributor incurred distribution expenses of $4
million in a given fiscal year, of which $2,000,000 was recovered in the
form of contingent deferred sales charges paid by investors and $1,600,000
was reimbursed in the form of payments made by the Fund to the Distributor
under the Class B Plan, the balance of $400,000 (plus interest) would be
subject to recovery in future fiscal years from such sources.
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. 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.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A and Class B Shares. The
Alternative Sales Arrangements permit an investor to choose the method of
purchasing shares that is more beneficial to the investor depending on the
amount of the purchase, the length of time the investor expects to hold
shares and other relevant circumstances. Investors should understand that
the purpose and function of the deferred sales charge and asset-based
sales charge with respect to Class B shares are the same as those of the
initial sales charge with respect to Class A shares. Any salesperson 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 Distributor will not accept any order for $1 million or
more of Class B shares on behalf of a single investor (not including
dealer "street name" or omnibus accounts) because generally it will be
more advantageous for that investor to purchase Class A shares of the Fund
instead.
The two classes of shares each represent an interest in the same
portfolio investments of the Fund. However, 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.
The conversion of Class B shares to Class A shares is subject to the
continuing availability of a private letter ruling from the Internal
Revenue Service, or an opinion of counsel or tax adviser, to the effect
that the conversion of Class B shares does not constitute a taxable event
for the holder under Federal income tax law. If such a revenue ruling or
opinion is no longer available, the automatic conversion feature may be
suspended, in which event no further conversions of Class B shares would
occur while such suspension remained in effect. Although Class B shares
could then be exchanged for Class A shares on the basis of relative net
asset value of the two classes, without the imposition of a sales charge
or fee, such exchange could constitute a taxable event for the holder, and
absent such exchange, Class B shares might continue to be subject to the
asset-based sales charge for longer than six years.
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 net assets of such class to the Fund's total assets,
and then equally to each outstanding share within a given class. Such
general expenses include (i) management fees, (ii) legal, bookkeeping and
audit fees, (iii) printing and mailing costs of shareholder reports,
Prospectuses, Statements of Additional Information 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 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.
Determination of Net Asset Value Per Share. The net asset values per
share of Class A and Class B shares of the Fund are determined as of the
close of business of the New York Stock Exchange (the "NYSE") on each day
that the NYSE is open by dividing the value of the Fund's net assets
attributable to a class by the total number of shares of that class that
are outstanding. The NYSE normally closes at 4:00 P.M. New York time, but
may close earlier on some days (for example, in case of weather
emergencies or on days falling before a holiday). The NYSE's most recent
annual holiday schedule states that it will close on New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than NYSE members may conduct trading in Municipal
Securities on certain days on which the NYSE is closed (including weekends
and holidays) or after 4:00 P.M. on a regular business day). Because the
Fund's net asset values will not be calculated on those days, the Fund's
net asset value per share may be significantly affected, on such days when
shareholders may not purchase or redeem shares.
The Fund's Board of Trustees has established procedures for the
valuation of the Fund's securities, generally as follows: (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 bid and
asked prices determined by a portfolio pricing service approved by the
Fund's Board or obtained from active market makers in the security on the
basis of reasonable inquiry; (ii) short-term debt securities having a
remaining maturity of 60 days or less when purchased or which currently
have maturities of 60 days or less are valued at cost, adjusted for
amortization of premiums and accretion of discounts; and (iii) securities
or assets for which market quotations are not readily available are valued
at their fair value as determined in good faith under procedures
established by and under the general supervision and responsibility of the
Fund's Board of Trustees.
In the case of Municipal Securities, when 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 (such as the
tax-exempt status of the interest paid by Municipal Securities). The
Fund's Board of Trustees has authorized the Manager to 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 such pricing services by comparing prices used for portfolio
evaluation to actual sales prices of selected securities.
Puts, calls, Interest Rate Futures and Municipal Bond Index Futures
are valued at the last sales price on the principal exchange on which they
are traded. If there were no sales on the principal exchange, the last
sale on any exchange is used. In the absence of any sales that day, value
shall be the last reported sales price on the prior trading day or closing
bid or asked prices on the principal exchange closest to the last reported
sales price. When the Fund writes an option, an amount equal to the
premium received is included in the Fund's Statement of Assets and
Liabilities as an asset, and an equivalent deferred credit is included in
the liability section. The deferred credit is adjusted ("marked-to-
market") to reflect the current market value of the call.
AccountLink. When shares are purchased through AccountLink, each purchase
must be at least $25.00. Shares will be purchased on the regular business
day the Distributor is instructed to initiate the Automated Clearing House
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 the close of the NYSE that day, which is normally three
days after the ACH transfer is initiated. The Distributor and the Fund
are not responsible for any delays. If the Federal Funds are received
after the close of the NYSE, dividends will begin to accrue on the next
regular business day after such Federal Funds are received.
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 of expenses realized by the Distributor and dealers making such
sales. In the instances discussed in the Prospectus in which no sales
charge is imposed, that policy has been adopted because the Distributor
or dealer or broker incurs little or no selling expenses in such
circumstances. The term "immediate family" refers to one's spouse,
children, grandchildren, parents, grandparents, parents-in-law, siblings,
a spouse's siblings and a sibling's spouse.
-- The OppenheimerFunds. The OppenheimerFunds are those mutual funds
for which the Distributor acts as the distributor or the sub-Distributor
and include the following:
Oppenheimer Tax-Free Bond Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Bond Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer New York Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer Fund
Oppenheimer Discovery Fund
Oppenheimer Time Fund
Oppenheimer Target Fund
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Value Stock Fund
Oppenheimer Asset Allocation Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Main Street Income & Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Champion High Yield Fund
Oppenheimer Investment Grade Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Investment Grade Bond Fund
Oppenheimer Strategic Short-Term Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Strategic Diversified Income Fund
the following "Money Market Funds":
Oppenheimer Money Market Fund, Inc.
Oppenheimer Cash Reserves
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.
Daily Cash Accumulation Fund, Inc.
There is an initial sales charge on the purchase of Class A shares
of each of the OppenheimerFunds except Money Market Funds (under certain
circumstances described herein, redemption proceeds of Money Market Fund
shares may be subject to a contingent deferred sales charge).
-- 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 front-end 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 Letter states the investor's intention to make the aggregate
amount of purchases (excluding any purchases made by 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 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 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 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 Transfer Agent subject to
the Terms of Escrow. Also, the investor agrees to be bound by the terms
of the Prospectus, this Statement of Additional Information and the
Application used for such Letter of Intent, and if such terms are amended,
as they may be from time to time by the Fund, that those amendments will
apply automatically to existing Letters of Intent.
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 advise the Distributor about 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 That Apply to Letters of Intent.
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
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 as attorney-in-fact to surrender for
redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding
of which may be counted toward completion of the Letter) do not include
any shares 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 one of the
OppenheimerFunds 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.
Asset Builder Plans. 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 Sell Shares," in the Prospectus. Asset Builder Plans
also enable shareholders of Oppenheimer Cash Reserves to use those
accounts for monthly automatic purchases of shares of up to four other
Eligible Funds.
There is a sales charge on the purchase of certain Eligible Funds.
An application should be obtained from the Transfer Agent, completed and
returned, and a prospectus of the selected fund(s) (available from the
Distributor) should be obtained before initiating Asset Builder payments.
The amount of the Asset Builder investment may be changed or the automatic
investments may be terminated at any time by writing to the Transfer
Agent. A reasonable period (approximately 15 days) is required after the
Transfer Agent's 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.
Cancellation of Purchase Orders. Cancellation of purchase orders for the
Fund's shares (for example, when a purchase check is returned to the Fund
unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date.
That loss is equal to the amount of the decline in the net asset value per
share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to
compensate the Fund for the loss, the Distributor will do so. The Fund
may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or the Fund or the Distributor
may seek other redress.
Checkwriting. When a check is presented to the Bank for clearance, the
Bank will ask the Fund to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the
check. This enables the shareholder to continue receiving dividends on
those shares until the check is presented to the Fund. Checks may not be
presented for payment at the offices of the Bank or the Fund's Custodian.
This limitation does not affect the use of checks for the payment of bills
or to obtain cash at other banks. The Fund reserves the right to amend,
suspend or discontinue offering checkwriting privileges at any time
without prior notice.
How to Sell Shares
Information on how to sell shares of the Fund is stated in the
Prospectus. The information below supplements the terms and conditions for
redemptions set forth in the Prospectus.
-- Involuntary Redemptions. The Fund's Board of Trustees has the
right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of such shares is less than $500
or such lesser amount as the Board may fix. The Board of Trustees will
not cause the involuntary redemption of shares in an account if the
aggregate net asset value of such shares has fallen below the stated
minimum solely as a result of market fluctuations. 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 increase the investment, and other terms and conditions
so that the shares would not be involuntarily redeemed.
-- Payments "In Kind". The Prospectus states that payment for shares
tendered for redemption is ordinarily made in cash. However, if the Board
of Trustees of the Fund determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
of a redemption order wholly or partly in cash, 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 rules of the Securities and Exchange Commission. The Fund
has elected to be governed by Rule 18f-1 under the Investment Company 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 the Fund during
any 90-day period for any one shareholder. If shares are redeemed in kind,
the redeeming shareholder might incur brokerage or other costs in selling
the securities for cash. The method of valuing securities used to make
redemptions in kind will be the same as the method the Fund uses to value
it portfolio securities described above under "Determination of Net Asset
Value Per Share" and such valuation will be made as of the time the
redemption price is determined.
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 contingent
deferred sales charge when redeemed. The reinvestment may be made without
sales charge only in Class A shares of the Fund or any of the other
OppenheimerFunds into which shares of the Fund are exchangeable, as
described below, at the net asset value next computed the Transfer Agent
receives the reinvestment order. The shareholder must ask the Distributor
for such privilege at the time of reinvestment. Any capital gain that was
realized when the shares were redeemed is taxable, and reinvestment will
not alter any capital gains tax payable on that gain. If there has been
a capital loss on the redemption, some or all of the loss may not be tax
deductible, depending on the timing and amount of the reinvestment. Under
the Internal Revenue Code, if the redemption proceeds of Fund shares on
which a sales charge was paid are reinvested in shares of the Fund or
another of the OppenheimerFunds within 90 days of payment of the sales
charge, the shareholder's basis in the shares of the Fund that were
redeemed may not include the amount of the sales charge paid. That would
reduce the loss or increase the gain recognized from the redemption.
However, in that case the sales charge would be added to the basis of the
shares acquired by the reinvestment of the redemption proceeds. 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.
Transfers of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of either class at the time of transfer
to the name of another person or entity (whether the transfer occurs by
absolute assignment, gift or bequest, not involving, directly or
indirectly, a public sale). The transferred shares will remain subject
to the contingent deferred sales charge, calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at
the same time as the transferring shareholder. If less than all shares
held in an account are transferred, and some but not all shares in the
account would be subject to a contingent deferred sales charge if redeemed
at the time of transfer, the priorities described in the Prospectus under
"How to Buy Shares" for the imposition of the Class B contingent deferred
sales charge will be followed in determining the order in which shares are
transferred.
Special Arrangements for Repurchase of Shares from Dealers and Brokers.
The Distributor is the Fund's agent to repurchase its shares from
authorized dealers or brokers. The repurchase price per share will be the
net asset value next computed after the Distributor receives the order
placed by the dealer or broker, except that if the Distributor receives
a repurchase order from a dealer or broker after the close of the New York
Stock Exchange on a regular business day, it will be processed at that
day's net asset value if the order was received by the broker or dealer
from its customer prior to the time the Exchange closed (normally that is
4:00 P.M., but may be earlier some days) and the order was transmitted to
and received by the Distributor prior to its close of business (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 in the Prospectus.
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). Required minimum distributions from OppenheimerFunds-sponsored
retirement plans may not be arranged on this basis. Payments are normally
made by check, but shareholders having AccountLink privileges (see "How
To Buy Shares") may arrange to have Automatic Withdrawal Plan payments
transferred to the bank account designated on the 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 Class A
share purchases, shareholders should not make regular additional Class A
purchases while participating in an Automatic Withdrawal Plan. Class B
shareholders should not establish withdrawal plans that would require the
redemption of shares purchased subject to a contingent deferred sales
charge and held less than 6 years, because of the imposition of the Class
B contingent deferred sales charge on such withdrawals (except where the
Class B contingent deferred sales charge is waived as described in "Class
B Contingent Deferred Sales Charge").
By requesting an Automatic Withdrawal or Exchange Plan, the
shareholder agrees to the terms and conditions applicable to such plans,
as stated below and in the provisions of the OppenheimerFunds Application
relating to such Plans, as well as the Prospectus. These provisions may
be amended from time to time by the Fund and/or the Distributor. When
adopted, such amendments will automatically apply to existing Plans.
-- Automatic Exchange Plans. Shareholders can authorize the Transfer
Agent (on the OppenheimerFunds Application or signature-guaranteed
instructions) to exchange a pre-determined amount of shares of the Fund
for shares (of the same class) of other OppenheimerFunds automatically on
a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. The minimum amount that may be exchanged to each other
fund account is $25. Exchanges made under these plans are subject to the
restrictions that apply to exchanges as set forth in "Exchange Privilege"
in the Prospectus and "How to Exchange Shares" below in this Statement of
Additional Information.
-- Automatic Withdrawal 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 capital gains distributions will be redeemed
next, followed by shares acquired with a sales charge, to the extent
necessary to make withdrawal payments. Depending upon the amount
withdrawn, the investor's principal may be depleted. Payments made under
such plans should not be considered as a yield or income on your
investment.
The Transfer Agent will administer the investor's Automatic
Withdrawal Plan (the "Plan") as agent for the investor (the "Planholder")
who executed the Plan authorization and application submitted to the
Transfer Agent. The Transfer Agent shall incur no liability to the
Planholder for any action taken or omitted by the Transfer Agent in good
faith to administer the Plan. Certificates will not be issued for shares
of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the
records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so
that the shares represented by the certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of
capital gains must be reinvested in shares of the Fund, which will be done
at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Redemptions of shares needed to make withdrawal payments will be made
at the net asset value per share determined on the redemption date.
Checks or AccountLink payments of the proceeds of Plan withdrawals will
normally be transmitted three business days prior to the date selected for
receipt of the payment (receipt of payment on the date selected cannot be
guaranteed), according to the choice specified in writing by the
Planholder.
The amount and the interval of disbursement payments and the address
to which checks are to be mailed or AccountLink payments are to be sent
may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time in mailing
such notification for the requested change to be put in effect. The
Planholder may, at any time, instruct the Transfer Agent by written notice
(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 that 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 to the Planholder.
The Plan may be terminated at any time by the Planholder by writing
to the Transfer Agent. A Plan may also be terminated at any time by the
Transfer Agent upon receiving directions to that effect from the Fund.
The Transfer Agent will also terminate a Plan upon receipt of evidence
satisfactory to it of the death or legal incapacity of the Planholder.
Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed from the account will be held in uncertificated
form 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 or his or her executor or
guardian, or other authorized person.
To use shares held under the Plan as collateral for a debt, the
Planholder may request issuance of a portion of the shares in certificated
form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued
without causing the withdrawal checks to stop because of exhaustion of
uncertificated shares needed to continue payments. However, should such
uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund,
the Planholder will be deemed to have appointed any successor transfer
agent to act as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of
OppenheimerFunds having more than one class of shares may be exchanged
only for shares of the same class of other OppenheimerFunds. Shares of
OppenheimerFunds that have a single class of shares without a class
designation are deemed "Class A" shares for this purpose. All of the
OppenheimerFunds offer Class A shares except for Oppenheimer Strategic
Diversified Income Fund, but only the following OppenheimerFunds 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 New York Tax-Exempt Fund
Oppenheimer California Tax-Exempt Fund
Oppenheimer Pennsylvania Tax-Exempt Fund
Oppenheimer New Jersey Tax-Exempt Fund
Oppenheimer Florida Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt Bond Fund
Oppenheimer Main Street California Tax-Exempt Fund
Oppenheimer Main Street Income & Growth Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Investment Grade Bond Fund
Oppenheimer Value Stock Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer High Yield Fund
Oppenheimer Mortgage Income Fund
Oppenheimer Cash Reserves (Class B shares are only available by
exchange)
Oppenheimer Growth Fund
Oppenheimer Equity Income Fund
Oppenheimer Global Fund
Oppenheimer Discovery Fund
Class A shares of OppenheimerFunds 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 OppenheimerFunds offered with
a sales charge upon payment of the sales charge (or, if applicable, may
be used to purchase shares of OppenheimerFunds subject to a contingent
deferred sales charge); and shares of this Fund acquired by reinvestment
of dividends or distributions from any other of the OppenheimerFunds 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 of the OppenheimerFunds. No contingent deferred sales
charge is imposed on exchanges of shares of either class purchased subject
to a contingent deferred sales charge. However, when Class A shares
acquired by exchange of Class A shares purchased subject to a Class A
contingent deferred sales charge 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 contingent deferred sales charge is imposed on the
redeemed shares (see "Class A Contingent Deferred Sales Charge" in the
Prospectus), and the Class B contingent deferred sales charge is imposed
on Class B shares redeemed within six years of the initial purchase of the
exchanged Class B shares.
When Class B shares are redeemed to effect an exchange, the
priorities described in "How To Buy Shares" in the Prospectus for the
imposition of the Class B contingent deferred sales charge will be
followed in determining the order in which the shares are exchanged.
Shareholders should take into account the effect of any exchange on the
applicability and rate of any contingent deferred sales charge that might
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.
The Fund reserves the right to reject telephone or written exchange
requests submitted in bulk by anyone on behalf of 10 or more accounts. The
Fund may accept requests for exchanges of up to 50 accounts per day from
representatives of authorized dealers that qualify for this privilege. In
connection with any exchange request, the number of shares exchanged may
be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or
this Statement of Additional Information or shares covered by a share
certificate that is not tendered with the request. In those cases, only
the shares available for exchange without restriction will be exchanged.
When exchanging shares by telephone, the shareholder must either have
an existing account in, or acknowledge receipt of a prospectus of, the
fund to which the exchange is to be made. For full or partial exchanges
of an account made by telephone, any special account features such as
Asset Builder Plans, Automatic Withdrawal Plans and retirement plan
contributions will be switched to the new account unless the Transfer
Agent is instructed otherwise. If all telephone lines are busy (which
might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by
telephone and would have to submit written exchange requests.
Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the
"Redemption Date"). Normally, shares of the fund to be acquired are
purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The
Fund reserves the right, in its discretion, to refuse any exchange request
that may disadvantage it (for example, if the receipt of multiple exchange
requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the
Fund).
The different OppenheimerFunds available for exchange have different
investment objectives, policies and risks, and a shareholder should assure
that the Fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal tax
purposes, an exchange transaction is treated as a redemption of shares of
one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of
redemption proceeds in such cases. The Fund, the Distributor, and the
Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other
transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of
record at the time of the previous determination of net asset value, or
as otherwise described in "How to Buy Shares." Daily dividends 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.
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 will be invested 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.
The amount of a class's distributions may vary from time to time
depending on market conditions, the composition of the Fund's portfolio,
and expenses borne by the Fund or borne separately by a class, as
described in "Alternative Sales Arrangements -- Class A and Class B
Shares," above. 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 as a result of the asset-based
sales charge on Class B shares, and Class B dividends will also differ in
amount as a consequence of any difference in net asset value between Class
A and Class B shares.
Distributions may be made annually in December out of any net short-
term or long-term capital gains realized from the sale of securities,
premiums from expired calls written by the Fund and net profits from
hedging instruments and closing purchase transactions realized in the
twelve months ending on October 31 of the current year. Any difference
between the net asset value of Class A and Class B shares will be
reflected in such distributions. Distributions from net short-term
capital gains are taxable to shareholders as ordinary income and when paid
by the Fund are considered "dividends." The Fund may make a supplemental
distribution of capital gains and ordinary income following the end of its
fiscal year. 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. There is no fixed
dividend rate (although the Fund may have a targeted dividend rate for
Class A shares) 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. All of the
Fund's dividends (excluding capital gains distributions) paid during 1994
were exempt from Federal and New York income taxes. 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. The
amount of any dividends attributable to tax preference items for purposes
of the alternative minimum tax will be identified when tax information is
distributed by the Fund. 10.2% of the Fund's dividends (excluding
distributions) paid during 1994 were a tax preference item for
shareholders subject to the alternative minimum tax.
A shareholder receiving a dividend from income earned by the Fund
from one or more of: (1) certain taxable temporary investments (such as
certificates of deposit, repurchase agreements, commercial paper and
obligations of the U.S. government, its agencies and instrumentalities);
(2) income from securities loans; (3) income or gains from options or
Futures; or (4) 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.
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 as
a regulated investment company in its last fiscal year and intends to
qualify in future years, but reserves the right not to qualify. The
Internal Revenue Code contains a number of complex tests to determine
whether the Fund will qualify, and the Fund might not meet those tests in
a 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 Covered Calls and Hedging
Instruments," above). If it does not qualify, the Fund will be treated for
tax purposes as an ordinary corporation and will receive no tax deduction
for payments of dividends and distributions made to shareholders.
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
in the period from November 1 of the prior year through October 31 of the
current year, or else the Fund must pay an excise tax on the amounts not
distributed. The Manager might determine in a particular year that it
might be in the best interest of shareholders for the Fund not to make
distributions at the required levels and to pay the excise tax on the
undistributed amounts. That would reduce the amount of income or capital
gains available for distribution to shareholders.
The Internal Revenue Code requires that a holder (such as the Fund)
of a zero coupon security accrue as income each year a portion of the
discount at which the security was purchased even though the Fund receives
no interest payment in cash on the security during the year. As an
investment company, the Fund must pay out substantially all of its net
investment income each year or be subject to excise taxes, as described
above. Accordingly, when the Fund holds zero coupon securities, it may
be required to pay out as an income distribution each year an amount which
is greater than the total amount of cash interest the Fund actually
received during that year. Such distributions will be made from the cash
assets of the Fund or by liquidation of portfolio securities, if
necessary. The Fund may realize a gain or loss from such sales. In the
event the Fund realizes net capital gains from such transactions, its
shareholders may receive a larger capital gain distribution than they
would have had in the absence of such transactions.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect
to reinvest all dividends and/or capital gains distributions in shares of
the same class of any of the other OppenheimerFunds listed in "Reduced
Sales Charges," above, at net asset value without sales charge. Class B
shareholders should be aware that as of the date of this Statement of
Additional Information, not all of the OppenheimerFunds offer Class B
shares. To elect this option, a shareholder must notify the Transfer
Agent in writing and either 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 certain of the OppenheimerFunds may be invested
in shares of this Fund on the same basis.
Additional Information About the Fund
The Custodian. Citibank, N.A. is the Custodian of the Fund's assets. The
Custodian's responsibilities include safeguarding and controlling the
Fund's portfolio securities, collecting income on the portfolio securities
and handling the delivery of such securities to and from the Fund. The
Manager has represented to the Fund that the banking relationships between
the Manager and 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 and its affiliates.
Independent Auditors. The independent auditors of the Fund audit the
Fund's financial statements and perform other related audit services.
They also act as auditors for certain other funds advised by the Manager
and its affiliates.
<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, 1994,
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 nine-year
period then ended and the ten-month period ended September 30, 1985. 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, 1994, 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, 1994, 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 nine-year period then ended
and the ten-month period ended September 30, 1985, in conformity with generally
accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
- -------------------------
KPMG PEAT MARWICK LLP
Denver, Colorado
October 21, 1994
<PAGE>
STATEMENT OF INVESTMENTS September 30, 1994
<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--98.6%
- ---------------------------------------------------------------------------------------------------------------------------------
NEW YORK--76.9% City of New York General Obligation Bonds:
Series A, 7.75%, 8/15/16 Baa1/A- $ 2,500,000 $ 2,737,152
Series B, 8.25%, 6/1/07 Baa1/A- 1,750,000 2,014,670
Series B, FSA Insured, 8.638%, 10/1/07(1) Aaa/AAA 7,500,000 7,231,462
Prerefunded, Series F, 8.25%, 11/15/17 Aaa/A- 7,820,000 9,300,505
Series F, 8.25%, 11/15/17 Baa1/A- 680,000 767,514
7.482%, 8/1/08(1) NR/NR 9,250,000 7,575,305
8.245%, 8/1/13(1) Baa1/A- 5,000,000 4,155,170
8.245%, 8/1/14(1) Baa1/A- 8,150,000 6,742,234
---------------------------------------------------------------------------------------------------
Dormitory Authority of the State of New York:
Revenue Bonds:
City University System:
Series A, 5.75%, 7/1/18 Baa1/BBB 2,500,000 2,219,317
Prerefunded, Series A, 7.625%, 7/1/20 AAA/BBB 1,475,000 1,679,425
Series C, 6%, 7/1/16 Baa1/BBB 9,000,000 8,311,788
Series U, 6.375%, 7/1/08 Baa1/BBB 3,000,000 2,961,834
Series V, 5.60%, 7/1/10 Baa1/BBB 10,880,000 9,872,478
Cornell University System, FGIC Insured,
6.875%, 7/1/14 Aa/AA 7,000,000 7,291,837
Department of Health, Prerefunded, 7.70%, 7/1/20 Aaa/BBB 2,750,000 3,141,974
Judicial Facilities Lease, Escrowed
to Maturity, MBIA Insured, 7.375%, 7/1/16 Aaa/AAA 2,300,000 2,586,035
Pooled Capital Program, Prerefunded,
FGIC Insured, 7.80%, 12/1/05 Aaa/AAA 8,145,000 8,827,045
Rockefeller University System,
MBIA Insured, 7.375%, 7/1/14 Aaa/AAA 4,000,000 4,295,555
Revenue Refunding Bonds:
City University System:
Second Series A, 5.75%, 7/1/18 Baa1/BBB 6,750,000 6,014,114
Series B, 6%, 7/1/14 Baa1/BBB 10,875,000 10,102,657
Fordham University System,
FGIC Insured, 5.75%, 7/1/15 Aaa/AAA/AAA 5,700,000 5,289,389
State University Educational Facilities System:
Series A, 5.25%, 5/15/15 Baa1/BBB+ 23,090,000 19,718,305
Series A, 5.25%, 5/15/21 Baa1/BBB+ 5,010,000 4,060,108
Prerefunded, Series B, 7.25%, 5/15/15 NR/AAA 1,735,000 1,940,519
Prerefunded, Series B, 7.25%, 5/15/15 Aaa/BBB+ 15,230,000 17,034,068
Series B, 7%, 5/15/16 Baa1/BBB+ 9,020,000 9,314,196
---------------------------------------------------------------------------------------------------
Grand Central District Management Assn., Inc.,
New York Business District Capital Improvement:
Revenue Bonds, Prerefunded, 6.50%, 1/1/22 Aaa/AAA 2,000,000 2,168,866
Revenue Refunding Bonds:
5.125%, 1/1/14 A1/A 1,000,000 849,551
5.25%, 1/1/22 A1/A 2,500,000 2,053,837
---------------------------------------------------------------------------------------------------
Metropolitan Transportation Authority
of New York Revenue Bonds:
Commuter Facilities, Series A,
MBIA Insured, 6.125%, 7/1/12 Aaa/AAA 4,090,000 4,007,234
Transportation Facilities Service
Contracts, 6%, 7/1/21 Baa1/BBB 12,950,000 11,723,581
---------------------------------------------------------------------------------------------------
New York City Health and Hospital Corp.
Revenue Refunding Bonds, Series A,
AMBAC Insured, 7.595%, 2/15/23(1) Aaa/AAA/AAA 8,300,000 6,549,206
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
==========================================================
==========================================================
=============
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED) New York City Housing Development Corp.
Multi-Family Housing Revenue Bonds:
1985 First Series, FHA Insured, 9.875%, 10/1/17 Aa/AA $ 500,000 $ 518,653
Glenn Garden Project, 6.50%, 1/15/18 NR/NR 3,045,199 2,928,446
Keith Plaza Project, 6.50%, 2/15/18 NR/NR 2,011,262 2,018,292
---------------------------------------------------------------------------------------------------
New York City Industrial Development Agency
Revenue Bonds, Terminal One Group Assn.:
6%, 1/1/15 A/A/A- 5,000,000 4,640,580
6.125%, 1/1/24 A/A/A- 3,000,000 2,784,918
---------------------------------------------------------------------------------------------------
New York City Municipal Water Finance Authority
Revenue Bonds, Water and Sewer System:
Prerefunded, Series A,
MBIA Insured, 7.25%, 6/15/15 Aaa/AAA 7,000,000 7,811,586
Series B, AMBAC Insured, 5.375%, 6/15/19 Aaa/AAA/AAA 5,000,000 4,320,170
Prerefunded, Series B, 6.375%, 6/15/22 A/A-/A 2,650,000 2,846,709
Series B, 6.375%, 6/15/22 A/A-/A 6,100,000 5,936,935
Prerefunded, Series C, 7.75%, 6/15/20 Aaa/A- 11,500,000 13,256,751
---------------------------------------------------------------------------------------------------
New York State Energy Research and
Development Authority:
Electric Facilities Revenue Bonds:
Consolidated Edison Co. of New York Project:
Series B, 6.375%, 12/1/27 Aa3/A+ 10,000,000 9,651,749
Series C, 7.25%, 11/1/24 Aa3/A+ 3,450,000 3,620,864
Long Island Lighting Co.:
Series A, 7.15%, 12/1/20 Ba1B+ 7,500,000 7,481,332
Series C, 6.90%, 8/1/22 Ba1/BB+/NR 9,200,000 8,901,081
Gas Facilities Revenue Bonds,
Brooklyn Union Gas Co. Project:
Series B, 10.546%, 7/1/26(1) A1/A/A 6,000,000 6,217,487
Series D, MBIA Insured, 7.569%, 7/8/26(1) Aaa/AAA/A 2,000,000 1,439,272
Pollution Control Revenue Bonds,
Orange and Rockland Utilities, Inc. Project,
10.25%, 10/1/14 Baa1/A-/A+ 1,700,000 1,734,000
---------------------------------------------------------------------------------------------------
New York State Housing Finance Agency:
Revenue Bonds, Service Contracts, Series D,
5.375%, 3/15/23 Baa1/BBB 9,000,000 7,566,570
Revenue Refunding Bonds:
New York City Health Facility:
Series A, 7.90%, 11/1/99 Baa/A- 3,500,000 3,843,826
Series A, 8%, 11/1/08 Baa/A- 3,240,000 3,646,785
State University Construction, Escrowed
to Maturity, Prerefunded, Series A, 7.90%, 11/1/06 Aaa/AAA 1,750,000 2,052,674
---------------------------------------------------------------------------------------------------
New York State Local Government
Assistance Corp. Revenue Bonds:
Series A, 5.375%, 4/1/14 A/A/A+ 5,500,000 4,812,962
Prerefunded, Series C, 7%, 4/1/21 Aaa/AAA/AAA 9,455,000 10,513,771
Series C, 5.50%, 4/1/22 A/A/A+ 16,175,000 14,022,560
Prerefunded, Series D, 6.75%, 4/1/21 Aaa/AAA/AAA 4,700,000 5,177,801
Revenue Refunding Bonds:
Series B, 5.50%, 4/1/21 A/A/A+ 12,800,000 11,091,160
Series C, 5%, 4/1/21 A/A/A+ 15,000,000 11,951,159
</TABLE>
<PAGE> 6
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
==========================================================
==========================================================
=============
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED) New York State Medical Care
Facilities Finance Agency:
Revenue Bonds:
Hospital and Nursing Home Mortgage:
Series B, FHA Insured, 6.20%, 8/15/22 NR/AAA $11,470,000 $10,873,581
Series C, FHA Insured, 6.375%, 8/15/29 NR/AAA 10,000,000 9,620,979
Long-Term Health Care,
Series C, CGIC Insured, 6.40%, 11/1/14 Aaa/AAA 3,000,000 3,006,168
Mental Health Services Facilities
Improvement Project:
Prerefunded, Series A, 8.875%, 8/15/07 Aaa/AAA 6,200,000 6,993,860
Series A, 8.875%, 8/15/07 Baa1/BBB+ 6,800,000 7,526,967
Series A, FGIC Insured, 6.375%, 8/15/17 Aaa/AAA/AAA 5,000,000 5,000,000
Series A, 7.70%, 2/15/18 Baa1/BBB+ 765,000 824,447
Prerefunded, Series B, 7.875%, 8/15/20 Aaa/AAA 2,800,000 3,229,346
Series B, 7.875%, 8/15/20 Baa1/BBB+ 2,020,000 2,210,954
St. Francis Hospital Project,
Series 1988A, FGIC Insured, 7.625%, 11/1/21 Aaa/AAA/AAA 2,690,000 2,924,640
Saint Luke's-Roosevelt Hospital Center Mtg.,
Prerefunded, Series B, FHA Insured, 7.45%, 2/15/29 Aaa/AAA 7,500,000 8,429,542
Revenue Refunding Bonds:
Hospital Mtg., Series A,
FHA Insured, 5.25%, 8/15/14 Aa/AAA 16,940,000 14,594,621
Mental Health Services Facilities
Improvement Project:
Series F, 5.375%, 2/15/14 Baa1/BBB+ 6,600,000 5,635,627
Series F, FSA Insured, 5.25%, 2/15/21 Aaa/AAA 4,400,000 3,705,236
---------------------------------------------------------------------------------------------------
New York State Mortgage Agency Revenue Bonds:
Eighth Series C, Verex Pool Insured, 8.40%, 10/1/17 Aa/NR 1,715,000 1,807,568
Ninth Series B, Verex Pool Insured, 8.30%, 10/1/17 Aa/NR 1,760,000 1,822,880
8.334%, 10/1/24(1) NR/NR 9,000,000 5,678,135
Homeowner Mortgage:
Series 1, 7.95%, 10/1/21 Aa/NR 2,270,000 2,343,532
Series GG, 7.60%, 10/1/18 Aa/NR 280,000 287,583
Series UU, FHA Insured, 7.75%, 10/1/23 Aa/NR 2,000,000 2,125,164
---------------------------------------------------------------------------------------------------
New York State Power Authority:
Revenue Bonds, Series Y, 6.50%, 1/1/11 Aa/AA- 2,500,000 2,557,287
Revenue Refunding Bonds, Series V, 8%, 1/1/17 Aa/AA- 5,580,000 6,076,168
---------------------------------------------------------------------------------------------------
New York State Thruway Authority Revenue Bonds,
Service Contract, Series A, 5.75%, 1/1/19 A1/A 10,000,000 8,999,829
---------------------------------------------------------------------------------------------------
New York State Urban Development Corp.,
Correctional Facilities Capital Project:
Revenue Bonds:
Prerefunded, Series G, 7.25%, 1/1/14 Aaa/NR 3,650,000 4,061,483
Prerefunded, Series G, 7%, 1/1/17 Aaa/NR 2,000,000 2,202,696
Revenue Refunding Bonds:
5.50%, 1/1/15 Baa1/BBB/A 10,000,000 8,699,229
5.50%, 1/1/18 Baa1/BBB/A 17,490,000 15,013,853
---------------------------------------------------------------------------------------------------
Onondaga County, New York Resources Recovery
Agency Revenue Bonds, Resources Recovery
Facilities Project, 7%, 5/1/15 Baa/NR/A- 14,500,000 14,451,758
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
==========================================================
==========================================================
=============
<S> <C> <C> <C> <C>
NEW YORK (CONTINUED) Port Authority of New York and New Jersey,
Consolidated Revenue Bonds:
Sixty Series, 8.25%, 4/1/23 A1/AA-/AA- $ 8,775,000 $ 9,096,761
Sixty-Second Series, 8%, 12/1/23 A1/AA-/AA- 1,370,000 1,441,595
Sixty-Third Series, 7.875%, 3/1/24 A1/AA-/AA- 9,000,000 9,502,596
Eighty-Fifth Series, 5.375%, 3/1/28 A1/AA-/AA- 9,000,000 7,555,680
---------------------------------------------------------------------------------------------------
Suffolk County, New York General Obligation
Refunding Bonds, Southwest Sewer District,
Escrowed to Maturity, Prerefunded, Series B,
22.875%, 2/1/95 NR/AAA 2,500,000 2,655,395
---------------------------------------------------------------------------------------------------
Triborough Bridge and Tunnel Authority
of New York General Purpose Revenue Bonds:
Series A, 5%, 1/1/12 Aa/A+ 13,130,000 11,237,468
Series A, 5%, 1/1/15 Aa2/A+ 7,500,000 6,286,778
Series B, 0%, 1/1/09 Aa2/A+ 3,925,000 1,605,800
Series B, 0%, 1/1/16 Aa2/A+ 2,540,000 644,266
Series B, 0%, 1/1/17 Aa2/A+ 13,045,000 3,095,343
Series X, 6%, 1/1/14 Aa2/A+ 14,510,000 13,871,065
Series Y, 5.50%, 1/1/17 Aa2/A+ 5,000,000 4,453,135
------------
585,474,039
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. POSSESSIONS--21.7% Puerto Rico Commonwealth Aqueduct and Sewer
Authority Revenue Bonds, Escrowed to Maturity,
Prerefunded, 10.25%, 7/1/09 Aaa/AAA 500,000 674,951
---------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth General Obligation
Refunding Bonds:
Series A, 6%, 7/1/14 Baa1/A 12,000,000 11,387,472
5.25%, 7/1/18 Baa1/A 20,000,000 16,823,898
Prerefunded, 7.70%, 7/1/20 NR/AAA 5,000,000 5,712,679
YCNS, FSA Insured, 8.021%, 7/1/20(1) Aaa/AAA 11,500,000 9,974,111
---------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway and
Transportation Authority Revenue Bonds:
Prerefunded, Series S, 6.50%, 7/1/22 NR/AAA 13,500,000 14,643,611
Prerefunded, Series T, 6.50%, 7/1/22 NR/AAA 2,790,000 3,026,346
Series W, 7.385%, 7/1/10(1) Baa1/A 9,000,000 7,361,333
---------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Infrastructure
Financing Authority Special Tax Revenue Bonds,
Series A, 7.75%, 7/1/08 Baa1/BBB+ 6,000,000 6,525,828
---------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority:
Revenue Bonds:
Prerefunded, Series O, 7.125%, 7/1/14 Baa1/AAA 6,145,000 6,759,554
Series O, 7.125%, 7/1/14 Baa1/A- 3,235,000 3,434,288
Series P, 7%, 7/1/21 Baa1/A- 6,000,000 6,213,215
Series T, 6%, 7/1/16 Baa1/A- 7,500,000 7,099,005
Revenue Refunding Bonds:
Series N, 5%, 7/1/12 Baa1/A- 6,545,000 5,519,149
Series U, 6%, 7/1/14 Baa1/A- 8,025,000 7,572,718
---------------------------------------------------------------------------------------------------
Puerto Rico Housing Bank and Finance
Agency Single Family Mtg. Revenue Bonds,
Homeownership--Fourth Portfolio,
Prerefunded, FHA Insured, 8.50%, 12/1/18 Aaa/NR 1,580,000 1,904,532
</TABLE>
<PAGE> 8
STATEMENT OF INVESTMENTS (Continued)
<TABLE>
<CAPTION>
RATINGS: MOODY'S/
S&P'S/FITCH'S FACE MARKET VALUE
(UNAUDITED) AMOUNT SEE NOTE 1
==========================================================
==========================================================
=============
<S> <C> <C> <C>
U.S. POSSESSIONS (CONTINUED) Puerto Rico Housing Finance Corp. Single
Family Mtg. Revenue Bonds, Prerefunded,
GNMA Collateral, 6.85%, 10/15/24 Aaa/AAA $ 3,250,000 $ 3,328,958
---------------------------------------------------------------------------------------------------
Puerto Rico Industrial, Medical and Environmental
Pollution Control Revenue Bonds:
American Airlines, Inc. Project,
Series A, 8.75%, 12/1/25 Baa1/A+ 850,000 894,734
Warner Lambert Co. Project, 7.60%, 5/1/14 AA/NR/AAA 3,000,000 3,335,067
---------------------------------------------------------------------------------------------------
Puerto Rico Public Buildings Authority
Guaranteed Public Education and Health Facilities:
Revenue Bonds:
Prerefunded, Series J, 7.25%, 7/1/17 Aaa/AAA 6,000,000 6,561,065
Prerefunded, Series L, 6.875%, 7/1/21 Aaa/A 6,000,000 6,647,825
Revenue Refunding Bonds:
Series L, 5.75%, 7/1/16 Baa1/A 12,100,000 11,089,118
Series M, 5.75%, 7/1/15 Baa1/A 11,500,000 10,523,581
---------------------------------------------------------------------------------------------------
Puerto Rico Telephone Authority Revenue Bonds,
MBIA Insured, 7.039%, 1/16/15(1) Aaa/AAA 11,000,000 8,577,271
------------
165,590,309
------------
Total Municipal Bonds and Notes (Cost $779,391,028) 751,064,348
==========================================================
==========================================================
=============
SHORT-TERM TAX-EXEMPT OBLIGATIONS--0.2%
- ---------------------------------------------------------------------------------------------------------------------------------
City of New York Cultural Resources Revenue
Refunding Bonds, American Museum of Natural
History, Series A, MBIA Insured, 3.35%(2)
(Cost $1,200,000) Aaa/AAA 1,200,000 1,200,000
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $780,591,028) 98.8%
752,264,348
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 1.2 8,911,968
----------- ------------
NET ASSETS 100.0% $761,176,316
===========
============
</TABLE>
(1) Represents the current interest rate for a
variable rate bond. Variable rate bonds known as
"inverse floaters" pay interest at a rate that
varies inversely with short-term interest rates.
As interest rates rise, inverse floaters produce
less current income. Their price may be more
volatile than the price of a comparable fixed-rate
security.
(2) 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, 1994.
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.
See accompanying Notes to Financial Statements.
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES September 30, 1994
<TABLE>
<S> <C> <C>
==========================================================
==========================================================
============
ASSETS Investments, at value (cost $780,591,028)--see accompanying statement $752,264,348
--------------------------------------------------------------------------------------------------
Cash 782,054
--------------------------------------------------------------------------------------------------
Receivables:
Interest 13,783,056
Shares of beneficial interest sold 1,123,453
--------------------------------------------------------------------------------------------------
Other 22,259
------------
Total assets 767,975,170
==========================================================
==========================================================
============
LIABILITIES Payables and other liabilities:
Shares of beneficial interest redeemed 3,431,982
Dividends 2,646,422
Distribution and service plan fees--Note 4 487,162
Other 233,288
------------
Total liabilities 6,798,854
==========================================================
==========================================================
============
NET ASSETS $761,176,316
============
==========================================================
==========================================================
============
COMPOSITION OF Paid-in capital $786,272,600
NET ASSETS --------------------------------------------------------------------------------------------------
Undistributed net investment income 1,685,934
--------------------------------------------------------------------------------------------------
Accumulated net realized gain from investment transactions 1,544,462
--------------------------------------------------------------------------------------------------
Net unrealized depreciation on investments--Note 3 (28,326,680)
------------
Net assets $761,176,316
============
==========================================================
==========================================================
============
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on net assets
of $687,233,355 and 57,643,750 shares of beneficial interest outstanding) $11.92
Maximum offering price per share (net asset value plus sales charge
of 4.75% of offering price) $12.51
--------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on
net assets of $73,942,961 and 6,199,583 shares of beneficial interest outstanding) $11.93
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 10
STATEMENT OF OPERATIONS For the Year Ended September 30, 1994
<TABLE>
<S> <C> <C>
==========================================================
==========================================================
============
INVESTMENT INCOME Interest $ 52,336,632
==========================================================
==========================================================
============
EXPENSES Management fees--Note 4 4,074,417
--------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A--Note 4 1,780,777
Class B--Note 4 612,760
--------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 4 487,979
--------------------------------------------------------------------------------------------------
Shareholder reports 133,381
--------------------------------------------------------------------------------------------------
Trustees' fees and expenses 81,122
--------------------------------------------------------------------------------------------------
Custodian fees and expenses 56,356
--------------------------------------------------------------------------------------------------
Legal and auditing fees 48,479
--------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 13,281
Class B 14,549
--------------------------------------------------------------------------------------------------
Other 86,167
------------
Total expenses 7,389,268
==========================================================
==========================================================
============
NET INVESTMENT INCOME 44,947,364
==========================================================
==========================================================
============
REALIZED AND UNREALIZED Net realized gain on investments 1,578,448
GAIN (LOSS) ON INVESTMENTS --------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (92,939,878)
-----------
Net realized and unrealized loss on investments (91,361,430)
==========================================================
==========================================================
============
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
$(46,414,066)
============
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 11
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1994 1993
==========================================================
==========================================================
============
<S> <C> <C> <C>
OPERATIONS Net investment income $ 44,947,364 $ 37,419,311
--------------------------------------------------------------------------------------------------
Net realized gain on investments 1,578,448 10,840,246
--------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments (92,939,878) 42,115,874
------------ ------------
Net increase (decrease) in net assets resulting from operations (46,414,066) 90,375,431
==========================================================
==========================================================
============
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS TO Class A ($.7155 and $.75 per share, respectively) (41,273,404) (37,617,756)
SHAREHOLDERS Class B ($.6033 and $.37 per share, respectively) (2,926,006) (558,098)
--------------------------------------------------------------------------------------------------
Dividends in excess of net investment income:
Class A ($.0081 per share) (464,748) --
Class B ($.0201 per share) (32,947) --
--------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments:
Class A ($.0260 and $.078 per share, respectively) (1,480,818) (3,645,107)
Class B ($.0260 per share) (97,630) --
--------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on investments:
Class A ($.1144 per share) (6,524,436) --
Class B ($.1144 per share) (430,153) --
==========================================================
==========================================================
============
BENEFICIAL INTEREST Net increase in net assets resulting from Class A
TRANSACTIONS beneficial interest transactions--Note 2 22,278,985 179,235,850
--------------------------------------------------------------------------------------------------
Net increase in net assets resulting from Class B
beneficial interest transactions--Note 2 40,649,454 39,841,699
==========================================================
==========================================================
============
NET ASSETS Total increase (decrease) (36,715,769) 267,632,019
--------------------------------------------------------------------------------------------------
Beginning of year 797,892,085 530,260,066
----------- -----------
End of year (including undistributed net investment
income of $1,685,934 and $1,237,047, respectively) $761,176,316 $797,892,085
============
============
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE> 12
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
CLASS A
----------------------------------------------------------------------------
YEAR ENDED
SEPTEMBER 30,
1994 1993 1992 1991 1990 1989 1988
==========================================================
==========================================================
============
<S> <C> <C> <C> <C> <C> <C>
<C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $13.50 $12.59 $12.21 $11.61 $11.87 $11.91 $11.60
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .74 .73 .79 .81 .83 .84(2) .88(2)
Net realized and unrealized
gain (loss) on investments (1.46) 1.01 .47 .64 (.25) .01 .45
-------- --------- -------- ------- -------- ------- ------
Total income (loss) from
investment operations (.72) 1.74 1.26 1.45 .58 .85 1.33
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net
investment income (.71) (.75) (.75) (.81) (.83) (.83) (.94)
Dividends in excess
of net investment income (.01) -- -- -- -- -- --
Distributions from net
realized gain on investments (.03) (.08) (.13) (.04) (.01) (.06) (.08)
Distributions in excess of net
realized gain on investments (.11) -- -- -- -- -- --
-------- --------- -------- ------- -------- ------- ------
Total dividends and
distributions to shareholders (.86) (.83) (.88) (.85) (.84) (.89) (1.02)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.92 $13.50 $12.59 $12.21 $11.61 $11.87 $11.91
======== ========= ======== =======
======== ======= ======
==========================================================
==========================================================
============
Total Return, at Net Asset Value(3) (5.55)% 14.33% 10.72% 12.93% 4.95% 6.91%
11.48%
==========================================================
==========================================================
============
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $687,233 $756,934 $530,260 $349,480 $250,012 $197,321 $116,931
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $738,747 $652,327 $436,876 $292,134 $227,504 $156,572 $95,996
- --------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 57,644 56,087 42,119 28,617 21,533 16,618 9,817
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.68% 5.66% 6.33% 6.81% 6.97% 7.07% 7.48%
Expenses .86% .91% .96% .96% .99% .98%(2) .90%(2)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 9.4% 39.1% 30.5% 8.9% 13.3% 11.8% 11.7%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B
-------------------------------------------- -----------------
TEN MONTHS ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30,
1987 1986 1985 1994 1993(1)
==========================================================
========================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $12.51 $10.98 $10.32 $13.50 $13.07
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .90(2) .86 .76 .64 .36
Net realized and unrealized
gain (loss) on investments (.79) 1.62 .67 (1.45) .44
-------- -------- ------- -------- -------
Total income (loss) from
investment operations .11 2.48 1.43 (.81) .80
- ------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net
investment income (.88) (.86) (.77) (.60) (.37)
Dividends in excess
of net investment income -- -- -- (.02) --
Distributions from net
realized gain on investments (.14) (.09) -- (.03) --
Distributions in excess of net
realized gain on investments -- -- -- (.11) --
------- -------- -------- ------- --------
Total dividends and
distributions to shareholders (1.02) (.95) (.77) (.76) (.37)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.60 $12.51 $10.98 $11.93 $13.50
======= ======== ======== =======
========
==========================================================
========================================================
Total Return, at Net Asset Value(3) .29% 22.73% 13.37% (6.22)% 6.56%
- ------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) $79,479 $50,810 $28,166 $73,943 $40,958
- ------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $65,102 $42,907 $15,240 $61,008 $20,454
- ------------------------------------------------------------------------------------------------------------------
Number of shares outstanding
at end of period (in thousands) 6,851 4,061 2,565 6,200 3,033
- ------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.33% 7.10% 8.05%(4) 4.88% 4.45%(4)
Expenses .67%(2) .86% 1.00%(4) 1.65% 1.73%(4)
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(5) 22.9% 29.7% 126.3% 9.4% 39.1%
</TABLE>
(1) For the period from March 1, 1993 (inception of offering) to September 30,
1993.
(2) 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.
(3) Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends and distributions reinvested
in additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns.
(4) Annualized.
(5) 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, 1994 were $145,939,745 and $73,796,519,
respectively.
See accompanying Notes to Financial Statements.
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
1. SIGNIFICANT Oppenheimer New York Tax-Exempt Fund (the Fund) is registered under the Investment Company
Act of
ACCOUNTING POLICIES 1940, as amended, as a diversified, open-end management investment company. The Fund's
investment
advisor 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 and/or service 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, 1994, a provision of $23,148 was made for the
Fund's projected benefit obligations, resulting in an accumulated liability of $127,766. 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 day the New York Stock Exchange is open for business
and pay such dividends monthly. Distributions from net realized gains on investments, if any, will be
declared at least once each year.
------------------------------------------------------------------------------------------------------
CHANGE IN ACCOUNTING FOR DISTRIBUTIONS TO SHAREHOLDERS. Effective October 1,
1993, the Fund adopted
Statement of Position 93-2: Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. As a result, the Fund
changed the classification of distributions to shareholders to better disclose the differences between
financial statement amounts and distributions determined in accordance with income tax regulations.
Accordingly, subsequent to September 30, 1993, amounts have been reclassified to reflect a decrease
in
paid-in capital of $2,595,004, an increase in undistributed net investment income of $287,909, and a
decrease in undistributed capital loss on investments of $2,307,095. During the year ended September
30, 1994, in accordance with Statement of Position 93-2, undistributed net investment income was
decreased by $89,281 and undistributed capital gain was increased by $89,281.
------------------------------------------------------------------------------------------------------
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. For bonds acquired after
April 30, 1993, accrued market discount is recognized at maturity or disposition as taxable ordinary
income. Taxable ordinary income is realized to the extent of the lesser of gain or accrued market
discount.
</TABLE>
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (Continued)
<TABLE>
<S> <C>
==========================================================
==========================================================
================
2. SHARES OF The Fund has authorized an unlimited number of no par value shares of beneficial interest of each
BENEFICIAL INTEREST class. Transactions in shares of beneficial interest were as follows:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1994 YEAR ENDED SEPTEMBER
30, 1993(1)
----------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 8,954,607 $115,070,127 18,532,060 $238,699,747
Dividends and distributions reinvested 2,804,397 35,919,371 2,235,515 28,846,483
Redeemed (10,201,903) (128,710,513) (6,800,016) (88,310,380)
----------- ------------ ---------- ------------
Net increase 1,557,101 $ 22,278,985 13,967,559 $179,235,850
-----------------------------------------------------------------------------------------------------
Class B:
Sold 3,489,946 $ 44,671,139 3,044,196 $ 39,986,285
Dividends and distributions reinvested 183,542 2,334,544 22,045 292,115
Redeemed (507,286) (6,356,229) (32,860) (436,701)
----------- ------------ ---------- ------------
Net increase 3,166,202 $ 40,649,454 3,033,381 $ 39,841,699
=========== ============
========== ============
</TABLE>
(1) 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>
<S> <C>
==========================================================
==========================================================
================
3. UNREALIZED GAINS AND At September 30, 1994, net unrealized depreciation on investments of $28,326,680 was
composed of gross
LOSSES ON INVESTMENTS appreciation of $18,530,958, and gross depreciation of $46,857,638.
==========================================================
==========================================================
================
4. MANAGEMENT FEES Management fees paid to the Manager were in accordance with the investment advisory
agreement with the
AND OTHER TRANSACTIONS Fund which provides for an annual fee of .60% on the first $200 million of net assets,
.55% on the
WITH AFFILIATES 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, 1994, commissions (sales charges paid by investors) on
sales of Class A shares totaled $2,933,373, of which $551,881 was retained by Oppenheimer Funds
Distributor, Inc. (OFDI), a subsidiary of the Manager, as general distributor, and by an affiliated
broker/dealer. During the year ended September 30, 1994, OFDI received contingent deferred sales
charges of $149,477 upon redemption of Class B shares, as reimbursement for sales commissions
advanced by OFDI at the time of sale of such 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, each class may expend up to .25% of its net assets
annually to reimburse OFDI for costs incurred in connection with the personal service and
maintenance of accounts that hold shares of the Fund, including amounts paid to brokers, dealers,
banks and other financial 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, the Board of Trustees may allow the Fund to continue payment of
the asset-based sales charge to OFDI for distribution expenses incurred on Class B shares sold prior
to termination or discontinuance of the plan. During the year ended September 30, 1994, OFDI paid
$26,802 and $902, respectively to an affiliated broker/dealer as reimbursement for Class A and
Class B personal service and maintenance expenses and retained $582,434 as reimbursement for Class
B sales commissions and service fee advances, as well as financing costs.
</TABLE>
<PAGE>
APPENDIX A
Description of Ratings Categories
Municipal Bonds
- -- Moody's Investor Services, Inc. The four highest ratings of Moody's
Investors Service, Inc. ("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. Those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
attributes are designated Aa1, A1 and Baa1, respectively.
In addition to the alphabetic 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 VMIG 4.
- -- Standard & Poor's Corporation. The four highest ratings of Standard
& Poor's Corporation ("S&P") 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.
- -- Fitch. The four highest ratings of Fitch for Municipal Bonds are AAA,
AA, A, and BBB. Municipal Bonds rated AAA are judged to be of the
"highest credit quality." The rating of AA is assigned to bonds of "very
high credit quality." Municipal Bonds which are rated A by Fitch are
considered to be of "high credit quality." The rating of BBB is assigned
to bonds of "satisfactory credit quality." The A and BBB rated bonds are
more vulnerable to adverse changes in economic conditions than bonds with
higher ratings.
Tax-Exempt Municipal Notes
-- Moody's ratings for state and municipal notes and other short-term
loans are designated 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 as large as notes rated "MIG." 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.
-- S&P'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 S&P; if modified
by a plus sign, it compares with bonds rated AA or AAA by S&P. SP-2
describes issues with a satisfactory capacity to pay principal and
interest, and compares with bonds rated BBB by S&P.
-- Fitch's rating for Municipal Notes due in three years or less are
F-1+, F-1, F-2 and F-3. F-1+ describes notes with an exceptionally strong
credit quality and the strongest degree of assurance for timely payment.
F-1 describes notes with a very strong credit quality and assurance of
timely payment is only slightly less in degree than issues rated F-1+.
F-2 describes notes with a good credit quality and a satisfactory
assurance of timely payment, but the margin of safety is not as great for
issues assigned F-1+ or F-1 ratings. F-3 describes notes with a fair
credit quality and an adequate assurance of timely payment, but near-term
adverse changes could cause such securities to be rated below investment
grade.
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, AAA, AA or A by S&P or F+1-, F-1, F-2 or F-1 by
Fitch. The Moody's corporate debt ratings shown do not differ materially
from those set forth above for Municipal Bonds. Corporate debt
obligations rated AAA by S&P 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 S&P 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 Fitch ratings shown do not differ from those set forth below for tax-
exempt municipal notes.
Commercial Paper
The commercial paper ratings of A-1 by S&P, P-1 by Moody's, and F-1+
by Fitch 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, 1995. 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.
New York State Residents
Combined Taxable Income
<TABLE>
<CAPTION>
An Oppenheimer New York
Tax-Exempt Fund Yield
Single Return Joint Return of:
Combined 3.5% 4.0% 4.5%
Effective Is Approximately
Not Not Tax Equivalent to a Taxable
Over Over Over Over Bracket Yield of:
<S> <C> <C> <C> <C> <C> <C> <C>
$ 13,000 $ 19,000 19.72% 4.36% 4.98% 5.61%
$ 19,000 $ 25,000 20.57% 4.41% 5.04% 5.67%
$ 13,000 $ 23,350 $ 25,000 $ 39,000 21.45% 4.46% 5.09% 5.73%
$ 23,350 $ 56,550 $ 39,000 $ 94,250 33.47% 5.26% 6.01% 6.76%
$ 56,550 $117,950 $ 94,250 $143,600 36.24% 5.49% 6.27% 7.06%
$117,950 $256,500 $143,600 $256,500 40.86% 5.92% 6.76% 7.61%
$256,500 $256,500 44.19% 6.27% 7.17% 8.06%
</TABLE>
New York State Residents
Combined Taxable Income
<TABLE>
<CAPTION>
An Oppenheimer New York
Tax-Exempt Fund Yield
Single Return Joint Return of:
Combined 5.0% 5.5% 6.0%
Effective Is Approximately
Not Not Tax Equivalent to a Taxable
Over Over Over Over Bracket Yield of:
<S> <C> <C> <C> <C> <C> <C> <C>
$ 13,000 $ 19,000 19.72% 6.23% 6.85% 7.47%
$ 19,000 $ 25,000 20.57% 6.29% 6.92% 7.55%
$ 13,000 $ 23,350 $ 25,000 $ 39,000 21.45% 6.37% 7.00% 7.64%
$ 23,350 $ 56,550 $ 39,000 $ 94,250 33.47% 7.52% 8.27% 9.02%
$ 56,550 $117,950 $ 94,250 $143,600 36.24% 7.84% 8.63% 9.41%
$117,950 $256,500 $143,600 $256,500 40.86% 8.45% 9.30% 10.15%
$256,500 $256,500 44.19% 8.96% 9.85% 10.75%
</TABLE>
<PAGE>
New York City Residents
Combined Taxable Income
<TABLE>
<CAPTION>
An Oppenheimer New York
Tax-Exempt Fund Yield
Single Return Joint Return of:
Combined 3.5% 4.0% 4.5%
Effective Is Approximately
Not Not Tax Equivalent to a Taxable
Over Over Over Over Bracket Yield of:
<S> <C> <C> <C> <C> <C> <C> <C>
$ 15,000 $ 19,000 22.14% 4.50% 5.14% 5.78%
$ 19,000 $ 25,000 22.99% 4.54% 5.19% 5.84%
$ 25,000 $ 27,000 23.88% 4.60% 5.25% 5.91%
$ 15,000 $ 23,350 $ 27,000 $ 39,000 24.26% 4.62% 5.28% 5.94%
$ 23,350 $ 25,000 $ 39,000 $ 45,000 35.84% 5.46% 6.23% 7.01%
$ 25,000 $ 56,550 $ 45,000 $ 94,250 35.88% 5.46% 6.24% 7.02%
$ 56,550 $ 60,000 $ 94,250 $108,000 38.55% 5.70% 6.51% 7.32%
$ 60,000 $117,950 $108,000 $143,600 38.59% 5.70% 6.51% 7.33%
$117,950 $256,500 $143,600 $256,500 43.04% 6.14% 7.02% 7.90%
$256,500 $256,500 46.24% 6.51% 7.44% 8.37%
</TABLE>
New York City Residents
Combined Taxable Income
<TABLE>
<CAPTION>
An Oppenheimer New York
Tax-Exempt Fund Yield
Single Return Joint Return of:
Combined 5.0% 5.5% 6.0%
Effective Is Approximately
Not Not Tax Equivalent to a Taxable
Over Over Over Over Bracket Yield of:
<S> <C> <C> <C> <C> <C> <C> <C>
$ 15,000 $ 19,000 22.14% 6.42% 7.06% 7.71%
$ 19,000 $ 25,000 22.99% 6.49% 7.14% 7.79%
$ 25,000 $ 27,000 23.88% 6.57% 7.23% 7.88%
$ 15,000 $ 23,350 $ 27,000 $ 39,000 24.26% 6.60% 7.26% 7.92%
$ 23,350 $ 25,000 $ 39,000 $ 45,000 35.84% 7.79% 8.57% 9.35%
$ 25,000 $ 56,550 $ 45,000 $ 94,250 35.88% 7.80% 8.58% 9.36%
$ 56,550 $ 60,000 $ 94,250 $108,000 38.55% 8.14% 8.95% 9.76%
$ 60,000 $117,950 $108,000 $143,600 38.59% 8.14% 8.96% 9.77%
$117,950 $256,500 $143,600 $256,500 43.04% 8.78% 9.66% 10.53%
$256,500 $256,500 46.24% 9.30% 10.23% 11.16%
</TABLE>
<PAGE>
Appendix C
Industry Classifications
Aerospace/Defense
Air Transportation
Auto Parts Distribution
Automotive
Bank Holding Companies
Banks
Beverages
Broadcasting
Broker-Dealers
Building Materials
Cable Television
Chemicals
Commercial Finance
Computer Hardware
Computer Software
Conglomerates
Consumer Finance
Containers
Convenience Stores
Department Stores
Diversified Financial
Diversified Media
Drug Stores
Drug Wholesalers
Durable Household Goods
Education
Electric Utilities
Electrical Equipment
Electronics
Energy Services & Producers
Entertainment/Film
Environmental
Food
Gas Utilities
Gold
Health Care/Drugs
Health Care/Supplies & Services
Homebuilders/Real Estate
Hotel/Gaming
Industrial Services
Insurance
Leasing & Factoring
Leisure
Manufacturing
Metals/Mining
Nondurable Household Goods
Oil - Integrated
Paper
Publishing/Printing
Railroads
Restaurants
Savings & Loans
Shipping
Special Purpose Financial
Specialty Retailing
Steel
Supermarkets
Telecommunications - Technology
Telephone - Utility
Textile/Apparel
Tobacco
Toys
Trucking
<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 LLP
707 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Gordon Altman Butowsky Weitzen
Shalov & Wein
114 West 47th Street
New York, New York 10036
