<PAGE>
OPPENHEIMER NEW YORK
TAX-EXEMPT FUND
Prospectus dated February 1, 1996
Oppenheimer New York Tax-Exempt Fund (the "Fund") is a mutual fund
with the investment objective of seeking the maximum current income
exempt from Federal, New York State and New York City income taxes
for individual investors that is consistent with preservation of
capital. The Fund seeks to achieve this objective by investing in
municipal obligations, the income from which is tax-exempt as
described above. However, in times of unstable economic or market
conditions, the Fund's investment manager may deem it advisable to
temporarily invest a portion of the Fund's assets in certain
taxable instruments. The Fund may also use certain hedging
instruments in an effort to reduce the risks of market fluctuations
that affect the value of the securities the Fund holds. You should
carefully review the risks associated with an investment in the
Fund. Please refer to "Investment Policies and Strategies" for
more information about the types of securities the Fund invests in
and the risks of investing in the Fund.
This Prospectus explains concisely what you should know before
investing in the Fund. Please read it carefully and keep it for
future reference. You can find more detailed information about the
Fund in the February 1, 1996 Statement of Additional Information.
For a free copy, call OppenheimerFunds Services, the Fund's
Transfer Agent, at 1-800-525-7048, or write to the Transfer Agent
at the address on the back cover. The Statement of Additional
Information has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference
(which means that it is legally part of this Prospectus).
(logo) OppenheimerFunds
Shares of the Fund are not deposits or obligations of any bank, are
not guaranteed by any bank, are not insured by the F.D.I.C. or any
other agency, and involve investment risks, including the possible
loss of the principal amount invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
Contents
A B O U T T H E F U N D
Expenses
A Brief Overview of the Fund
Financial Highlights
Investment Objective and Policies
How the Fund is Managed
Performance of the Fund
A B O U T Y O U R A C C O U N T
How to Buy Shares
Class A Shares
Class B Shares
Class C Shares
Special Investor Services
AccountLink
Automatic Withdrawal and Exchange Plans
Reinvestment Privilege
How to Sell Shares
By Mail
By Telephone
How to Exchange Shares
Shareholder Account Rules and Policies
Dividends, Capital Gains and Taxes
Appendix: Special Sales Charge Arrangements for Certain
Persons<PAGE>
<PAGE>
A B O U T T H E F U N D
Expenses
The Fund pays a variety of expenses directly for management of its
assets, administration, distribution of its shares and other
services, and those expenses are subtracted from the Fund's assets
to calculate the Fund's net asset value per share. All
shareholders therefore pay those expenses indirectly. Shareholders
pay other expenses directly, such as sales charges and account
transaction fees. The following tables are provided to help you
understand your direct expenses of investing in the Fund and your
share of the Fund's business operating expenses that you will bear
indirectly. The numbers below are based on the Fund's expenses
during its last fiscal year ended September 30, 1995.
-- Shareholder Transaction Expenses are charges you pay when
you buy or sell shares of the Fund. Please refer to "About Your
Account," from pages __ through __, for an explanation of how and
when these charges apply.
<TABLE>
<CAPTION>
Class A Class B Class C
Shares Shares Shares
------- ------- -------
<S> <C> <C> <C>
Maximum Sales Charge
on Purchases (as a %
of offering price) 4.75% None None
- ---------------------------------------------------------------------
Sales Charge on
Reinvested Dividends None None None
- ---------------------------------------------------------------------
Deferred Sales Charge
(as a % of the lower of
the original purchase
price or redemption
proceeds) None(1) 5% in the first 1% if shares
year, declining are redeemed
to 1% in the within 12 months
sixth year and of purchase(2)
eliminated
thereafter(2)
- ---------------------------------------------------------------------
Exchange Fee None None None
</TABLE>
(1) If you invest $1 million or more in Class A shares, you may
have to pay a sales charge of up to 1% if you sell your shares
within 18 calendar months from the end of the calendar month during
which you purchased those shares. See "How to Buy Shares - Buying
Class A Shares," below.
(2) See "How to Buy Shares - Buying Class B Shares" and "How to Buy
Shares - Buying Class C Shares," below, for more information on
contingent deferred sales charges.
-- Annual Fund Operating Expenses are paid out of the Fund's
assets and represent the Fund's expenses in operating its business.
For example, the Fund pays management fees to its investment
adviser, OppenheimerFunds, Inc. (referred to in this Prospectus as
the "Manager"). The rates of the Manager's fees are set forth in
"How the Fund is Managed," below. The Fund has other regular
expenses for services, such as transfer agent fees, custodial fees
paid to the bank that holds its portfolio securities, audit fees
and legal expenses. Those expenses are detailed in the Fund's
Financial Statements in the Statement of Additional Information.
The numbers in the table below are projections of the Fund's
business expenses based on the Fund's expenses in its last fiscal
year. These amounts are shown as a percentage of the average net
assets of each class of the Fund's shares for that year. The 12b-1
Plan Fees for Class A shares are service plan fees (the maximum
fee is 0.25% of average annual net assets of the class); for Class
B and for Class C shares the 12b-1 Distribution Plan Fees are the
service fees (the maximum fee is 0.25% of average annual net assets
of the class) and the annual asset-based sales charge of 0.75%.
These plans are described in greater detail in "How to Buy Shares,"
below.
The actual expenses for each class of shares in future years
may be more or less than the numbers in the chart, depending on a
number of factors, including the actual value of the Fund's assets
represented by each class of shares. Class C shares were not
publicly offered before August 29, 1995. Therefore, the Annual
Fund Operating Expenses for Class C shares are estimates based on
expenses that would have been payable if Class C shares had been
outstanding during the entire fiscal year.
Class A Class B Class C
Shares Shares Shares
------- ------- -------
Management Fees 0.52% 0.52% 0.52%
12b-1 Distribution 0.23% 1.00% 1.00%
Plan Fees
Other Expenses 0.15% 0.15% 0.15%
Total Fund Operating
Expenses 0.90% 1.67% 1.67%
-- Examples. To try to show the effect of these expenses on
an investment over time, we have created the hypothetical examples
shown below. Assume that you make a $1,000 investment in each
class of shares of the Fund, and the Fund's annual return is 5%,
and that its operating expenses for each class are the ones shown
in the Annual Fund Operating Expenses table above. If you were to
redeem your shares at the end of each period shown below, your
investment would incur the following expenses by the end of 1, 3,
5 and 10 years:
1 year 3 years 5 years 10 years*
- ----------------------------------------------------------------
Class A Shares $56 $75 $95 $153
- ----------------------------------------------------------------
Class B Shares $67 $83 $111 $158
- ----------------------------------------------------------------
Class C Shares $27 $53 $91 $198
If you did not redeem your investment, it would incur the following
expenses:
Class A Shares $56 $75 $95 $153
- ----------------------------------------------------------------
Class B Shares $17 $53 $91 $158
- ----------------------------------------------------------------
Class C Shares $17 $53 $91 $198
* The Class B expenses in years 7 through 10 are based on the Class
A expenses shown above, because the Fund automatically converts
your Class B shares into Class A shares after 6 years. Because of
the effect of the asset-based sales charge and the contingent
deferred sales charge, long-term shareholders of Class B and Class
C shares could pay the economic equivalent of more than the maximum
front-end sales charge allowed under applicable regulatory
requirements. For Class B shareholders, the automatic conversion
of Class B shares to Class A Shares is designed to minimize the
likelihood that this will occur. Please refer to "How to Buy
Shares - Buying Class B Shares" for more information.
These examples show the effect of expenses on an investment,
but are not meant to state or predict actual or expected costs or
investment returns of the Fund, all of which will vary.
A Brief Overview of the Fund
Some of the important facts about the Fund are summarized below,
with references to the section of this Prospectus where more
complete information can be found. You should carefully read the
entire Prospectus before making a decision about investing. Keep
the Prospectus for reference after you invest, particularly for
information about your account, such as how to sell or exchange
shares.
-- What Is The Fund's Investment Objective? The Fund's
investment objective is to seek the maximum current income exempt
from Federal, New York State and New York City income taxes for
individual investors that is consistent with preservation of
capital.
-- What Does the Fund Invest In? Under normal market
conditions, the Fund (1) will invest at least 65% of its total
assets in municipal bonds, municipal notes and other debt
obligations issued by or on behalf of New York State and its
agencies or authorities, the interest on which is not subject to
New York State individual income tax, and (2) will invest at least
80% of its total assets in municipal bonds, municipal notes and
other debt obligations issued by or on behalf of the State of New
York, other states and the District of Columbia, the interest from
which is not subject to Federal individual income tax. The Fund
may also use hedging instruments and some derivative investments in
an effort to protect against market risks. These investments are
more fully explained in "Investment Objective and Policies,"
starting on page ___.
-- Who Manages the Fund? The Fund's investment advisor (the
"Manager") is OppenheimerFunds, Inc. Prior to January 5, 1996,
OppenheimerFunds, Inc. was known as Oppenheimer Management
Corporation. The Manager(including a subsidiary) advises investment
company portfolios having over $40 billion in assets. The Manager
is paid an advisory fee by the Fund, based on its net assets. The
Fund's portfolio manager, who is primarily responsible for the
selection of the Fund's securities, is Robert E. Patterson. The
Fund's Board of Trustees, elected by shareholders, oversees the
investment advisor and the portfolio manager. Please refer to "How
the Fund is Managed," starting on page ___ for more information
about the Manager and its fees.
-- How Risky is the Fund? All investments carry risks to some
degree. The Fund's bond investments are subject to changes in
their value from a number of factors such as changes in general
bond market movements, the change in value of particular bonds
because of an event affecting the issuer, or changes in interest
rates that can affect bond prices. These changes affect the value
of the Fund's investments and its price per share. The Fund may
invest in "inverse floater" variable rate bonds, a type of
derivative investment whose yields move in the opposite direction
from short-term interest rates.
In the Oppenheimer funds spectrum, the Fund is generally more
conservative than longer term bond funds or high yield bond funds
but more aggressive than short term bond funds or money market
funds. While the Manager tries to reduce risks by diversifying
investments and by carefully researching securities before they are
purchased for the portfolio, and in some cases by using hedging
techniques, there is no guarantee of success in achieving the
Fund's objective and your shares may be worth more or less than
their original cost when you redeem them. Please refer to
"Investment Objective and Policies" starting on page ___ for a more
complete discussion.
-- How Can I Buy Shares? You can buy shares through your
dealer or financial institution, or you can purchase shares
directly through the Distributor by completing an Application or by
using an Automatic Investment Plan under AccountLink. Please refer
to "How To Buy Shares" on page ___ for more details.
-- Will I Pay a Sales Charge to Buy Shares? The Fund has
three classes of shares; all three classes have the same investment
portfolio but different expenses. Class A shares are offered with
a front-end sales charge, starting at 4.75% and reduced for larger
purchases. Class B shares and Class C shares are offered without
a front-end sales charge, but may be subject to a contingent
deferred sales charge if redeemed within 6 years or 12 months,
respectively, of purchase. There are also annual asset-based sales
charges on Class B and Class C shares. Please review "How To Buy
Shares" starting on page ___ for more details, including a
discussion about which class may be appropriate for you.
-- How Can I Sell My Shares? Shares can be redeemed by mail
or by telephone call to the Transfer Agent on any business day, or
through your dealer. Please refer to "How To Sell Shares" on page
___. The Fund also offers exchange privileges to other Oppenheimer
funds, described in "How to Exchange Shares" on page __.
-- How Has the Fund Performed? The Fund measures its
performance by quoting its average annual total return and
cumulative total return, which measure historical performance.
Those returns can be compared to the returns (over similar periods)
of other funds. Of course, other funds may have different
objectives, investments, and levels of risk. The Fund's
performance can also be compared to a broad market index, which we
have done on pages ____ and ___. Please remember that past
performance does not guarantee future results.
Financial Highlights
The table on the following pages presents selected financial
information about the Fund, including per share data and expense
ratios and other data based on the Fund's average net assets. This
information has been audited by KPMG Peat Marwick LLP, the Fund's
independent auditors, whose report on the Fund's financial
statements for the fiscal year ended September 30, 1995 is included
in the Statement of Additional Information. Class C shares of the
Fund were publicly offered only during a portion of that period,
commencing on August 29, 1995.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------
Year Ended September 30,
1995 1994 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 11.92 $ 13.50 $ 12.59 $ 12.21 $ 11.61 $ 11.87 $ 11.91
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .69 .74 .73 .79 .81 .83 .84(3)
Net realized and unrealized gain (loss) on investments .41 (1.46) 1.01 .47 .64 (.25) .01
-------- -------- -------- -------- -------- -------- --------
Total income (loss) from investment operations 1.10 (.72) 1.74 1.26 1.45 .58 .85
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.70) (.72) (.75) (.75) (.81) (.83) (.83)
Distributions from net realized gain on investments (.03) (.03) (.08) (.13) (.04) (.01) (.06)
Distributions in excess of net realized gain
on investments -- (.11) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions to shareholders (.73) (.86) (.83) (.88) (.85) (.84) (.89)
-------------------------------------------------------------------------
Net asset value, end of period $ 12.29 $ 11.92 $ 13.50 $ 12.59 $ 12.21 $ 11.61 $ 11.87
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 9.58% (5.55)% 14.33% 10.72% 12.93% 4.95% 6.91%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $673,050 $687,233 $756,934 $530,260 $349,480 $250,012 $197,321
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $659,465 $738,747 $652,327 $436,876 $292,134 $227,504 $156,572
- --------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at end of period
(in thousands) 54,749 57,644 56,087 42,119 28,617 21,533 16,618
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.76% 5.68% 5.66% 6.33% 6.81% 6.97% 7.07%
Expenses .90% .86% .91% .96% .96% .99% .98%(3)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 15.2% 9.4% 39.1% 30.5% 8.9% 13.3% 11.8%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to September 30,
1995.
2. For the period from March 1, 1993 (inception of offering) to September 30,
1993.
3. 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.
4. 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. Total returns are not annualized for
periods of less than one full year.
14 Oppenheimer New York Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
Class B Class C
------------------------------ ------------------------------ -------
Period
Ended
Year Ended September 30, Sept. 30,
1988 1987 1986 1995 1994 1993(2) 1995(1)
- ------------------------------------------------------------------------------------- ------------------------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 11.60 $ 12.51 $ 10.98 $ 11.93 $ 13.50 $ 13.07 $ 12.22
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .88(3) .90(3) .86 .60 .64 .36 .05
Net realized and unrealized gain (loss) on investments .45 (.79) 1.62 .42 (1.45) .44 .10
-------- -------- -------- -------- -------- -------- --------
Total income (loss) from investment operations 1.33 .11 2.48 1.02 (.81) .80 .15
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.94) (.88) (.86) (.62) (.62) (.37) (.05)
Distributions from net realized gain on investments (.08) (.14) (.09) (.03) (.03) -- --
Distributions in excess of net realized gain
on investments -- -- -- -- (.11) -- --
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions to shareholders (1.02) (1.02) (.95) (.65) (.76) (.37) (.05)
-------------------------------------------------------------------------
Net asset value, end of period $ 11.91 $ 11.60 $ 12.51 $ 12.30 $ 11.93 $ 13.50 $ 12.30
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 11.48% .29% 22.73% 8.75% (6.22)% 6.56% 1.10%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $116,931 $ 79,479 $ 50,810 $ 91,108 $ 73,943 $ 40,958 $ 25
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 95,996 $ 65,102 $ 42,907 $ 81,743 $ 61,008 $ 20,454 $ 18
- --------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at end of period
(in thousands) 9,817 6,851 4,061 7,408 6,200 3,033 2
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.48% 7.33% 7.10% 4.95% 4.88% 4.45%(5) 3.67%(5)
Expenses .90%(3) .67%(3) .86% 1.67% 1.65% 1.73%(5) 1.37%(5)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 11.7% 22.9% 29.7% 15.2% 9.4% 39.1% 15.2%
</TABLE>
5. Annualized.
6. 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 period
ended September 30, 1995 were $111,679,958 and $141,536,941, respectively.
Investment Objective and Policies
Objective. The Fund's investment objective is to seek maximum
current income exempt from Federal, New York State and New York
City income taxes for individual investors consistent with
preservation of capital. Toward that objective, the Fund may use
certain hedging instruments (discussed below) in an effort to
protect against market risks. Since market risks are inherent in
all securities to varying degrees, assurance cannot be given that
the Fund will achieve its investment objective.
Investment Policies and Strategies. Under normal market
conditions, the Fund attempts to invest 100% of its invested
assets, and as a matter of fundamental policy to invest at least
80% of its assets, in Municipal Securities. In addition, under
normal market conditions, as a matter of fundamental policy, the
Fund will invest at least 65% of its total assets in New York
Municipal Securities.
Dividends paid by the Fund derived from interest attributable
to New York Municipal Securities will be exempt from Federal, New
York State and New York City individual income taxes. Dividends
derived from interest on Municipal Securities of other governmental
issuers will be exempt from Federal income tax for individuals, but
will be subject to New York State and New York City individual
income taxes. Any net interest income on taxable investments will
be taxable as ordinary income when distributed to shareholders (see
"Dividends, Capital Gains, and Taxes" below).
-- Municipal Securities. Municipal Securities consist of
municipal bonds, municipal notes (including tax anticipation notes,
bond anticipation notes, revenue anticipation notes, construction
loan notes and other short-term loans), tax-exempt commercial paper
and other debt obligations issued by or on behalf of the State of
New York or its political subdivisions, other states and the
District of Columbia, their political subdivisions, or any
commonwealths, territories or possessions of the United States, or
their respective agencies, instrumentalities or authorities, the
interest on which is, in the opinion of bond counsel to the
respective issuer at the time of issue, not subject to Federal
individual income tax. New York Municipal Securities are
obligations of the State of New York and its political
subdivisions, and their respective agencies, authorities or
instrumentalities, the interest from which is, in the opinion of
bond counsel to the respective issuer at the time of issue, not
subject to New York individual income tax. No independent
investigation has been made by the Manager as to the users of
proceeds of bond offerings or the application of such proceeds.
"Municipal bonds" are Municipal Securities that have a
maturity when issued of one year or more and "municipal notes" are
Municipal Securities that have a maturity when issued of less than
one year. The two principal classifications of Municipal
Securities are "general obligations" (secured by the issuer's
pledge of its full faith, credit and taxing power for the payment
of principal and interest) and "revenue obligations" (payable only
from the revenues derived from a particular facility or class of
facilities, or specific excise tax or other revenue source). The
Fund may invest in Municipal Securities of both classifications.
See "Investment Objective and Policies" in the Statement of
Additional Information for further information about the Fund's
investment policies and about Municipal Securities.
-- Special Considerations - New York Municipal Securities.
Because the Fund concentrates its investments in New York Municipal
Securities, a default or financial crisis relating to any of such
issuers could adversely affect the market value and marketability
of such Municipal Securities and the interest income and repayment
of principal to the Fund from them. Investors should consider
these matters and the financial difficulties experienced in past
years by New York State and certain of its agencies and
subdivisions (particularly New York City), as well as economic
trends in New York, summarized in the Statement of Additional
Information under "Special Investment Considerations - New York
Municipal Securities." In addition, the Fund's portfolio
securities are affected by general changes in interest rates, which
result in changes in the value of portfolio securities held by the
Fund, which can be expected to vary inversely to changes in
prevailing interest rates.
-- Can the Fund's Investment Objective and Policies Change?
The Fund has an investment objective, described above, as well as
investment policies it follows to try to achieve its objective.
Additionally, the Fund uses certain investment techniques and
strategies in carrying out those investment policies. The Fund's
investment policies and techniques are not "fundamental" unless
this Prospectus or the Statement of Additional Information says
that a particular policy is "fundamental." The Fund's investment
objective is a fundamental policy.
Fundamental policies are those that cannot be changed without
the approval of a "majority" of the Fund's outstanding voting
shares. The term "majority" is defined in the Investment Company
Act to be a particular percentage of outstanding voting shares (and
this term is explained in the Statement of Additional Information).
The Fund's Board of Trustees may change non-fundamental policies
without shareholder approval, although significant changes will be
described in amendments to this Prospectus.
-- Investments in Taxable Securities and Temporary Defensive
Investment Strategy. Under normal market conditions, the Fund may
invest up to 20% of its assets in taxable investments, including
(i) certain "Temporary Investments" (described immediately below);
(ii) hedging instruments (described in "Hedging," below); (iii)
repurchase agreements (explained below); and (iv) municipal
securities issued to benefit a private user ("Private Activity
Municipal Securities"), the interest from which may be subject to
Federal alternative minimum tax (see "Taxes," below, and "Private
Activity Municipal Securities" in the Statement of Additional
Information).
For temporary defensive purposes, the Fund may invest up to
100% of its total assets in "Temporary Investments," including: (i)
obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; (ii) corporate debt securities rated
within the three highest grades by Moody's or Standard & Poor's;
(iii) commercial paper rated "A-1" by Standard & Poor's or "Prime-
1" by Moody's; and (iv) certificates of deposit of domestic banks
with assets of $1 billion or more. The Fund may hold Temporary
Investments pending the investment of proceeds from the sale of
Fund shares or portfolio securities, or to meet anticipated
redemptions.
-- Credit Risk and Interest Rate Risk. The values of
Municipal Securities will vary as a result of changing evaluations
by rating services and investors of the ability of the issuers of
such securities to meet the interest and principal payments. Such
values will also change in response to changes in interest rates.
Should interest rates rise, the values of outstanding Municipal
Securities will probably decline and (if purchased at principal
amount) would sell at a discount. If interest rates fall, the
values of outstanding Municipal Securities will probably increase
and (if purchased at principal amount) would sell at a premium.
Changes in the values of the Fund's Municipal Securities from these
or other factors will not affect interest income derived from these
securities but will affect the Fund's net asset value per share.
-- Municipal Lease Obligations. The Fund may invest in
certificates of participation that represent a proportionate
interest in or right to the lease-purchase payment made under
municipal lease obligations. While some municipal lease securities
may be deemed to be "illiquid" securities (the purchase of which
would be limited as described below in "Illiquid and Restricted
Securities"), 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.
-- Floating Rate/Variable Rate Obligations. Some of the
Municipal Securities the Fund may purchase may have variable or
floating interest rates. Variable rates are adjustable at stated
periodic intervals. Floating rates are automatically adjusted
according to a specified market rate for such investments, such as
the percentage of the prime rate of a bank, or the 90-day U.S.
Treasury Bill rate. Such obligations may be secured by bank
letters of credit or other credit support arrangements.
-- Inverse Floaters and Other Derivative Investments. The
Fund may invest in certain municipal "derivative investments." The
Fund may use some derivative investments for hedging purposes, and
may invest in others because they offer the potential for increased
income and principal value. In general, a "derivative investment"
is a specially-designed investment whose performance is linked to
the performance of another investment or security, such as an
option, future or index. In the broadest sense, derivative
investments include exchange-traded options and futures contracts.
Please refer to "Hedging," below.
The Fund may invest in "inverse floater" variable rate bonds,
a type of derivative investment whose yields move in the opposite
direction from 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.
Some inverse floaters have a "cap" whereby if interest rates rise
above the "cap," the security pays additional interest income. If
rates do not rise above the "cap," the Fund will have paid an
additional amount for a feature that proves worthless. The Fund
may also invest in municipal securities that pay interest that
depends on an external pricing mechanism, also a type of derivative
investment. Examples of external pricing mechanisms are interest
rate swaps or caps and municipal bond or swap indices. The Fund
anticipates that under normal circumstances it will invest no more
than 10% of its net assets in inverse floaters.
The risks of investing in derivative investments include not
only the ability of the issuer of the derivative investment to pay
the amount due on the maturity of the investment, but also the risk
that the underlying security or investment might not perform the
way the Manager expected it to perform. That can mean that the
Fund will realize less income than expected. Another risk of
investing in derivative investments is that their market value
could be expected to vary to a much greater extent than the market
value of municipal securities that are not derivative investments
but have similar credit quality, redemption provisions and
maturities.
-- Ratings of Municipal Securities. At least 75% of the total
assets of the Fund must be invested in Municipal Securities rated
within the four highest rating categories of Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"),
Fitch Investors Service, Inc. ("Fitch"), or, if unrated, judged by
the Manager to be of comparable quality to Municipal Securities
rated within such grades. See Appendix A of the Statement of
Additional Information for a description of these rating
categories. Municipal Securities rated either "Baa" or "MIG2" by
Moody's, or "BBB" or "SP-2" by S&P, or "BBB" or "F-3" by Fitch,
although investment-grade, may be subject to greater market
fluctuations and risks of loss of income and principal than higher-
rated Municipal Securities and may be considered to have
speculative characteristics.
A reduction in the rating of a security after its purchase by
the Fund will not require the Fund to dispose of such security.
Securities that have fallen below investment grade have a greater
risk that the ability of the issuers of such securities to meet
their debt obligations will be impaired. It is anticipated that
the Municipal Securities purchased for the Fund's portfolio will
generally be those having relatively longer maturities
(approximately 7 to 30 years), but the Fund may invest in Municipal
Securities having a broad range of maturities. The foregoing
ratings restrictions do not apply to banks in which the Fund's cash
is kept.
The Fund is permitted to invest up to 25% of its total assets
in Municipal Securities rated below "investment grade," that is,
below the four highest rating categories of Moody's, S&P or Fitch.
Lower-grade Municipal Securities (sometimes called "municipal junk
bonds") may be subject to greater market fluctuations and are
subject to greater risks of loss of income and principal than
higher-rated Municipal Securities, and may be considered to have
some speculative characteristics. Securities that are or that have
fallen below investment grade entail a greater risk that the
ability of the issuers of such securities to meet their debt
obligations will be impaired. There may be less of a market for
lower-grade Municipal Securities and therefore they may be harder
to sell at an acceptable price. These risks mean that the Fund may
not achieve the expected income from lower-grade Municipal
Securities, and that the Fund's income and net asset value per
share may be affected by declines in value of these securities.
However, the Fund's limitations on investment in non-investment
grade Municipal Securities may reduce some of these risks.
-- Portfolio Turnover. A change in the securities held by the
Fund is known as "portfolio turnover." The Fund generally will not
engage in the trading of securities for the purpose of realizing
short-term gains, but the Fund may sell securities as the Manager
deems advisable to take advantage of differentials in yield. The
"Financial Highlights," above, show the Fund's portfolio turnover
rate during past fiscal years. While short-term trading increases
portfolio turnover, the Fund incurs little or no brokerage costs
because most of the Fund's portfolio transactions are principal
trades without brokerage commissions.
Other Investment Techniques and Strategies. The Fund may also use
the investment techniques and strategies described below. These
techniques involve certain risks. The Statement of Additional
Information contains more information about these practices,
including limitations on their use that are designed to reduce some
of the risks.
-- When-Issued and Delayed Delivery Transactions. The Fund
may purchase Municipal Securities on a "when-issued" basis, and may
purchase or sell such securities on a "delayed delivery" basis.
"When-issued" or "delayed delivery" refer to securities whose terms
and indenture are available and for which a market exists, but
which are not available for immediate delivery. The Fund does not
intend to make such purchases for speculative purposes. During the
period between the purchase and settlement, no payment is made for
the security and no interest accrues to the buyer from the
investment. The commitment to purchase a security for which
payment will be made on a future date may be deemed a separate
security and involves a risk of loss if the value of the security
declines prior to the settlement date.
-- Repurchase Agreements. The Fund may enter into repurchase
agreements. In a repurchase transaction, the Fund buys a security
and simultaneously sells it to the vendor for delivery at a future
date. There is no limit on the amount of the Fund's net assets
that may be subject to repurchase agreements of seven days or less.
Repurchase agreements must be fully collateralized. However, if the
vendor fails to pay the resale price on the delivery date, the Fund
may incur costs in disposing of the collateral and may experience
losses if there is any delay in its ability to do so. The Fund will
not enter into a repurchase agreement that causes more than 10% of
its net assets to be subject to repurchase agreements having a
maturity beyond seven days.
-- Illiquid and Restricted Securities. Under the policies and
procedures established by the Fund's Board of Trustees, the Manager
determines the liquidity of certain of the Fund's investments.
Investments may be illiquid because of the absence of an active
trading market, making it difficult to value them or dispose of
them promptly at an acceptable price. A restricted security is one
that has a contractual restriction on its resale or which cannot be
sold publicly until it is registered under the Securities Act of
1933. As a matter of fundamental policy, the Fund may not invest in
securities that have a restriction on their resale. The Fund will
not invest more than 10% of its net assets in illiquid securities
(that limit may increase to 15% if certain state laws are changed
or the Fund's shares are no longer sold in those states). The
Fund's percentage limitation on these investments does not apply to
certain restricted securities that are eligible for resale to
qualified institutional purchasers.
-- Loans of Portfolio Securities. To attempt to increase its
income, the Fund may lend its portfolio securities to brokers,
dealers and other financial institutions. The Fund must receive
collateral for such a loan. These loans are limited to not more
than 25% of the Fund's net assets and are subject to other
conditions described in the Statement of Additional Information.
The Fund presently does not intend to lend its portfolio
securities, but if it does, the value of securities loaned is not
expected to exceed 5% of the value of its total assets in the
coming year.
-- Hedging. As described below, the Fund may purchase and
sell certain kinds of futures contracts, put and call options, and
options on futures and broadly-based municipal bond indices, or
enter into interest rate swap agreements. These are all referred
to as "hedging instruments." The Fund does not use hedging
instruments for speculative purposes, and has limits on the use of
them, described below. The hedging instruments the Fund may use
are described below and in greater detail in "Other Investment
Techniques and Strategies" in the Statement of Additional
Information.
The Fund may buy and sell options and futures for a number of
purposes. It may do so to try to manage its exposure to the
possibility that the prices of its portfolio securities may
decline, or to establish a position in the securities market as a
temporary substitute for purchasing individual securities. It may
do so to try to manage its exposure to changing interest rates.
Some of these strategies, such as selling futures, buying puts and
writing covered calls, hedge the Fund's portfolio against price
fluctuations.
Other hedging strategies, such as buying futures and call
options, tend to increase the Fund's exposure to the securities
market. Writing covered call options may also provide income to
the Fund for liquidity purposes or to raise cash to distribute to
shareholders.
- Futures. The Fund may buy and sell futures contracts that
relate to (1) broadly-based municipal bond indices (these are
referred to as Municipal Bond Index Futures) and (2) interest rates
(these are referred to as Interest Rate Futures). These types of
Futures are described in "Hedging With Options and Futures
Contracts" in the Statement of Additional Information.
- Put and Call Options. The Fund may buy and sell certain
kinds of put options (puts) and call options (calls).
The Fund may buy calls only on securities, broadly-based
municipal bond indices, Municipal Bond Index Futures or Interest
Rate Futures, or to terminate its obligation on a call the Fund
previously wrote. The Fund may write (that is, sell) covered call
options. When the Fund writes a call, it receives cash (called a
premium). The call gives the buyer the ability to buy the
investment on which the call was written from the Fund at the call
price during the period in which the call may be exercised. If the
value of the investment does not rise above the call price, it is
likely that the call will lapse without being exercised, while the
Fund keeps the cash premium (and the investment).
The Fund may purchase put options. Buying a put on a
investment gives the Fund the right to sell the investment at a set
price to a seller of a put on that investment. The Fund can buy
only those puts that relate to (1) securities that the Fund owns,
(2) broadly-based municipal bond indices, (3) Municipal Bond Index
Futures or (4) Interest Rate Futures. The Fund can buy a put on a
Municipal Bond Future or Interest Rate Future whether or not the
Fund owns the particular Future in its portfolio. The Fund may not
sell a put other than a put that it previously purchased.
The Fund may buy and sell puts and calls only if certain
conditions are met: (1) after the Fund writes a call, not more than
25% of the Fund's total assets may be subject to calls; (2) calls
the Fund buys or sells must be listed on a securities or
commodities exchange, or quoted on the Automated Quotation System
of the National Association of Securities Dealers, Inc. (NASDAQ),
or traded in the over-the-counter market; (3) each call the Fund
writes must be "covered" while it is outstanding: that means the
Fund must own the investment on which the call was written or it
must own other securities that are acceptable for the escrow
arrangements required for calls; (4) the Fund may write calls on
Futures contracts it owns, but these calls must be covered by
securities or other liquid assets the Fund owns and segregates to
enable it to satisfy its obligations if the call is exercised; (5)
a call or put option may not be purchased if the value of all of
the Fund's put and call options would exceed 5% of the Fund's total
assets.
- Interest Rate Swaps. In an interest rate swap, the Fund and
another party exchange their right to receive or their obligation
to pay interest on a security. For example, they may swap a right
to receive floating rate payments for fixed rate payments. The
Fund enters into swaps only on securities it owns. The Fund may
not enter into swaps with respect to more than 25% of its total
assets. Also, the Fund will segregate liquid assets (such as cash
or U.S. Government securities) to cover any amounts it could owe
under swaps that exceed the amounts it is entitled to receive, and
it will adjust that amount daily, as needed. Income from interest
rate swaps may be taxable.
- Hedging instruments can be volatile investments and may
involve special risks. The use of hedging instruments requires
special skills and knowledge of investment techniques that are
different than what is required for normal portfolio management.
If the Manager uses a hedging instrument at the wrong time or
judges market conditions incorrectly, hedging strategies may reduce
the Fund's return. The Fund could also experience losses if the
prices of its futures and options positions were not correlated
with its other investments or if it could not close out a position
because of an illiquid market for the future or option.
Options trading involves the payment of premiums and has
special tax effects on the Fund. There are also special risks in
particular hedging strategies. If a covered call written by the
Fund is exercised on an investment that has increased in value, the
Fund will be required to sell the investment at the call price and
will not be able to realize any profit if the investment has
increased in value above the call price. Interest rate swaps are
subject to credit risks (if the other party fails to meet its
obligations) and also to interest rate risks. The Fund could be
obligated to pay more under its swap agreements than it receives
under them, as a result of interest rate changes. These risks are
described in greater detail in the Statement of Additional
Information.
Other Investment Restrictions. The Fund has other investment
restrictions which are fundamental policies. Under these
fundamental policies, the Fund cannot do any of the following:
- The Fund cannot invest in securities or any other investment
other than the types described in "Investment Objective and
Policies," above;
- With respect to 75% of its assets, the Fund cannot purchase
securities issued or guaranteed by any one issuer (other than the
U.S. Government or its agencies or instrumentalities), if more than
5% of the Fund's total assets would be invested in securities of
that issuer or the Fund would then own more than 10% of that
issuer's voting securities;
- The Fund cannot invest more than 25% of its assets in any
industry; however, for the purposes of this restriction, Municipal
Securities and U.S. Government obligations are not considered to be
part of any single industry;
- The Fund cannot make loans, except that the Fund may (i)
purchase debt securities described in "Investment Objective and
Policies" and repurchase agreements, and (ii) lend its portfolio
securities as described in "Loans of Portfolio Securities";
- The Fund cannot borrow money in excess of 10% of the value
of its total assets or make any investment when borrowings exceed
5% of the value of its total assets; it may borrow only as a
temporary measure for extraordinary or emergency purposes;
- The Fund cannot pledge, mortgage or otherwise encumber,
transfer or assign any of its assets to secure a debt; collateral
arrangements for premium and margin payments in connection with
hedging instruments are not deemed to be a pledge of assets;
- The Fund cannot buy or sell futures contracts other than
Interest Rate Futures or Municipal Bond Index Futures; or
- The Fund cannot underwrite securities or invest in
securities subject to restrictions on resale.
All of the percentage restrictions described above and in the
Statement of Additional Information apply only at the time of
investment and require no action by the Fund as a result of
subsequent changes in value of the investments or the size of the
Fund. A supplementary list of investment restrictions is contained
in "Investment Restrictions" in the Statement of Additional
Information.
How the Fund is Managed
Organization and History. The Fund was organized in 1984 as a
Massachusetts business trust. The Fund is an open-end, diversified
management investment company, with an unlimited number of
authorized shares of beneficial interest.
The Fund is governed by a Board of Trustees, which is
responsible for protecting the interests of shareholders under
Massachusetts law. The Trustees meet periodically throughout the
year to oversee the Fund's activities, review its performance, and
review the actions of the Manager. "Trustees and Officers of the
Fund" in the Statement of Additional Information names the Trustees
and officers of the Fund and provides more information about them.
Although the Fund is not required by law to hold annual meetings,
it may hold shareholder meetings from time to time on important
matters, and shareholders have the right to call a meeting to
remove a Trustee or to take other action described in the Fund's
Declaration of Trust.
The Board of Trustees has the power, without shareholder
approval, to divide unissued shares of the Fund into two or more
classes. The Board has done so, and the Fund currently has three
classes of shares, Class A, Class B and Class C. All classes
invest in the same investment portfolio. Each class has its own
dividends and distributions and pays certain expenses which may be
different for the different classes. Each class may have a
different net asset value. Each share has one vote at shareholder
meetings, with fractional shares voting proportionally. Only
shares of a particular class vote as a class on matters that affect
that class alone. Shares are freely transferrable.
The Manager and Its Affiliates. The Fund is managed by the Manager,
OppenheimerFunds, Inc., which is responsible for selecting the
Fund's investments and handles its day-to-day business. The
Manager carries out its duties, subject to the policies established
by the Board of Trustees, under an Investment Advisory Agreement
which states the Manager's responsibilities. The Agreement
establishes the fees paid by the Fund to the Manager and describes
the expenses that the Fund pays to conduct its business.
The Manager has operated as an investment adviser since 1959.
The Manager (including a subsidiary) and its affiliates currently
manages investment companies, including other Oppenheimer funds,
with assets in excess of $40 billion as of December 31, 1995, held
in more than 2.8 million shareholder accounts. The Manager is
owned by Oppenheimer Acquisition Corp., a holding company that is
owned in part by senior officers of the Manager and controlled by
Massachusetts Mutual Life Insurance Company.
-- Portfolio Manager. The Portfolio Manager of the Fund is
Robert E. Patterson, a Senior Vice President of the Manager. He
has been the person principally responsible for the day-to-day
management of the Fund's portfolio since November, 1985, and is an
officer and portfolio manager of other Oppenheimer funds.
-- Fees and Expenses. Under the Investment Advisory
Agreement, the Fund pays the Manager the following annual fees,
which decline on additional assets as the Fund grows: 0.60% of the
first $200 million of aggregate net assets, 0.55% of the next $100
million, 0.50% of the next $200 million, 0.45% of the next $250
million, 0.40% of the next $250 million, and 0.35% of net assets in
excess of $1 billion. The Fund's management fee for its last
fiscal year ended September 30, 1995 was 0.52% of average annual
net assets for each of its share classes, which may be higher than
the rate paid by some other mutual funds.
The Fund pays expenses related to its daily operations, such
as custodian fees, Trustees' fees, transfer agency fees, and legal
and auditing costs. Those expenses are paid out of the Fund's
assets and are not paid directly by shareholders. However, those
expenses reduce the net asset value of shares, and therefore are
indirectly borne by shareholders through their investment. More
information about the Investment Advisory Agreement and the other
expenses paid by the Fund is contained in the Statement of
Additional Information.
There is also information about the Fund's brokerage policies
and practices in "Brokerage Policies of the Fund" in the Statement
of Additional Information. Because the Fund purchases most of its
portfolio securities directly from the sellers and not through
brokers, it incurs relatively little expense for brokerage. From
time to time, however, it may use brokers when buying portfolio
securities. When deciding which brokers to use, the Manager is
permitted by the investment advisory agreement to consider whether
brokers have sold shares of the Fund or any other funds for which
the Manager serves as investment adviser.
-- The Distributor. The Fund's shares are sold through
dealers and brokers that have a sales agreement with
OppenheimerFunds Distributor, Inc., a subsidiary of the Manager
that acts as the Distributor for the Fund. The Distributor also
distributes the shares of the other Oppenheimer funds and is sub-
distributor for funds managed by a subsidiary of the Manager.
-- The Transfer Agent. The Fund's transfer agent is
OppenheimerFunds Services, a division of the Manager, which acts as
the shareholder servicing agent for the Fund on an "at-cost" basis.
It also acts as the shareholder servicing agent for the other
Oppenheimer funds. Shareholders should direct inquiries about
their accounts to the Transfer Agent at the address and toll-free
number shown below in this Prospectus and on the back cover.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses the terms
"total return", "average annual total return", "standardized
yield", "dividend yield", "yield" and "tax-equivalent yield" to
illustrate its performance. The performance of each class of
shares is shown separately, because the performance of each class
will usually be different as a result of the different kinds of
expenses each class bears. This performance information may be
useful to help you see how your investment has done and to compare
it to other funds or to a market index, as we have done below.
It is important to understand that the fund's total returns
represent past performance and should not be considered to be
predictions of future returns or performance. This performance
data is described below, but more detailed information about how
total returns are calculated is contained in the Statement of
Additional Information, which also contains information about other
ways to measure and compare the Fund's performance. The Fund's
investment performance will vary over time, depending on market
conditions, the composition of the portfolio, expenses and which
class of shares you purchase.
-- Total Returns. There are different types of total returns
used to measure the Fund's performance. Total return is the change
in value of a hypothetical investment in the Fund over a given
period, assuming that all dividends and capital gains distributions
are reinvested in additional shares. The cumulative total return
measures the change in value over the entire period (for example,
ten years). An average annual total return shows the average rate
of return for each year in a period that would produce the
cumulative total return over the entire period. However, average
annual total returns do not show the Fund's actual year-by-year
performance.
When total returns are quoted for Class A shares, normally
they include the payment of the current maximum initial sales
charge. When total returns are shown for Class B shares, they
include the effect of the contingent deferred sales charge that
applies to the period for which total return is shown. When total
returns are shown for Class C shares, they also include the effect
of the contingent deferred sales charge. Total returns may also be
quoted "at net asset value", without considering the effect of the
sales charge, and those returns would be reduced if sales charges
were deducted.
-- Yield. Each Class of shares calculates its yield by
dividing the annualized net investment income per share on the
portfolio during a 30-day period by the maximum offering price on
the last day of the period. Tax-equivalent yield is the equivalent
yield that would be earned in the absence of taxes. It is
calculated by dividing that portion of the yield that is tax-exempt
by a factor equal to one minus the applicable tax rate. The yield
of each Class will differ because of the different expenses of each
Class of shares. The yield data represents a hypothetical
investment return on the portfolio, and does not measure an
investment return based on dividends actually paid to shareholders.
To show that return, a dividend yield may be calculated. Dividend
yield is calculated by dividing the dividends of a Class derived
from net investment income during a stated period by the maximum
offering price on the last day of the period. Yields and dividend
yields for Class A shares reflect the deduction of the maximum
initial sales charge, but may also be shown based on the Fund's net
asset value per share. Yields for Class B and Class C shares do
not reflect the deduction of the contingent deferred sales charge.
How Has the Fund Performed? Below is a discussion by the Manager of
the Fund's performance during its last fiscal year ended September
30, 1995, followed by a graphical comparison of the Fund's
performance to an appropriate broad-based market index.
-- Management's Discussion of Performance. During the Fund's
fiscal year ended September 30, 1995, the Fund's performance was
affected positively by the fact that the Federal Reserve Board
stopped raising interest rates which increased bond prices. This
caused a rally in the bond market in general. However, the Fund's
performance was also affected by the downgrade of New York City's
general obligation bonds by major rating organizations which tended
to decrease the price of those bonds. Congressional discussion of
tax reform that might affect municipal obligations also had a
depressing effect on bond prices. To seek better yield
opportunities in light of these factors, the Manager sought to
shorten the average portfolio maturity. The Manager has decreased
investments in New York State electric utilities due to concerns
over the impact of proposed deregulation in this sector. The
Fund's focus on call protection (which prevents the issuer of the
bond from calling or redeeming it before maturity) and on bond
quality helped moderate volatility in the Fund's net asset value.
-- Comparing the Fund's Performance to the Market. The graphs
below show the performance of a hypothetical $10,000 investment in
each Class of shares of the Fund held from the inception of the
Class until September 30, 1995. In the case of Class A shares,
performance is measured over a ten-year period, in the case of
Class B shares, from the inception of the Class on March 1, 1993,
and in the case of Class C shares, from the inception of the Class
on August 29, 1995. In all cases, all dividends and capital gains
distributions were reinvested in additional shares. The graphs
reflect the deduction of the 4.75% current maximum initial sales
charge on Class A shares, the maximum 5% contingent deferred sales
charge on Class B shares and the 1% contingent deferred sales
charge on Class C shares.
Because the Fund invests in a variety of Municipal Securities,
the Fund's performance is compared to the performance of the Lehman
Brothers Municipal Bond Index, an unmanaged index of a broad range
of investment grade municipal bonds widely regarded as a measure of
the performance of the general municipal bond market.
Index performance reflects the reinvestment of income but does
not consider the effect of capital gains or transaction costs, and
none of the data below shows the effect of taxes. Also, the Fund's
performance reflects the effect of Fund business and operating
expenses. While index comparisons may be useful to provide a
benchmark for the Fund's performance, it must be noted that the
Fund's investments are not limited to the securities in the Lehman
Brothers Municipal Bond Index. Moreover, the index performance
data does not reflect any assessment of the risk of the investments
included in the index.
Comparison of Change in Value
of $10,000 Hypothetical Investments in
Class A, Class B and Class C Shares of
Oppenheimer New York Tax-Exempt Fund and the
Lehman Brothers Municipal Bond Index
[Graph]
Average Annual Total Return of Class A and Class B and Cumulative
Total Return of Class C shares of the Fund at 9/30/95
A Shares 1-Year 5-Year 10-Year(1)
4.37% 7.11% 8.25%
B Shares 1-Year Life:(2)
3.75% 2.12%
C Shares Life:(3)
0.10%
- ----------------------
(1) The inception date of the Fund (Class A shares) was 8/16/84.
The average annual total returns and the ending account value in
the graph reflect reinvestment of all dividends and capital gains
distributions and are shown net of the applicable 4.75% maximum
initial sales charge.
(2) Class B shares of the Fund were first publicly offered on
3/1/93. The average annual total returns reflect reinvestment of
all dividends and capital gains distributions and are shown net of
the applicable 5% and 3% contingent deferred sales charges,
respectively, for the 1-year period and the life of the class. The
ending account value in the graph is net of the applicable 3%
contingent deferred sales charge.
(3) Class C shares of the Fund were first publicly offered on
8/29/95. The performance information in the graph for the Lehman
Brothers Municipal Bond Index begins on September 1, 1995. The
cumulative total return for Class C shares reflects the
reinvestment of all dividends and capital gains distributions and
is shown net of the applicable 1% contingent deferred sales charge.
Past performance is not predictive of future performance.
Graphs are not drawn to same scale.
A B O U T Y O U R A C C O U N T
How to Buy Shares
Classes of Shares. The Fund offers investors three different
classes of shares. The different classes of shares represent
investments in the same portfolio of securities but are subject to
different expenses and will likely have different share prices.
-- Class A Shares. If you buy Class A shares, you pay an
initial sales charge on investments up to $1 million. If you
purchase Class A shares as part of an investment of at least $1
million in shares of one or more Oppenheimer funds, you will not
pay an initial sales charge, but if you sell any of those shares
within 18 months after your purchase, you may pay a contingent
deferred sales charge, which will vary depending on the amount you
invested. Sales charges are described below in "Buying Class A
Shares."
-- Class B Shares. If you buy Class B shares, you pay no
sales charge at the time of purchase, but if you sell your shares
within six years, you will normally pay a contingent deferred sales
charge. That sales charge varies depending on how long you own
your shares. It is described below in "Buying Class B Shares."
-- Class C Shares. If you buy Class C shares, you pay no
sales charge at the time of purchase, but if you sell your shares
within 12 months of buying them, you will normally pay a contingent
deferred sales charge of 1%. It is described below in "Buying
Class C Shares."
Which Class of Shares Should You Choose? Once you decide that the
Fund is an appropriate investment for you, the decision as to which
class of shares is better suited to your needs depends on a number
of factors which you should discuss with your financial advisor.
The Fund's operating costs that apply to a class of shares and the
effect of the different types of sales charges on your investment
will vary your investment results over time. The most important
factors are how much you plan to invest and how long you plan to
hold your investment. If your goals and objectives change over
time and you plan to purchase additional shares, you should re-
evaluate those factors to see if you should consider another class
of shares.
In the following discussion, to help provide you and your
financial advisor with a framework in which to choose a class, we
have made some assumptions using a hypothetical investment in the
Fund. We used the sales charge rates that apply to each class, and
considered the effect of the annual asset-based sales charge on
Class B and Class C expenses (which, like all expenses, will affect
your investment return). For the sake of comparison, we have
assumed that there is a 10% rate of appreciation in the investment
each year. Of course, the actual performance of your investment
cannot be predicted and will vary, based on the Fund's actual
investment returns and the operating expenses borne by each class
of shares, and which class you invest in. The factors discussed
below are not intended to be investment advice or recommendations,
because each investor's financial considerations are different.
The discussion below of the factors to consider in purchasing a
particular class of shares assumes that you will purchase only one
class of shares and not a combination of shares of different
classes.
-- How Long Do You Expect to Hold Your Investment? The Fund
is designed for long-term investment. While future financial needs
cannot be predicted with certainty, knowing how long you expect to
hold your investment will assist you in selecting the appropriate
class of shares. The effect of the sales charge over time, using
our assumptions, will generally depend on the amount invested.
Because of the effect of class-based expenses, your choice will
also depend on how much you plan to invest. For example, the
reduced sales charges available for larger purchases of Class A
shares may, over time, offset the effect of paying an initial sales
charge on your investment (which reduces the amount of your
investment dollars used to buy shares for your account) compared to
the effect over time of higher class-based expenses on shares of
Class B or C, for which no initial sales charge is paid.
- Investing for the Short Term. If you have a short-term
investment horizon (that is, you plan to hold your shares for not
more than six years), you should probably consider purchasing Class
A or Class C shares rather than Class B shares, because of the
effect of the Class B contingent deferred sales charge if you
redeem in less than 7 years, as well as the effect of the Class B
asset-based sales charge on the investment return for that class in
the short-term. Class C shares might be the appropriate choice
(especially for investments of less than $100,000), because there
is no initial sales charge on class C shares, and the contingent
deferred sales charge does not apply to amounts you sell after
holding them one year.
However, if you plan to invest more than $100,000 for the
shorter term, then the more you invest and the more your investment
horizon increases toward six years, Class C shares might not be as
advantageous as Class A shares. That is because the annual asset-
based sales charge on Class C shares will have a greater economic
impact on your account over the longer term than the reduced front-
end sales charge available for larger purchases of Class A shares.
For example, Class A might be more advantageous than Class C (as
well as Class B) for investments of more than $100,000 expected to
be held for 5 or 6 years (or more). For investments over $250,000
expected to be held 4 to 6 years (or more), Class A shares may
become more advantageous than Class C (and B). If investing
$500,000 ore more, Class A may be more advantageous as your
investment horizon approaches 3 years or more.
And for most investors who invest $1 million or more, in most
cases Class A shares will be the most advantageous choice, no
matter how long you intend to hold your shares. For that reason,
the Distributor normally will not accept purchase orders of
$500,000 or $1 million or more of Class B or Class C shares,
respectively, from a single investor.
- Investing for the Longer Term. If you are investing for the
longer term, and do not expect to need access to your money for
seven years or more, Class B shares may be an appropriate
consideration, if you plan to invest less than $100,000. If you
plan to invest more than $100,000 over the long term, Class A
shares will likely be more advantageous than Class B shares or C
shares, as discussed above, because of the effect of the expected
lower expenses for Class A shares and the reduced initial sales
charge available for larger investments in Class A shares under the
Fund's Right of Accumulation.
Of course, these examples are based on approximations of the
effect of current sales charges and expenses on a hypothetical
investment over time, using the assumptions stated above.
Therefore, these examples should not be relied on as rigid
guidelines.
-- Are There Differences in Account Features That Matter to
You? Because some account features may not be available to Class
B or Class C shareholders, or other features (such as Automatic
Withdrawal Plans) might not be advisable (because of the effect of
the contingent deferred sales charge for Class B and Class C
shareholders), you should carefully review how you plan to use your
investment account before deciding which class of shares to buy.
For example, share certificates are not available for Class B or
Class C shares and if you are considering using your shares as
collateral for a loan, that may be a factor to consider.
Additionally, the dividends payable to Class B and Class C
shareholders will be reduced by the additional expenses borne
solely by those classes, such as the asset-based sales charge to
which Class B and Class C shares are subject, as described below
and in the Statement of Additional Information.
-- How Does It Affect Payments to My Broker? A salesperson,
such as a broker, or any other person who is entitled to receive
compensation for selling Fund shares may receive different
compensation for selling one class rather than another class. It
is important that investors understand that the purpose of the
contingent deferred sales charges and asset-based sales charges for
Class B and Class C shares are the same as the purpose of the
front-end sales charge on sales of Class A shares: that is, to
compensate the Distributor for commissions it pays to dealers and
financial institutions for selling shares.
How Much Must You Invest? You can open a Fund account with a
minimum initial investment of $1,000 and make additional
investments at any time with as little as $25. There are reduced
minimum investments under special investment plans:
With Asset Builder Plans, Automatic Exchange Plans and
military allotment plans, you can make initial and subsequent
investments of as little as $25; and subsequent purchases of at
least $25 can be made by telephone through AccountLink.
There is no minimum investment requirement if you are
buying shares by reinvesting dividends from the Fund or other
Oppenheimer funds (a list of them appears in the Statement of
Additional Information, or you can ask your dealer or call the
Transfer Agent), or by reinvesting distributions from unit
investment trusts that have made arrangements with the Distributor.
-- How Are Shares Purchased? You can buy shares several ways:
through any dealer, broker or financial institution that has a
sales agreement with the Distributor, or directly through the
Distributor, or automatically from your bank account through an
Asset Builder Plan under the OppenheimerFunds AccountLink service.
When you buy shares, be sure to specify Class A, Class B or Class
C shares. If you do not choose, your investment will be made in
Class A shares.
-- Buying Shares Through Your Dealer. Your dealer will place
your order with the Distributor on your behalf.
-- Buying Shares Through the Distributor. Complete an
OppenheimerFunds New Account Application and return it with a check
payable to "OppenheimerFunds Distributor, Inc." Mail it to P.O. Box
5270, Denver, Colorado 80217. If you don't list a dealer on the
application, the Distributor will act as your agent in buying the
shares. However, we recommend that you discuss your investment
first with a financial advisor, to be sure it is appropriate for
you.
-- Buying Shares Through OppenheimerFunds AccountLink. You
can use AccountLink to link your Fund account with an account at a
U.S. bank or other financial institution that is an Automated
Clearing House (ACH) member. You can then transmit funds
electronically to purchase shares, to send redemption proceeds, and
to transmit dividends and distributions.
Shares are purchased for your account on AccountLink on the
regular business day the Distributor is instructed by you to
initiate the ACH transfer to buy shares. You can provide those
instructions automatically, under an Asset Builder Plan, described
below, or by telephone instructions using OppenheimerFunds
PhoneLink, also described below. You should request AccountLink
privileges on the application or dealer settlement instructions
used to establish your account. Please refer to "AccountLink"
below for more details.
-- Asset Builder Plans. You may purchase shares of the Fund
(and up to four other Oppenheimer funds) automatically each month
from your account at a bank or other financial institution under an
Asset Builder Plan with AccountLink. Details are on the
Application and in the Statement of Additional Information.
-- At What Price Are Shares Sold? Shares are sold at the
public offering price based on the net asset value (and any initial
sales charge that applies) that is next determined after the
Distributor receives the purchase order in Denver. In most cases,
to enable you to receive that day's offering price, the Distributor
must receive your order by the time of day The New York Stock
Exchange closes, which is normally 4:00 P.M., New York time, but
may be earlier on some days (all references to time in this
Prospectus mean "New York time"). The net asset value of each
class of shares is determined as of that time on each day The New
York Stock Exchange is open (which is a "regular business day").
If you buy shares through a dealer, the dealer must receive
your order by the close of The New York Stock Exchange on a regular
business day and transmit it to the Distributor so that it is
received before the Distributor's close of business that day, which
is normally 5:00 P.M. The Distributor may reject any purchase
order for the Fund's shares, in its sole discretion.
Special Sales Charge Arrangements for Certain Persons. The
Appendix to this Prospectus sets forth conditions for the waiver
of, or exemption from, sales charges or the special sales charge
rates that apply to purchases of shares of the Fund (including
purchases by exchange) by a person who was a shareholder of one of
the former Quest For Value Funds (as defined in that Appendix).
Buying Class A Shares. Class A shares are sold at their offering
price, which is normally net asset value plus an initial sales
charge. However, in some cases, described below, purchases are not
subject to an initial sales charge, and the offering price may be
net asset value. In some cases, reduced sales charges may be
available, as described below. Out of the amount you invest, the
Fund receives the net asset value to invest for your account. The
sales charge varies depending on the amount of your purchase. A
portion of the sales charge may be retained by the Distributor and
allocated to your dealer as commission. The current sales charge
rates and commissions paid to dealers and brokers
are as follows:
- -------------------------------------------------------------------
Amount of Purchase Front-End Front-End Commission
Sales Charge Sales Charge as
as a as a Percentage
Percentage Percentage of Offering
of Offering of Amount Price
Price Invested
- -------------------------------------------------------------------
Less than $50,000 4.75% 4.98% 4.00%
- -------------------------------------------------------------------
$50,000 or more
but less than
$100,000 4.50% 4.71% 4.00%
- -------------------------------------------------------------------
$100,000 or more
but less than
$250,000 3.50% 3.63% 3.00%
- -------------------------------------------------------------------
$250,000 or more
but less than
$500,000 2.50% 2.56% 2.25%
- -------------------------------------------------------------------
$500,000 or more
but less than
$1 million 2.00% 2.04% 1.80%
- -------------------------------------------------------------------
The Distributor reserves the right to reallow the entire commission
to dealers. If that occurs, the dealer may be considered an
"underwriter" under Federal securities laws.
-- Class A Contingent Deferred Sales Charge. There is no
initial sales charge on purchases of Class A shares of any one or
more of the Oppenheimer funds aggregating $1 million or more.
Shares of any of the other Oppenheimer funds that offer only
one class of shares that has no class designation are considered
"Class A" shares for this purpose. The Distributor pays dealers of
record commissions on such purchases in an amount equal to the sum
of 1.0% of the first $2.5 million, plus 0.50% of the next $2.5
million, plus 0.25% of share purchases over $5 million. That
commission will be paid only on the amount of those purchases in
excess of $1 million that were not previously subject to a front-
end sales charge and dealer commission.
If you redeem any of those shares within 18 months of the end
of the calendar month of their purchase, a contingent deferred
sales charge (called the "Class A contingent deferred sales
charge") will be deducted from the redemption proceeds. That sales
charge will be equal to 1.0% of either (1) the aggregate net asset
value of the redeemed shares (not including shares purchased by
reinvestment of dividends or capital gain distributions) or (2) the
original cost of the shares, whichever is less. However, the Class
A contingent deferred sales charge will not exceed the aggregate
amount of the commissions the Distributor paid to your dealer on
all Class A shares of all Oppenheimer funds you purchased subject
to the Class A contingent deferred sales charge.
In determining whether a contingent deferred sales charge is
payable, the Fund will first redeem shares that are not subject to
the sales charge, including shares purchased by reinvestment of
dividends and capital gains, and then will redeem other shares in
the order that you purchased them. The Class A contingent deferred
sales charge is waived in certain cases described in "Waivers of
Class A Sales Charges" below.
No Class A contingent deferred sales charge is charged on
exchanges of shares under the Fund's exchange privilege (described
below). However, if the shares acquired by exchange are redeemed
within 18 months of the end of the calendar month of the purchase
of the exchanged shares, the sales charge will apply.
-- Special Arrangements With Dealers. The Distributor may
advance up to 13 months' commissions to dealers that have
established special arrangements with the Distributor for Asset
Builder Plans for their clients.
Reduced Sales Charges for Class A Share Purchases. You may be
eligible to buy Class A shares at reduced sales charge rates in one
or more of the following ways:
-- Right of Accumulation. To qualify for the lower sales
charge rates that apply to larger purchases of Class A shares, you
and your spouse can add together Class A and Class B shares you
purchase for your individual accounts, or jointly, or on behalf of
your children who are minors, under trust or custodial accounts. A
fiduciary can count all shares purchased for a trust, estate or
other fiduciary account (including one or more employee benefit
plans of the same employer) that has multiple accounts.
Additionally, you can add together current purchases of Class
A and Class B shares of the Fund and other Oppenheimer funds to
reduce the sales charge rate that applies to current purchases of
Class A shares. You can also count Class A and Class B shares of
Oppenheimer funds you previously purchased subject to an initial or
contingent deferred sales charge to reduce the sales charge rate
for current purchases of Class A shares, provided that you still
hold your investment in one of the Oppenheimer funds. The value of
those shares will be based on the greater of the amount you paid
for the shares or their current value (at offering price). The
Oppenheimer funds are listed in "Reduced Sales Charges" in the
Statement of Additional Information, or a list can be obtained from
the Distributor. The reduced sales charge will apply only to
current purchases and must be requested when you buy your shares.
-- Letter of Intent. Under a Letter of Intent, if you
purchase Class A shares or Class A and Class B shares of the Fund
and other Oppenheimer funds during a 13-month period, you can
reduce the sales charge rate that applies to your purchase of Class
A shares. The total amount of your intended purchases of both Class
A and Class B shares will determine the reduced sales charge rate
for Class A shares purchased during that period. This can include
purchases made up to 90 days before the date of the Letter. More
information is contained in the Application and in "Reduced Sales
Charges" in the Statement of Additional Information.
-- Waivers of Class A Sales Charges. The Class A sales
charges are not imposed in the circumstances described below.
There is an explanation of this policy in "Reduced Sales Charges"
in the Statement of Additional Information.
Waivers of Initial and Contingent Deferred Sales Charges for
Certain Purchasers. Class A shares purchased by the following
investors are not subject to any Class A sales charges:
- the Manager or its affiliates;
- present or former officers, directors, trustees and
employees (and their "immediate families" as defined in "Reduced
Sales Charges" in the Statement of Additional Information) of the
Fund, the Manager and its affiliates, and retirement plans
established by them for their employees;
- registered management investment companies, or separate
accounts of insurance companies having an agreement with the
Manager or the Distributor for that purpose;
- dealers or brokers that have a sales agreement with the
Distributor, if they purchase shares for their own accounts or for
retirement plans for their employees;
- employees and registered representatives (and their spouses)
of dealers or brokers described above or financial institutions
that have entered into sales arrangements with such dealers or
brokers (and are identified to the Distributor) or with the
Distributor; the purchaser must certify to the Distributor at the
time of purchase that the purchase is for the purchaser's own
account (or for the benefit of such employee's spouse or minor
children);
- dealers, brokers or registered investment advisers that have
entered into an agreement with the Distributor providing
specifically for the use of shares of the Fund in particular
investment products made available to their clients (those clients
may be charged a transaction fee by their dealer, broker or adviser
for the purchase or sale of Fund shares);
- directors, trustees, officers or full-time employees of
OpCap Advisors or its affiliates, their relatives or any trust,
pension, profit sharing or other benefit plan which beneficially
owns shares for those persons;
- accounts for which Oppenheimer Capital is the investment
adviser (the Distributor must be advised of this arrangement) and
persons who are directors or trustees of the company or trust which
is the beneficial owner of such accounts; or
- any unit investment trust that has entered into an
appropriate agreement with the Distributor;
Waivers of Initial and Contingent Deferred Sales Charges in
Certain Transactions. Class A shares issued or purchased in the
following transactions are not subject to Class A sales charges:
- shares issued in plans of reorganization, such as mergers,
asset acquisitions and exchange offers, to which the Fund is a
party;
- shares purchased by the reinvestment of dividends or other
distributions reinvested from the Fund or other Oppenheimer funds
(other than Oppenheimer Cash Reserves) or unit investment trusts
for which reinvestment arrangements have been made with the
Distributor;
- shares purchased and paid for with the proceeds of shares
redeemed in the prior 12 months from a mutual fund (other than a
fund managed by the Manager or any of its subsidiaries) on which an
initial sales charge or contingent deferred sales charge was paid
(this waiver also applies to shares purchased by exchange of shares
of Oppenheimer Money Market Fund, Inc. that were purchased and paid
for in this manner); this waiver must be requested when the
purchase order is placed for your shares of the Fund, and the
Distributor may require evidence of your qualification for this
waiver; or
- shares purchased with the proceeds of maturing principal of
units of any Qualified Unit Investment Liquid Trust Series.
Waivers of the Class A Contingent Deferred Sales Charge for
Certain Redemptions. The Class A contingent deferred sales charge
is also waived if shares that would otherwise be subject to the
contingent deferred sales charge are redeemed in the following
cases:
- to make Automatic Withdrawal Plan payments that are limited
annually to no more than 12% of the original account value;
- involuntary redemptions of shares by operation of law or
involuntary redemptions of small accounts (see "Shareholder Account
Rules and Policies," below); or
- if, at the time a purchase order is placed for Class A
shares that would otherwise be subject to the Class A contingent
deferred sales charge, the dealer agrees in writing to accept the
dealer's portion of the commission payable on the sale in
installments of 1/18th of the commission per month (and no further
commission will be payable if the shares are redeemed within 18
months of purchase).
-- Service Plan for Class A Shares. The Fund has adopted a
Service Plan for Class A shares to reimburse the Distributor for a
portion of its costs incurred in connection with the personal
service and maintenance of accounts that hold Class A shares.
Reimbursement is made quarterly at an annual rate that may not
exceed 0.25% of the average annual net assets of Class A shares of
the Fund. The Distributor uses all of those fees to compensate
dealers, brokers, banks and other financial institutions quarterly
for providing personal service and maintenance of accounts of their
customers that hold Class A shares and to reimburse itself (if the
Fund's Board of Trustees authorizes such reimbursements) for its
other expenditures under the Plan.
Services to be provided include, among others, answering
customer inquiries about the Fund, assisting in establishing and
maintaining accounts in the Fund, making the Fund's investment
plans available and providing other services at the request of the
Fund or the Distributor. Payments are made by the Distributor
quarterly at an annual rate not to exceed 0.25% of the average
annual net assets of Class A shares held in accounts of the dealer
or its customers. The payments under the Plan increase the annual
expenses of Class A shares. For more details, please refer to
"Distribution and Service Plans" in the Statement of Additional
Information.
Buying Class B Shares. Class B shares are sold at net asset value
per share without an initial sales charge. However, if Class B
shares are redeemed within 6 years of their purchase, a contingent
deferred sales charge will be deducted from the redemption
proceeds. That sales charge will not apply to shares purchased by
the reinvestment of dividends or capital gains distributions. The
charge will be assessed on the lesser of the net asset value of the
shares at the time of redemption or the original purchase price.
The contingent deferred sales charge is not imposed on the amount
of your account value represented by the increase in net asset
value over the initial purchase price. The Class B contingent
deferred sales charge is paid to the Distributor to reimburse its
expenses of providing distribution-related services to the Fund in
connection with the sale of Class B shares.
To determine whether the contingent deferred sales charge
applies to a redemption, the Fund redeems shares in the following
order: (1) shares acquired by reinvestment of dividends and capital
gains distributions, (2) shares held for over 6 years, and (3)
shares held the longest during the 6-year period. The contingent
deferred sales charge is not imposed in the circumstances described
below in "Waivers of Class B and Class C Sales Charges."
The amount of the contingent deferred sales charge will depend
on the number of years since you invested and the dollar amount
being redeemed, according to the following schedule:
Years Since Contingent Deferred Sales Charge
Beginning of Month in which On Redemptions in That Year
Purchase Order Was Accepted (As % of Amount Subject to Charge)
0-1 5.0%
1-2 4.0%
2-3 3.0%
3-4 3.0%
4-5 2.0%
5-6 1.0%
6 and following None
In the table, a "year" is a 12-month period. All purchases are
considered to have been made on the first regular business day of
the month in which the purchase was made.
-- Automatic Conversion of Class B Shares. 72 months after
you purchase Class B shares, those shares will automatically
convert to Class A shares. This conversion feature relieves Class
B shareholders of the asset-based sales charge that applies to
Class B shares under the Class B Distribution and Service Plan,
described below. The conversion is based on the relative net asset
value of the two classes, and no sales load or other charge is
imposed. When Class B shares convert, any other Class B shares that
were acquired by the reinvestment of dividends and distributions on
the converted shares will also convert to Class A shares. The
conversion feature is subject to the continued availability of a
tax ruling described in "Alternative Sales Arrangements - Class A,
Class B and Class C Shares" in the Statement of Additional
Information.
Buying Class C Shares. Class C shares are sold at net asset value
per share without an initial sales charge. However, if Class C
shares are redeemed within 12 months of their purchase, a
contingent deferred sales charge of 1.0% will be deducted from the
redemption proceeds. That sales charge will not apply to shares
purchased by the reinvestment of dividends or capital gains
distributions. The charge will be assessed on the lesser of the net
asset value of the shares at the time of redemption or the original
purchase price. The contingent deferred sales charge is not imposed
on the amount of your account value represented by the increase in
net asset value over the initial purchase price (including
increases due to the reinvestment of dividends and capital gains
distributions). The Class C contingent deferred sales charge is
paid to the Distributor to reimburse its expenses of providing
distribution-related services to the Fund in connection with the
sale of Class C shares.
To determine whether the contingent deferred sales charge
applies to a redemption, the Fund redeems shares in the following
order: (1) shares acquired by reinvestment of dividends and capital
gains distributions, (2) shares held for over 12 months, and (3)
shares held the longest during the 12-month period.
-- Waivers of Class B and Class C Sales Charges. The Class B
and Class C contingent deferred sales charges will not be applied
to shares purchased in certain types of transactions nor will it
apply to shares redeemed in certain circumstances as described
below. The reasons for this policy are in "Reduced Sales Charges"
in the Statement of Additional Information.
Waivers for Redemptions of Shares in Certain Cases. The Class
B and Class C contingent deferred sales charges will be waived for
redemptions of shares in the following cases:
- redemptions from accounts following the death or disability
of the last surviving shareholder (the death or disability must
have occurred after the account was established, and for disability
you must provide evidence of a determination of disability by the
Social Security Administration); or
- shares redeemed involuntarily, as described in "Shareholder
Account Rules and Policies," below.
Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and
Class C shares sold or issued in the following cases:
- shares sold to the Manager or its affiliates;
- shares sold to registered management investment companies or
separate accounts of insurance companies having an agreement with
the Manager or the Distributor for that purpose; or
- shares issued in plans of reorganization to which the Fund
is a party.
-- Distribution and Service Plan for Class B and Class C
Shares. The Fund has adopted a Distribution and Service Plan for
Class B and Class C shares to compensate the Distributor for
distributing Class B and Class C shares and servicing accounts.
Under the Plan, the Fund pays the Distributor an annual "asset-
based sales charge" of 0.75% per year on Class B shares that are
outstanding for 6 years or less. The Distributor also receives a
service fee of 0.25% per year.
Under each Plan, both fees are computed on the average annual
net assets of Class B shares, determined as of the close of each
regular business day. The asset-based sales charge allows investors
to buy Class B or Class C shares without a front-end sales charge
while allowing the Distributor to compensate dealers that sell
those shares. The asset-based sales charge and service fees
increase Class B and Class C expenses by up to 1.00% of average net
assets per year.
The Distributor uses the service fee to compensate dealers for
providing personal services for accounts that hold Class B or Class
C shares. Those services are similar to those provided under the
Class A Service Plan, described above. The Distributor pays the
0.25% service fee to dealers in advance for the first year after
Class B or Class C shares have been sold by the dealer and retains
the service fees paid by the Fund in that year. After the shares
have been held for a year, the Distributor pays the fee on a
quarterly basis.
The Distributor currently pays sales commissions of 3.75% of
the purchase price of Class B shares to dealers from its own
resources at the time of sale. The total amount paid by the
Distributor to the dealer a the time of sales of Class B shares is
therefore 4.00% of the purchase price.
The Fund pays the asset-based sales charge to the Distributor
for its services rendered in connection with the distribution of
Class B and Class C shares. Those payments are at a fixed rate
which is not related to the Distributor's expenses. The services
rendered by the Distributor include paying and financing the
payment of sales commissions, service fees, and other costs of
distributing and selling Class B and Class C shares, including
compensating personnel of the Distributor who support distribution
of Class B and Class C shares. If either Plan is terminated by the
Fund, the Board of Trustees may allow the Fund to continue payments
of the asset-based sales charge to the Distributor for distributing
Class B or C shares before the Plan was terminated.
Special Investor Services
AccountLink. OppenheimerFunds AccountLink links your Fund account
to your account at your bank or other financial institution to
enable you to send money electronically between those accounts to
perform a number of types of account transactions. These include
purchases of shares by telephone (either through a service
representative or by PhoneLink, described below), automatic
investments under Asset Builder Plans, and sending dividends and
distributions or Automatic Withdrawal Plan payments directly to
your bank account. Please refer to the Application for details or
call the Transfer Agent for more information.
AccountLink privileges should be requested on the Application
you use to buy shares, or on your dealer's settlement instructions
if you buy your shares through your dealer. After your account is
established, you can request AccountLink privileges by sending
signature-guaranteed instructions to the Transfer Agent.
AccountLink privileges will apply to each shareholder listed in the
registration on your account as well as to your dealer
representative of record unless and until the Transfer Agent
receives written instructions terminating or changing those
privileges. After you establish AccountLink for your account, any
change of bank account information must be made by signature-
guaranteed instructions to the Transfer Agent signed by all
shareholders who own the account.
-- Using AccountLink to Buy Shares. Purchases may be made by
telephone only after your account has been established. To purchase
shares in amounts up to $250,000 through a telephone
representative, call the Distributor at 1-800-852-8457. The
purchase payment will be debited from your bank account.
-- PhoneLink. PhoneLink is the OppenheimerFunds automated
telephone system that enables shareholders to perform a number of
account transactions automatically using a touch-tone phone.
PhoneLink may be used on already-established Fund accounts after
you obtain a Personal Identification Number (PIN), by calling the
special PhoneLink number: 1-800-533-3310.
- Purchasing Shares. You may purchase shares in amounts up to
$100,000 by phone, by calling 1-800-533-3310. You must have
established AccountLink privileges to link your bank account with
the Fund, to pay for these purchases.
- Exchanging Shares. With the OppenheimerFunds exchange
privilege, described below, you can exchange shares automatically
by phone from your Fund account to another Oppenheimer funds
account you have already established by calling the special
PhoneLink number. Please refer to "How to Exchange Shares," below,
for details.
- Selling Shares. You can redeem shares by telephone
automatically by calling the PhoneLink number and the Fund will
send the proceeds directly to your AccountLink bank account.
Please refer to "How to Sell Shares," below, for details.
Automatic Withdrawal and Exchange Plans. The Fund has several
plans that enable you to sell shares automatically or exchange them
to another Oppenheimer funds account on a regular basis:
-- Automatic Withdrawal Plans. If your Fund account is worth
$5,000 or more, you can establish an Automatic Withdrawal Plan to
receive payments of at least $50 on a monthly, quarterly, semi-
annual or annual basis. The checks may be sent to you or sent
automatically to your bank account on AccountLink. You may even
set up certain types of withdrawals of up to $1,500 per month by
telephone. You should consult the Application and Statement of
Additional Information for more details.
-- Automatic Exchange Plans. You can authorize the Transfer
Agent automatically to exchange an amount you establish in advance
for shares of up to five other Oppenheimer funds on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange
Plan. The minimum purchase for each Oppenheimer funds account is
$25. These exchanges are subject to the terms of the exchange
privilege, described below.
Reinvestment Privilege. If you redeem some or all of your Class A
or Class B shares, you have up to 6 months to reinvest all or part
of the redemption proceeds in Class A shares of the Fund or other
Oppenheimer funds without paying a sales charge. This privilege
applies only to Class A shares you purchased subject to an initial
sales charge and to Class A or Class B shares on which you paid a
contingent deferred sales charge when you redeemed them. It does
not apply to Class C shares. You must be sure to ask the
Distributor for this privilege when you send your payment. Please
consult the Statement of Additional Information for more details.
How to Sell Shares
You can arrange to take money out of your account by selling
(redeeming) some or all of your shares on any regular business day.
Your shares will be sold at the next net asset value calculated
after your order is received and accepted by the Transfer Agent.
The Fund offers you a number of ways to sell your shares: in
writing, by using Checkwriting or by telephone. You can also set
up an Automatic Withdrawal Plan to redeem shares on a regular
basis, as described above. If you have questions about any of
these procedures, and especially if you are redeeming shares in a
special situation, such as due to the death of the owner, please
call the Transfer Agent first, at 1-800-525-7048, for assistance.
-- Certain Requests Require a Signature Guarantee. To protect
you and the Fund from fraud, certain redemption requests must be in
writing and must include a signature guarantee in the following
situations (there may be other situations also requiring a
signature guarantee):
- You wish to redeem more than $50,000 worth of shares and
receive a check
- The redemption check is not payable to all shareholders
listed on the account statement
- The redemption check is not sent to the address of record on
your statement
- Shares are being transferred to a Fund account with a
different owner or name
- Shares are redeemed by someone other than the owners (such
as an Executor)
-- Where Can I Have My Signature Guaranteed? The Transfer
Agent will accept a guarantee of your signature by a number of
financial institutions, including: a U.S. bank, trust company,
credit union or savings association, or by a foreign bank that has
a U.S. correspondent bank, or by a U.S. registered dealer or broker
in securities, municipal securities or government securities, or by
a U.S. national securities exchange, a registered securities
association or a clearing agency. If you are signing on behalf of
a corporation, partnership or other business, or as a fiduciary,
you must also include your title in the signature.
Selling Shares by Mail. Write a "letter of instructions" that
includes:
- Your name
- The Fund's name
- Your Fund account number (from your account statement)
- The dollar amount or number of shares to be redeemed
- Any special payment instructions
- Any share certificates for the shares you are selling,
- The signatures of all registered owners exactly as the
account is registered, and
- Any special requirements or documents requested by the
Transfer Agent to assure proper authorization of the person
asking to sell shares.
Use the following address for requests by mail:
OppenheimerFunds Services
P.O. Box 5270, Denver, Colorado 80217
Send courier or Express Mail requests to:
OppenheimerFunds Services
10200 E. Girard Avenue, Building D
Denver, Colorado 80231
Selling Shares by Telephone. You and your dealer representative of
record may also sell your shares by telephone. To receive the
redemption price on a regular business day, your call must be
received by the Transfer Agent by the close of The New York Stock
Exchange that day, which is normally 4:00 P.M., but which may be
earlier on some days. You may not redeem shares held under a share
certificate by telephone.
- To redeem shares through a service representative, call 1-
800-852-8457
- To redeem shares automatically on PhoneLink, call 1-800-533-
3310
Whichever method you use, you may have a check sent to the
address on the account statement, or, if you have linked your Fund
account to your bank account on AccountLink, you may have the
proceeds wired to that bank account.
-- Telephone Redemptions Paid by Check. Up to $50,000 may be
redeemed by telephone in any 7-day period. The check must be
payable to all owners of record of the shares and must be sent to
the address on the account statement. This service is not
available within 30 days of changing the address on an account.
-- Telephone Redemptions Through AccountLink. There are no
dollar limits on telephone redemption proceeds sent to a bank
account designated when you establish AccountLink. Normally the
ACH transfer to your bank is initiated on the business day after
the redemption. You do not receive dividends on the proceeds of
the shares you redeemed while they are waiting to be transferred.
Checkwriting. To be able to write checks against your Fund
account, you may request that privilege on your account Application
or you can contact the Transfer Agent for signature cards, which
must be signed (with a signature guarantee) by all owners of the
account and returned to the Transfer Agent so that checks can be
sent to you to use. Shareholders with joint accounts can elect in
writing to have checks paid over the signature of one owner. If
you previously signed a signature card to establish Checkwriting in
one of the other Oppenheimer funds, you may call 1-800-525-7048 to
request Checkwriting for an account in this Fund that has the same
registration as that other fund account.
- Checks can be written to the order of whomever you wish, but
may not be cashed at the Fund's bank or custodian.
- Checkwriting privileges are not available for accounts
holding Class B or Class C shares, or Class A shares that are
subject to a contingent deferred sales charge.
- Checks must be written for at least $100.
- Checks cannot be paid if they are written for more than your
account value. Remember: your shares fluctuate in value and you
should not write a check close to the total account value.
- You may not write a check that would require the Fund to
redeem shares that were purchased by check or Asset Builder Plan
payments within the prior 10 days.
- Don't use your checks if you changed your Fund account
number.
Selling Shares Through Your Dealer. The Distributor has made
arrangements to repurchase Fund shares from dealers and brokers on
behalf of their customers. Brokers or dealers may charge for that
service. Please refer to "Special Arrangements for Repurchase of
Shares from Dealers and Brokers" in the Statement of Additional
Information for more details.
How to Exchange Shares
Shares of the Fund may be exchanged for shares of certain
Oppenheimer funds at net asset value per share at the time of
exchange, without sales charge. To exchange shares, you must meet
several conditions:
- Shares of the fund selected for exchange must be available
for sale in your state of residence.
- The prospectuses of this Fund and the fund whose shares you
want to buy must offer the exchange privilege.
- You must hold the shares you buy when you establish your
account for at least 7 days before you can exchange them; after the
account is open 7 days, you can exchange shares every regular
business day.
- You must meet the minimum purchase requirements for the fund
you purchase by exchange.
- Before exchanging into a fund, you should obtain and read
its prospectus.
Shares of a particular class may be exchanged only for shares
of the same class in the other Oppenheimer funds. For example, you
can exchange Class A shares of this Fund only for Class A shares of
another fund. At present, Oppenheimer Money Market Fund, Inc.
offers only one class of shares, which are considered to be Class
A shares for this purpose. In some cases, sales charges may be
imposed on exchange transactions. Please refer to "How to Exchange
Shares" in the Statement of Additional Information for more
details.
Exchanges may be requested in writing or by telephone:
-- Written Exchange Requests. Submit an OppenheimerFunds
Exchange Request form, signed by all owners of the account. Send
it to the Transfer Agent at the addresses listed in "How to Sell
Shares."
-- Telephone Exchange Requests. Telephone exchange requests
may be made either by calling a service representative at 1-800-
852-8457 or by using PhoneLink for automated exchanges, by calling
1-800-533-3310. Telephone exchanges may be made only between
accounts that are registered with the same name(s) and address.
Shares held under certificates may not be exchanged by telephone.
You can find a list of Oppenheimer funds currently available
for exchanges in the Statement of Additional Information or obtain
one by calling a service representative at 1-800-525-7048.
There are certain exchange policies you should be aware of:
- Shares are normally redeemed from one fund and purchased
from the other fund in the exchange transaction on the same regular
business day on which the Transfer Agent receives an exchange
request by that is in proper form by the close of The New York
Stock Exchange that day, which is normally 4:00 P.M., but may be
earlier on some days. However, either fund may delay the purchase
of shares of the fund you are exchanging into if it determines it
would be disadvantaged by a same-day transfer of the proceeds to
buy shares. For example, the receipt of multiple exchange requests
from a dealer in a "market-timing" strategy might require the
disposition of portfolio securities at a time or price
disadvantageous to the Fund.
- Because excessive trading can hurt fund performance and harm
shareholders, the Fund reserves the right to refuse any exchange
request that will disadvantage it, or to refuse multiple exchange
requests submitted by a shareholder or dealer.
- The Fund may amend, suspend or terminate the exchange
privilege at any time. Although the Fund will attempt to provide
you notice whenever it is reasonably able to do so, it may impose
these changes at any time.
- For tax purposes, exchanges of shares involve a redemption
of the shares of the fund you own and a purchase of shares of the
other fund, which may result in a capital gain or loss. For more
information about taxes affecting exchanges, please refer to "How
to Exchange Shares" in the Statement of Additional Information.
- If the Transfer Agent cannot exchange all the shares you
request because of a restriction cited above, only the shares
eligible for exchange will be exchanged.
Shareholder Account Rules and Policies
-- Net Asset Value Per Share is determined for each class of
shares as of the close of The New York Stock Exchange, which is
normally 4:00 P.M. but may be earlier on some days on each day the
Exchange is open by dividing the value of the Fund's net assets
attributable to a class by the number of shares of that class that
are outstanding. The Fund's Board of Trustees has established
procedures to value the Fund's securities to determine net asset
value. In general, securities values are based on market value.
There are special procedures for valuing illiquid and restricted
securities, and obligations for which market values cannot be
readily obtained. These procedures are described more completely
in the Statement of Additional Information.
-- The offering of shares may be suspended during any period
in which the determination of net asset value is suspended, and the
offering may be suspended by the Board of Trustees at any time the
Board believes it is in the Fund's best interest to do so.
-- Telephone Transaction Privileges for purchases, redemptions
or exchanges may be modified, suspended or terminated by the Fund
at any time. If an account has more than one owner, the Fund and
the Transfer Agent may rely on the instructions of any one owner.
Telephone privileges apply to each owner of the account and the
dealer representative of record for the account unless and until
the Transfer Agent receives cancellation instructions from an owner
of the account.
-- The Transfer Agent will record any telephone calls to
verify data concerning transactions and has adopted other
procedures to confirm that telephone instructions are genuine, by
requiring callers to provide tax identification numbers and other
account data or by using PINs, and by confirming such transactions
in writing. If the Transfer Agent does not use reasonable
procedures it may be liable for losses due to unauthorized
transactions, but otherwise neither it nor the Fund will be liable
for losses or expenses arising out of telephone instructions
reasonably believed to be genuine. If you are unable to reach the
Transfer Agent during periods of unusual market activity, you may
not be able to complete a telephone transaction and should consider
placing your order by mail.
-- Redemption or transfer requests will not be honored until
the Transfer Agent receives all required documents in proper form.
From time to time, the Transfer Agent in its discretion may waive
certain of the requirements for redemptions stated in this
Prospectus.
-- Dealers that can perform account transactions for their
clients by participating in NETWORKING through the National
Securities Clearing Corporation are responsible for obtaining their
clients' permission to perform those transactions and are
responsible to their clients who are shareholders of the Fund if
the dealer performs any transaction erroneously or improperly.
-- The redemption price for shares will vary from day to day
because the value of the securities in the Fund's portfolio
fluctuates, and the redemption price, which is the net asset value
per share, will normally be different for Class A, Class B and
Class C shares. Therefore, the redemption value of your shares may
be more or less than their original cost.
-- Payment for redeemed shares is made ordinarily in cash and
forwarded by check or through AccountLink (as elected by the
shareholder under the redemption procedures described above) within
7 days after the Transfer Agent receives redemption instructions in
proper form, except under unusual circumstances determined by the
Securities and Exchange Commission delaying or suspending such
payments. For accounts registered in the name of a broker-dealer,
payment will be forwarded within 3 business days. The Transfer
Agent may delay forwarding a check or processing a payment via
AccountLink for recently purchased shares, but only until the
purchase payment has cleared. That delay may be as much as 10 days
from the date the shares were purchased. That delay may be avoided
if you purchase shares by certified check or arrange with your bank
to provide telephone or written assurance to the Transfer Agent
that your purchase payment has cleared.
-- Involuntary redemptions of small accounts may be made by
the Fund if the account value has fallen below $500 for reasons
other than the fact that the market value of shares has dropped,
and in some cases involuntary redemptions may be made to repay the
Distributor for losses from the cancellation of share purchase
orders.
-- Under unusual circumstances, shares of the Fund may be
redeemed "in kind," which means that the redemption proceeds will
be paid with securities from the Fund's portfolio. Please refer to
"How to Sell Shares" in the Statement of Additional Information for
more details.
-- "Backup Withholding" of Federal income tax may be applied
at the rate of 31% from taxable dividends, distributions and
redemption proceeds (including exchanges) if you fail to furnish
the Fund a certified Social Security or Employer Identification
Number when you sign your application, or if you violate Internal
Revenue Service regulations on tax reporting of income.
-- The Fund does not charge a redemption fee, but if your
dealer or broker handles your redemption, they may charge a fee.
That fee can be avoided by redeeming your Fund shares directly
through the Transfer Agent. Under the circumstances described in
"How To Buy Shares," you may be subject to a contingent deferred
sales charges when redeeming certain Class A, Class B and Class C
shares.
-- To avoid sending duplicate copies of materials to
households, the Fund will mail only one copy of each annual and
semi-annual report to shareholders having the same last name and
address on the Fund's records. However, each shareholder may call
the Transfer Agent at 1-800-525-7048 to ask that copies of those
materials be sent personally to that shareholder.
-- Transfer Agent and Shareholder Servicing Agent. The
transfer agent and shareholder servicing agent is OppenheimerFunds
Services. Unified Management Corporation (1-800-346-4601) is the
shareholder servicing agent for former shareholders of the AMA
Family of Funds and clients of AMA Investment Advisers, L.P. who
owned shares of the Former Quest For Value Fund when it merged into
the Fund on November 24, 1995.
Dividends, Capital Gains and Taxes
Dividends. The Fund declares dividends separately for Class A,
Class B and Class C shares from net investment income each regular
business day and pays such dividends to shareholders monthly.
Normally, dividends are paid on or about the tenth business day of
each month, but the Board of Trustees can change that date. It is
expected that distributions paid with respect to Class A shares
will generally be higher than for Class B and Class C shares
because expenses allocable to Class B and Class C shares will
generally be higher.
For the fiscal year ended September 30, 1995, the Fund
maintained the practice, to the extent consistent with the amount
of the Fund's net investment income and other distributable income,
of attempting to pay dividends on Class A shares at a constant
level, although the amount of such dividends was subject to change
from time to time depending on market conditions, the composition
of the Fund's portfolio and expenses borne by the Fund or borne
separately by that Class. The practice of attempting to pay
dividends on Class A shares at a constant level requires the
Manager, consistent with the Fund's investment objective and
investment restrictions, to monitor the Fund's portfolio and select
higher yielding securities when deemed appropriate to maintain
necessary net investment income levels. The Fund anticipates
paying dividends at the targeted dividend level from net investment
income and other distributable income without any impact on the
Fund's net asset value per share. The Board of Trustees may change
the Fund's targeted dividend level at any time, without prior
notice to shareholders; the Fund does not otherwise have a fixed
dividend rate and there can be no assurance as to the payment of
any dividends or the realization of any capital gains.
Capital Gains. Although the Fund does not seek capital gains, it
may realize capital gains on the sale of portfolio securities. If
it does, it may make distributions out of any net short- or long-
term capital gains in December. The Fund may make supplemental
distributions of dividends and capital gains following the end of
its fiscal year (which ends September 30th). Long-term capital
gains will be separately identified in the tax information the Fund
sends you after the end of the year. Short-term capital gains are
treated as dividends for tax purposes. There can be no assurance
that the Fund will pay any capital gains distributions in a
particular year.
Distribution Options. When you open your account, specify on your
application how you want to receive your distributions. You have
four options:
-- Reinvest all distributions in the Fund. You can elect to
reinvest all dividends and long-term capital gains distributions in
additional shares of the Fund.
-- Reinvest long-term capital gains only. You can elect to
reinvest long-term capital gains in the Fund while receiving
dividends by check or sent to your bank account on AccountLink.
-- Receive all distributions in cash. You can elect to
receive a check for all dividends and long-term capital gains
distributions or have them sent to your bank on AccountLink.
-- Reinvest your distributions in another Oppenheimer Fund
account. You can reinvest all distributions in another Oppenheimer
fund account you have established.
Taxes. Long-term capital gains are taxable as long-term capital
gains when distributed to shareholders. Dividends paid from short-
term capital gains and net investment income are taxable as
ordinary income. Dividends paid from net investment income earned
by the Fund on Municipal Securities will be excludable from your
gross income for Federal income tax purposes. A portion of the
dividends paid by the Fund may be an item of tax preference if you
are subject to the alternative minimum tax. Distributions are
subject to Federal income tax and may be subject to state and/or
local taxes. Your distributions are taxable when paid, whether you
reinvest them in additional shares or take them in cash. Every year
the Fund will send you and the IRS a statement showing the amount
of each taxable distribution you received in the previous year.
-- "Buying a Dividend". When a fund goes ex-dividend, its
share price is reduced by the amount of the distribution. If you
buy shares on or just before the ex-dividend date, or just before
the Fund declares a capital gains distribution, you will pay the
full price for the shares and then receive a portion of the price
back as a taxable dividend or capital gain.
-- Taxes on Transactions. Even though the Fund seeks tax-
exempt income for distribution to shareholders, you may have a
capital gain or loss when you sell or exchange your shares. A
capital gain or loss is the difference between the price you paid
for the shares and the price you receive when you sell them. Any
capital gain is subject to capital gains tax.
-- Returns of Capital. In certain cases distributions made by
the Fund may be considered a non-taxable return of capital to
shareholders. If that occurs, it will be identified in notices to
shareholders. A non-taxable return of capital may reduce your tax
basis in your Fund shares.
This information is only a summary of certain Federal tax
information about your investment. More information is contained
in the Statement of Additional Information, and in addition you
should consult with your tax adviser about the effect of an
investment in the Fund on your particular tax situation.
<PAGE>
<PAGE>
APPENDIX
Special Sales Charge Arrangements for Shareholders of the Fund
Who Were Shareholders of the Former Quest for Value Funds
The initial and contingent sales charge rates and waivers for
Class A, Class B and Class C shares of the Fund described elsewhere
in this Prospectus are modified as described below for those
shareholders of (i) Quest for Value Fund, Inc., Quest for Value
Growth and Income Fund, Quest for Value Opportunity Fund, Quest for
Value Small Capitalization Fund and Quest for Value Global Equity
Fund, Inc. on November 24, 1995, when OppenheimerFunds, Inc. became
the investment adviser to those funds, and (ii) Quest for Value
U.S. Government Income Fund, Quest for Value Investment Quality
Income Fund, Quest for Value Global Income Fund, Quest for Value
New York Tax-Exempt Fund, Quest for Value National Tax-Exempt Fund
and Quest for Value California Tax-Exempt Fund when those funds
merged into various Oppenheimer funds on November 24, 1995. The
funds listed above are referred to in this Prospectus as the
"Former Quest for Value Funds." The waivers of initial and
contingent deferred sales charges described in this Appendix apply
to shares of the Fund (i) acquired by such shareholder pursuant to
an exchange of shares of one of the Oppenheimer funds that was one
of the Former Quest for Value Funds or (ii) received by such
shareholder pursuant to the merger of any of the Former Quest for
Value Funds into an Oppenheimer fund on November 24, 1995.
Class A Sales Charges
-- Reduced Class A Initial Sales Charge Rates for Certain
Former Quest Shareholders
- Purchases by Groups and Associations. The following table
sets forth the initial sales charge rates for Class A shares
purchased by members of "Associations" formed for any purpose other
than the purchase of securities if that Association purchased
shares of any of the Former Quest for Value Funds or received a
proposal to purchase such shares from OCC Distributors prior to
November 24, 1995.
Front-End Front-End
Sales Sales Commission
Charge Charge as
Number of as a as a Percentage
Eligible Percentage Percentage of
Employees of Offering of Amount Offering
or Members Price Invested Price
- ----------------------------------------------------------------
9 or fewer 2.50% 2.56% 2.00%
At least 10 but
not more than 49 2.00% 2.04% 1.60%
For purchases by Associations having 50 or more eligible
employees or members, there is no initial sales charge on purchases
of Class A shares, but those shares are subject to the Class A
contingent deferred sales charge described on page ___ of this
Prospectus.
Purchases made under this arrangement qualify for the lower of
the sales charge rate in the table based on the number of members
of an Association or the sales charge rate that applies under the
Rights of Accumulation described above in the Prospectus.
Individuals who qualify under this arrangement for reduced sales
charge rates as members of Associations also may purchase shares
for their individual or custodial accounts at these reduced sales
charge rates, upon request to the Fund's Distributor.
-- Special Class A Contingent Deferred Sales Charge Rates
The contingent deferred sales charge applicable to Class A
shares of the Fund has been waived with respect to those shares of
the Fund issued in the reorganization on November 24, 1995 for
shares of Quest for Value New York Tax-Exempt Fund. Class A shares
of the Fund purchased by exchange of shares of other Oppenheimer
funds that were acquired as a result of the merger of Former Quest
for Value Funds into those Oppenheimer funds, and which shares were
subject to a Class A contingent deferred sales charge prior to
November 24, 1995 will be subject to a contingent deferred sales
charge at the following rates: if they are redeemed within 18
months of the end of the calendar month in which they were
purchased, at a rate equal to 1.0% if the redemption occurs within
12 months of their initial purchase and at a rate of 0.50 of 1.0%
if the redemption occurs in the subsequent six months. Class A
shares of any of the Former Quest Fund for Value Funds purchased
without an initial sales charge on or before November 22, 1995 will
continue to be subject to the applicable contingent deferred sales
charge in effect as of that date as set forth in the then-current
prospectus for such fund.
-- Waiver of Class A Sales Charges for Certain Shareholders
Class A shares of the Fund purchased by the following investors are
not subject to any Class A initial or contingent deferred sales
charges:
- Shareholders of the Fund who were shareholders of the AMA
Family of Funds on February 28, 1991 and who acquired shares of any
of the Former Quest for Value Funds by merger of a portfolio of the
AMA Family of Funds.
- Shareholders of the Fund who acquired shares of any Former
Quest for Value Fund by merger of any of the portfolios of the
Unified Funds.
-- Waiver of Class A Contingent Deferred Sales Charge in
Certain Transactions
The Class A contingent deferred sales charge will not apply to
redemptions of Class A shares of the Fund purchased by the
following investors who were shareholders of any Former Quest for
Value Fund:
- Investors who purchased Class A shares from a dealer that is
or was not permitted to receive a sales load or redemption fee
imposed on a shareholder with whom that dealer has a fiduciary
relationship under the Employee Retirement Income Security Act of
1974 and regulations adopted under that law.
Class A, Class B and Class C Contingent Deferred Sales Charge
Waivers
-- Waivers for Redemptions of Shares Purchased Prior to March
6, 1995
In the following cases, the contingent deferred sales charge
will be waived for redemptions of Class A, B or C shares of the
Fund acquired by merger of a Former Quest for Value Fund into the
Fund or by exchange from an Oppenheimer fund that was a Former
Quest for Value Fund or into which such fund merged, if those
shares were purchased prior to March 6, 1995 in connection with:
(i) withdrawals under an automatic withdrawal plan holding only
either Class B or C shares if the annual withdrawal does not exceed
10% of the initial value of the account, and (ii) liquidation of a
shareholder's account if the aggregate net asset value of shares
held in the account is less than the required minimum value of such
accounts.
-- Waivers for Redemptions of Shares Purchased on or After
March 6, 1995 but Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge
will be waived for redemptions of Class A, B or C shares of the
Fund acquired by merger of a Former Quest for Value Fund into the
Fund or by exchange from an Oppenheimer fund that was a Former
Quest For Value Fund or into which such fund merged, if those
shares were purchased on or after March 6, 1995, but prior to
November 24, 1995: (1) redemptions following the death or
disability of the shareholder(s) (as evidenced by a determination
of total disability by the U.S. Social Security Administration);
(2) withdrawals under an automatic withdrawal plan (but only for
Class B or C shares) where the annual withdrawals do not exceed 10%
of the initial value of the account; and (3) liquidation of a
shareholder's account if the aggregate net asset value of shares
held in the account is less than the required minimum account
value. A shareholder's account will be credited with the amount of
any contingent deferred sales charge paid on the redemption of any
Class A, B or C shares of the Fund described in this section if
within 90 days after that redemption, the proceeds are invested in
the same Class of shares in this Fund or another Oppenheimer fund.
<PAGE>
<PAGE>
APPENDIX A TO PROSPECTUS OF
OPPENHEIMER NEW YORK TAX-EXEMPT FUND
Graphic material included in Prospectus of Oppenheimer New
York Tax-Exempt Fund: "Comparison of Total Return of Oppenheimer
New York Tax-Exempt Fund and the Lehman Bros. Municipal Bond Index
- - Change in Value of a $10,000 Hypothetical Investment"
Linear Graphs will be included in the Prospectus of
Oppenheimer New York Tax-Exempt Fund (the "Fund") depicting the
initial account value and subsequent account value of a
hypothetical $10,000 investment in (i) Class A shares of the Fund
for the ten years ended September 30, 1994, (ii) Class B shares of
the Fund from March 1, 1993 (the date Class B shares were first
publicly-offered) to September 30, 1995, and (iii) Class C shares
from August 29, 1995 (the date Class C shares were first publicly
offered) to September 30, 1995, and comparing such values with the
same investments over the same time periods in the Lehman Brothers
Municipal Bond Index. Set forth below are the relevant data points
that will appear on the linear graph. Additional information with
respect to the foregoing, including a description of the Lehman
Brothers Municipal Bond Index, is set forth in the Prospectus under
"Fund Information - Management's Discussion of Performance."
Oppenheimer
New York
Tax-Exempt Lehman
Fund Brothers
Fiscal Year Class A Municipal
(Period) Ended Shares Bond Index
- -------------- ----------- ----------
09/30/84 $ 9,525 $10,000
09/30/85 $11,257 $11,624
09/30/86 $13,882 $14,489
09/30/87 $13,973 $14,566
09/30/88 $15,648 $16,457
09/30/89 $16,806 $17,885
09/30/90 $17,638 $19,101
09/30/91 $19,908 $21,621
09/30/92 $22,019 $23,880
03/01/93 $23,563 $25,487
09/30/93 $25,175 $26,925
09/30/94 $23,833 $26,268
09/30/95 $22,097 $29,207
Oppenheimer
New York
Tax-Exempt Lehman
Fund Brothers
Fiscal Year Class B Municipal
(Period) Ended Shares(1) Bond Index
- -------------- ---------- ----------
03/01/93 $10,000 $10,000
09/30/93 $10,596 $10,564
09/30/94 $ 9,601 $10,306
09/30/95 $10,577 $11,459
Oppenheimer
New York
Tax-Exempt Lehman
Fund Brothers
Fiscal Year Class C Municipal
(Period) Ended Shares(2) Bond Index
- -------------- ----------- ----------
09/30/95 $10,010 $10,063
(1)For the period from March 1, 1993 (commencement of class) to
September 30, 1995.
(2)For the period from August 29, 1995 (commencement of class) to
September 30, 1995.<PAGE>
<PAGE>
Oppenheimer New York Tax-Exempt Fund
Two World Trade Center
New York, New York 10048-0203
Investment Advisor
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds 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
No dealer, salesperson or any other person has been authorized to
give any information or to make any representations other than
those contained in this Prospectus or the Statement of Additional
Information, and if given or made, such information and
representations must not be relied upon as having been authorized
by the Fund, OppenheimerFunds, Inc., OppenheimerFunds Distributor,
Inc., or any affiliate thereof. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
any of the securities offered hereby in any state to any person to
whom it is unlawful to make such an offer in such state.
[OppenheimerFunds Logo]
PR360.001.0296.N * Printed on recycled paper
<PAGE>
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 February 1, 1996
This Statement of Additional Information is not a Prospectus.
This document contains additional information about the Fund and
supplements information in the Prospectus dated February 1, 1996.
It should be read together with the Prospectus, which may be
obtained by writing to the Fund's Transfer Agent, OppenheimerFunds
Services, at P.O. Box 5270, Denver, Colorado 80217 or by calling
the Transfer Agent at the toll-free number shown above.
<TABLE>
<CAPTION>
Contents
Page
<S>
<C>
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. . . . . . 14
Other Investment Restrictions . . . . . . . . . . . . 20
How the Fund is Managed. . . . . . . . . . . . . . . . . . 21
Organization and History. . . . . . . . . . . . . . . 21
Trustees and Officers of the Fund . . . . . . . . . . 22
The Manager and Its Affiliates. . . . . . . . . . . . 27
Brokerage Policies of the Fund . . . . . . . . . . . . . . 28
Performance of the Fund. . . . . . . . . . . . . . . . . . 30
Distribution and Service Plans . . . . . . . . . . . . . . 35
About Your Account
How To Buy Shares. . . . . . . . . . . . . . . . . . . . . 37
How To Sell Shares . . . . . . . . . . . . . . . . . . . . 44
How To Exchange Shares . . . . . . . . . . . . . . . . . . 47
Dividends, Capital Gains and Taxes . . . . . . . . . . . . 49
Additional Information About the Fund. . . . . . . . . . . 52
Financial Information About the Fund
Independent Auditors' Report . . . . . . . . . . . . . . . 53
Financial Statements . . . . . . . . . . . . . . . . . . . 54
Appendix A: Description of Ratings Categories . . . . . . A-1
Appendix B: Tax-Equivalent Yield Chart. . . . . . . . . . B-1
Appendix C: Industry Classifications. . . . . . . . . . . C-1
</TABLE>
<PAGE>
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 may invest, as well as the
strategies the Fund may use to try to achieve its objective.
Certain capitalized terms used in this Statement of Additional
Information 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 5% in municipal lease obligations, some of which may be
illiquid and others which 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 OppenheimerFunds, Inc. (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 on or prior to January 24, 1996 with respect
to offering of the State and December 21, 1995 with respect to
offering of New York City, and no representation is made as to the
accuracy of such information.
During the mid-1970's the State, some of its agencies,
instrumentalities and public benefit corporations (the
"Authorities"), and certain of its municipalities faced serious
financial difficulties. To address many of these financial
problems, the State developed various programs, many of which were
successful in ameliorating the financial crisis. Any further
financial problems experienced by these Authorities or
municipalities could have a direct adverse effect on the New York
Municipal Securities in which the Trust invests.
New York City
General. More than any other municipality, the fiscal health
of New York City (the "City") has a significant effect on the
fiscal health of the State. The national economic downturn which
began in July 1990 adversely affected the local economy which had
been declining since late 1989. As a result, the City experienced
job losses in 1990 and 1991 and real Gross City Product ("GCP")
fell in those two years. Beginning in 1992, the improvement in the
national economy helped stabilize conditions in the City.
Employment losses moderated toward year-end and real GCP increased,
boosted by strong wage gains. After noticeable improvements in the
City's economy during 1994, the City's current four-year financial
plan assumes that economic growth will slow in 1995 and 1996 with
local employment increasing modestly. During the 1995 fiscal year,
the City experienced substantial shortfalls in payments of non-
property tax revenues from those forecasted.
For each of the 1981 through 1994 fiscal years, the City
achieved balanced operating results as reported in accordance with
generally accepted accounting principles ("GAAP") and the City's
1995 fiscal year results are projected to be balanced in accordance
with GAAP. For fiscal year 1995, the City has adopted a budget
which has halted the trend in recent years of substantial increases
in City spending from one year to the next. The adopted budget for
the fiscal year 1996 reduces City-funded spending for the second
consecutive year. There can be no assurance that the City will
continue to maintain a balanced budget, or that it can maintain a
balanced budget without additional tax or other revenue increases
or reductions in City services, which could adversely affect the
City's economic base.
The Mayor is responsible for preparing the City's four-year
financial plan, including the City's current financial plan for the
1996 through 1999 fiscal years (the "1996-1999 Financial Plan",
"Financial Plan" or "City Plan"). On November 29, 1995, the City
submitted to the Control Board the Financial Plan for the 1996-1999
fiscal years, which is a modification to a financial plan submitted
to the Control Board on July 11, 1995 (the "July Financial Plan")
and which relates to the City, the Board of Education ("BOE") and
the City University of New York.
The City's projections set forth in the City Plan are based on
various assumptions and contingencies which are uncertain and which
may not materialize. Changes in major assumptions could
significantly affect the City's ability to balance its budget as
required by State law and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on
real estate tax revenues of the current downturn in the real estate
market, wage increases for City employees consistent with those
assumed in the City Plan, employment growth, the ability to
implement reductions in City personnel and other cost reduction
initiatives, provision of State and Federal aid and mandate relief
and the impact on City revenues of proposals for Federal and State
welfare reform.
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 1996
through 1999 contemplates the issuance of $11 billion of general
obligation bonds primarily to reconstruct and rehabilitate the
City's infrastructure and physical assets and to make capital
investments. In addition, the City issues revenue and tax
anticipation notes to finance 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 operating and capital
expenditures. Future developments concerning the City and public
discussion of such developments, as well as prevailing market
conditions, may affect the market for outstanding City general
obligation bonds and notes.
The City Comptroller and other agencies and public officials
have issued reports and make public statements which, among other
things, state that projected revenues may be less and future
expenditures may be greater than forecasted in the City Plan. It
is reasonable to expect that such reports and statements will
continue to be issued and to engender public comment.
1996-1999 Financial Plan. The July Financial Plan projected
revenues and expenditures for the 1996 fiscal year balanced in
accordance with GAAP. The July Financial Plan set forth actions to
close a previously projected gap of approximately $3.1 billion in
the 1996 fiscal year. The gap-closing actions for the 1996 fiscal
year include agency actions, including productivity savings and
savings from restructuring the delivery of City services; service
reductions; the sale of delinquent real property tax receivables;
reduced debt service costs, resulting from refinancings and other
actions; proposed increased Federal assistance; proposed increased
State aid; and various revenue actions.
The Financial Plan also sets forth projections for the 1997
through 1999 fiscal years and outlines a proposed gap-closing
program to close projected budget gaps of $888 million, $1.5
billion and $1.4 billion for the 1997 through 1999 years,
respectively. These projections take into account expected
increases in Federal and State assistance. The projections for the
1996 through 1999 fiscal years assume (i) agreement with the City's
unions with respect to approximately $100 million of savings to be
derived from efficiencies in management of employee health
insurance programs and other health benefit related savings for
each of the City's unions; (ii) $200 million of additional
anticipated State aid and $75 million of additional anticipated
Federal aid in each of the 1997 through 1999 fiscal years; (iii)
that the New York City Health and Hospitals Corporation ("HHC") and
the Board of Education will each be able to identify actions to
offset substantial revenue shortfalls reflected in the Financial
Plan, including approximately $254 million annual reduction in
revenues for HHC, which results from the reduction in Medicaid
payments proposed by the State and the City, without any increase
in City subsidy payments to HHC; (iv) the continuation of the
current assumption of no wage increases after fiscal year 1995 for
City employees unless offset by productivity increases; (v) $130
million of additional revenues as a result of the increased rent
payments for the City's airports proposed by the City, which is
subject to further discussion with the Port Authority; and (vi)
savings of $45 million in each of the 1997 through 1999 fiscal
years which would result from the State Legislature's enactment of
proposed tort reform legislation. In addition, the 1996-1999
Financial Plan anticipates the receipt of substantial amounts of
Federal aid. Certain Federal legislative proposals contemplate
significant reductions in Federal spending, including proposed
Federal welfare reform, which could result in caps on, or block
grants of, Federal Programs.
Various actions proposed in the Financial Plan are subject to
approval by the Governor and the State Legislature, the City's
municipal unions and the Federal government. No assurance can be
given that such actions will in fact be taken or that the savings
that the City projects will result from these actions will be
realized. If these measures cannot be implemented, the City will
be required to take other actions to decrease expenditures or
increase revenues to maintain a balanced financial plan.
The Financial Plan reflects certain cost and expenditure
increases including increases in salaries and benefits paid to City
employees pursuant to certain collective bargaining agreements. In
the event of a collective bargaining impasse, the terms of wage
settlements could be determined through the impasse procedure in
the New York City Collective Bargaining Law, which can impose a
binding settlement.
Ratings. On July 10, 1995, Standard & Poor's Ratings Group
("Standard & Poor's") revised downward its rating on City general
obligations bonds from A- to BBB+ and removed City bond from
CreditWatch. Standard & Poor's stated that "structural budgetary
balance remains elusive because of persistent softness in the
City's economy, highlighted by weak job growth and a growing
dependence on the historically volatile financial services sector".
Other factors identified by Standard & Poor's in lowering its
rating on City bonds included a trend of using one-time measures,
including debt refinancings, to close projected budget gaps,
dependence on unratified labor savings to help balance the
Financial Plan, optimistic projections of additional Federal and
State aid or mandate relief, a history of cash flow difficulties
caused by State budget delays and continued high debt levels.
Fitch Investors Service, Inc. ("Fitch") continues to rate the City
general obligation bond A-. Moody's Investors Service, Inc.
("Moody's") rating for City general obligation bonds is Baa1. 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 June 30, 1995, the City
and the Municipal Assistance Corporation for the City of New York
had, respectively, $23.258 billion and $4.033 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. The
State's 1995-1996 Financial Plan projects a balanced General Fund.
There can be no assurance that there will not be reductions in
State aid to the City from amounts currently projected or that
State budgets in future fiscal years will be adopted by the April
1 statutory deadline or that any such reductions or delays will not
have adverse effects on the City's cash flow or expenditures.
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.
Recent Developments. The national economy began the current
expansion in 1991 and has added over 7 million jobs since early
1992. However, the recession lasted longer in the State and
State's economy recovery has lagged behind the nation's. Although
the State has added approximately 185,000 jobs since November 1992,
employment growth in the State has been hindered during recent
years by significant cutbacks in the computer and instrument
manufacturing, utility, defense, and banking industries.
The 1995-1996 New York State Financial Plan (the "State Plan")
is based on projections that the State's economy is expected to
expand during 1995, but that there will be a pronounced slow-down
during the course of the year. Although industries that export
goods and services abroad are expected to benefit from the lower
dollar, growth will be slowed by government cutbacks at all levels.
On an average annual basis, employment growth will be about the
same as 1994. Both personal income and wages are expected to
record moderate gains in 1995. Bonus payments in the securities
industry are expected to increase from last year's depressed level.
Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending, the
extent of corporate and governmental restructuring, Federal fiscal
and monetary policies, the level of interest rates, and the
condition of the world economy, which could have an adverse effect
on the State. There can be no assurance that the State economy
will not experience results in the current fiscal year that are
worse than predicted, with corresponding material and adverse
effects on the State's projections of receipts and disbursements.
The 1995-96 Fiscal Year. The State's General Fund (the major
operating Fund of the State) was projected in the State Plan to be
balanced on a cash basis for the 1995-96 fiscal year. The State
Plan projected General Fund receipts and transfers from other funds
at $33.110 billion, a decrease of $48 million from total receipts
in the prior fiscal year, and disbursements and transfers to other
funds at $33.055 billion, a decrease of $344 million from the total
amount disbursed in the prior fiscal year.
The State issued the first of the three required quarterly
updates to the State Plan on July 28, 1995 (the "First Quarter
Update"). The First Quarter Update projected a continued balance
in the State s 1995-96 Financial Plan and incorporated few
revisions to the Plan.
The State issued its second quarterly update to the State Plan
(the "Mid-Year Update") on October 26, 1995. The Mid-Year Update
projected continued balance in the State s 1995-96 Financial Plan
with estimated receipts reduced by a net $71 million and estimated
disbursements reduced by a net $30 million as compared to the First
Quarter Update. The State also updated its forecast of national
and State economic activity through the end of calendar year 1996.
The national economic forecast remained basically unchanged from
the initial forecast on which the original 1995-96 State Financial
Plan was based, while the State economic forecast was marginally
weaker.
The State revised the State Plan on December 15, 1995 in
conjunction with the release of the Executive Budget for the 1996-
97 fiscal year. The State Plan continues to project a balanced
General Fund with reductions in projected receipts offset by an
equivalent reduction in projected disbursements. Modest changes
were made to the Mid-Year Update, reflecting two more months of
actual results, deficiency requests by State agencies and
administrative efficiencies achieved by State agencies. Total
General Fund receipts are expected to be approximately $73 million
lower than estimated at the time of the Mid-Year Update. The
largest single change in these estimates in attributable to the lag
in achieving $50 million in proceeds from sales of State assets,
which are unlikely to be completed prior to the end of the fiscal
year. Projected General Fund disbursements also are reduced by a
total of $73 million. The revisions reflect re-estimates based on
actual results through November 1995, the largest of which is a
reduction of $70 million in projected costs for income maintenance.
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.
The 1996-97 Fiscal Year (Executive Budget Forecast. The
Governor presented his
1996-97 Executive Budget to the Legislature on December 15, 1995
(the "1996-97 Financial Plan"). The Executive Budget also contains
financial projections for the State s 1997-98 and 1998-99 fiscal
years. The 1996-97 Financial Plan projects a continued balance in
the General Fund. It reflects a continuing strategy of
substantially reduced State spending, including program
restructurings, reductions in social welfare spending, and
efficiency and productivity initiatives. Total General Fund
receipts and transfers from other funds are projected to be $31.32
billion, a decrease of $1.4 billion from total receipts projected
in the current fiscal year. Total General Fund disbursements and
transfers to other funds are projected to be $31.22 billion, a
decrease of $1.5 billion from spending totals projected for the
current fiscal year. The Executive Budget proposes $3.9 billion in
actions to balance the 1996-97 Financial Plan, including
projections of (i) over $1.8 billion in savings from cost
containment and other actions in social welfare programs, including
Medicaid, welfare and various health and mental health programs;
(ii) $1.3 billion in savings from a reduced State General Fund
share of Medicaid made available from anticipated changes in the
federal Medicaid program, including an increase in the federal
share of Medicaid; (iii) over $450 million in savings from reforms
and cost avoidance in educational services (including school aid
and higher education), while providing fiscal relief from certain
State mandates that increase local spending; and (iv) $350 million
in savings from efficiencies and reductions in other State
programs.
The Governor has submitted several amendments to the Executive
Budget. The net impact of the amendments leaves unchanged the
total estimated amount of the General Fund spending in 1996-97,
which continues to be projected at $31.22 billion.
To make progress toward addressing recurring budgetary
imbalances, the 1996-97 Executive Budget proposes significant
actions to align recurring receipts and disbursements in future
fiscal year. However, there can be no assurance that the
Legislature will enact the Governor s proposals or that the State s
action will be sufficient to preserve budgetary balance or to align
recurring receipts and disbursements in either 1996-97 or in future
fiscal years. The Executive Budget contains projections of a
potential imbalance in the 1997-98 fiscal years of $1.44 billion
and in the 1998-99 fiscal year of $2.47 billion, assuming
implementation of the Executive Budget recommendations. It is
expected that the Governor will propose to close these budget gaps
with further spending reductions.
Uncertainties with regard to both the economy and potential
decisions at the federal level add further pressure on future
budget balance in the State. For example, various proposals
relating to federal tax and spending policies, such as changes to
federal treatment of capital gains which would flow through
automatically to the State personal income tax and changes
affecting the federal share of Medicaid, could, if enacted, have a
significant impact on the State s financial condition in 1996-97
and in future fiscal years.
Composition of State Governmental Funds Group. Substantially
all State non-pension financial operations are accounted for in the
State's governmental funds group. Governmental funds include the
General Fund, which receives all income not required by law to be
deposited in another fund; Special Revenue Funds, which receive the
preponderance of moneys received by the State from the Federal
government and other income the use of which is legally restricted
to certain purposes; Capital Projects Funds, used to finance the
acquisition and construction of major capital facilities by the
State and to aid in certain of such projects conducted by local
governments or public authorities; and Debt Service Funds, which
are used for the accumulation of moneys for the payment of
principal of and interest on long-term debt and to meet lease-
purchase and other contractual-obligation commitments.
Local Government Assistance Corporation ("LGAC"). In 1990, as
part of a State fiscal reform program, legislation was enacted
creating LGAC, a public benefit corporation empowered to issue
long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing.
The legislation authorized LGAC to issue its bond and notes in an
amount not in excess of $4.7 billion (exclusive of certain
refunding bonds) plus certain other amounts. Over a period of
years, the issuance of these long-term obligations, which are to be
amortized over no more than 30 years, was expected to eliminate the
need for continued short-term seasonal borrowing. The legislation
also dedicated revenues equal to one-quarter of the four cent State
sales and use tax to pay debt service on these bonds. The
legislation also imposed a cap on the annual seasonal borrowing of
the State at $4.7 billion, less net proceeds of bonds issued by
LGAC and bonds issued to provide for capitalized interest, except
in cases where the Governor and the legislative leaders have
certified the need for additional borrowing and provided a schedule
for reducing it to the cap. If borrowing above the cap is thus
permitted in any fiscal year, it is required by law to be reduced
to the cap by the fourth fiscal year after the limit was first
exceeded. This provision capping the seasonal borrowing was
included as a covenant with LGAG's bondholders in the resolution
authorizing such bonds.
As of June 1995, LGAC had issued bonds and notes to provide
net proceeds of $4.7 billion completing the program. The impact of
LGAC's borrowing is that the State is able to meet its cash flow
needs in the first quarter of the fiscal year without relying on
short-term seasonal borrowings. The State Plan includes no spring
borrowing nor did the 1994-1995 State Financial Plan, which was the
first time in 35 years there was no short-term borrowing.
Authorities. The fiscal stability of the State is related to
the fiscal stability of its Authorities, which generally have
responsibility for financing, constructing and operating revenue-
producing public benefit facilities. Authorities are not subject
to the constitutional restrictions on the incurrence of debt which
apply to the State itself, and may issue bonds and notes within the
amounts of, and as otherwise restricted by, their legislative
authorization. As of September 30, 1994, the latest data
available, there were 18 Authorities that had outstanding debt of
$100 million or more. The aggregate outstanding debt, including
refunding bonds, of these 18 Authorities was $70.3 billion as of
September 30, 1994.
Authorities are generally supported by revenues generated by
the projects financed or operated, such as fares, user fees on
bridges, highway tolls and rentals for dormitory rooms and housing.
In recent years, however, the State has provided financial
assistance through appropriations, in some cases of a recurring
nature, to certain of the 18 Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation
indebtedness or otherwise, for debt service. This operating
assistance is expected to continue to be required in future years.
The State's experience has been that if an Authority suffers
serious financial difficulties, both the ability of the State and
the Authorities to obtain financing in the public credit markets
and the market price of the State's outstanding bonds and notes may
be adversely affected. There are certain statutory arrangements
that provide for State local assistance payments otherwise payable
to localities to be made under certain circumstances to certain
Authorities. The State has no obligation to provide additional
assistance to localities whose local assistance payments have been
paid to Authorities under these arrangements. However, in the
event that such local assistance payments are so diverted, the
affected localities could seek additional State funds.
Ratings. On 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 July 13, 1995, 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 July 3, 1995, Moody's reconfirmed its A rating on the
State's general obligation long-term indebtedness. Ratings reflect
only the respective views of such organizations, and an explanation
of the significance of such ratings may be obtained from the rating
agency furnishing the same. There is no assurance that a
particular rating will continue for any given period of time or
that any such rating will not be revised downward or withdrawn
entirely, if in the judgment of the agency originally establishing
the rating, circumstances so warrant. A downward revision or
withdrawal of such ratings, or either of them, may have an effect
on the market price of the State Municipal Securities in which the
Trust invests.
General Obligation Debt. As of March 31, 1995, the State had
approximately $5.181 billion in general obligation bonds, excluding
refunding bonds, and $149 million in bond anticipation notes
outstanding. Principal and interest due on general obligation
bonds and interest due on bond anticipation notes were $793.3
million for the 1994-95 fiscal year and are estimated to be $774.4
million for the State's 1995-96 fiscal year, not including interest
on refunding bonds to the extent that such interest is to be paid
from escrowed funds.
Litigation. The State is a defendant in numerous legal
proceedings pertaining to matters incidental to the performance of
routine governmental operations. Such litigation includes, but is
not limited to, claims asserted against the State arising from
alleged torts, alleged breaches of contracts, condemnation
proceedings and other alleged violations of State and Federal laws.
These proceedings could affect adversely the financial condition of
the State in the 1995-1996 fiscal year or thereafter.
The State believes that the State Plan includes sufficient
reserves for the payment of judgments that may be required during
the 1995-96 fiscal year. There can be no assurance, however, that
an adverse decision in any of these proceedings would not exceed
the amount the State Plan reserves for the payment of judgments
and, therefore, could affect the ability of the State to maintain
a balanced 1995-1996 State Plan. In its audited financial
statements for the fiscal year ended March 31, 1995, the State
reported its estimated liability for awarded and anticipated
unfavorable judgments at $676 million.
In addition, the State is party to other claims and
litigations which its counsel has advised are not probable of
adverse court decisions. Although, the amounts of potential
losses, if any, are not presently determinable, it is the State's
opinion that its ultimate liability in these cases is not expected
to have a material adverse effect on the State's financial position
in the 1995-96 fiscal year or thereafter.
Other Localities. Certain localities in addition to the City
could have financial problems leading to requests for additional
State assistance during the State's 1995-96 fiscal year and
thereafter. The potential impact on the State of such actions by
localities is not included in the projections of the State receipts
and disbursements in the State's 1995-96 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the creation of the Financial Control Board
for the City of Yonkers (the "Yonkers Board") by the State in 1984.
The Yonkers Board is charged with oversight of the fiscal affairs
of Yonkers. Future actions taken by the Governor or the State
Legislature to assist Yonkers could result in allocation of State
resources in amounts that cannot yet be determined.
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 identify to its Custodian 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, the U.S. branch of a
foreign bank or a broker-dealer 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 to 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. 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 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 do any of
the following:
- The Fund cannot invest in real estate, but the Fund may
invest in Municipal Securities or other permitted securities
secured by real estate or interests therein;
- The Fund cannot 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;
- The Fund cannot make short sales of securities;
- The Fund cannot 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
- The Fund cannot invest in other open-end investment
companies except in a merger, consolidation, reorganization or
acquisition of assets.
-- 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 Statement of Additional Information will be
supplemented accordingly.
For purposes of the Fund's policy not to concentrate its
assets, the Fund has adopted the industry classifications set forth
in Appendix C to this Statement of Additional Information. This is
not a fundamental policy.
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 Growth Fund, Oppenheimer Global Fund, Oppenheimer Money
Market Fund, Inc., Oppenheimer U.S. Government Trust, Oppenheimer
Gold & Special Minerals Fund, Oppenheimer Enterprise Fund,
Oppenheimer Discovery Fund, Oppenheimer Target Fund, Oppenheimer
Asset Allocation 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 Oppenheimer funds). Ms. Macaskill, Messrs. Spiro, Donohue,
Bowen, Zack, Bishop and Farrar respectively, hold the same offices
with the other New York-based Oppenheimer funds as with the Fund.
As of December 31, 1995, the officers and Trustees of the Fund as
a group owned of record or beneficially 2% of the Class A shares of
the Fund and less than 1% of the Class B and Class C shares of the
Fund. That statement does not include ownership of shares held of
record by an employee benefit plan for employees of the Manager
(one of the Trustees and officers of the Fund listed below, Ms.
Macaskill, and one of the officers, Mr. Donohue, are trustees of
that plan), 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 70
31 West 52nd Street, New York, New York 10019
General Partner of Odyssey Partners, L.P. (investment
partnership); Chairman of Avatar Holdings Inc. (real estate
development).
Robert G. Galli, Trustee*, Age 62
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 OppenheimerFunds 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 Oppenheimer funds and Executive
Vice President and General Counsel of the Manager and the
Distributor.
Benjamin Lipstein, Trustee, Age 72
591 Breezy Hill Road, Hillsdale, New York 12529
Professor Emeritus of Marketing, Stern Graduate School of
Business Administration, New York University; a director of
Sussex Publishers, Inc. (Publishers of Psychology Today and
Mother Earth News) and of Spy Magazine, L.P.
Bridget A. Macaskill*, Trustee; Age 47
President, Chief Executive Officer and a Director of the
Manager; Chairman and a Director of SSI. Vice President and
a Director of OAC; a Director of HarbourView and of
Oppenheimer Partnership Holdings, Inc., a holding company
subsidiary of the Manager; formerly an Executive Vice
President of the Manager.
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 68
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 65
40 Park Avenue, New York, New York 10016
Chairman of Municipal Assistance Corporation for the City of
New York; 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 64
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 83
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. (a closed-end investment company); 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 70
Chairman Emeritus and a director of the Manager; formerly
Chairman of the Manager and the Distributor.
Pauline Trigere, Trustee; Age 83
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 65
1325 Merrie Ridge Road, McLean, Virginia 22101
Of Counsel to 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: 45
Executive Vice President and General Counsel of the Manager
and the Distributor; an officer of other Oppenheimer funds;
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
52
Senior Vice President of the Manager; an officer of other
Oppenheimer funds.
George C. Bowen, Treasurer; Age 59
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 Oppenheimer
funds.
Robert G. Zack, Assistant Secretary; Age 47
Senior Vice President and Associate General Counsel of the
Manager; Assistant Secretary of SSI, SFSI; an officer of other
Oppenheimer funds.
Robert Bishop, Assistant Treasurer; Age 37
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund
Accounting; an officer of other Oppenheimer funds; 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 30
3410 South Galena Street, Denver, Colorado 80231
Assistant Vice President of the Manager/Mutual Fund
Accounting; an officer of other Oppenheimer funds; 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 (Ms. Macaskill and Messrs. Galli
and Spiro; Ms. Macaskill is also an officer) receive no salary or
fee from the Fund. The Trustees of the Fund (excluding Ms.
Macaskill and Messrs. Galli and Spiro) received the total amounts
shown below (i) from the Fund, during its fiscal year ended
September 30, 1995, and (ii) from all 18 of the New York-based
Oppenheimer funds (including the Fund) listed in the first
paragraph of this section (and from Oppenheimer Time Fund and
Oppenheimer Mortgage Income Fund, which ceased operations following
the acquisition of their assets by certain other Oppenheimer
funds), for services in the positions shown:
<TABLE>
<CAPTION>
Retirement
Benefits Total Compensation
Aggregate Accrued as From All
Compensation Part of New York-based
Name and Position From Fund Fund Expenses Oppenheimer Funds1
<S> <C> <C> <C>
Leon Levy $12,767 $26,169. $141,000
Chairman and Trustee
Benjamin Lipstein $7,805 $15,999 $86,200
Study Committee
Member and Trustee
Elizabeth B. Moynihan $7,805 $15,999 $86,200
Study Committee
Member and Trustee
Kenneth A. Randall $7,099 $14,551 $78,400
Audit Committee
Member and Trustee
Edward V. Regan $6,230 $12,769 $68,800
Audit Committee
Member and Trustee
Russell S. Reynolds, Jr. $4,718 $9,670 $52,100
Trustee
Sidney M. Robbins $11,056 $22,662 $122,100
Study Committee Chairman,
Audit Committee Vice-
Chairman and Trustee
Pauline Trigere $4,718 $9,670 $52,100
Trustee
Clayton K. Yeutter $4,718 $9,670 $52,100
Trustee
______________________
1 For the 1995 calendar year.
</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 Oppenheimer funds
for at least 15 years to be eligible for the maximum payment.
Because each Trustee's retirement benefits will depend on the
amount of the Trustee's future compensation and length of service,
the amount of those benefits cannot be determined at this time, nor
can we estimate the number of years of credited service that will
be used to determine those benefits.
-- Major Shareholders. As of December 31, 1995, 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 only
persons owning of record or know by the Fund to own beneficially 5%
of the Fund s Class C shares were Rosalie M. Romano, 48 Jefferson
Avenue, Rockville Center, New York 11570, who owned of record
3,346,450 shares (approximately 17% of the Fund s outstanding Class
C shares), and Prudential Securities FBO Mitchell Cherwick, 230
Locust Lane, Irvington, New York 10533-2315, which owned
beneficially 2,491,000 shares (approximately 13.3% of the Fund s
outstanding Class C 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 three of whom (Ms.
Macaskill and Messrs. Galli and Spiro) serve as Trustees of the
Fund.
The Manager and the Fund have a Code of Ethics. It is
designed to detect and prevent improper personal trading by certain
employees, including portfolio managers, that would compete with or
take advantage of the Fund's portfolio transactions. Compliance
with the Code of Ethics is carefully monitored and strictly
enforced by the Manager.
-- The Investment Advisory Agreement. A management fee is
payable monthly to the Manager under the terms of the investment
advisory agreement between the Manager and the Fund, and is
computed on the aggregate net assets of the Fund as of the close of
business each day. 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 expense limitation.
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, 1993, 1994
and 1995, the management fees paid by the Fund to the Manager were
$3,486,365, $4,074,417 and $3,833,144, 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, Class B and Class C 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, 1993, 1994 and 1995, the aggregate sales charges on
sales of the Fund's Class A shares were $8,118,017, $2,933,373 and
$1,403,152, respectively, of which the Distributor and an
affiliated broker-dealer retained in the aggregate $1,410,798,
$551,881 and $259,977, in those respective years. During the
Fund's fiscal year ended September 30, 1995, the contingent
deferred sales charge collected on the Fund's Class B shares
totaled $235,304, all of which the Distributor retained. Class C
shares were only offered from August 29, 1995 to September 30,
1995, and no contingent deferred sales charges were collected
during that period. 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. The Fund's Transfer Agent is
OppenheimerFunds Services, a division of the Manager, which 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 either
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 Board has also permitted the Manager to use
stated commissions on secondary fixed-income agency trades to
obtain research where the broker has represented to Manager that
(i) the trade is not from the broker's own inventory, (ii) the
trade was not executed by the broker on an agency basis at the
stated commission, and (iii) the trade is not a riskless principal
transaction.
The research services provided by brokers broaden 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.
Other funds advised by the Manager have investment objectives
and policies similar to those of the Fund. Such other funds may
purchase or sell the same securities at the same time as the Fund,
which could affect the supply or price of such securities. If two
or more of such funds purchase the same security on the same day
from the same dealer, the Manager may average the price of the
transactions and allocate the average among such funds.
During the Fund s fiscal years ended September 30, 1993, 1994
and 1995, total brokerage commissions paid by the Fund (not
including spreads or concessions on principal transactions on a net
trade basis) were $4,663, $46,217 and $21,875, respectively.
During the Fund s fiscal year ended September 30, 1995, no payments
were made to brokers as commissions in return for research
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.
Yield and total return information may be useful to investors
in reviewing the Fund's performance. The Fund's advertisement of
its performance must, under applicable SEC rules, include the
average annual total returns for each class of shares of the Fund
for the 1, 5 and 10-year period (or the life of the class, if less)
as of the most recently ended calendar quarter. This enables an
investor to compare the Fund's performance to the performance of
other funds for the same periods. However, a number of factors
should be considered before using such information as a basis for
comparison with other investments. An investment in the Fund is
not insured; its yield and total return are not guaranteed and
normally will fluctuate on a daily basis. When redeemed, an
investor's shares may be worth more or less than their original
cost. Yield and total return for any given past period are not a
prediction or representation by the Fund of future yields or rates
of return on its shares. The yield and total returns of each class
of shares of the Fund are affected by portfolio quality, portfolio
maturity, the type of investments the Fund holds and its operating
expenses allocated to the particular class.
-- 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,
1995, the standardized yields for the Fund's Class A, Class B and
Class C shares were 4.66%, 4.12% and 4.05%, 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, Class B and Class C shares for the 30-day period ended
September 30, 1995, for an individual New York City resident in the
46.24% combined tax bracket were 8.67%, 7.66% and 7.53%,
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, Class B or
Class C 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 and Class C
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, 1995, were 5.31% and 5.57% 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, 1995, was 4.81%. The dividend yield on Class C
shares for the 30-day period ended September 30, 1995 was 4.81%.
Distribution returns for the 30-day period ended September 30, 1995
are the same as the above-quoted dividend yields.
-- 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 the contingent deferred sales charge of 5.0%
for the first year, 4.0% for the second year, 3.0% for the third
and fourth years, 2.0% in the fifth year, 1.0% in the sixth year
and none thereafter is applied, as described in the Prospectus.
For Class C shares, the payment of the 1.0% contingent deferred
sales charge is applied to the investment result for the one-year
period (or less). 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, 1995 were 4.37%, 7.11% and 8.25%, respectively. The
cumulative "total return" on Class A shares for the ten year period
ended September 30, 1995 was 120.99%. The average annual total
returns on an investment in Class B shares for the fiscal year
ended September 30, 1995 and for the period March 1, 1993 (the date
Class B shares were first publicly offered) through September 30,
1995 were 3.75% and 2.12%, respectively. The cumulative total
return on Class B shares for the period March 1, 1993 through
September 30, 1995 was 5.57%. The average annual total return and
the cumulative total return on an investment in Class C shares for
the period of August 29, 1995 (the date class shares were first
publicly offered) through September 30, 1995 was 0.10%.
- 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,
Class B or Class C 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,
1995 were 9.58%, 8.16% and 8.78%, respectively. The cumulative
total return at net asset value for Class A shares for the ten-year
period ended September 30, 1995 was 132.01%. The average annual
total returns at net asset value for Class B shares for the fiscal
year ended September 30, 1995 and for the period March 1, 1993 (the
date Class B shares were first publicly offered) through September
30, 1995 were 8.75% and 3.17%, respectively. The cumulative total
return at net asset value for Class B shares for the period March
1, 1993 through September 30, 1995 was 8.39%. The cumulative total
return at net asset value on an investment in Class C shares for
the period of August 29, 1995 (the date class shares were first
publicly offered) through September 30, 1995 was 1.10%.
-- Other Performance Comparisons. From time to time the Fund
may publish the ranking of its Class A, Class B or Class C 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's
classes is ranked against (i) 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, Class B or Class C 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
measures fund performance below 90-day U.S. Treasury bill monthly
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 Class A,
Class B and Class C shares of 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, Class
B or Class C 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, Class B and Class C 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 Oppenheimer funds, other than the performance
rankings of the Oppenheimer funds themselves. These ratings or
rankings of shareholder/investor services may compare the
Oppenheimer funds 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
Distribution and Service Plans for Class B shares and for Class C
shares under Rule 12b-1 of the Investment Company Act pursuant to
which the Fund makes payments to the Distributor 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 Class B and Class C Distribution and
Service Plans, that vote was cast by the Manager as the sole
initial holder of Class B shares and of Class C 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 from their own resources to
Recipients.
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.
Any 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. In addition, because Class B
shares automatically convert into Class A shares after six years,
the Fund is required to obtain the approval of Class B as well as
Class A shareholders for a proposed material amendment to the Class
A Plan that would materially increase payments under the Plan.
Such vote must be by a "majority" of the Class A and Class B shares
(as defined in the Investment Company Act), voting separately by
class. None of the Plans 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 payments were made and the identity
of each Recipient that received any such payment. The report for
the Class B Plan or Class C Plan shall also include the
distribution costs for that quarter. 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, 1995, payments under
the Class A Plan totaled $1,545,677, all of which was paid by the
Distributor to Recipients, including $23,663 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 and the Class C Plan allow the service fee
payment to be paid by the Distributor to Recipients in advance for
the first year such 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 and Class C 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
and Class C shares respectively, 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 or Class C 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, 1995, payments made under the
Class B Plan totaled $819,246, of which the Distributor paid $4,607
to an affiliate of the Distributor and retained $683,188 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. For the period from August 29,
1995 to September 30, 1995, payments made under the Class C Plan
totaled $13, all of which was retained by the Distributor.
Although the Class B Plan and the Class C Plan permit the
Distributor to retain both the asset-based sales charges and the
service fees on Class B and Class C shares, or to pay Recipients
the service fee on a quarterly basis, without payment in advance,
the Distributor presently 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 and the
Class C Plan by the Board. Initially, the Board has set no minimum
holding period. All payments under the Class B and Class C plans
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 Class B and Class C Plans provide for the Distributor to
be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the
Fund during that period. Such payments are made in recognition
that the Distributor (i) pays sales commissions to authorized
brokers and dealers at the time of sale and pays service fees as
described in the Prospectus, (ii) may finance such commissions
and/or the advance of the service fee payment to Recipients under
those Plans, or may provide such financing from its own resources,
or from an affiliate, (iii) employs personnel to support
distribution of shares, and (iv) may bear the costs of sales
literature, advertising and prospectuses (other than those
furnished to current shareholders), state "blue sky" registration
fees and certain other distribution expenses.
ABOUT YOUR ACCOUNT
How To Buy Shares
Alternative Sales Arrangements - Class A, Class B and Class C
Shares. The availability of three classes of shares permits 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 and Class C 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 $500,000 or more of
Class B shares or $1 million or more of Class C 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 three 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 and Class C shares and the dividends
payable on such shares will be reduced by incremental expenses
borne solely by those classes, including the asset-based sales
charge to which both classes of 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, Class B and Class C shares
recognizes two types of expenses. General expenses that do not
pertain specifically to a 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, Class B and Class C shares of the Fund are
determined as of the close of business of the New York Stock
Exchange (the "Exchange") on each day the Exchange 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 Exchange 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 Exchange 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 Exchange
members may conduct trading in Municipal Securities on certain days
on which the Exchange 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 Class A, Class B or Class C shares may be
significantly affected at times when shareholders cannot 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)
equity securities traded on a U.S. securities exchange or on NASDAQ
for which last sale information is regularly reported are valued at
the last reported sale price on their primary exchange or NASDAQ
that day (or, in the absence of sales that day, at values based on
the last sales prices of the preceding trading day, or closing bid
and asked prices); (ii) securities actively traded on a foreign
securities exchange are valued at the last sales price available to
the pricing service approved by the Fund's Board of Trustees or to
the Manager as reported by the principal exchange on which the
security is traded; (iii) unlisted foreign securities or listed
foreign securities not actively traded are valued as in (i) above,
if available, or at the mean between "bid" and "asked" prices
obtained from active market makers in the security on the basis of
reasonable inquiry; (iv) long-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 of Trustees or
obtained from active market makers in the security on the basis of
reasonable inquiry; (v) debt instruments having a maturity of more
than one year when issued, and non-money market type instruments
having a maturity of one year or less when issued, which have a
remaining maturity of 60 days or less are valued at the mean
between the "bid" and "asked" prices determined by a pricing
service approved by the Fund's Board of Trustees or obtained from
active market makers in the security on the basis of reasonable
inquiry; (vi) money market-type debt securities having a maturity
of less than one year when issued that having a remaining maturity
of 60 days or less are valued at cost, adjusted for amortization of
premiums and accretion of discounts; and (vii) securities
(including restricted securities) not having readily-available
market quotations are valued at fair value under the Board's
procedures.
In the case of Municipal Securities, 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 or on NASDAQ, as applicable, or
if there were no sales that day, in accordance with (i), above.
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 ("ACH") transfer to buy the shares.
Dividends will begin to accrue on shares purchased by the proceeds
of ACH transfers on the business day the Fund receives Federal
Funds for such purchase through the ACH system before the close of
the Exchange. The Exchange normally closes at 4:00 P.M. but may
close earlier on certain days. The proceeds of ACH transfers are
normally received by the Fund 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 Exchange, the shares will be purchased and 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 Oppenheimer Funds. The Oppenheimer funds 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 California Tax-Exempt Fund
Oppenheimer Intermediate Tax-Exempt Fund
Oppenheimer Insured Tax-Exempt 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 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 Income Fund
Oppenheimer Bond Fund
Oppenheimer International Bond Fund
Oppenheimer U.S. Government Trust
Oppenheimer Limited-Term Government Fund
Oppenheimer Global Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Strategic Income Fund
Oppenheimer Bond Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Enterprise Fund
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Global Value Fund, Inc.
Rochester Fund Municipals*
Rochester Fund Series - The Bond Fund for Growth*
Rochester Portfolio Series - Limited-Term New York
Municipal Fund*
____________________
*Shares of the Fund are not presently exchangeable for shares of these funds.
and, 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 Oppenheimer funds 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 (referred to as a
"Letter") is an investor's statement in writing to the Distributor
of the intention to purchase Class A shares or Class A and Class B
shares of the Fund (and other Oppenheimer funds during a 13-month
period (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 of shares which, when
added to the investor's holdings of shares of those funds, will
equal or exceed the amount specified in the Letter. Purchases made
by reinvestment of dividends or distributions of capital gains and
purchases made at net asset value without sales charge do not count
toward satisfying the amount of the Letter. A Letter enables an
investor to count the Class A and Class B shares purchased under
the Letter to obtain the reduced sales charge rate on purchases of
Class A shares of the Fund (and other Oppenheimer funds) that
applies under the Right of Accumulation to current purchases of
Class A shares. Each purchase of Class A shares 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 a Letter)
include (a) Class A shares sold with a front-end sales charge or
subject to a Class A contingent deferred sales charge, (b) Class B
shares acquired subject to a contingent deferred sales charge, and
(c) Class A or B shares acquired by reinvestment of dividends and
distributions or acquired in exchange for either (i) Class A shares
of one of the other Oppenheimer funds that were acquired subject to
a Class A initial or contingent deferred sales charge or (ii) Class
B shares of one of the other Oppenheimer funds that were acquired
subject to a contingent deferred 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 front-end sales charge on the purchase of certain
Oppenheimer funds, or a contingent deferred sales charge may apply
to shares purchased by Asset Builder payments. 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 its 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
Class A shares or Class B shares that you purchased by reinvesting
dividends or distributions or on which you paid a contingent
deferred sales charge when you redeemed them. The reinvestment may
be made without sales charge only in Class A shares of the Fund or
any of the other Oppenheimer funds into which shares of the Fund
are exchangeable, as described below, at the net asset value next
computed the Transfer Agent receives the reinvestment order. This
reinvestment privilege does not apply to Class C shares. 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 Oppenheimer
funds within 90 days of payment of the sales charge, the
shareholder's basis in the shares of the Fund that were redeemed
may not include the amount of the sales charge paid. That would
reduce the loss or increase the gain recognized from the
redemption. However, in that case the sales charge would be added
to the basis of the shares acquired by the reinvestment of the
redemption proceeds. 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.
Transfer of Shares. Shares are not subject to the payment of a
contingent deferred sales charge of any class at the time of
transfer to the name of another person or entity (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 or the
Class C contingent deferred sales charge will be followed in
determining the order in which shares are transferred.
Special Arrangements for Repurchase of Shares from Dealers and
Brokers. The Distributor is the Fund's agent to repurchase its
shares from authorized dealers or brokers. 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.). Ordinarily, for accounts
redeemed by a broker-dealer under this procedure, payment will be
made within three business days after the shares have been redeemed
upon the Distributor's receipt of the required redemption documents
in proper form, with the signature(s) of the registered owners
guaranteed on the redemption document 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 and Class C shareholders should not
establish withdrawal plans, because of the imposition of the
contingent deferred sales charge on such withdrawals (except where
the Class B or Class C contingent deferred sales charge is waived
as described in "Waivers of Class B Sales Charge" or "Waivers of
Class C 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
Oppenheimer funds 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 "How to
Exchange Shares" in the Prospectus, and 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
Oppenheimer funds having more than one class of shares may be
exchanged only for shares of the same class of other Oppenheimer
funds. Shares of Oppenheimer funds that have a single class of
shares without a class designation are deemed "Class A" shares for
this purpose. All of the Oppenheimer funds offer Class A, B and C
shares except Oppenheimer Money Market Fund, Inc., Centennial Money
Market Trust, Centennial Tax Exempt Trust, Centennial Government
Trust, Centennial New York Tax Exempt Trust, Centennial America
Fund, L.P., and Daily Cash Accumulation Fund, Inc., which only
offer Class A shares, and Oppenheimer Main Street California Tax-
Exempt Fund, which only offers Class A and Class B shares (Class B
and Class C shares of Oppenheimer Cash Reserves are generally
available only by exchange from the same class of shares of other
Oppenheimer funds or through OppenheimerFunds sponsored 401(k)
plans). A list showing which funds offer which classes may be
obtained by calling the Distributor at 1-800-525-7048.
Class A shares of Oppenheimer funds may be exchanged at net
asset value for shares of any Money Market Fund. Shares of any
Money Market Fund purchased without a sales charge may be exchanged
for shares of Oppenheimer funds offered with a sales charge upon
payment of the sales charge (or, if applicable, may be used to
purchase shares of Oppenheimer funds subject to a contingent
deferred sales charge). However, if the Distributor receives, at
the time of purchase, notice that shares of Oppenheimer Money
Market Fund, Inc. are being purchased with the redemption proceeds
of other mutual funds (other than other money market funds) that
are not part of the OppenheimerFunds family, those shares of
Oppenheimer Money Market Fund, Inc. may be exchanged for shares of
other Oppenheimer funds at net asset value without paying a sales
charge.
Shares of this Fund acquired by reinvestment of dividends or
distributions from any other of the Oppenheimer funds 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 Oppenheimer funds. No contingent deferred
sales charge is imposed on exchanges of shares of either class
purchased subject to a contingent deferred sales charge. However,
shares of Oppenheimer Money Market Fund, Inc. purchased with the
redemption proceeds of shares of other mutual funds (other than
funds managed by the Manager or its subsidiaries) redeemed within
the 12 months prior to that purchase may subsequently be exchanged
for shares of other Oppenheimer funds without being subject to an
initial or contingent deferred sales charge, whichever is
applicable. To qualify for that privilege, the investor or the
investor's dealer must notify the Distributor of eligibility for
this privilege at the time the shares of Oppenheimer Money Market
Fund, Inc. are purchased, and, if requested, must supply proof of
entitlement to this privilege. The Class C contingent deferred
sales charge is imposed on Class C shares acquired by exchange if
they are redeemed within 12 months of the initial purchase of the
exchanged Class C shares.
When Class B or Class C 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 or Class C 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 more than one class must specify whether they intend to
exchange Class A, Class B or Class C 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 and Automatic
Withdrawal Plans 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 Oppenheimer funds 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. Shares purchased through dealers or brokers normally
are paid for by the third business day following the placement of
the purchase order. Shares redeemed through the regular redemption
procedure will be paid dividends through and including the day on
which the redemption request is received by the Transfer Agent in
proper form. Dividends will be declared on shares repurchased by
a dealer or broker for three business days following the trade date
(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,
Class B and Class C 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 and Class C shares are
expected to be lower as a result of the asset-based sales charge on
Class B and Class C shares, and Class B and Class C dividends will
also differ in amount as a consequence of any difference in net
asset value between Class A, Class B and Class C 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 values of Class A,
Class B and Class C 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
Oppenheimer funds listed in "Reduced Sales Charges," above, at net
asset value without sales charge. 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 Oppenheimer funds 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, 1995,
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 ten-year period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
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. Our procedures included confirmation of securities owned as of
September 30, 1995, 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, 1995, 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 ten-year period then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Denver, Colorado
October 20, 1995
<PAGE>
STATEMENT OF INVESTMENTS SEPTEMBER 30, 1995
<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--98.9%
- --------------------------------------------------------------------------------------------------------------------------------
NEW YORK--79.3% City of New York General Obligation Bonds:
Inverse Floater, 6.648%, 8/1/08(1) Baa1/BBB+ $ 9,250,000 $ 8,729,733
Inverse Floater, 7.652%, 8/1/13(1) Baa1/BBB+ 5,000,000 4,727,550
Inverse Floater, 7.652%, 8/1/14(1) Baa1/BBB+ 8,150,000 7,718,229
Prerefunded, Series F, 8.25%, 11/15/17 Aaa/BBB+ 7,820,000 9,482,743
Series A, 7.75%, 8/15/16 Baa1/BBB+ 2,500,000 2,740,262
Series B, 6.20%, 8/15/06 Baa1/BBB+/A- 3,500,000 3,555,041
Series B, 8.25%, 6/1/07 Baa1/BBB+ 1,750,000 2,044,663
Series B, FSA Insured, Inverse Floater, 6.40%,
10/1/07(1) Aaa/AAA 7,500,000 7,739,774
Series F, 8.25%, 11/15/17 Baa1/BBB+ 680,000 768,250
- --------------------------------------------------------------------------------------------------------------------------------
City of New York Health & Hospital Corp. Revenue
Refunding Bonds, Series A, AMBAC Insured,
Inverse Floater, 7.13%, 2/15/23(1) Aaa/AAA/AAA 8,300,000 7,537,396
- --------------------------------------------------------------------------------------------------------------------------------
City of New York Housing Development Corp.
Multifamily Housing Revenue Bonds:
Glenn Garden Project, 6.50%, 1/15/18 NR/NR 2,999,501 2,957,472
Keith Plaza Project, 6.50%, 2/15/18 NR/NR 1,981,315 1,944,512
- --------------------------------------------------------------------------------------------------------------------------------
City of New York Industrial Development Agency
Civil Facility Revenue Bonds, USTA National Tennis
Center Project, FSA Insured, 6.375%, 11/15/14 Aaa/AAA 1,500,000 1,571,767
- --------------------------------------------------------------------------------------------------------------------------------
City of New York Industrial Development Agency
Special Facility Revenue Bonds:
Terminal One Group Assn. Project, 6%, 1/1/15 A/A/A- 5,000,000 4,871,480
Terminal One Group Assn. Project, 6.125%, 1/1/24 A/A/A- 3,000,000 2,905,734
- --------------------------------------------------------------------------------------------------------------------------------
City of New York Municipal Water Finance Authority
Water & Sewer System Revenue Bonds:
Prerefunded, Series A, MBIA Insured, 7.25%, 6/15/15 Aaa/AAA 7,000,000 7,928,619
Prerefunded, Series C, 7.75%, 6/15/20 Aaa/A- 17,250,000 20,254,379
Series B, 6.375%, 6/15/22 A/A-/A 6,100,000 6,188,754
- --------------------------------------------------------------------------------------------------------------------------------
Dormitory Authority of the State of New York:
Revenue Bonds:
City University System, Prerefunded,
Series F, 7.875%, 7/1/07 Aaa/BBB 8,000,000 9,312,535
City University System, Series C, 6%, 7/1/16 Baa1/BBB 5,000,000 4,827,035
City University System, Series V, 5.60%, 7/1/10 Baa1/BBB 10,880,000 10,487,634
Department of Health, Prerefunded, 7.70%, 7/1/20 Aaa/BBB 2,750,000 3,181,321
Judicial Facilities Lease, Escrowed to Maturity,
MBIA--IBC Insured, 7.375%, 7/1/16 Aaa/AAA 2,300,000 2,655,934
Pooled Capital Program, Partially Prerefunded,
FGIC Insured, 7.80%, 12/1/05 Aaa/AAA/AAA 7,515,000 8,234,335
Rockefeller University System,
MBIA Insured, 7.375%, 7/1/14 Aaa/AAA 4,000,000 4,344,084
Revenue Refunding Bonds:
City University System, Second Series A, 5.75%,
7/1/18 Baa1/BBB 6,750,000 6,397,170
City University System, Series B, 6%, 7/1/14 Baa1/BBB 10,875,000 10,717,464
Fordham University System, FGIC Insured, 5.75%,
7/1/15 Aaa/AAA/AAA 9,100,000 9,056,556
</TABLE>
6 Oppenheimer New York Tax-Exempt Fund
<PAGE>
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>
NEW YORK (CONTINUED) New York University, Series A, MBIA Insured, 5%,
7/1/09 Aaa/AAA $ 9,000,000 $ 8,619,200
State University Educational Facilities System,
Prerefunded, Series B, 7.25%, 5/15/15 Aaa/BBB+ 15,230,000 17,284,374
State University Educational Facilities System,
Prerefunded, Series B, 7.25%, 5/15/15 Aaa/AAA 1,735,000 1,969,034
State University Educational Facilities System,
Series A, 5.25%, 5/15/15 Baa1/BBB+ 23,090,000 20,738,305
State University Educational Facilities System,
Series A, 5.25%, 5/15/21 Baa1/BBB+ 5,010,000 4,414,145
State University Educational Facilities System,
Series B, 7%, 5/15/16 Baa1/BBB+ 9,020,000 9,496,391
State University Educational Facilities, Prerefunded,
Series A, 7.70%, 5/15/12 Aaa/BBB+/A 9,000,000 10,381,922
- --------------------------------------------------------------------------------------------------------------------------------
Grand Central District Management Assn., Inc.
New York Business District Capital Improvement
Refunding Bonds:
5.125%, 1/1/14 A1/A 1,000,000 920,780
5.25%, 1/1/22 A1/A 2,500,000 2,253,442
- --------------------------------------------------------------------------------------------------------------------------------
New York State Energy Research & Development
Authority:
Electric Facilities Revenue Bonds:
Long Island Lighting Co., Series A, 7.15%, 12/1/20 Ba1/BB+ 7,500,000 7,639,769
Long Island Lighting Co., Series C, 6.90%, 8/1/22 Ba1/BB+ 9,200,000 9,255,163
Gas Facilities Revenue Bonds:
Brooklyn Union Gas Co. Project, Series B,
Inverse Floater, 9.718%, 7/1/26(1) A1/A/A 6,000,000 6,676,194
Brooklyn Union Gas Co. Project, Series D,
MBIA Insured, Inverse Floater, 7.224%, 7/8/26(1) Aaa/AAA/A 2,000,000 1,694,538
- --------------------------------------------------------------------------------------------------------------------------------
New York State Environmental Facilities Corp.
Pollution Control Revenue Bonds, State Water
Revolving
Fund-New York City Municipal Water, 5.875%, 6/15/14 Aa/A-/AA 14,050,000 13,985,412
- --------------------------------------------------------------------------------------------------------------------------------
New York State Housing Finance Agency:
Revenue Refunding Bonds:
New York City Health Facility, Series A, 7.90%,
11/1/99 Baa2/BBB+ 3,500,000 3,841,127
New York City Health Facility, Series A, 8%, 11/1/08 Baa/A- 3,240,000 3,592,369
State University Construction, Escrowed to Maturity,
Series A, 7.90%, 11/1/06 Aaa/AAA 1,750,000 2,071,055
Service Contract Obligation Revenue Bonds:
Prerefunded, Series A, 7.375%, 9/15/21 Aaa/AAA 9,050,000 10,577,721
Series D, 5.375%, 3/15/23 Baa1/BBB 9,000,000 7,944,965
- --------------------------------------------------------------------------------------------------------------------------------
New York State Local Assistance Corp.
Revenue Bonds, Prerefunded, Series A, 7%, 4/1/16 Aaa/AAA 14,000,000 15,916,558
- --------------------------------------------------------------------------------------------------------------------------------
New York State Local Government Assistance Corp.
Revenue Bonds:
Prerefunded, Series C, 7%, 4/1/21(2) Aaa/AAA/AAA 9,455,000 10,749,361
Prerefunded, Series D, 6.75%, 4/1/21 Aaa/AAA/AAA 4,700,000 5,335,364
Series A, 5.375%, 4/1/14 A/A/A+ 5,500,000 5,144,997
Series C, 5.50%, 4/1/22 A/A/A+ 16,175,000 14,947,348
Revenue Refunding Bonds:
Series B, 5.50%, 4/1/21 A/A/A+ 13,000,000 11,997,413
Series C, 5%, 4/1/21 A/A/A+ 15,000,000 12,861,990
</TABLE>
7 Oppenheimer New York Tax-Exempt Fund
<PAGE>
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>
NEW YORK (CONTINUED) New York State Medical Care Facilities Finance Agency:
Revenue Bonds:
Long-Term Health Care, Series C, CGIC Insured,
6.40%, 11/1/14 Aaa/AAA $ 2,800,000 $ 2,881,695
Mental Health Services Facilities Improvement Project:
Prerefunded, Series A, 8.875%, 8/15/07 Aaa/AAA 3,000,000 3,320,712
Prerefunded, Series B, 7.875%, 8/15/20 Aaa/AAA 4,235,000 4,944,036
Series A, 7.70%, 2/15/18 Baa1/BBB+ 765,000 814,000
Series A, 8.875%, 8/15/07 Baa1/BBB+ 6,800,000 7,385,555
Series A, FGIC Insured, 6.375%, 8/15/17 Aaa/AAA/AAA 5,000,000 5,116,700
Series B, 7.875%, 8/15/20 Baa1/BBB+ 2,020,000 2,236,724
St. Francis Hospital Project, Series 1988A,
FGIC Insured, 7.625%, 11/1/21 Aaa/AAA/AAA 2,690,000 2,918,486
St. Luke's Hospital Center Mtg., Prerefunded,
Series B, FHA Insured, 7.45%, 2/15/29 Aaa/AAA 7,500,000 8,528,549
Revenue Refunding Bonds:
Hospital Insured Mtg., Series A, FHA Insured,
5.25%, 8/15/14 Aa/AAA 16,940,000 15,604,721
Huntington Hospital Project, Prerefunded,
Series A, 8.125%, 11/1/14 Aaa/BBB 6,420,000 7,071,071
Mental Health Services, Series F,
FSA Insured, 5.25%, 2/15/21 Aaa/AAA 4,400,000 3,940,829
Mental Health Services, Series F,
MBIA--IBC Insured, 5.375%, 2/15/14 Aaa/AAA 6,600,000 6,168,194
- --------------------------------------------------------------------------------------------------------------------------------
New York State Mtg. Agency Revenue Bonds:
Eighth Series C, Verex Pool Insured, 8.40%, 10/1/17 Aa/NR 1,700,000 1,776,020
Homeowner Mtg., Series 1, 7.95%, 10/1/21 Aa/NR 2,270,000 2,343,330
Homeowner Mtg., Series GG, 7.60%, 10/1/18 Aa/NR 70,000 72,132
Homeowner Mtg., Series UU, FHA Insured, 7.75%,
10/1/23 Aa/NR 1,990,000 2,085,426
Inverse Floater, 6.262%, 10/1/24(1) NR/NR 9,000,000 6,740,243
Ninth Series B, Verex Pool Insured, 8.30%, 10/1/17 Aa/NR 1,720,000 1,774,166
- --------------------------------------------------------------------------------------------------------------------------------
New York State Power Authority Revenue &
General Purpose Bonds, Series Y, 6.50%, 1/1/11 Aa/AA- 2,500,000 2,638,470
- --------------------------------------------------------------------------------------------------------------------------------
New York State Power Authority Revenue Bonds,
Prerefunded, Series V, 8%, 1/1/17 NR/AA- 5,580,000 6,139,205
- --------------------------------------------------------------------------------------------------------------------------------
New York State Thruway Authority
General Revenue Bonds, Series A, 5.75%, 1/1/19 A1/A 10,000,000 9,712,029
- --------------------------------------------------------------------------------------------------------------------------------
New York State Urban Development Corp.:
Revenue Bonds:
Correctional Facilities Capital Project, Prerefunded,
Series G, 7%, 1/1/17 Aaa/NR 2,000,000 2,233,690
Correctional Facilities Capital Project, Prerefunded,
Series G, 7.25%, 1/1/14 Aaa/NR 3,650,000 4,111,542
Revenue Refunding Bonds:
Correctional Facilities Project, 5.50%, 1/1/15 Baa1/BBB/A 10,000,000 9,207,799
Correctional Facilities Project, 5.50%, 1/1/18 Baa1/BBB/A 17,490,000 15,903,341
- --------------------------------------------------------------------------------------------------------------------------------
Onondaga County, New York Resources
Recovery Agency Revenue Bonds,
Resources Recovery Facilities Project, 7%, 5/1/15 Baa/NR/A- 15,600,000 15,880,346
</TABLE>
8 Oppenheimer New York Tax-Exempt Fund
<PAGE>
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>
NEW YORK (CONTINUED) Port Authority of New York & New Jersey
Consolidated Revenue Bonds:
Sixty-Second Series, 8%, 12/1/23 A1/AA-/AA- $ 1,370,000 $ 1,412,585
Sixty-Third Series, 7.875%, 3/1/24 A1/AA-/AA- 9,000,000 9,350,181
- --------------------------------------------------------------------------------------------------------------------------------
Triborough Bridge & Tunnel Authority of New York
General Purpose Revenue Bonds:
Series A, 5%, 1/1/12 Aa/A+ 15,755,000 14,422,883
Series A, 5%, 1/1/15 Aa/A+ 7,500,000 6,800,797
Series X, 6%, 1/1/14 Aa/A+ 14,510,000 14,568,373
Series Y, 5.50%, 1/1/17 Aa/A+ 15,000,000 14,435,095
------------
605,728,288
- --------------------------------------------------------------------------------------------------------------------------------
U.S. POSSESSIONS--19.6% Puerto Rico Commonwealth Aqueduct & Sewer
Authority Revenue Bonds, Escrowed to Maturity,
10.25%, 7/1/09 Aaa/AAA 500,000 700,022
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth General Obligation
Refunding Bonds:
5.25%, 7/1/18 Baa1/A 20,000,000 18,149,237
7.625%, 7/1/10 NR/AAA 3,000,000 3,460,335
Prerefunded, 7.70%, 7/1/20 NR/AAA 5,000,000 5,784,219
Series A, 6%, 7/1/14 Baa1/A 10,000,000 10,059,740
Yield Curve Notes, FSA Insured,
Inverse Floater, 7.683%, 7/1/20(1) Aaa/AAA 11,500,000 10,911,981
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue Bonds:
Prerefunded, Series S, 6.50%, 7/1/22 NR/AAA 13,500,000 15,131,056
Prerefunded, Series T, 6.50%, 7/1/22 NR/AAA 2,790,000 3,127,085
Series W, Inverse Floater, 6.774%, 7/1/10(1) Baa1/A 9,000,000 8,422,946
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Commonwealth Infrastructure
Financing Authority Special Tax Revenue Bonds,
Series A, 7.75%, 7/1/08 Baa1/BBB+ 6,000,000 6,554,778
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Electric Power Authority:
Revenue Bonds:
Prerefunded, Series O, 7.125%, 7/1/14 Baa1/AAA 6,145,000 6,820,335
Revenue Refunding Bonds:
Series N, 5%, 7/1/12 Baa1/A- 6,545,000 5,929,344
Series U, 6%, 7/1/14 Baa1/A- 3,000,000 2,986,305
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Housing Bank & Finance Agency Single
Family Mtg. Revenue Bonds, Homeownership--
Fourth Portfolio, Prerefunded, FHA Insured,
8.50%, 12/1/18 Aaa/NR 1,580,000 1,943,120
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Industrial, Medical & Environmental
Pollution Control Revenue Bonds:
American Airlines, Inc. Project, Series A, 8.75%,
12/1/25 Baa1/BB+ 850,000 872,227
Warner Lambert Co. Project, 7.60%, 5/1/14 Aaa/NR 3,000,000 3,309,111
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Public Buildings Authority Guaranteed
Public Education & Health Facilities
Revenue Bonds:
Prerefunded, Series J, 7.25%, 7/1/17 Aaa/AAA 6,000,000 6,552,863
Prerefunded, Series L, 6.875%, 7/1/21 Aaa/AAA 5,400,000 6,167,329
Revenue Refunding Bonds:
Series M, 5.75%, 7/1/15 Baa1/A 11,500,000 11,181,599
</TABLE>
9 Oppenheimer New York Tax-Exempt Fund
<PAGE>
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>
U.S. POSSESSIONS
(CONTINUED) Puerto Rico Public Buildings Authority Revenue
Guaranteed Refunding Bonds, Series L, 5.75%, 7/1/16 Baa1/A $12,100,000 $ 11,700,578
- --------------------------------------------------------------------------------------------------------------------------------
Puerto Rico Telephone Authority Revenue Bonds,
MBIA Insured, Inverse Floater, 6.743%, 1/16/15(1) Aaa/AAA 11,000,000 10,035,607
------------
149,799,817
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $744,974,999) 98.9% 755,528,105
- --------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 1.1 8,655,147
----------- ------------
NET ASSETS 100.0% $764,183,252
----------- ------------
----------- ------------
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. The multiplier for these inverse floaters is one. Inverse floaters amount
to $80,934,191 or 10.6% of the Fund's net assets at September 30, 1995.
2. Securities with an aggregate market value of $2,017,429 are held in collateralized accounts to cover
initial margin requirements on open futures sales contracts. See Note 4 of Notes to Financial Statements.
As of September 30, 1995, securities subject to the alternative minimum tax amounted to $64,266,505 or
8.4% of the Fund's net assets.
Distribution of investments by industry, as a percentage of total investments at value, is as follows:
</TABLE>
<TABLE>
<CAPTION>
INDUSTRY MARKET VALUE PERCENT
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Education $142,117,440 18.8%
General Obligation Bonds 131,474,125 17.4
Transportation 110,866,488 14.7
Utilities 99,486,796 13.1
Lease/Rental 84,404,404 11.2
Special Tax Bonds 86,682,030 11.5
Hospitals 44,541,919 5.9
Pollution Control 25,265,663 3.3
Housing 21,636,422 2.9
Industrial Development 9,052,818 1.2
----------- ------------
$755,528,105 100.0%
----------- ------------
----------- ------------
</TABLE>
See accompanying Notes to Financial Statements.
10 Oppenheimer New York Tax-Exempt Fund
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS Investments, at value (cost $744,974,999)--see accompanying statement $755,528,105
------------------------------------------------------------------------------------------------------
Cash 236,472
------------------------------------------------------------------------------------------------------
Receivables:
Interest 13,275,124
Shares of beneficial interest sold 689,873
------------------------------------------------------------------------------------------------------
Other 22,400
------------
Total assets 769,751,974
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES Payables and other liabilities:
Dividends 2,459,903
Shares of beneficial interest redeemed 1,510,664
Payable for daily variation margin on futures contracts 825,000
Distribution and service plan fees--Note 5 458,281
Trustees' fees--Note 1 174,027
Transfer and shareholder servicing agent fees--Note 5 31,218
Other 109,629
------------
Total liabilities 5,568,722
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS $764,183,252
------------
------------
- --------------------------------------------------------------------------------------------------------------------------------
COMPOSITION OF Paid-in capital $767,963,868
NET ASSETS ------------------------------------------------------------------------------------------------------
Overdistributed net investment income (2,195,669)
------------------------------------------------------------------------------------------------------
Accumulated net realized loss from investment transactions (11,706,803)
------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments--Note 3 10,121,856
------------
Net assets $764,183,252
------------
------------
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE Class A Shares:
PER SHARE Net asset value and redemption price per share (based on
net assets of $673,050,035 and 54,748,687 shares of beneficial interest outstanding) $ 12.29
Maximum offering price per share (net asset value
plus sales charge of 4.75% of offering price) $ 12.90
------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $91,108,223 and 7,407,887 shares of beneficial interest outstanding) $ 12.30
------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price and offering price per share (based on net assets
of $24,994 and 2,032 shares of beneficial interest outstanding) $ 12.30
</TABLE>
See accompanying Notes to Financial Statements.
11 Oppenheimer New York Tax-Exempt Fund
<PAGE>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME Interest $ 49,327,390
- --------------------------------------------------------------------------------------------------------------------------------
EXPENSES Management fees--Note 5 3,833,144
------------------------------------------------------------------------------------------------------
Distribution and service plan fees--Note 5:
Class A 1,545,677
Class B 819,246
Class C 13
------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees--Note 5 556,513
------------------------------------------------------------------------------------------------------
Shareholder reports 234,368
------------------------------------------------------------------------------------------------------
Trustees' fees and expenses--Note 1 78,153
------------------------------------------------------------------------------------------------------
Custodian fees and expenses 74,489
------------------------------------------------------------------------------------------------------
Legal and auditing fees 58,180
------------------------------------------------------------------------------------------------------
Insurance expenses 39,640
------------------------------------------------------------------------------------------------------
Registration and filing fees:
Class A 6,271
Class B 4,773
------------------------------------------------------------------------------------------------------
Other 51,517
------------
Total expenses 7,301,984
- --------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 42,025,406
- --------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED Net realized loss from:
GAIN (LOSS) ON INVESTMENTS Investments (5,262,851)
Futures contracts (9,074,837)
------------
Net realized loss (14,337,688)
-----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 38,448,536
------------
Net realized and unrealized gain on investments 24,110,848
- --------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 66,136,254
------------
------------
</TABLE>
See accompanying Notes to Financial Statements.
12 Oppenheimer New York Tax-Exempt Fund
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS Net investment income $42,025,406 $ 44,947,364
------------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments (14,337,688) 1,578,448
------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation or depreciation on investments 38,448,536 (92,939,878)
----------- ------------
Net increase (decrease) in net assets resulting from operations 66,136,254 (46,414,066)
- --------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND Dividends from net investment income:
DISTRIBUTIONS TO Class A ($.7031 and $.7236 per share, respectively) (38,964,531) (41,738,152)
SHAREHOLDERS Class B ($.6178 and $.6234 per share, respectively) (4,185,973) (2,958,953)
Class C ($.0533 per share) (60) --
------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments:
Class A ($.0272 and $.026 per share, respectively) (1,474,250) (1,480,818)
Class B ($.0272 and $.026 per share, respectively) (195,772) (97,630)
------------------------------------------------------------------------------------------------------
Distributions in excess of gain on investments:
Class A ($.1144 per share) -- (6,524,436)
Class B ($.1144 per share) -- (430,153)
- --------------------------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST Net increase (decrease) in net assets resulting from
TRANSACTIONS Class A beneficial interest transactions--Note 2 (32,998,922) 22,278,985
------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
Class B beneficial interest transactions--Note 2 14,665,131 40,649,454
------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from
Class C beneficial interest transactions--Note 2 25,059 --
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSETS Total increase (decrease) 3,006,936 (36,715,769)
------------------------------------------------------------------------------------------------------
Beginning of period 761,176,316 797,892,085
----------- ------------
End of period [including undistributed (overdistributed) net investment
income of ($2,195,669) and $1,685,934, respectively] $764,183,252 $761,176,316
----------- ------------
----------- ------------
</TABLE>
See accompanying Notes to Financial Statements.
13 Oppenheimer New York Tax-Exempt Fund
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------
Year Ended September 30,
1995 1994 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 11.92 $ 13.50 $ 12.59 $ 12.21 $ 11.61 $ 11.87 $ 11.91
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .69 .74 .73 .79 .81 .83 .84(3)
Net realized and unrealized gain (loss) on investments .41 (1.46) 1.01 .47 .64 (.25) .01
-------- -------- -------- -------- -------- -------- --------
Total income (loss) from investment operations 1.10 (.72) 1.74 1.26 1.45 .58 .85
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.70) (.72) (.75) (.75) (.81) (.83) (.83)
Distributions from net realized gain on investments (.03) (.03) (.08) (.13) (.04) (.01) (.06)
Distributions in excess of net realized gain
on investments -- (.11) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions to shareholders (.73) (.86) (.83) (.88) (.85) (.84) (.89)
-------------------------------------------------------------------------
Net asset value, end of period $ 12.29 $ 11.92 $ 13.50 $ 12.59 $ 12.21 $ 11.61 $ 11.87
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 9.58% (5.55)% 14.33% 10.72% 12.93% 4.95% 6.91%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $673,050 $687,233 $756,934 $530,260 $349,480 $250,012 $197,321
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $659,465 $738,747 $652,327 $436,876 $292,134 $227,504 $156,572
- --------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at end of period
(in thousands) 54,749 57,644 56,087 42,119 28,617 21,533 16,618
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 5.76% 5.68% 5.66% 6.33% 6.81% 6.97% 7.07%
Expenses .90% .86% .91% .96% .96% .99% .98%(3)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 15.2% 9.4% 39.1% 30.5% 8.9% 13.3% 11.8%
</TABLE>
1. For the period from August 29, 1995 (inception of offering) to September 30,
1995.
2. For the period from March 1, 1993 (inception of offering) to September 30,
1993.
3. 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.
4. 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. Total returns are not annualized for
periods of less than one full year.
14 Oppenheimer New York Tax-Exempt Fund
<PAGE>
<TABLE>
<CAPTION>
Class B Class C
------------------------------ ------------------------------ -------
Period
Ended
Year Ended September 30, Sept. 30,
1988 1987 1986 1995 1994 1993(2) 1995(1)
- ------------------------------------------------------------------------------------- ------------------------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING DATA:
Net asset value, beginning of period $ 11.60 $ 12.51 $ 10.98 $ 11.93 $ 13.50 $ 13.07 $ 12.22
- --------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .88(3) .90(3) .86 .60 .64 .36 .05
Net realized and unrealized gain (loss) on investments .45 (.79) 1.62 .42 (1.45) .44 .10
-------- -------- -------- -------- -------- -------- --------
Total income (loss) from investment operations 1.33 .11 2.48 1.02 (.81) .80 .15
- --------------------------------------------------------------------------------------------------------------------------------
Dividends and distributions to shareholders:
Dividends from net investment income (.94) (.88) (.86) (.62) (.62) (.37) (.05)
Distributions from net realized gain on investments (.08) (.14) (.09) (.03) (.03) -- --
Distributions in excess of net realized gain
on investments -- -- -- -- (.11) -- --
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions to shareholders (1.02) (1.02) (.95) (.65) (.76) (.37) (.05)
-------------------------------------------------------------------------
Net asset value, end of period $ 11.91 $ 11.60 $ 12.51 $ 12.30 $ 11.93 $ 13.50 $ 12.30
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE(4) 11.48% .29% 22.73% 8.75% (6.22)% 6.56% 1.10%
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $116,931 $ 79,479 $ 50,810 $ 91,108 $ 73,943 $ 40,958 $ 25
- --------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 95,996 $ 65,102 $ 42,907 $ 81,743 $ 61,008 $ 20,454 $ 18
- --------------------------------------------------------------------------------------------------------------------------------
Number of shares outstanding at end of period
(in thousands) 9,817 6,851 4,061 7,408 6,200 3,033 2
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 7.48% 7.33% 7.10% 4.95% 4.88% 4.45%(5) 3.67%(5)
Expenses .90%(3) .67%(3) .86% 1.67% 1.65% 1.73%(5) 1.37%(5)
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate(6) 11.7% 22.9% 29.7% 15.2% 9.4% 39.1% 15.2%
</TABLE>
5. Annualized.
6. 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 period
ended September 30, 1995 were $111,679,958 and $141,536,941, respectively.
See accompanying Notes to Financial Statements.
15 Oppenheimer New York Tax-Exempt Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer New York Tax-Exempt Fund (the Fund) is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Fund's investment advisor is Oppenheimer
Management Corporation (the Manager). The Fund offers Class A, Class B and Class
C shares. Class A shares are sold with a front-end sales charge. Class B and
Class C shares may be subject to a contingent deferred sales charge. All three
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 the close of the New
York Stock Exchange on each trading day. Listed and unlisted securities for
which such information is regularly reported are valued at the last sale price
of the day or, in the absence of sales, at values based on the closing bid or
asked price or the last sale price on the prior trading day. Long-term and
short-term "non-money market" debt securities are valued by a portfolio pricing
service approved by the Board of Trustees. Such securities which cannot be
valued by the approved portfolio pricing service are valued using
dealer-supplied valuations provided the Manager is satisfied that the firm
rendering the quotes is reliable and that the quotes reflect current market
value, or are valued under consistently applied procedures established by the
Board of Trustees to determine fair value in good faith. Short-term "money
market type" 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.
- -------------------------------------------------------------------------------
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 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 or excise tax provision is required. At September 30, 1995, the
Fund had available for federal income tax purposes an unused capital loss
carryover of approximately $3,200,000 expiring in 2003.
- -------------------------------------------------------------------------------
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, 1995, a provision of $35,214 was made for the Fund's projected
benefit obligations and a payment of $2,786 was made to a retired trustee,
resulting in an accumulated liability of $160,194 at September 30, 1995.
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS. The Fund intends to declare dividends separately
for Class A, Class B and Class C 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.
- -------------------------------------------------------------------------------
CLASSIFICATION OF DISTRIBUTIONS TO SHAREHOLDERS. Net investment income (loss)
and net realized gain (loss) may differ for financial statement and tax purposes
primarily because of premium amortization for tax purposes. The character of the
distributions made during the year from net investment income or net realized
gains may differ from their ultimate characterization for federal income tax
purposes. Also, due to timing of dividend distributions, the fiscal year in
which amounts are distributed may differ from the year that the income or
realized gain (loss) was recorded by the Fund.
During the year ended September 30, 1995, 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, during the year ended
September 30, 1995, amounts have been reclassified to reflect a decrease in
undistributed net investment income of $2,756,445. Accumulated net realized loss
on investments was decreased by the same amount.
16 Oppenheimer New York Tax-Exempt Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED)
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. For bonds acquired after April 30, 1993,
accrued market discount is recognized at maturity or disposition as taxable
ordinary income to the extent of the lesser of gain or accrued market discount.
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.
The Fund concentrates its investments in New York and, therefore, may have
more credit risks related to the economic conditions of New York than a
portfolio with a broader geographical diversification.
- -------------------------------------------------------------------------------
2. SHARES OF
BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no par value shares of beneficial
interest of each class.
Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1995(1) SEPTEMBER 30, 1994
--------------------------- -------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A:
Sold 6,112,332 $ 73,644,378 8,954,607 $ 115,070,127
Dividends and distributions reinvested 2,407,670 28,865,634 2,804,397 35,919,371
Redeemed (11,415,065) (135,508,934) (10,201,903) (128,710,513)
----------- -----------------------------------------------
Net increase (decrease) (2,895,063) $ (32,998,922) 1,557,101 $ 22,278,985
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
- ----------------------------------------------------------------------------------------------------------
Class B:
Sold 1,966,120 $ 23,621,179 3,489,946 $ 44,671,139
Dividends and distributions reinvested 240,583 2,892,411 183,542 2,334,544
Redeemed (998,399) (11,848,459) (507,286) (6,356,229)
----------- ------------- ----------- -------------
Net increase 1,208,304 $ 14,665,131 3,166,202 $ 40,649,454
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
- ----------------------------------------------------------------------------------------------------------
Class C:
Sold 2,032 $ 25,059 -- $ --
Dividends reinvested -- -- -- --
Redeemed -- -- -- --
----------- ------------- ----------- -------------
Net increase 2,032 $ 25,059 -- $ --
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
1. For the year ended September 30, 1995 for Class A and Class B shares and for
the period from August 29, 1995 (inception of offering) to September 30, 1995
for Class C shares.
- -------------------------------------------------------------------------------
3. UNREALIZED GAINS AND LOSSES ON INVESTMENTS
At September 30, 1995, net unrealized appreciation on investments of $10,121,856
was composed of gross appreciation of $26,604,382, and gross depreciation of
$16,482,526.
17 Oppenheimer New York Tax-Exempt Fund
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- -------------------------------------------------------------------------------
4. FUTURES CONTRACTS
The Fund may buy and sell interest rate futures contracts in order to gain
exposure to or protect against changes in interest rates. The Fund may also buy
or write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases in
interest rates and the resulting negative effect on the value of fixed rate
portfolio securities. The Fund may also purchase futures contracts to gain
exposure to changes in interest rates as it may be more efficient or cost
effective than actually buying fixed income securities.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities in an amount (initial margin) equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable or
payable for the daily mark to market for variation margin.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
At September 30, 1995, the Fund had outstanding futures contracts to sell debt
securities as follows:
<TABLE>
<CAPTION>
EXPIRATION NUMBER OF VALUATION AS OF UNREALIZED
DATE FUTURES CONTRACTS SEPTEMBER 30, 1995 DEPRECIATION
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Nts. 12/95 600 $68,606,250 $431,250
</TABLE>
- ------------------------------------------------------------------------------
5. MANAGEMENT FEES
AND OTHER TRANSACTIONS
WITH AFFILIATES
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for a fee of .60% on the first
$200 million of average annual net assets, .55% on the next $100 million, .50%
on the next $200 million, .45% on the next $250 million, .40% on the next $250
million and .35% on net assets in excess of $1 billion.
For the year ended September 30, 1995, commissions (sales charges paid by
investors) on sales of Class A shares totaled $1,403,152, of which $259,977 was
retained by Oppenheimer Funds Distributor, Inc. (OFDI), a subsidiary of the
Manager, as general distributor, and by an affiliated broker/dealer. Sales
charges advanced to broker/dealers by OFDI on sales of the Fund's Class B shares
totaled $826,211, of which $12,299 was paid to an affiliated broker/dealer.
During the year ended September 30, 1995, OFDI received contingent deferred
sales charges of $235,304 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 compensate 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 institutions. In
addition, Class B and Class C shares are subject to an asset-based sales charge
of .75% of net assets annually, to compensate 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 or Class C 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 or Class C
shares sold prior to termination or discontinuance of the plan. At September 30,
1995, OFDI had incurred unreimbursed expenses of $3,233,621. During the year
ended September 30, 1995, OFDI paid $23,663 and $4,607, respectively, to an
affiliated broker/dealer as compensation for Class A and Class B personal
service and maintenance expenses and retained $683,188 as compensation for Class
B sales commissions and service fee advances, as well as financing costs.
<PAGE>
APPENDIX A
Descriptions of Ratings Categories
Municipal Bonds
- -- Moody's Investor Services, Inc. The ratings of Moody's
Investors Service, Inc. ("Moody's") for Municipal Bonds are Aaa,
Aa, A, Baa, Ba, B, Caa, Ca and C. 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. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well. Bonds which are rated "Ba" are judged to
have speculative elements; their future cannot be considered as
well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class. Bonds which are rated
"B" generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be
small. Bonds which are rated "Caa" are of poor standing. Such
issues may be in default or there may be present elements of danger
with respect to principal or interest. Bonds which are rated "Ca"
represent obligations which are speculative in a high degree.
Such issues are often in default or have other marked shortcomings.
Bonds which are rated "C" are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing. Those bonds in the
Aa, A, Baa, Ba and B groups which Moody's believes possess the
strongest investment attributes are designated Aa1, A1, Baa1, Ba1
and B1 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 ratings of Standard & Poor's
Corporation ("S&P") for Municipal Bonds are AAA (Prime), AA (High
Grade), A (Good Grade), BBB (Medium Grade), BB, B, CCC, CC, and C
(speculative grade). Bonds rated in the top four categories (AAA,
AA, A, BBB) are commonly referred to as "investment 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 rating 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.
Bonds rated "BB" have less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial, or
economic conditions which would lead to inadequate capacity to meet
timely interest and principal payments. Bonds rated "B" have a
greater vulnerability to default, but currently has the capacity to
meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. Bonds rated "CCC"
have a current identifiable vulnerability to default, and is
dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or
economic conditions, it is not likely to have the capacity to pay
interest and repay principal. Bonds noted "CC" typically are debt
subordinated to senior debt which is assigned on actual or implied
"CCC" debt rating. Bonds rated "C" typically are debt subordinated
to senior debt which is assigned an actual or implied "CCC-" debt
rating. The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are
continued. Bonds rated "D" are in payment default. The "D" rating
category is used when interest payments or principal payments are
not made on the date due even if the applicable grace period has
not expired, unless S&P believes that such payments will be made
during the grace period. The "D" rating also will be used upon the
filing of a bankruptcy petition if debt service payments are
jeopardized.
The ratings from AA to CCC may be modified by the addition of a
plus or minus sign to show relative standing within the major
rating categories.
- -- Fitch. The ratings of Fitch Investors Service, Inc. for
Municipal Bonds are AAA, AA, A, BBB, BB, B, CCC, CC, C, DDD, DD,
and D. 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. Bonds rated AAA, AA, A
and BBB are considered to be of investment grade quality. Bonds
rated below BBB are considered to be of speculative quality. The
ratings of "BB" is assigned to bonds considered by Fitch to be
"speculative." The rating of "B" is assigned to bonds considered
by Fitch to be "highly speculative." Bonds rated "CCC" have
certain identifiable characteristics which, if not remedied, may
lead to default. Bonds rated "CC" are minimally protected.
Default in payment of interest and/or principal seems probable over
time. Bonds rated "C" are in imminent default in payment of
interest or principal. Bonds rated "DDD", "DD" and "D" are in
default on interest and/or principal payments. DDD represents the
highest potential for recovery on these bonds, and D represents the
lowest potential for recovery.
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, SP-2, and SP-3. 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. SP-3 describes issues that have a speculative
capacity to pay principal and interest.
-- Fitch's rating for Municipal Notes due in three years or
less are F-1+, F-1, F-2, F-3, F-S and D. 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. F-S describes notes with weak credit
quality. Issues rated D are in actual or imminent payment default.
Corporate Debt
The "other debt securities" included in the definition of
temporary investments are corporate (as opposed to municipal) debt
obligations. The Moody's, S&P and Fitch corporate debt ratings
shown do not differ materially from those set forth above for
Municipal Bonds.
Commercial Paper
-- Moody's The ratings of commercial paper by Moody's are
Prime-1, Prime-2, Prime-3 and Not Prime. Issuers rated Prime-1
have a superior capacity for repayment of short-term promissory
obligations. Issuers rated Prime-2 have a strong capacity for
repayment of short-term promissory obligations. Issuers rated
Prime-3 have an acceptable capacity for repayment of short-term
promissory obligations. Issuers rated Not Prime do not fall within
any of the Prime rating categories.
-- S&P The ratings of commercial paper by S&P are A-1, A-2,
A-3, B, C, and D. A-1 indicates that the degree of safety
regarding timely payment is strong. A-2 indicates capacity for
timely payment is satisfactory. However, the relative degree of
safety is not as high as for issues designated A-1. A-3 indicates
an adequate capacity for timely payments. They are, however, more
vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations. B indicates only
speculative capacity for timely payment. C indicates a doubtful
capacity for payment. D is assigned to issues in default.
-- Fitch The ratings of commercial paper by Fitch are similar
to its ratings of Municipal Notes, above.
<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, 1996. Combined taxable
income refers to the net amount subject to Federal, New York State
and New York City income tax after deductions and exemptions. The
tables assume that an investor's highest tax bracket applies to the
change in taxable income resulting from a switch between taxable
and non-taxable investments, that the investor is not subject to
the Alternative Minimum Tax and that New York State and local
income tax payments are fully deductible for Federal income tax
purposes. They do not reflect the phaseout of itemized deductions
and personal exemptions at higher income levels, resulting in
higher effective tax rates and tax equivalent yields.
<TABLE>
<CAPTION>
New York State Residents
Combined Taxable Income
An Oppenheimer New York
Tax-Exempt Fund Yield
Single Return Joint Return of:
Combined 3.5% 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 $ 16,000 19.25% 4.33% 4.95% 5.57%
$ 16,000 $ 26,000 20.10% 4.38% 5.01% 5.63%
$ 13,000 $ 24,000 $ 26,000 $ 40,100 21.06% 4.43% 5.07% 5.70%
$ 24,000 $ 58,150 $ 40,100 $ 96,900 33.13% 5.23% 5.98% 6.73%
$ 58,150 $121,300 $ 96,900 $147,700 35.92% 5.46% 6.24% 7.02%
$121,300 $263,750 $147,700 $263,750 40.56% 5.89% 6.73% 7.57%
$263,750 $263,750 43.90% 6.24% 7.13% 8.02%
</TABLE>
<TABLE>
<CAPTION>
New York State Residents
Combined Taxable Income
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 $ 16,000 19.25% 6.19% 6.81% 7.43%
$ 16,000 $ 26,000 20.10% 6.26% 6.88% 7.51%
$ 13,000 $ 24,000 $ 26,000 $ 40,100 21.06% 6.33% 6.99% 7.60%
$ 24,000 $ 58,150 $ 40,100 $ 96,000 33.13% 7.48% 8.22% 8.97%
$ 58,150 $127,300 $ 96,900 $147,700 35.92% 7.80% 8.58% 9.36%
$121,300 $263,750 $147,700 $263,750 40.56% 8.41% 9.25% 10.09%
$263,750 $263,750 43.90% 8.91% 9.80% 10.70%
</TABLE>
<TABLE>
<CAPTION>
New York City Residents
Combined Taxable Income
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>
$ 16,000 $ 26,000 22.65% 4.52% 5.17% 5.82%
$ 26,000 $ 27,000 23.61% 4.58% 5.24% 5.89%
$ 16,000 $ 24,000 $ 27,000 $ 40,100 28.86% 4.60% 5.25% 5.91%
$ 24,000 $ 25,000 $ 40,100 $ 45,000 35.54% 5.43% 6.20% 6.98%
$ 25,000 $ 58,150 $ 45,000 $ 96,900 35.54% 5.43% 6.21% 6.98%
$ 58,150 $ 60,000 $ 96,900 $108,000 38.23% 5.67% 6.48% 7.28%
$ 60,000 $121,300 $108,000 $147,700 38.26% 5.67% 6.48% 7.29%
$121,300 $263,750 $143,700 $263,750 42.94% 6.11% 6.99% 7.86%
$263,750 $263,750 45.96% 6.48% 7.40% 8.33%
</TABLE>
<TABLE>
<CAPTION>
New York City Residents
Combined Taxable Income
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>
$ 16,000 $ 26,000 22.62% 6.46% 7.11% 7.76%
$ 26,000 $ 27,000 23.69% 6.55% 7.20% 7.85%
$ 15,000 $ 24,000 $ 27,000 $ 40,100 23.86% 6.57% 7.22% 7.88%
$ 24,000 $ 25,000 $ 40,100 $ 45,000 35.54% 7.75% 8.53% 9.30%
$ 25,000 $ 58,150 $ 45,000 $ 96,900 35.54% 7.76% 8.53% 9.31%
$ 58,150 $ 60,000 $ 96,900 $108,000 38.23% 8.09% 8.90% 9.71%
$ 60,000 $121,300 $108,000 $147,700 38.26% 8.10% 8.91% 9.72%
$121,300 $263,750 $147,700 $263,750 42.74% 8.73% 9.60% 10.48%
$263,750 $263,750 45.26% 9.25% 10.18% 11.10%
</TABLE>
<PAGE>
Appendix C
Industry Classifications
General Obligation Bonds
Special Tax Bonds
Lease/Rental
Revenue
Education
Hospitals
Housing
Transportation
Utilities
Student Loans
Corporate Backed Municipals
Industrial Development
Pollution Controls<PAGE>
<PAGE>
Investment Adviser
OppenheimerFunds, Inc.
Two World Trade Center
New York, New York 10048-0203
Distributor
OppenheimerFunds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
OppenheimerFunds 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
PXO360.002
