Oppenheimer Tax-Exempt Cash Reserves
3410 South Galena Street, Denver, CO 80231
Telephone 1-800-525-7048
Oppenheimer Tax-Exempt Cash Reserves (the "Fund") is a no-load "money-
market" mutual fund with the investment objective of seeking the maximum
current income exempt from Federal income tax that is consistent with
stability of principal. The Fund seeks to achieve this objective by
investing in municipal obligations meeting specified quality standards,
the income from which is exempt from Federal income tax. See "The Fund
and Its Investment Policies."
An investment in the Fund is neither insured nor guaranteed by the U.S.
Government. While the Fund seeks to maintain a stable net asset value of
$1.00 per share, there can be no assurance that the Fund will be able to
do so.
This Prospectus sets forth concisely information about the Fund that
a prospective investor should know before investing. A Statement of
Additional Information about the Fund (the "Additional Statement"), dated
April 29, 1994, has been filed with the Securities and Exchange Commission
(the "SEC") and is available without charge upon written request to
Oppenheimer Shareholder Services (the "Transfer Agent"), P.O. Box 5270,
Denver, Colorado 80217, or by calling the toll-free number shown above.
The Additional Statement (which is incorporated in its entirety by
reference in this Prospectus) contains more detailed information about the
Fund and its management.
Investors are advised to read and retain this Prospectus for future
reference. Shares of the Fund are not deposits or obligations of any
bank, are not guaranteed by any bank, and are not insured by the FDIC or
any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is effective April 29, 1994.
<PAGE>
Table of Contents
Page
Fund Expenses
Financial Highlights
Yield Information
The Fund and Its Investment Policies
Special Investment Methods
Investment Restrictions
Management of the Fund
How to Buy Shares
Purchase Programs for Shares
Payment by Check
Payment by Federal Funds Wire
Guaranteed Payment
AccountLink
PhoneLink
Asset Builder Plans
Service Plan
General
How to Redeem Shares
Regular Redemption Procedures
Expedited Redemption Procedures
Telephone Redemptions
Check Writing
Automatic Withdrawal and Exchange Plans
General Information on Redemptions
Exchanges of Shares
Dividends, Distributions and Taxes
Additional Information
<PAGE>
Fund Expenses
The following table sets forth the fees that an investor in the Fund
might pay and the expenses (restated) paid by the Fund during its fiscal
year ended December 31, 1993.
Shareholder Transaction Expenses
Maximum Sales Charge
on Purchases None
Sales Charge on
Reinvested Dividends None
Redemption Fees None*
Exchange Fee $5.00
Annual Fund Operating Expenses (restated) (as a percentage of average net
assets)
Management Fees .50%
12b-1 (Service Plan) Fees .18%
Other Expenses .73%
Total Fund Operating
Expenses (restated) 1.41%
______________
* There is a $15 transaction fee for redemptions paid by Federal Funds
wire, but not for redemption proceeds paid by check, or ACH wire through
AccountLink, or for which check writing privileges are used (see "How to
Redeem Shares").
The purpose of this table is to assist an investor in understanding
the various costs and expenses that an investor in shares of the Fund will
bear directly (shareholder transaction expenses) or indirectly (annual
fund operating expenses). "Other Expenses" includes such expenses as
custodial and transfer agent fees, audit, legal and other business
operating expenses, but excludes extraordinary expenses. The "Annual Fund
Operating Expenses" shown in the table above are restated to reflect the
termination (effective January 24, 1994) of a voluntary expense assumption
by the Fund's investment adviser, Oppenheimer Management Corporation (the
"Manager"). Such restatement sets forth what the Fund's Annual Fund
Operating Expenses would have been in the Fund's 1993 fiscal year had the
expense assumption undertaking not been in effect during that period. For
further details, see "Investment Management Services" and the Fund's
financial statements, both included in the Additional Statement.
The following example applies the above-stated expenses to a
hypothetical $1,000 investment in shares of the Fund over the time periods
shown below, assuming a 5% annual rate of return on the investment and
also assuming that the shares are redeemed at the end of each stated
period. The amounts below are the cumulative costs of such hypothetical
$1,000 investment for the periods shown.
1 year 3 years 5 years 10 years
$14 $45 $77 $169
This example should not be considered a representation of past or
future expenses or performance. Expenses are subject to change and actual
performance and expenses may be less or greater than those illustrated
above.
<PAGE>
Financial Highlights
Selected data for a share of the Fund outstanding throughout each period
The information in the table below has been audited by Deloitte & Touche,
independent auditors, whose report on the financial statements of the Fund
for the fiscal year ended December 31, 1993 is included in the Additional
Statement.
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991 1990 1989(1)
<S> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations--
net investment income and
net realized gain on investments .02 .02 .04 .05 .06
Dividends and distributions to shareholders (.02) (.02) (.04) (.05) (.06)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $23,897 $24,732 $23,824 $22,628 $9,383
Average net assets (in thousands) $23,781 $24,810 $25,347 $15,968 $5,207
Number of shares outstanding at end of
period (in thousands) 23,898 24,734 23,825 22,628 9,383
Ratios to average net assets:
Net investment income 1.79% 2.28% 4.00% 5.21% 5.72%(2)
Expenses, before voluntary assumption
by the Manager 1.41% 1.32% 1.22% 1.44% 1.50%(2)
Expenses, net of voluntary assumption
by the Manager 1.10% 1.00% 1.00% 1.00% 1.00%(2)
<FN>
1. For the period from January 3, 1989 (commencement of operations) to December 31, 1989.
2. Annualized.
</TABLE>
<PAGE>
Yield Information
The Fund and Its Investment Policies
From time to time, the "yield," "tax-equivalent yield" and "compounded
effective yield" of an investment in the Fund may be advertised. These
yield figures are based on historical earnings per share and are not
intended to indicate future performance. The "yield" of the Fund is the
income generated by an investment in the Fund over a seven-day period,
which is then "annualized." In annualizing, the amount of income
generated by the investment during that seven days is assumed to be
generated each week over a 52-week period, and is shown as a percentage
of the investment. The "compounded effective yield" is calculated
similarly, but the annualized income earned by an investment in the Fund
is assumed to be reinvested. The "compounded effective yield" will be
slightly higher than the yield because of the effect of the assumed
reinvestment. The Fund's "tax-equivalent yield" is calculated by dividing
that portion of the Fund's "yield" (calculated as described above) which
is tax-exempt by one minus a stated income tax rate and adding the result
to the portion (if any) of the Fund's yield that is not tax-exempt. See
"Yield Information" in the Additional Statement for additional information
about the methods of calculating these yields.
The Fund is a no-load tax-exempt money market fund. It is an open-end,
diversified management investment company organized on July 18, 1988 as
a Massachusetts business trust. The Fund's objective is to seek maximum
current income exempt from Federal income tax, consistent with stability
of principal. The Fund's shares may be purchased at their net asset
value, which will remain fixed at $1.00 per share except under
extraordinary circumstances (see "Determination of Net Asset Value Per
Share" in the Additional Statement for further information). There can
be no assurance, however, that the Fund's net asset value will not vary
or that the Fund will achieve its investment objective. The securities
in which the Fund may invest may not yield as high a level of current
income as longer-term or lower-grade securities, which generally have less
liquidity and experience greater price fluctuations. The Fund's
investment policies and practices are not "fundamental" policies (as
defined below) unless a particular policy is identified as fundamental.
The Board may change non-fundamental policies without shareholder
approval.
The Fund seeks to achieve its objective by investing in municipal bonds,
municipal notes (including tax anticipation notes, bond anticipation
notes, revenue anticipation notes, construction loan notes and other
short-term loans), tax-exempt commercial paper, certificates of
participation, participation interests and other debt obligations issued
by or on behalf of the states and the District of Columbia, any
commonwealth or territory of the United States, or their respective
political subdivisions, agencies, instrumentalities or authorities, the
interest from which is not subject to Federal individual income tax, in
the opinion of bond counsel to the respective issuer at the time of issue
(collectively, "Municipal Securities"). No independent investigation has
been made by the Manager as to the users of proceeds of such offerings or
the application of such proceeds. The Fund may also purchase Municipal
Securities with demand features that meet the requirements of Rule 2a-7
(discussed below) and are approved under standards adopted by the Fund's
Board of Trustees. All Municipal Securities in which the Fund invests
must have, or, pursuant to regulations adopted by the SEC, be deemed to
have, remaining maturities of one year or less at the date the Fund
purchases them. The two principal classifications of Municipal Securities
are "general obligation" (secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest)
and "revenue obligation" (payable only from the revenues derived from a
particular facility or class of facilities, or specific excise tax or
other revenue source).
Under normal market conditions, the Fund attempts to invest 100% of its
assets in Municipal Securities, and, as a fundamental policy, the Fund
will make no investment that will reduce the portion of its total assets
that are invested in Municipal Securities to less than 80%. However, in
times of unstable economic or market conditions, when the Manager
determines it appropriate to do so, the Fund may assume a temporary
defensive position and invest an unlimited amount of its assets in
Temporary Investments (described below). The balance of the Fund's assets
may be invested in investments the income from which may be taxable,
including: (i) repurchase agreements (described below); (ii) Municipal
Securities issued to benefit a private user ("Private Activity Municipal
Securities"), the interest from which may be subject to Federal
alternative minimum tax (see "Dividends, Distributions and Taxes" below
and "Private Activity Municipal Securities" in the Additional Statement);
and (iii) certain Temporary Investments. The Fund may hold Temporary
Investments pending the investment of proceeds from the sale of Fund
shares or portfolio securities, pending settlement of Municipal Securities
purchases or to meet anticipated redemptions. Normally, the Fund will not
invest more than 20% of its total assets in Private Activity Municipal
Securities and other taxable investments described above. To the extent
the Fund receives income from taxable investments, it may not achieve its
investment objective.
Ratings of Securities
Under Rule 2a-7 of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), the Fund uses the amortized cost method to
value its portfolio securities to determine the Fund's net asset value per
share. Rule 2a-7 places restrictions on a money market fund's
investments. Under the Rule, the Fund may purchase only those securities
that the Fund's Board of Trustees has determined have minimal credit risks
and are "Eligible Securities," as defined below. An "Eligible Security"
is (a) one that has been rated in one of the two highest short-term rating
categories by any two "nationally-recognized statistical rating
organizations" (as defined in the Rule) ("Rating Organizations"), or, if
only one Rating Organization has rated that security, by that Rating
Organization, or (b) an unrated security that is judged by the Manager to
be of comparable quality to "Eligible Securities" rated by Rating
Organizations. The Rule permits the Fund to purchase "First Tier
Securities," which are Eligible Securities rated in the highest rating
category for short-term debt obligations by at least two Rating
Organizations, or, if only one Rating Organization has rated a particular
security, by that Rating Organization, or comparable unrated securities.
Under the Rule, the Fund may also invest in "Second Tier Securities,"
which are Eligible Securities that are not "First Tier Securities."
Additionally, under Rule 2a-7, the Fund must maintain a dollar-weighted
average portfolio maturity of no more than 90 days, and the maturity of
any single portfolio investment may not exceed 397 days. Investments in
unrated Municipal Securities will not exceed 20% of the Fund's total
assets. Some of the Fund's existing investment restrictions (which are
fundamental policies that may be changed only by shareholder vote),
described below, are more restrictive than the provisions of Rule 2a-7.
The Board has adopted procedures under Rule 2a-7 pursuant to which the
Board has delegated to the Manager certain responsibilities, in accordance
with that Rule, of conforming the Fund's investments with the requirements
of the Rule and those procedures. The Board regularly reviews reports
from the Manager with respect to compliance by the Manager with the Fund's
procedures and with the Rule.
Appendix A to the Additional Statement contains descriptions of the
rating categories of Rating Organizations. Ratings at the time of
purchase will determine whether securities may be acquired under the above
restrictions. The rating restrictions described in this Prospectus do not
apply to banks in which the Fund's cash is kept. Subsequent downgrades
in rating may require reassessments of the credit risks presented by a
security and may require its sale. See "Ratings of Securities" in
"Investment Objective and Policies" in the Additional Statement for
further details.
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 91-day U.S. Treasury Bill rate. The
Fund may purchase these obligations if they have an ultimate maturity of
one year or less; if their maturity is greater than one year, they may be
purchased if they have a demand feature that permits the Fund to recover
the principal amount of the underlying security on not more than thirty
days' notice at any time, or at specified intervals not exceeding one
year. Such obligations may be secured by bank letters of credit or other
credit support arrangements. In certain circumstances, the Manager may
determine that an unrated floating rate or variable rate demand obligation
meets the Fund's quality standards solely by reason of being backed by a
letter of credit or guarantee issued by a bank that meets the Fund's
quality standards. However, the letter of credit or bank guarantee must
be rated or meet the other requirements of Rule 2a-7. See "Floating
Rate/Variable Rate Obligations" in the Additional Statement for more
details.
Puts and Standby Commitments
For liquidity purposes, the Fund may purchase Municipal Securities with
puts from banks, brokers, dealers or other institutions. The put gives
the Fund the right to sell the underlying security within a specified time
at a stated price. Under a standby commitment, a dealer agrees to
purchase, at the Fund's option, specified Municipal Securities at a stated
price on same-day settlement. The aggregate price of a security subject
to a put or standby commitment may be higher than the price which
otherwise would be paid for the security without such put or standby
commitment, thereby increasing the cost of such security and reducing its
yield. See "Puts and Standby Commitments" in the Additional Statement for
further details.
When-Issued Securities
The Fund may invest in Municipal Securities on a "when-issued" or
"delayed delivery" basis. In those transactions, the Fund obligates
itself to purchase or sell securities with delivery and payment to occur
at a later date to secure what is considered to be an advantageous price
and yield at the time the obligation is entered into. The price, which
is generally expressed in yield terms, is fixed at the time the commitment
to purchase is made, but delivery and payment for when-issued securities
takes place at a later date (normally within 60 days of purchase). During
the period between purchase and settlement, no payment is made by the Fund
to the issuer and no interest accrues to the Fund from the investment.
Although the Fund is subject to the risk of adverse market fluctuation
between purchase and settlement, the Manager does not believe that the
Fund's net asset value or income will be materially adversely affected by
its purchase of Municipal Securities on a "when-issued" or "delayed
delivery" basis. See "When-Issued and Delayed Delivery Transactions" in
the Additional Statement for more details.
Participation Interests
The Fund may acquire participation interests in U.S. dollar-denominated
loans that are made to U.S. or foreign companies (the "borrower"). The
Fund currently intends to invest no more than 5% of its net assets during
the coming year in participation interests. These may be interests in,
or assignments of, the loan, and are acquired from banks or brokers that
have made the loans or are members of the lending syndicate. In the event
of a failure by the bank or broker to perform its obligation in connection
with the participation agreement, the Fund might incur certain costs and
delays in realizing payment or may suffer a loss of principal and/or
interest. The Fund's investments in participation interests are subject
to the 10% of net assets limitation on investments in illiquid securities
(see "Illiquid and Restricted Securities," below). Further details are
set forth in the Additional Statement under "Municipal Notes -
Participation Interests."
Temporary Investments
The Fund may hold the following "Temporary Investments" that are
Eligible Securities: (i) obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; (ii) bankers'
acceptances; (iii) taxable commercial paper rated in the highest category
by a Rating Organization; (iv) short-term taxable debt obligations in one
of the two highest rating categories of a Rating Organization; (v) taxable
repurchase agreements; or (vi) certificates of deposit of domestic banks
with assets of $1 billion or more. To the extent the Fund assumes a
temporary defensive position, a significant portion of the Fund's
distributions may be subject to Federal income taxes.
Special Investment Methods
Illiquid and Restricted Securities
The Fund will not purchase or otherwise acquire any security if, as a
result, more than 10% of its net assets (taken at current value) would be
invested in securities that are illiquid by virtue of the absence of a
readily available market or because of legal or contractual restrictions
on resale. This policy includes repurchase agreements maturing in more
than seven days. This policy does not limit purchases of (1) restricted
securities eligible for resale to qualified institutional purchasers
pursuant to Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"), that are determined to be liquid by the Board of
Trustees or by the Manager under Board-approved guidelines, or (2)
commercial paper that is exempt from registration under Section 4(2) of
the Securities Act. Such guidelines take into account trading activity
for such securities and the availability of reliable pricing information,
among other factors. If there is a lack of trading interest in particular
Rule 144A securities, the Fund's holdings of those securities may be
illiquid. If due to changes in relative value, more than 10% of the value
of the Fund's net assets consist of illiquid securities, the Manager would
consider appropriate steps to protect the Fund's maximum flexibility.
There may be undesirable delays in selling illiquid securities at prices
representing their fair value.
Repurchase Agreements
The Fund may acquire securities that are subject to repurchase
agreements, in order to generate income while providing liquidity. The
Fund's repurchase agreements must comply with the collateral requirements
of Rule 2a-7. However, if a vendor fails to pay the agreed-upon
repurchase price on the delivery date, the Fund's risks may include any
costs of disposing of the collateral for the agreement, and any losses
that might result from any delay in foreclosing on the collateral. The
Fund ordinarily will not purchase or otherwise acquire a repurchase
agreement if, as a result, more than 10% of its net assets (taken at
current value) would be invested in repurchase agreements not entitling
the holder to payment of principal within seven days. However, when the
Fund assumes a temporary defensive position, there is no limit on the
amount of the Fund's assets that may be subject to repurchase agreements
having a maturity of seven days or less. Income earned on repurchase
transactions is not tax-exempt and, accordingly, under normal market
conditions, the Fund will limit its investments in repurchase transactions
to 20% of its total assets. See "Repurchase Agreements" in the Additional
Statement for further details.
Loans of Portfolio Securities
To attempt to increase its income, the Fund may lend its portfolio
securities (other than in repurchase transactions) to brokers, dealers and
other financial institutions meeting certain specified credit conditions
if the loan is collateralized in accordance with applicable regulatory
requirements and if, after any loan, the value of the securities loaned
does not exceed 25% of the Fund's total assets. In connection with
securities lending, the Fund might experience risks of delay in receiving
additional collateral, or risks of delay in recovery of the securities,
or loss of rights in the collateral should the borrower fail financially.
The Fund presently does not intend that the value of the securities loaned
will exceed 5% of the value of the Fund's total assets. The income from
such loans, when distributed by the Fund, will be taxable. See "Loans of
Portfolio Securities" in the Additional Statement for further information
on securities loans.
Investment Restrictions
The Fund has certain investment restrictions which, together with its
investment objective, are fundamental policies changeable only by the vote
of a "majority" (as defined in the Investment Company Act) of the Fund's
outstanding voting securities. Under some of these restrictions, the Fund
cannot: (1) invest in any debt instrument having a maturity in excess of
one year from the date of purchase, unless purchased subject to a demand
feature which may not exceed one year and requires payment on not more
than 30 days' notice; (2) purchase securities issued or guaranteed by any
one issuer (except the U.S. Government or its agencies or
instrumentalities) if more than 5% of the Fund's total assets would be
invested in securities of that issuer or the Fund would then own more than
10% of that issuer's voting securities; (3) make loans, except that the
Fund may purchase debt instruments described in "The Fund and Its
Investment Policies" and repurchase agreements, and the Fund may lend its
portfolio securities as described in its investment policy stated above;
(4) 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; no assets of the Fund may be pledged, mortgaged or assigned to
secure a debt; or (5) invest more than 25% of its assets in any one
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 percentage restrictions described above and
in the Additional Statement apply only at the time of investment and
require no action by the Fund as a result of subsequent changes in value
of the investment or the size of the Fund. A supplementary list of
investment restrictions is contained in "Investment Restrictions" in the
Additional Statement.
Management of the Fund
The Fund's Board of Trustees has overall responsibility for the
management of the Fund under the laws of Massachusetts governing the
responsibility of trustees of business trusts. Subject to the authority
of the Board of Trustees, the Manager is responsible for the day-to-day
management of the Fund's business, supervises the investment operations
of the Fund and the composition of its portfolio and furnishes the Fund
advice and recommendations with respect to investments, investment
policies and the purchase and sale of securities, pursuant to an
investment advisory agreement with the Fund (the "Agreement"). The
management fee, payable monthly to the Manager under the terms of the
Agreement, is computed as a percentage of the aggregate net asset value
of the Fund as of the close of each business day at the following annual
rate: .500% of the first $250 million of net assets; .475% of the next
$250 million; .450% of the next $250 million; .425% of the next $250
million; and .400% of net assets in excess of $1 billion. "Investment
Management Services" in the Additional Statement contains more complete
information about the Agreement, including a description of exculpation
provisions and portfolio transactions.
The Manager has operated as an investment adviser since April 30, 1959.
The Manager and its affiliates currently advise U.S. investment companies
with assets aggregating over $27 billion as of December 31, 1993, and
having more than 1.8 million shareholder accounts. The Manager is owned
by Oppenheimer Acquisition Corp., a holding company owned in part by
senior management of the Manager and ultimately controlled by
Massachusetts Mutual Life Insurance Company, a mutual life insurance
company which also advises pension plans and investment companies.
The Board of Trustees has determined that it is in the best interest of
shareholders of the Fund that the Fund reorganize with and into Centennial
Tax-Exempt Trust ("CTET"). At a meeting held on February 23, 1994, the
Board unanimously approved the terms of an agreement and plan of
reorganization between the Fund and CTET (the "reorganization plan") and
the transactions contemplated thereby (the "reorganization") and
determined that the reorganization should be recommended to the Fund's
shareholders for approval. It is contemplated that, pursuant to the
reorganization plan, (i) substantially all of the assets of the Fund would
be exchanged for shares of CTET, (ii) these shares would be distributed
among the shareholders of the Fund, (iii) the Fund would be liquidated,
and (iv) the outstanding shares of the Fund would be cancelled. The
reorganization is contemplated to be tax-free, pursuant to Section
368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), and the Fund will request an opinion of tax counsel to
that effect.
A meeting of the shareholders of the Fund with respect to the
reorganization is expected to be held on July 12, 1994 or such other date
as may be determined by the Board of Trustees. The affirmative vote of
the holders of a majority (as defined in the Investment Company Act) of
the outstanding shares of the Fund is required for approval of the
reorganization, including the reorganization plan. There can be no
assurance that the Fund's shareholders will approve the reorganization.
Information about the proposed reorganization will be contained in the
proxy statement to be sent to the Fund's shareholders of record on April
15, 1994, the record date for the shareholder meeting. Shareholders of
the Fund that first acquired Fund shares after the record date for the
shareholder meeting will not be entitled to vote on the reorganization.
How to Buy Shares
The Fund's shares may be purchased without sales charge. The net asset
value will remain fixed at $1.00 per share, except under extraordinary
circumstances (see "Purchase, Redemption and Pricing of Shares -
Determination of Net Asset Value Per Share" in the Additional Statement
for further information). There can be no guarantee that the Fund will
maintain a stable net asset value of $1.00 per share. The Fund's shares
may be purchased through any dealer or broker which has a sales agreement
with the Fund's distributor, Oppenheimer Funds Distributor, Inc. (the
"Distributor"), a subsidiary of the Manager. There are two ways to make
an initial investment: either (1) complete an OppenheimerFunds New Account
Application and mail it with payment to the Distributor at P.O. Box 5270,
Denver, Colorado 80217 (if no dealer is named in the Application, the
Distributor will be listed as the dealer of record), or (2) order the
shares through your dealer or broker. Purchases made by Application
should have a check enclosed, or payment may be made by one of the
alternative means described below.
The minimum initial investment is $1,000, except as otherwise described
in this Prospectus. Subsequent purchases must be at least $25, and may
be made (1) through authorized dealers or brokers, (2) by forwarding
payment to the Distributor at the above address with the names of all
account owners, the account number(s) and the name of the Fund, (3)
automatically through Asset Builder Plans or (4) by telephone using
AccountLink, described below. Under an Asset Builder Plan, Automatic
Exchange Plan or military allotment plan, initial and subsequent
investments must be at least $25. The minimum initial and subsequent
purchase requirements are waived on purchases made by reinvesting
dividends from any of the "Eligible Funds" listed in "Exchange Privilege"
below, or by reinvesting distributions from unit investment trusts for
which reinvestment arrangements have been made with the Distributor. No
share certificates will be issued unless specifically requested in writing
by an investor or the dealer or broker.
The Fund intends to be as fully invested as practicable to maximize its
yield. Therefore, dividends will accrue on newly-purchased shares only
after the purchase order is accepted by the Distributor, as described
below. The purchase will be effected at the net asset value next
determined as of 4:00 P.M. (all references to time in this Prospectus mean
New York time) on a day The New York Stock Exchange is open (a "regular
business day"), after the Distributor has received a purchase order at its
address in Denver, Colorado, accompanied by a check drawn on a U.S. bank
in U.S. dollars or by Federal Funds wire or under the guaranteed payment
procedures described below.
Purchase Programs for Shares
- Payment by Check. Orders for shares purchased by check in U.S.
dollars drawn on a U.S. bank will begin to be effected on the regular
business day on which the check (and a purchase application, if the
account is new) is accepted by the Distributor. Dividends will begin to
accrue on such shares the next regular business day after the purchase
order is accepted. For other checks, the shares will not be purchased
until the Distributor is able to convert the purchase payment to Federal
Funds, and dividends will begin to accrue on such shares on the next
regular business day.
- Payment by Federal Funds Wire. Shares may be purchased by Federal
Funds wire. The minimum investment by wire is $2,500. The investor must
first call the Distributor's Wire Department at 1-800-525-7041, to notify
the Distributor of the transmittal of the wire and to order the shares.
The investor's bank must wire the Federal Funds to Citibank, N.A, ABA No.
0210-0008-9, for credit to Concentration Account No. 3741-9796 for further
credit to Oppenheimer Tax-Exempt Cash Reserves (Custodian Account No. 845-
765). The wire must state the investor's name. Shares will be purchased
on the regular business day on which the Federal Funds are received by
Citibank, N.A., prior to 4:00 P.M. if the Distributor has received and
accepted the investor's notification of the wire order. Dividends will
begin to accrue on shares purchased by wire order on the next regular
business day after the purchase order is accepted. The investor must also
send the Distributor a completed OppenheimerFunds New Account Application
when the purchase order is placed to establish a new account.
- Guaranteed Payment. Broker-dealers with sales agreements with the
Distributor may place purchase orders with the Distributor prior to 4:00
P.M., on a regular business day, and the order will be effected that day
if the broker-dealer guarantees that payment for such shares in Federal
Funds will be received by the Fund's Custodian prior to 2:00 P.M., on the
next regular business day. Dividends will begin to accrue on shares
purchased in this manner on the regular business day the Federal Funds are
received by the required time.
- AccountLink. OppenheimerFunds AccountLink is a means to link a
shareholder's Fund account with an account at a U.S. bank or other
financial institution that is an Automated Clearing House ("ACH") member.
AccountLink can be used to transmit funds by electronic funds transfers
for account transactions, including subsequent share purchases. The
minimum investment by AccountLink is $25. Purchases of up to $250,000 may
be made by telephone using AccountLink (the maximum is $100,000 if the
transaction is done by PhoneLink, described below). To speak to service
operators to initiate such purchases, call the Distributor at 1-800-852-
8457. All such calls will be recorded. To initiate such purchases
automatically using PhoneLink, call 1-800-533-3310. Shares will be
purchased on the regular business day the Distributor is instructed to
initiate the ACH transfer to buy the shares. Dividends will begin to
accrue on such shares on the day the Fund receives Federal Funds for such
purchase through the ACH system before 4:00 P.M., which is normally three
days after the ACH transfer is initiated. If such Federal Funds are
received after that time, dividends will begin to accrue on the next
regular business day after such Federal Funds are received.
AccountLink may also be used as a means of transmitting redemption
proceeds to a designated bank account (see "How to Redeem Shares") or to
transmit distributions paid by the Fund directly to a bank account (see
"Dividends, Distributions and Taxes"). AccountLink privileges must be
requested on the application used to buy shares or the dealer settlement
instructions establishing the account, or on subsequent signature-
guaranteed instructions to the Transfer Agent from all shareholders of
record for an account, and such privileges thereupon apply to each
shareholder of record and the dealer representative of record unless and
until the Transfer Agent receives written instructions from a shareholder
of record cancelling such privileges. Changes of bank account information
must be made by signature-guaranteed instructions to the Transfer Agent
by all shareholders of record for an account. The Transfer Agent, the
Fund and the Distributor have adopted reasonable procedures to confirm
that telephone instructions under AccountLink (described above) and
"PhoneLink," "Telephone Redemptions" and the "Exchange Privilege"
(described below) are genuine, by requiring callers to provide the tax
identification number(s) and other account data and by recording calls and
confirming such transactions in writing. If the Transfer Agent and the
Distributor do not use such procedures, they may be liable for losses due
to unauthorized transactions, but otherwise they will not be responsible
for losses or expenses arising out of telephone instructions reasonably
believed to be genuine. The Fund reserves the right to amend, suspend or
discontinue AccountLink privileges at any time without prior notice.
- PhoneLink. PhoneLink is the OppenheimerFunds automated telephone
system which enables shareholders of the Fund to initiate account
transactions automatically by telephone, including exchanges between
existing accounts (see "Exchange Privilege," below), redemptions (see "How
to Redeem Shares - Telephone Redemptions," below) and purchases (see
"AccountLink," above). PhoneLink transactions may be done automatically
using a touchtone telephone, provided that the shareholder uses a Personal
Identification Number ("PIN") which may be obtained through PhoneLink by
calling 1-800-533-3310. If an account has multiple owners, the Transfer
Agent or the Distributor may rely on any instructions initiated through
PhoneLink using a PIN. The Fund reserves the right to amend, suspend or
discontinue PhoneLink privileges at any time without prior notice.
- Asset Builder Plans. Investors may purchase shares of the Fund (and
up to four other Eligible Funds) automatically under Asset Builder Plans.
With AccountLink, Asset Builder Plans may be used to make regular monthly
investments ($25 minimum) from the investor's account at a bank or other
financial institution. See "AccountLink" above for details. To establish
an Asset Builder Plan from a bank account, a check (minimum $25) for the
initial purchase must accompany the application. Shares purchased by
Asset Builder Plan payments from bank accounts are subject to the
redemption restrictions for recent purchases described in "How to Redeem
Shares." Asset Builder Plans also enable shareholders of the Fund or
Oppenheimer Cash Reserves to use those accounts for monthly automatic
purchases of shares of up to five other Eligible Funds.
There is a sales charge on the purchase of certain Eligible Funds, and
an application should be obtained from the Transfer Agent and completed
and a prospectus of the selected fund(s) (available from the Distributor)
should be obtained before initiating payments. The amount of the Asset
Builder investment may be changed or the automatic investments terminated
at any time by writing to the Transfer Agent. A reasonable period
(approximately 15 days) is required after receipt of such instructions to
implement them. The Fund reserves the right to amend, suspend, or
discontinue offering such plans at any time without prior notice.
Service Plan
The Fund has adopted a service plan (the "Plan") pursuant to Rule 12b-1
of the Investment Company Act under which the Fund will reimburse the
Distributor quarterly for a portion of its costs incurred in connection
with the personal service and maintenance of accounts that hold Fund
shares at a rate not to exceed 0.05% (0.20% on an annual basis) of the
average annual net assets of the Fund, computed as of the close of each
business day during that quarter. The Distributor will use such fees
received from the Fund in their entirety to (i) compensate brokers,
dealers, banks and other institutions (collectively, "Recipients") for
providing personal service and maintenance of accounts that hold shares
of the Fund and (ii) reimburse itself (to the extent authorized by the
Board) for its other expenditures under the Plan and its direct costs for
personal service and maintenance of accounts. The Board has presently not
authorized any reimbursement payments to the Distributor under (ii) above.
The services to be provided under the Plan include, but are not limited
to, the following: answering routine inquiries from the Recipient's
customers concerning the Fund, providing such customers with information
on their investment in Fund shares, assisting in the establishment and
maintenance of accounts or sub-accounts in the Fund, making the Fund's
investment plans and dividend payment options available, and providing
such other information and customer liaison services and the maintenance
of accounts as the Distributor or the Fund may reasonably request.
Payments by the Distributor to Recipients will be made quarterly and
computed as of the close of each business day during that quarter at an
annual rate not to exceed 0.20% of the net asset value of shares of the
Fund held in accounts of the Recipient or its customers; provided,
however, no payment will be made by the Distributor to any Recipient if
the aggregate net asset value of the Fund shares held by the Recipient or
its customer at the end of a calendar quarter is less than the minimum
level of qualified holdings, if any, established under the Plan by the
Board from time to time.
The Plan has the effect of increasing annual expenses of the Fund by up
to 0.20% of the Fund's average annual net assets from what its expenses
would otherwise be. For further details, see "Service Plan" in the
Additional Statement.
General
Dealers and brokers who process orders for the Fund's shares on behalf
of their customers may charge a fee for this service. That fee can be
avoided by purchasing shares directly from the Fund. The Distributor, in
its sole discretion, may accept or reject any order for purchases of the
Fund's shares. The sale of shares will be suspended during any period
when the determination of net asset value is suspended, and may be
suspended by the Board of Trustees whenever the Board judges it in the
best interest of the Fund to do so. The Fund's offering price (which is
equal to its net asset value per share) is determined as of 4:00 P.M. on
each regular business day, by dividing the net assets of the Fund by the
total number of shares outstanding. The Fund's Board of Trustees has
established procedures for the valuation of its securities. In general,
the Fund uses the amortized cost method of valuation, as described in the
Additional Statement under "Purchase, Redemption and Pricing of Shares -
Determination of Net Asset Value Per Share."
How to Redeem Shares
Regular Redemption Procedures
To redeem some or all shares in an account (whether or not represented
by certificates) under the Fund's regular redemption procedures, a
shareholder must send the following items to the Transfer Agent,
Oppenheimer Shareholder Services, P.O. Box 5270, Denver, Colorado 80217
(send courier or Express Mail deliveries to 10200 E. Girard Avenue,
Building D, Denver, Colorado 80231): (1) a written request for redemption
signed by all registered owners exactly as the shares are registered,
including fiduciary titles, if any, and specifying the account number and
the dollar amount or number of shares to be redeemed; (2) a guarantee of
the signatures of all registered owners on the redemption request or on
the endorsement on the share certificate or accompanying stock power, by
a U.S. bank, trust company, credit union or savings association, or a
foreign bank having a U.S. correspondent bank, or by a U.S.-registered
dealer or broker in securities, municipal securities or government
securities, or by a U.S. national securities exchange, registered
securities association or clearing agency; (3) any share certificates
issued for any of the shares to be redeemed; and (4) any additional
documents which may be required by the Transfer Agent for redemption by
corporations, partnerships or other organizations, executors,
administrators, trustees, custodians or guardians, or if the redemption
is requested by anyone other than the shareholder(s) of record. Transfers
of shares are subject to similar requirements.
A signature guarantee is not required for redemptions of $50,000 or
less, requested by and payable to all shareholders of record, to be sent
to the address of record for that account. To avoid delay in redemption
or transfer, shareholders having questions about these requirements should
contact the Transfer Agent in writing or by calling 1-800-525-7048 before
submitting a request. From time to time, the Transfer Agent, in its
discretion, may waive any or certain of the foregoing requirements in
particular cases. Redemption or transfer requests will not be honored
until the Transfer Agent receives all required documents in proper form.
Expedited Redemption Procedures
In addition to using the regular redemption procedures set forth above,
investors whose shares are not represented by certificates may arrange to
have redemption proceeds of $2,500 or more wired in Federal Funds to a
designated commercial bank, if the bank is a member of the Federal Reserve
wire system. To be eligible for this type of redemption, the investor
must complete the appropriate section of the Application, listing the
domestic commercial bank and the account number to receive the proceeds
of such redemptions, or provide such information by signature-guaranteed
letter to the Transfer Agent after the account is established. The bank
and account number may be changed subsequently only by the registered
owner(s) upon written request with the signature(s) guaranteed as
indicated above. Expedited wire redemption requests must be made by
telephone or wire to the Distributor in Denver, Colorado, 1-800-852-8457.
The wire for the redemption proceeds normally will be transmitted by the
Transfer Agent on the next bank business day after redemption. No
dividends are paid on the proceeds of redeemed shares awaiting transmittal
by wire. See "Purchase, Redemption and Pricing of Shares" in the
Additional Statement for further details.
Telephone Redemptions
To redeem shares by telephone through a service representative, call the
Transfer Agent at 1-800-852-8457. To use PhoneLink to redeem shares
automatically without a service representative, call 1-800-533-3310.
Under either method of telephone redemptions, proceeds may be paid by
check or through AccountLink as described below. The Transfer Agent may
record any calls. Telephone redemptions may not be available if all
telephone lines are busy, and shareholders would have to use the Fund's
regular redemption procedures described above. Requests received by the
Transfer Agent prior to 4:00 P.M. on a regular business day will be
processed at the net asset value per share determined that day. Telephone
redemption privileges are not available for newly-purchased (within the
prior 15 days) shares, or for shares represented by certificates.
Telephone redemption privileges apply automatically to each shareholder
and the dealer representative of record unless the Transfer Agent receives
cancellation instructions from a shareholder of record. If an account has
multiple owners, the Transfer Agent may rely on the instructions of any
one owner. Telephone redemption privileges may be amended, suspended or
discontinued by the Fund at any time without prior notice.
- Telephone Redemptions Paid by Check. If redemption proceeds are paid
by check, amounts up to $50,000 may be redeemed by telephone, once in
every seven-day period. The check must be payable to the shareholder(s)
of record and sent to the address of record for the account. Telephone
redemptions paid by check are not available within 30 days of a change of
the address of record.
- Redemptions Paid Through Account Link or Wire. If AccountLink
privileges have been established for an account, any amount may be
redeemed by telephone, wire or written instructions to the Transfer Agent,
and the ACH transfer of the redemption proceeds to the designated bank
account normally will be initiated by the Transfer Agent on the next bank
business day after the redemption. There are no dollar or frequency
limitations on telephone redemptions sent to a designated bank account
through AccountLink. No dividends are paid on the proceeds of redeemed
shares awaiting transmittal by ACH transfer. See "AccountLink" under "How
to Buy Shares" above for instructions on establishing this privilege.
Shareholders may also wire redemption proceeds of $2,500 or more in
Federal Funds to a designated commercial bank account if the bank is a
member of the Federal Reserve wire system. To place a wire redemption
request, call the Transfer Agent at 1-800-525-7048. There is a $15 fee
for each wire.
For both methods of transferring redemption proceeds, the account number
of the designated financial institution must be supplied to the Transfer
Agent on the application or dealer settlement instructions establishing
the account or may be added to existing accounts or changed only by
signature-guaranteed instructions to the Transfer Agent from all
shareholders of record. Such redemption requests may be made by
telephone, wire or written instructions to the Transfer Agent. The wire
for the redemption proceeds normally will be transmitted by the Transfer
Agent on the next bank business day after redemption. No dividends are
paid on the proceeds of redeemed shares awaiting transmittal by wire. See
"Wire Redemption Procedures" in the Additional Statement for more details.
Check Writing
Upon request, the Transfer Agent will provide shareholders whose shares
are not represented by certificates with forms of drafts ("checks")
payable through a bank selected by the Fund (the "Bank"). Checks may be
made payable to the order of anyone in any amount not less than $100, and
will be subject to the Bank's rules and regulations governing checks. The
Transfer Agent will arrange for such checks to be honored by the Bank
after obtaining a specimen signature card from the shareholder(s). If a
check is presented for an amount greater than the account value, it will
not be paid. The Fund will charge a handling fee of $10 for any check
that is not paid at the request of a shareholder or because of an
insufficient share balance or because the check was written for less than
the stated minimum. Shareholders of joint accounts may elect to have
checks honored with a single signature. Checks issued for one Fund
account must not be used if the shareholder's account has been transferred
to a new account or if the account number or registration has changed.
Shares purchased by check or Asset Builder payments within the prior 15
days may not be redeemed by Check Writing. A check that would require the
redemption of some or all of the shares so purchased is subject to non-
payment.
The Bank will present checks to the Fund to redeem shares to cover the
amount of the check. This procedure enables the shareholder to continue
receiving dividends on those shares equaling the amount being redeemed by
check until such time as the check is presented to the Fund. Checks may
not be presented for payment at the offices of the Bank or the Fund's
Custodian. This limitation does not affect the use of checks for the
payment of bills or cashing at other banks. The Fund reserves the right
to amend, suspend or discontinue offering Check Writing privileges at any
time without prior notice.
Automatic Withdrawal and Exchange Plans
Investors owning shares of the Fund valued at $5,000 or more can
authorize the Transfer Agent to redeem shares (minimum $50) automatically
on a monthly, quarterly, semi-annual or annual basis under an Automatic
Withdrawal Plan. Shares will be redeemed three business days prior to the
date requested by the shareholders for the receipt of the payment.
Automatic withdrawals of up to $1,500 per month may be requested by
telephone if payments are by check payable to all shareholders of record
and sent to the address of record for the account (and if the address has
not been changed within the prior 30 days). Payments are normally made
by check, but shareholders having AccountLink privileges (see "How to Buy
Shares") may arrange to have Automatic Withdrawal Plan payments
transferred to the bank account designated on the OppenheimerFunds New
Account Application or signature-guaranteed instructions. The Fund cannot
guarantee receipt of the payment on the date requested and reserves the
right to amend, suspend or discontinue offering such plans at any time
without prior notice. For further details, refer to "Automatic Withdrawal
Plan Provisions" in the Additional Statement.
Shareholders can also authorize the Transfer Agent to exchange a pre-
determined amount of shares of the Fund for shares of up to five other
Eligible Funds (minimum purchase is $25 per fund account) automatically
on a monthly, quarterly, semi-annual or annual basis under an Automatic
Exchange Plan. Exchanges made pursuant to such plans are otherwise
subject to the terms and conditions applicable to exchanges described in
"Exchange Privilege," below.
General Information on Redemptions
Payment for redeemed shares is made ordinarily in cash and forwarded
within seven days of the Transfer Agent's receipt of redemption
instructions in proper form, except under unusual circumstances as
determined by the SEC. The Transfer Agent may delay forwarding a
redemption check for recently purchased shares only until the purchase
payment has cleared, which may take up to 15 or more days from the
purchase date. Such delay may be avoided if the shareholder arranges
telephone or written assurance satisfactory to the Transfer Agent from the
bank on which the payment was drawn, or by purchasing shares by Federal
Funds wire, as described above. Under the Internal Revenue Code, the Fund
may be required to impose "backup" withholding of Federal income tax at
the rate of 31% from dividends, distributions and redemption proceeds
(including exchanges), if the shareholder has not furnished the Fund a
certified tax identification number or has not complied with the Internal
Revenue Code provisions relating to reporting dividends. The Fund makes
no charge for redemption. Dealers or brokers may charge a fee for
handling redemption transactions, but such charge can be avoided by
requesting the redemption directly by the Fund through the Transfer Agent.
Under certain circumstances, proceeds of redemptions of shares of the Fund
acquired by exchange of shares of "Eligible Funds" (described below) that
were purchased subject to a contingent deferred sales charge ("CDSC") may
be subject to the CDSC (see "Exchange Privilege," below). Under certain
unusual circumstances, shares may be redeemed in kind (i.e., by payment
in portfolio securities). Under certain circumstances, the Fund may
involuntarily redeem small accounts (if the account has fallen below $200
in value for reasons other than market value fluctuations). For details,
see "Purchase, Redemption and Pricing of Shares" in the Additional
Statement.
Exchanges of Shares
Exchange Privilege
Shares of the Fund may, under certain conditions, be exchanged for
shares of the following funds, collectively referred to as "Eligible
Funds": (1) Oppenheimer Target Fund, Oppenheimer Asset Allocation Fund,
Oppenheimer Discovery Fund, Oppenheimer U.S. Government Trust, Oppenheimer
Global Bio-Tech Fund, Oppenheimer Global Environment Fund, Oppenheimer
Global Growth & Income Fund, Oppenheimer Champion High Yield Fund,
Oppenheimer Fund, Oppenheimer Global Fund, Oppenheimer Main Street
California Tax-Exempt Fund, Oppenheimer Main Street Income & Growth Fund,
Oppenheimer Time Fund, Oppenheimer Special Fund, Oppenheimer Equity Income
Fund, Oppenheimer Gold & Special Minerals Fund, Oppenheimer Intermediate
Tax-Exempt Bond Fund, Oppenheimer California Tax-Exempt Fund, Oppenheimer
New Jersey Tax-Exempt Fund, Oppenheimer Florida Tax-Exempt Fund,
Oppenheimer Pennsylvania Tax-Exempt Fund, Oppenheimer High Yield Fund,
Oppenheimer Total Return Fund, Inc., Oppenheimer Limited-Term Government
Fund, Oppenheimer Mortgage Income Fund, Oppenheimer Investment Grade Bond
Fund, Oppenheimer Value Stock Fund, Oppenheimer Insured Tax-Exempt Bond
Fund, Oppenheimer Tax-Free Bond Fund, Oppenheimer New York Tax-Exempt
Fund, Oppenheimer Strategic Income Fund, Oppenheimer Strategic Investment
Grade Bond Fund, Oppenheimer Strategic Income & Growth Fund, Oppenheimer
Strategic Diversified Income Fund and Oppenheimer Strategic Short-Term
Income Fund; and (2) the following "Money Market Funds": the Fund,
Centennial Money Market Trust, Centennial California Tax Exempt Trust,
Centennial New York Tax Exempt Trust, Centennial Tax Exempt Trust,
Centennial Government Trust, Oppenheimer Money Market Fund, Inc., Daily
Cash Accumulation Fund, Inc. and Oppenheimer Cash Reserves. There is an
initial sales charge on the purchase of Class A shares of each Eligible
Fund except the Money Market Funds (under certain circumstances, described
below, redemption proceeds of Money Market Fund shares may be subject to
a contingent deferred sales charge (CDSC)).
Shares of the Fund may be exchanged for shares of the other Eligible
Funds, if all of the following conditions are met: (1) shares of the fund
selected for exchange are available for sale in the shareholder's state
of residence; (2) the respective prospectuses of the funds the shares of
which are to be exchanged and acquired offer the Exchange Privilege to the
investor; (3) newly-purchased (by initial or subsequent investment) shares
are held in an account for at least seven days and all other shares at
least one day prior to the exchange; and (4) the aggregate net asset value
of the shares surrendered for exchange is at least equal to the minimum
investment requirements of the fund the shares of which are to be
acquired.
In addition to the conditions stated above, shares of a particular class
of an Eligible Fund may be exchanged only for shares of the same class of
another Eligible Fund. In addition, Class A shares of Eligible Funds may
be exchanged for shares of any Money Market Fund; shares of any Money
Market Fund purchased without a sales charge may be exchanged for shares
of Eligible Funds offered with a sales charge upon payment of the sales
charge (or, if applicable, may be used to purchase shares of Eligible
Funds subject to a CDSC); and shares of the Fund, including shares
acquired by reinvestment of dividends or distributions from the Fund or
Oppenheimer Cash Reserves, may be exchanged for shares of any Eligible
Fund offered with a sales charge upon payment of the applicable sales
charge. Shares of the Fund acquired by reinvestment of dividends or
distributions from any other Eligible Fund (except Oppenheimer Cash
Reserves) or from any unit investment trust for which reinvestment
arrangements have been made with the Distributor may be exchanged at net
asset value for shares of any Eligible Fund. The redemption proceeds of
shares of the Fund acquired by exchange of shares of an Eligible Fund
purchased subject to a CDSC, that are redeemed within 18 months of the end
of the calendar month of the initial purchase of the exchanged shares,
will be subject to the CDSC as described in the prospectus of that other
Eligible Fund; in determining whether the CDSC is payable, shares of the
Fund not subject to the CDSC are redeemed first, including shares
purchased by reinvestment of dividends and capital gains distributions
from any Eligible Fund or shares of the Fund acquired by exchange of
shares of Eligible Funds on which a front-end sales charge was paid or
credited and then other shares are redeemed in the order of purchase.
Shares of Eligible Funds may not be exchanged for shares of the Fund to
be held in an account used for Asset Builder Plan purchases of shares of
other Eligible Funds (as discussed above) but may be exchanged for shares
to be held in a separate account in the Fund.
- How to Exchange Shares. An exchange may be made by either: (1)
submitting an OppenheimerFunds Exchange Authorization Form to the Transfer
Agent, signed by all registered owners, or (2) telephone exchange
instructions to the Transfer Agent by a shareholder or the dealer
representative of record for an account. The Fund may modify, suspend or
discontinue either of these exchange privileges at any time, and will do
so on 60 days' notice if such notice is required by regulations adopted
under the Investment Company Act. The Fund reserves the right to reject
telephone or written requests submitted in bulk on behalf of 10 or more
accounts. Telephone and written exchange requests must be received by the
Transfer Agent by 4:00 P.M. on a regular business day to be effected that
day. The number of shares exchanged may be less than the number requested
if the number requested would include shares subject to a restriction
cited above or shares covered by a certificate that is not tendered with
such request. Only the shares available for exchange without restriction
will be exchanged.
- Telephone Exchanges. Telephone exchange requests may either be
placed through a service representative by calling the Transfer Agent at
1-800-852-8457 or automatically by PhoneLink, by calling 1-800-533-3310.
If all telephone lines are busy (which might occur, for example, during
periods of substantial market fluctuations), shareholders might not be
able to request telephone exchanges and would have to submit written
exchange requests. Telephone exchange calls may be recorded by the
Transfer Agent. Telephone exchanges are subject to the rules described
above. By exchanging shares by telephone, the shareholder is
acknowledging receipt of a prospectus of the fund to which the exchange
is made and that for full or partial exchanges, any special account
features such as Asset Builder Plans or Automatic Withdrawal or Exchange
Plans will be switched to the new account unless the Transfer Agent is
otherwise instructed. Telephone exchange privileges automatically apply
to each shareholder of record and the dealer representative of record
unless and until the Transfer Agent receives written instructions from a
shareholder of record cancelling such privileges. If an account has
multiple owners, the Transfer Agent may rely on the instructions of any
one owner. The Transfer Agent reserves the right to require shareholders
to confirm in writing their election of telephone exchange privileges for
an account. Shares acquired by telephone exchange must be registered
exactly as the account from which the exchange was made. Certificated
shares are not eligible for telephone exchange.
- General Information on Exchanges. Shares to be exchanged are
redeemed on the regular business day the Transfer Agent receives an
exchange request in proper form (the "Redemption Date"). Normally, shares
of the fund to be acquired are purchased on the Redemption Date, but such
purchases may be delayed by either fund up to five business days if it
determines that it would be disadvantaged by an immediate transfer of the
redemption proceeds. The Fund in its discretion reserves the right to
refuse any exchange request that will disadvantage it, for example, if the
receipt of multiple exchange requests from a dealer might require the
disposition of securities at a time or at a price disadvantageous to the
Fund.
The Eligible Funds have different investment objectives and policies.
For complete information, including sales charges and expenses, a
prospectus of the fund into which the exchange is being made should be
read prior to an exchange. A $5 service charge will be deducted from the
account to which the exchange is made to help defray administrative costs.
That charge is waived for telephone exchanges made by PhoneLink between
existing accounts. Dealers or brokers who process exchange orders on
behalf of customers may charge for their services. Those charges may be
avoided by requesting the Fund directly to exchange shares. For Federal
tax purposes, an exchange is treated as a redemption and purchase of
shares. No sales commissions are paid by the Distributor on exchanges of
shares (unless a front-end sales charge is assessed on the exchange).
Dividends, Distributions and Taxes
This discussion relates solely to Federal tax laws and is not
exhaustive; a qualified tax adviser should be consulted. The Fund's
dividends may be subject to state and local taxation. See the Additional
Statement for a further discussion of tax matters affecting the Fund and
its distributions.
Dividends and Distributions
The Fund intends to declare all of its net investment income, as defined
below, as dividends on each regular business day. Dividends will be
payable to shareholders of record as described in "How to Buy Shares,"
above. Daily dividends accrued since the prior dividend payment will be
paid to shareholders monthly as of a date selected by the Board of
Trustees. If a shareholder redeems all shares at any time during a month,
all dividends accrued to the date of redemption will be paid together with
the redemption proceeds. All dividends and capital gains distributions
are automatically reinvested in Fund shares at net asset value unless the
shareholder notifies the Transfer Agent in writing to pay dividends and
capital gains distributions in cash. That notice must be received prior
to the record date for a dividend to be effective as to that dividend.
Dividends and distributions may be automatically transferred to a
designated account at a financial institution that is an ACH member under
AccountLink. See "AccountLink" in "How to Buy Shares" and the
OppenheimerFunds New Account Application for more details. For existing
accounts, such privilege may be established only by signature-guaranteed
instructions from all shareholders to the Transfer Agent. Dividends,
distributions and the proceeds of the redemption of Fund shares
represented by checks returned to the Transfer Agent by the Postal Service
as undeliverable are reinvested in Fund shares, as promptly as possible
after the return of such checks to the Transfer Agent, in order to enable
the investor to earn a return on otherwise idle funds.
The Fund's net investment income for dividend purposes consists of all
interest accrued on portfolio assets, less all expenses of the Fund for
such period. Distributions from net realized gains on securities, if any,
will be paid at least once a year, and may be made more frequently in
compliance with the Internal Revenue Code and the Investment Company Act.
The Fund will not make any distributions from net realized securities
gains unless capital loss carry forwards, if any, have been used or have
expired. Any net realized capital loss is carried forward to offset
against gains in later years. To effect its policy of maintaining a net
asset value of $1.00 per share, the Fund, under certain circumstances, may
withhold dividends or make distributions from capital or 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 is excludable from gross income
for Federal individual income tax purposes, less expenses. Expenses are
accrued daily. This allocation will be made by the use of one designated
percentage applied uniformly to all income dividends made during the
Fund's tax year. Such designation will normally be made following the end
of each fiscal year as to income dividends paid in the prior year. The
percentage of income designated as tax-exempt may substantially differ
from the percentage of the Fund's income that was tax-exempt for a given
period. A portion of the exempt-interest dividends paid by the Fund may
be an item of tax preference for shareholders subject to the alternative
minimum tax. Of the Fund's dividends (excluding capital distributions)
paid by the Fund during the year ended December 31, 1993, 14.71% were a
tax preference item for such shareholders. The net amount of any income
on Municipal Securities subject to the alternative minimum tax will be
identified when tax information is distributed by the Fund. The Fund will
report annually to shareholders the percentage of interest income it
received during the preceding year on Municipal Securities. Receipt of
tax-exempt income must be reported on the taxpayer's Federal income tax
return. 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.
A Fund shareholder treats a dividend as a receipt of ordinary income
(whether paid in cash or reinvested in additional shares) if derived from
net interest income earned by the Fund from one or more of: (i) certain
taxable temporary investments (such as repurchase agreements, certificates
of deposit, commercial paper and obligations of the U.S. government, its
agencies or instrumentalities); (ii) income from securities loans; or
(iii) an excess of net short-term capital gains over net long-term capital
losses. The Fund's dividends will not be eligible for the dividends-
received deduction for corporations. Additionally, all or a portion of
the Fund's exempt-interest dividends may be a component of the "adjusted
current earnings" preference item under the Federal corporate alternative
minimum tax.
Under the Internal Revenue Code, interest on loans to purchase shares
of the Fund may not be deducted for Federal tax purposes. In addition,
under rules used by the Internal Revenue Service for determining when
borrowed funds are deemed used for the purpose of purchasing or carrying
particular assets, the purchase of shares of the Fund may be considered
to have been made with borrowed funds even though the borrowed funds are
not directly traceable to the purchase of shares. Furthermore, under
Section 147(a) of the Internal Revenue Code, persons who are "substantial
users" (or persons related thereto) of facilities financed by industrial
development bonds or Private Activity Municipal Securities should refer
to "Private Activity Municipal Securities" in the Additional Statement and
should consult their own tax advisers before purchasing shares. No
investigation as to the users or the facilities financed by such bonds has
been made by the Fund.
Tax Status of the Fund
If the Fund qualifies as a "regulated investment company" under the
Internal Revenue Code, it will not be liable for Federal income taxes on
amounts paid by it as dividends and distributions. The Fund qualified
during its last fiscal year and intends to qualify in current and future
fiscal years but reserves the right not to do so. However, the Internal
Revenue Code contains a number of complex tests relating to such
qualification which the Fund might not meet in any particular fiscal 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.
If the Fund does not so qualify it would be treated for Federal tax
purposes as an ordinary corporation, would receive no tax deduction for
payments made to shareholders, and would be unable to pay "exempt-interest
dividends" as discussed above.
Additional Information
Description of the Fund and its Shares
The shares of the Fund are of one class and represent an interest in the
Fund proportionately equal to the interest of each other share of the
Fund. Each shareholder is entitled to one vote per share (and a
fractional vote for a fractional share) on matters submitted to their
vote. The Trustees may divide or combine the shares into a greater or
lesser number of shares without thereby changing the proportionate
beneficial interest in the Fund. When issued, shares are fully-paid and
(except as described in "Additional Information" in the Additional
Statement) non-assessable, and have no preemptive, subscription, or
cumulative voting rights. The Fund's Board of Trustees is empowered to
create additional "series" of shares of the Fund, which may have separate
assets and liabilities, and additional "classes" of shares, which would
represent interests in the same portfolio of investments. The Fund does
not anticipate holding annual meetings. Under certain circumstances,
shareholders of the Fund have the right to remove a Trustee and may be
held personally liable as "partners" for the Fund's obligations; however,
the risk of a shareholder incurring any financial loss is limited to the
relatively remote circumstances in which the Fund is unable to meet its
obligations. See "Additional Information" in the Additional Statement for
details.
The Custodian and the Transfer Agent
The Custodian of the assets of the Fund is Citibank, N.A. The Manager
and its affiliates have banking relationships with the Custodian. See
"Additional Information" in the Additional Statement for further
information. The Fund's cash balances in excess of $100,000 held by the
Custodian are not protected by Federal deposit insurance. Such uninsured
balances may at times be substantial. The rating restrictions under Rule
2a-7 described above do not apply to banks in which the Fund's cash is
kept.
The Transfer Agent, a division of the Manager, acts as the Fund's
transfer and shareholder servicing agent on an at-cost basis for the Fund
and certain other open-end funds advised by the Manager and as transfer
agent for unit investment trusts for the accumulation of shares of one of
such funds. Shareholders should direct any inquiries to the Transfer
Agent at the address or toll-free phone number listed on the back cover
of this Prospectus.
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
Colorado State Bank Building
1600 Broadway
Denver, Colorado 80202-4918
No broker, dealer, salesperson or any other person has been authorized
to give any information or to make any representations other than those
contained in this Prospectus or the Additional Statement, and if given or
made, such information and representations must not be relied upon as
having been authorized by the Fund, Oppenheimer Management
Corporation, Oppenheimer Funds Distributor, Inc. or any affiliate
thereof. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby in
any state to any person to whom it is unlawful to make such offer in such
state.
PR770 (4/93) *Printed on recycled paper
<PAGE>
OPPENHEIMER
Tax-Exempt Cash Reserves
Prospectus
Effective April 29, 1994
(OppenheimerFunds logo)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
OPPENHEIMER TAX-EXEMPT CASH RESERVES
3410 South Galena Street, Denver, Colorado 80231
1-800-525-7048
This Statement of Additional Information (the "Additional Statement")
is not a Prospectus. This Additional Statement should be read in
conjunction with the Prospectus dated April 29, 1994 (the "Prospectus")
of Oppenheimer Tax-Exempt Cash Reserves (the "Fund"), which may be
obtained upon written request to the Fund's Transfer and Shareholder
Servicing Agent, Oppenheimer Shareholder Services (the "Transfer Agent"),
P.O. Box 5270, Denver, Colorado 80217, or by calling the Transfer Agent
at the toll-free number listed above.
TABLE OF CONTENTS
Page
Investment Objective and
Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Yield Information. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . 9
Trustees and Officers. . . . . . . . . . . . . . . . . . . . . . . . . 10
Investment Management Services . . . . . . . . . . . . . . . . . . . . 12
Purchase, Redemption and
Pricing of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 14
Service Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . 18
Automatic Withdrawal Plan
Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 21
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 22
Appendix A: Description
of Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Appendix B: Equivalent
Yield Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
This Additional Statement is effective April 29, 1994.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund are described in the
Prospectus. Supplemental information about those policies is set forth
below. Certain capitalized terms used in this Additional Statement and
not otherwise defined herein are defined in the Prospectus.
The Fund will not make investments with the objective of seeking capital
growth. However, the value of the securities held by the Fund may be
affected by changes in general interest rates. Because the current value
of debt securities varies inversely with changes in prevailing interest
rates, if interest rates increase after a security is purchased, that
security would normally decline in value. Conversely, should interest
rates decrease after a security is purchased, its value would rise.
However, those fluctuations in value will not generally result in realized
gains or losses to the Fund since the Fund does not usually intend to
dispose of securities prior to their maturity. A debt security held to
maturity is redeemable by its issuer at full principal value plus accrued
interest. To a limited degree, the Fund may engage in short-term trading
to attempt to take advantage of short-term market variations, or may
dispose of a portfolio security prior to its maturity if, on the basis of
a revised credit evaluation of the issuer or other considerations, the
Fund believes such disposition advisable or it needs to generate cash to
satisfy redemptions. In such cases, the Fund may realize a capital gain
or loss.
There are, of course, variations in the security of Municipal
Securities, both within a particular classification and between
classifications, depending on numerous factors. The yields of Municipal
Securities depend on, among other things, general money market conditions,
general conditions of the Municipal Securities market, the size of a
particular offering, the maturity of the obligation and rating of the
issue. The market value of Municipal Securities will vary as a result of
changing evaluations of the ability of their issuers to meet interest and
principal payments, as well as changes in the interest rates payable on
new issues of Municipal Securities.
Municipal Securities. The types of Municipal Securities in which the Fund
may invest are described in the Prospectus under "The Fund and Its
Investment Policies." Set forth below is a discussion of the general
characteristics of types of 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 which 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
or 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 agencies of state and local governments or their agencies to finance
seasonal working capital needs or as short-term financing in anticipation
of longer-term financing.
Participation Interests. The Fund may purchase participation
interests in all or part of specific holdings of short-term Municipal
Securities from financial institutions such as banks, insurance companies
and savings and loan associations. Such institutions frequently provide,
or secure from another financial institution, letters of credit or
guarantees to secure the interests, and give the buyer the right to demand
payment of the principal amount of the participation interests plus
accrued interest on short notice (normally within seven days). In the
event of a failure by the issuer to pay scheduled interest or principal
payments on the underlying municipal security, the Fund could experience
a decline in its net asset value. In the event of a failure by the
financial institution to perform its obligations in connection with the
participation interest, the Fund might incur certain costs and delays in
realizing payment or may suffer a loss of principal and/or interest. The
Fund may buy participation interests in Municipal Securities having
maturities of more than one year if the participation interests include
the right to demand payment from the financial institutions (which may
charge fees in connection with their repurchase commitments).
Certificates of Participation. Certificates of participation are
tax-exempt obligations that evidence the holder's right to share in lease,
installment loan or other financing payments by a public entity. Projects
financed with certificates of participation generally are not subject to
state constitutional debt limitations or other statutory requirements that
may be applicable to Municipal Securities.
Floating Rate/Variable Rate Obligations. Floating rate and variable
rate demand notes are tax-exempt obligations which may have a stated
maturity in excess of one year, but may include features that permit the
holder to recover the principal amount of the underlying security on not
more than thirty days' notice at any time or at specified intervals not
exceeding one year. The issuer of such notes normally has a corresponding
right, after a given period, to prepay in its discretion the outstanding
principal amount of the note plus accrued interest upon a specified number
of days notice to the holder. The interest rate on a floating rate demand
note is based on a stated prevailing market rate, such as a bank's prime
rate, the 91-day U.S. Treasury Bill rate, or some other standard, and is
adjusted automatically each time such rate is adjusted. The interest rate
on a variable rate demand note is also based on a stated prevailing market
rate but is adjusted automatically at specified intervals of no less than
one year. Generally, the changes in the interest rate on such securities
reduce the fluctuation in their market value. As interest rates decrease
or increase, the potential for capital appreciation or depreciation is
less than that for fixed-rate obligations of the same maturity. The
Fund's investment manager, Oppenheimer Management Corporation (the
"Manager"), may determine that an unrated floating rate or variable rate
demand obligation meets the Fund's quality standards by reason of being
backed by a letter of credit or guarantee issued by a bank that meets the
Fund's quality standards. There is no limit on the amount of the Fund's
assets that may be invested in floating rate and variable rate
obligations. Floating rate or variable rate obligations which do not
provide for recovery of principal and interest within thirty days may be
subject to the limitations applicable to illiquid securities described in
"The Fund and Its Investment Policies - Illiquid and Restricted
Securities" in the Prospectus.
Puts and Standby Commitments. When the Fund buys Municipal Securities,
it may obtain a standby commitment from the seller to repurchase the
securities that entitles the Fund to achieve same day settlement from the
repurchaser and to receive an exercise price equal to the amortized cost
of the underlying security plus accrued interest, if any, at the time of
exercise. A put purchased in conjunction with a Municipal Security
enables the Fund to sell the underlying security within a specified period
of time at a fixed exercise price. The Fund may pay for a standby
commitment or put either separately in cash or by paying a higher price
for the securities acquired subject to the standby commitment or put. The
Fund will enter into these transactions only with banks and dealers which,
in the Manager's opinion, present minimal credit risks. The Fund's
purchases of puts are subject to the provisions of Rule 2a-7 under the
Investment Company Act because the Fund uses the amortized cost method to
value its portfolio securities. That Rule, which is subject to change,
states (among other things) that the Fund may not invest more than 5% of
the total amortized cost value of its assets in securities issued by or
subject to puts from the same institution. Further, that Rule states that
an unconditional put with respect to a security will not be deemed to be
issued by the institution providing the put, provided that the value of
all securities held by the Fund and issued by the issuer providing the put
shall not exceed 10% of the Fund's total assets.
The Fund's ability to exercise a put or standby commitment will depend
on the ability of the bank or dealer to pay for the securities if the put
or standby commitment is exercised. If the bank or dealer should default
on its obligation, the Fund might not be able to recover all or a portion
of any loss sustained from having to sell the security elsewhere. Puts
and standby commitments are not transferrable by the Fund, and therefore
terminate if the Fund sells the underlying security to a third party. The
Fund intends to enter into these arrangements to facilitate portfolio
liquidity, although such arrangements may enable the Fund to sell a
security at a pre-arranged price which may be higher than the prevailing
market price at the time the put or standby commitment is exercised. Any
consideration paid by the Fund for the put or standby commitment (which
increases the cost of the security and reduces the yield otherwise
available from the security) will be reflected on the Fund's books as
unrealized depreciation while the put or standby commitment is held, and
a realized gain or loss when the put or commitment is exercised or
expires.
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. Payment for and delivery
of the securities generally settles within sixty days of the date the
offer is accepted. The purchase price and yield are fixed at the time the
buyer enters into the commitment. During the period between purchase and
settlement, no payment is made by the Fund to the issuer and no interest
accrues to the Fund from this investment. However, the Fund intends to
be as fully invested as possible and will not invest in when-issued
securities if its income or net asset value will be materially adversely
affected. At the time the Fund makes the commitment to purchase a
Municipal Security on a when-issued basis, it will record the transaction
on its books and reflect the value of the security in determining its net
asset value. It will also segregate cash or other high quality liquid
Municipal Securities equal in value to the commitment for the when-issued
securities. While when-issued securities may be sold prior to settlement
date, the Fund intends to acquire the securities upon settlement unless
a prior sale appears desirable for investment reasons. There is a risk
that the yield available in the market when delivery occurs may be higher
than the yield on the security acquired.
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 did not change the tax treatment of bonds issued in order to
finance governmental operations. Thus, interest on obligations issued by
or on behalf of a 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, limitations as to the amount of private
activity bonds which each state may issue were revised downward by the
Tax Reform Act, 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 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 Fund
makes no independent investigation of the users of such bonds or their use
of proceeds. Should the Fund hold a bond that loses its tax-exempt status
retroactively, there might be an adjustment to the tax-exempt income
previously paid to shareholders.
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 U.S.
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 will be subject to the Federal
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 Securities. The Prospectus describes "Eligible Securities" in
which the Fund may invest and indicates that if a security's rating is
downgraded, the Manager and/or the Board may have to reassess the
security's credit risks. If a security has ceased to be a First Tier
Security, the Manager will promptly reassess whether the security
continues to present "minimal credit risks." If the Manager becomes aware
that any Rating Organization has downgraded its rating of a Second Tier
Security or rated an unrated security below its second highest rating
category, the Fund's Board of Trustees shall promptly reassess whether the
security presents minimal credit risks and whether it is in the best
interests of the Fund to dispose of it; but if the Fund disposes of the
security within 5 days of the Manager learning of the downgrade, the
Manager will provide the Board with subsequent notice of such downgrade.
If a security is in default, or ceases to be an Eligible Security, or is
determined no longer to present minimal credit risks, the Board must
determine whether it would be in the best interests of the Fund to dispose
of the security. The Rating Organizations currently designated as such
by the Securities and Exchange Commission ("SEC") are Standard & Poor's
Corporation, Moody's Investors Service, Inc., Fitch Investors Services,
Inc., Duff and Phelps, Inc., IBCA Limited and its affiliate, IBCA, Inc.,
and Thomson Bankwatch, Inc. A description of the ratings categories of
those Rating Organizations is contained in Appendix A.
Repurchase Agreements. In a repurchase transaction, the Fund acquires a
security from, and simultaneously resells it to, an approved vendor (a
U.S. commercial bank or the U.S. branch of a foreign bank or a broker-
dealer which has been designated a primary dealer in government
securities, which must meet the credit requirements set by the Fund's
Board of Trustees from time to time). 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 the 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 impose creditworthiness
requirements to confirm that the vendor is financially sound and will
continuously monitor the collateral's value.
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, at least equal the market value of the loaned
securities and must consist of cash, bank letters of credit, U.S.
Government securities, 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. In a portfolio securities lending transaction,
the Fund receives from the borrower an amount equal to the interest paid
or the dividends declared on the loaned securities during the term of the
loan as well as the interest on the collateral securities, less any
finders' or administrative fees the Fund pays in arranging the loan. The
Fund may share the interest it receives on the collateral securities with
the borrower as long as it realizes at least a minimum amount of interest
required by the lending guidelines established by its Board of Trustees.
The Fund will not lend its portfolio securities to any officer, trustee,
employee or affiliate of the Fund or its Manager. 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 business days' notice or
in time to vote on any important matter.
YIELD INFORMATION
The Fund's current yield is determined in accordance with regulations
adopted under the Investment Company Act. Yield is calculated for a seven
day period of time as follows. First, a base period return is calculated
for the seven-day period by determining the net change in the value of a
hypothetical pre-existing account having one share at the beginning of the
seven day period. The change includes dividends declared on the original
share and dividends declared on any shares purchased with dividends on
that share, but such dividends are adjusted to exclude any realized or
unrealized capital gains or losses affecting the dividends declared.
Next, the base period return is multiplied by 365/7 to obtain the current
yield to the nearest hundredth of one percent. The compounded effective
yield for a seven-day period is calculated by (a) adding 1 to the base
period return (obtained as described above), (b) raising the sum to a
power equal to 365 divided by 7, and (c) subtracting 1 from the result.
The Fund's current yield for the seven days ended December 31, 1993 was
1.79%. Its compounded effective yield for that period was 1.81%. These
performance figures reflect the termination, effective January 24, 1994,
of a voluntary expense assumption by the Manager. With the assumption,
the Fund's current yield and compounded yield for the seven days ended
December 31, 1993 would have been higher.
The yield as calculated above may vary for accounts less than
approximately $100 in value due to the effect of rounding off each daily
dividend to the nearest full cent. Since the calculation of yield under
either procedure described above does not take into consideration any
realized or unrealized gains or losses on the Fund's portfolio securities
which may affect dividends, the return on dividends declared during a
period may not be the same on an annualized basis as the yield for that
period.
The Fund's "tax equivalent yield" adjusts the Fund's current yield, as
calculated above, by a stated Federal tax rate. The tax equivalent yield
is computed by dividing the tax-exempt portion of the Fund's current yield
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 compounded as described above to provide a
compounded effective tax equivalent yield. 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 taxable income (the net amount subject to Federal
income tax 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 and that state income tax payments are fully
deductible for income tax purposes. For taxpayers with income above
certain levels, otherwise allowable itemized deductions are limited. The
Fund's tax-equivalent yield for the seven-day period ended December 31,
1993 was 2.95% for an investor in the highest Federal tax bracket. Its
tax-equivalent compounded effective yield for the same period for the same
investor was 3.00%. These performance figures reflect the termination,
effective January 24, 1994, of a voluntary expense assumption by the
Manager. With the assumption, the Fund's current and compounded tax
equivalent yields for the seven days ended December 31, 1993 would have
been higher.
Yield information may be useful to investors in reviewing the Fund's
performance. The Fund may make comparisons between its yield and that of
other investments, by citing various indices such as The Bank Rate Monitor
National Index (provided by Bank Rate Monitor), which measures the
average rate paid on bank money market accounts, NOW accounts and CDs by
the 100 largest banks and thrift institutions in the top ten metropolitan
areas. However, a number of factors should be considered before using
yield information as a basis for comparison with other investments. An
investment in the Fund is not insured. Its yield is not guaranteed and
normally will fluctuate on a daily basis. The yield for any given past
period is not an indication or representation by the Fund of future yields
or rates of return on its shares. The Fund's yield is affected by
portfolio quality, portfolio maturity, type of instruments held and the
Fund's operating expenses. The Fund's performance information reflects
the voluntary assumption of expenses by the Manager, absent which such
figures would have been lower than those shown above. When comparing the
Fund's yield with that of other investments, investors should understand
that certain other investment alternatives, such as CDs, U.S. government
securities, money market instruments or bank accounts may provide fixed
yields or yields that may vary above a stated minimum, and also that bank
accounts may be insured. Certain types of bank accounts may not pay
interest when the balance falls below a specified level and may limit the
number of withdrawals by check per month. In order to compare the Fund's
dividends to the rate of return on taxable investments, Federal income
taxes on such investments should be considered.
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, cannot be changed
without the vote of a "majority" of the Fund's outstanding shares. Under
the Investment Company Act, such "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 a shareholders' meeting, if the holders of more
than 50% of the outstanding shares are present or represented by proxy,
or (ii) more than 50% of the outstanding shares. Under these additional
restrictions, the Fund cannot: (1) enter into a repurchase agreement or
purchase a security subject to a call for redemption if the scheduled
repurchase or redemption date is greater than one year; (2) invest in
commodities or commodity contracts, or invest in interests in oil, gas,
or other mineral exploration or development programs; (3) invest in real
estate; however, the Fund may purchase debt securities issued by companies
which invest in real estate or interests therein; (4) purchase securities
on margin or make short sales of securities; (5) invest in or hold
securities of any issuer if those officers and trustees or directors of
the Fund or its adviser who beneficially own individually more than 0.5%
of the securities of such issuer together own more than 5% of the
securities of such issuer; (6) underwrite securities of other companies
except insofar as the Fund may be deemed an underwriter under the
Securities Act of 1933 in connection with the disposition of portfolio
securities; (7) invest more than 5% of its assets in securities of
companies that have operated less than three years, including the
operations of predecessors or (8) purchase securities of other investment
companies, except in connection with a merger, consolidation, acquisition
or reorganization.
Diversification. For purposes of diversification under the Investment
Company Act and the investment restrictions in the Prospectus, 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 to be the sole issuer. However, if in either case
the creating government or some other entity guarantees the security, such
guarantee would be considered a separate security and would be treated as
an issue of such government or other agency. For purposes of the Fund's
complying with Rule 2a-7 when investing in puts, a put will be considered
to be issued by the party to which the Fund will look for payment of the
exercise price and an unconditional put will be considered to be a
guarantee of the underlying security.
In applying the restrictions in the Prospectus as 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 the
municipal securities the Fund may own. Although this application of the
restriction is not technically a fundamental policy of the Fund, it will
not be changed without shareholder approval. The Fund has no present
intention of investing more than 25% of its total assets in securities the
interest on which is paid from revenues of similar types of projects, or
in industrial development bonds. This is not a fundamental policy, and
therefore may be changed without shareholder approval. Should any such
change be made, the Prospectus and/or Additional Statement will be
supplemented accordingly.
TRUSTEES AND OFFICERS
The Fund's Trustees and officers and their principal occupations and
business affiliations during the past five years are set forth below.
Each Trustee is also a Trustee, Director or Managing General Partner of
Oppenheimer Total Return Fund, Inc., Oppenheimer Equity Income Fund,
Oppenheimer High Yield Fund, Oppenheimer Strategic Investment Grade Bond
Fund, Oppenheimer Strategic Short-Term Income Fund, Oppenheimer Strategic
Income & Growth Fund, Oppenheimer Strategic Funds Trust, Oppenheimer Cash
Reserves, Oppenheimer Limited-Term Government Fund, Oppenheimer Tax-Exempt
Bond Fund, Oppenheimer Money Market Fund, Inc., Centennial America Fund,
L.P., Oppenheimer Champion High Yield Fund, Oppenheimer Main Street Funds,
Inc., Oppenheimer Integrity Funds, Oppenheimer Variable Account Funds, The
New York Tax-Exempt Income Fund, Inc., Daily Cash Accumulation Fund, Inc.,
Centennial Money Market Trust, Centennial Government Trust, Centennial Tax
Exempt Trust, Centennial California Tax Exempt Trust and Centennial New
York Tax Exempt Trust (collectively, the "Denver-based OppenheimerFunds").
Mr. Fossel is President and Mr. Swain is Chairman of the Denver-based
OppenheimerFunds. As of March 29, 1994, the Trustees and officers of the
Fund as a group owned less than 1% of the Fund's outstanding shares.
ROBERT G. AVIS, Trustee*
One North Jefferson Ave., St. Louis, Missouri 63103
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
adviser and trust company, respectively).
WILLIAM A. BAKER, Trustee
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
CHARLES CONRAD, JR., Trustee
19411 Merion Cr., Huntington Beach, California 92648
Vice President of McDonnell Douglas Ltd.; formerly associated with the
National Aeronautics and Space Administration.
JON S. FOSSEL, President and Trustee*
Two World Trade Center, New York, New York 10048-0203
Chairman, Chief Executive Officer and a director of the Manager; President
and a director of Oppenheimer Acquisition Corp. ("OAC"), the Manager's
parent holding company; President and a director of HarbourView Asset
Management Corporation ("HarbourView"), a subsidiary of the Manager; a
director of Shareholder Services, Inc. ("SSI") and Shareholder Financial
Services, Inc. ("SFSI"), transfer agent subsidiaries of the Manager;
formerly President of the Manager.
RAYMOND J. KALINOWSKI, Trustee
44 Portland Drive, St. Louis, Missouri 63131
Formerly Vice Chairman and a director of A.G. Edwards, Inc., parent
holding company of A.G. Edwards & Sons, Inc. (a broker-dealer), of which
he was a Senior Vice President.
C. HOWARD KAST, Trustee
2552 East Alameda, Denver, Colorado 80209
Formerly the Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
ROBERT M. KIRCHNER, Trustee
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
NED M. STEEL, Trustee
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; formerly Senior Vice
President and a director ofVan Gilder Insurance Corp. (insurance brokers).
JAMES C. SWAIN, Chairman and Trustee*
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of the Manager; President and a Director of Centennial Asset
Management Corporation, an investment adviser subsidiary of the Manager
("Centennial"); formerly President and Director of Oppenheimer Asset
Management Corporation ("OAMC"), an investment adviser which was a
subsidiary of the Manager and Chairman of the Board of SSI.
ANDREW J. DONOHUE, Vice President
Two World Trade Center, New York, New York 10048-0203
Executive Vice President and General Counsel of the Manager and
Oppenheimer Funds Distributor, Inc. (the "Distributor"); an officer of
other OppenheimerFunds; formerly Senior Vice President and Associate
General Counsel of the Manager and the Distributor, Partner in Kraft &
McManimon (a law firm), an officer of First Investors Corporation (a
broker-dealer) and First Investors Management Company, Inc. (broker-dealer
and investment adviser), director and an officer of First Investors Family
of Funds and First Investors Life Insurance Company.
MICHAEL CARBUTO, Vice President and Portfolio Manager
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager and Centennial; an officer of other
OppenheimerFunds.
GEORGE C. BOWEN, Vice President, Secretary and Treasurer
3410 South Galena Street Denver, Colorado 80231
Senior Vice President and Treasurer of the Manager; Vice President and
Treasurer of the Distributor and HarbourView; Senior Vice President,
Treasurer, Assistant Secretary and a director of Centennial; Vice
President, Treasurer and Secretary of SSI and SFSI; an officer of other
OppenheimerFunds; formerly Senior Vice President/Comptroller and Secretary
of OAMC.
ROBERT G. ZACK, Assistant Secretary
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of the Manager;
Assistant Secretary of SSI and SFSI; an officer of other OppenheimerFunds.
ROBERT BISHOP, Assistant Treasurer
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other OppenheimerFunds; previously a Fund Controller for the Manager,
prior to which he was an Accountant for Resolution Trust Corporation
and previously an Accountant and Commissions Supervisor for Stuart James
Company Inc., a broker-dealer.
SCOTT FARRAR, Assistant Treasurer
Assistant Vice President of the Manager/Mutual Fund Accounting; an officer
of other OppenheimerFunds; previously a Fund Controller for the Manager,
prior to which he was an International Mutual Fund Supervisor for Brown
Brothers Harriman Co., a bank, and previously a Senior Fund Accountant
for State Street Bank & Trust Company, before which he was a sales
representative for Central Colorado Planning.
__________________________
* 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 (including Messrs.
Swain and Fossel) are affiliated with the Manager and receive no salary
or fee from the Fund. During the Fund's fiscal year ended December 31,
1993, the remuneration (including expense reimbursements) paid to all
Trustees of the Fund as a group (excluding Messrs. Swain and Fossel) for
services as Trustees and as members of one or more committees totaled
$1,596. The Fund has an Audit and Review Committee, comprised of William
A. Baker (Chairman), Charles Conrad, Jr. and Robert M. Kirchner. This
Committee meets regularly to review audits, audit procedures, financial
statements and other financial and operational matters of the Fund.
Major Shareholders. As of March 29, 1994, the only shareholder known by
the Manager to be the record or beneficial owner of 5% or more of the
outstanding shares of the Fund was Paine Webber FBO Rich Township TTEE of
Schools, 2440 Lincoln Highway, Olympia Fields, IL 60467, which owned
2,682,329.590 shares of the Fund (9.29% of the outstanding shares of the
Fund as of such date).
INVESTMENT MANAGEMENT SERVICES
The Manager is wholly-owned by Oppenheimer Acquisition Corp. ("OAC"),
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 which may serve as officers of the Fund, and two of
whom (Messrs. Fossel and Swain) serve as Trustees of the Fund.
The management fee is payable monthly to the Manager under the terms of
the investment advisory agreement between the Manager and the Fund (the
"Agreement") and is computed on the aggregate net assets of the Fund as
of the close of business each day. Expenses not expressly assumed by the
Manager under the Agreement or by the Distributor are paid by the Fund.
The Agreement lists examples of expenses paid by the Fund, the major
categories of which relate to interest, taxes, certain insurance premiums,
fees to certain Trustees, legal and audit expenses, transfer agent and
custodian expenses, certain registration expenses and non-recurring
expenses, including litigation.
The Agreement 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 composition of proxy
materials and registration statements for continuous public sale of shares
of the Fund. The Agreement contains no expense limitation. However,
independently of the Agreement, the Manager has 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 (and the Manager undertakes to assume such expenses as shall
exceed) the most stringent limitation on fund expenses imposed by any
applicable regulation or law. At present that limitation is imposed by
California and limits expenses (with specified exclusions) to 2.5% of the
first $30 million of average net assets, 2% of the next $70 million of
average net assets and 1.5% of average net assets in excess of $100
million. The payment of the management fee at the end of any month will
be reduced so that there will not be any accrued but unpaid liability
under such assumption limitation. The Manager reserves the right to
terminate or amend such expense assumption undertaking at any time. Any
assumption of the Fund's expenses under this undertaking would lower the
Fund's overall expense ratio and increase its yield during any period in
which expenses are limited. In addition, until January 24, 1994, the
Manager had temporarily undertaken to assume any expenses of the Fund in
a fiscal year that exceeded 1.10% of the Fund's average annual net assets
in that year. This undertaking terminated January 24, 1994. Prior to
January 1, 1993, the Manager voluntarily assumed such expenses that
exceeded 1.00% of the Fund's average annual net assets.
For the fiscal years ended December 31, 1991, 1992 and 1993, the
management fees payable by the Fund to the Manager were $126,730, $123,743
and $118,909, respectively. These amounts do not reflect the effect of
the expense assumptions of $55,553, $79,562 and $73,570, respectively, in
those periods by the Manager.
The Agreement provides that the Manager is not liable for any loss
sustained by reason of good faith errors or omissions in connection with
matters to which the Agreement relates, except a loss resulting by reason
of its willful misfeasance, bad faith, gross negligence or reckless
disregard for its obligations and duties thereunder. The Manager is
permitted by the Agreement to act as investment adviser for any other
person, firm or corporation, and to use the name "Oppenheimer" in
connection with other investment companies for which it may act as
investment adviser or general distributor. If the Manager shall no longer
act as investment adviser to the Fund, the right of the Fund to use the
name "Oppenheimer" as part of its name may be withdrawn.
Portfolio Transactions. Portfolio decisions are based upon
recommendations and judgment of the Manager subject to the overall
authority of the Board of Trustees. As most purchases made by the Fund
are principal transactions at net prices, the Fund incurs little or no
brokerage costs. The Fund's policy of investing in short-term debt
securities with maturities of less than one year results in high portfolio
turnover. However, since brokerage commissions, if any, are small and
securities are usually held to maturity, high turnover does not have an
appreciable adverse effect upon the net asset value or income of the Fund
in periods of stable or declining rates, and may have a positive effect
in periods of rising interest rates.
The Fund seeks to obtain prompt and reliable execution of orders at the
most favorable net price. If brokers are used for portfolio transactions,
transactions may be directed to brokers furnishing execution and research
services. 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 for in
commission dollars. 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. In the
rare instances where the Fund pays commissions for research, the Board of
Trustees, including the independent Trustees of the Fund, will review
information furnished by the Manager as to the commissions paid to brokers
furnishing such services in an effort to ascertain that the amount of
such commissions was reasonably related to the value or the benefit of
such services. The Fund does not direct the handling of purchases or
sales of portfolio securities, whether on a principal or agency basis, to
brokers for selling shares of the Fund. No portfolio transactions are
handled by brokers which are affiliated with the Fund or the Manager if
that broker is acting as principal.
PURCHASE, REDEMPTION AND PRICING OF SHARES
Determination of Net Asset Value Per Share. The net asset value per share
of the Fund is determined as of 4:00 P.M. New York time, each day The New
York Stock Exchange (the "NYSE") is open (a "regular business day") by
dividing the value of the Fund's net assets by the total number of shares
outstanding. The NYSE's most recent annual holiday schedule (which is
subject to change) states that it will close New Year's Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. The NYSE may also close on other days. Dealers
other than Exchange members may conduct trading in Municipal Securities
on certain days on which the NYSE is closed (e.g., weekends or holidays
such as Good Friday), so that securities of the same type held by the Fund
may be traded, and its net asset value per share may be affected
significantly, on such days when shareholders may not purchase or redeem
shares.
The Fund will seek to maintain a net asset value per share of $1.00 for
purchases and redemptions. There can be no assurance that it will do so.
Under Rule 2a-7, the Fund may use the amortized cost method of valuing its
shares. Under the amortized cost method, a security is valued initially
at its cost and its valuation assumes a constant amortization of any
premium or accretion of any discount, regardless of the impact of
fluctuating interest rates on the market value of the security. The
method does not take into account unrealized capital gains or losses.
The Fund's Board of Trustees has established procedures intended to
stabilize the Fund's net asset value at $1.00 per share. If the Fund's
net asset value per share were to deviate from $1.00 by more than 0.5%,
Rule 2a-7 requires the Board promptly to consider what action, if any,
should be taken. If the Trustees find that the extent of any such
deviation may result in material dilution or other unfair effects on
shareholders, the Board will take whatever steps it considers appropriate
to eliminate or reduce such dilution or unfair effects, including, without
limitation, selling portfolio securities prior to maturity, shortening the
average portfolio maturity, withholding or reducing dividends, reducing
the outstanding number of Fund shares without monetary consideration, or
calculating net asset value per share by using available market
quotations.
As long as it uses Rule 2a-7, the Fund must abide by certain conditions
described in the Prospectus. Some of those conditions which relate to
portfolio management are that the Fund must: (i) maintain a dollar-
weighted average portfolio maturity not in excess of 90 days; (ii) limit
its investments, including repurchase agreements, to those instruments
which are denominated in U.S. dollars, and which are rated in one of the
two highest short-term rating categories by at least two "nationally-
recognized statistical rating organizations" ("NRSROs"), as defined in the
Rule 2a-7, or by one NRSRO if only one NRSRO has rated the security; an
instrument that is not rated must be of comparable quality as determined
under procedures adopted by the Board; and (iii) purchase instruments
whose maturities meet the limitations described in the Prospectus and this
Additional Statement. Under Rule 2a-7, the maturity of an instrument is
generally considered to be its stated maturity (or in the case of an
instrument called for redemption, the date on which the redemption payment
must be made), with special exceptions for certain variable rate demand
and floating rate instruments. Repurchase agreements and securities loan
agreements are, in general, treated as having a maturity equal to the
period scheduled until repurchase or return, or if subject to demand,
equal to the notice period.
While the amortized cost method provides certainty in valuation, there
may be periods during which the value of an instrument as determined by
amortized cost is higher or lower than the price the Fund would receive
if it sold the instrument. During periods of declining interest rates,
the daily yield on shares of the Fund may tend to be lower (and net
investment income and daily dividends higher) than a like computation made
by a fund with identical investments utilizing a method of valuation based
upon market prices or estimates of market prices for its portfolio. Thus,
if the use of amortized cost by the Fund resulted in a lower aggregate
portfolio value on a particular day, a prospective investor in the Fund
would be able to obtain a somewhat higher yield than would result from
investment in a fund utilizing market values alone, and existing investors
in the Fund would receive less investment income than if the Fund were
priced at market value. Conversely, during periods of rising interest
rates, the daily yield on Fund shares will tend to be higher and its
aggregate value lower than that of a portfolio priced at market value.
A prospective investor would receive a lower yield than from an investment
in a portfolio priced at market value, while existing investors in the
Fund would receive more investment income than if the Fund were priced at
market value.
Wire Redemption Procedures. Under the Expedited Redemption Procedure
discussed in the Prospectus, the wire of redemption proceeds may be
delayed if the Fund's Custodian bank is not open for business on a day
that the Fund would normally authorize the wire to be made, which is
usually the Fund's next regular business day following the redemption.
In those circumstances, the wire will not be transmitted until the next
bank business day on which the Fund is open for business. No dividends
will be paid on the proceeds of redeemed shares awaiting transfer by wire.
Information on how to redeem shares of the Fund is stated in the
Prospectus. The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. If, however, the Board of Trustees
determines that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment wholly in cash, the
redemption price may be paid in whole or in part by a distribution "in
kind" of securities from the portfolio of the Fund in lieu of cash or in
conformity with applicable SEC rules. 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 converting the assets to cash.
The method of valuing securities used to make redemptions in kind will be
the same as the method of valuing portfolio securities described above
under "Determination of Net Asset Value Per Share," and such valuation
will be made as of the same time the redemption price is determined.
The Fund's Board of Trustees has the right to cause the involuntary
redemption of shares held in any account if the aggregate net asset value
of such shares is less than $200 or such lesser amount as the Board may
fix. 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, or may set
requirements for permission to allow the shareholder to increase the
investment so that the shares would not be involuntarily redeemed.
SERVICE PLAN
The Fund has adopted a service plan (the "Plan") under Rule 12b-1 of the
Investment Company Act, pursuant to which the Fund will reimburse the
Distributor for a portion of its costs incurred in connection with the
servicing of the Fund's shares. For the fiscal year ended December 31,
1993 payments under the plan totalled $42,869, all of which was paid by
the Distributor to Recipients, including $7,202 paid to an affiliate of
the Distributor as reimbursement for distribution-related expenses.
The Distributor may enter into Supplemental Distribution Assistance
Agreements (the "Agreements") under the Plan with selected dealers
distributing shares of the Fund, Oppenheimer Cash Reserves, Centennial New
York Tax Exempt Trust, Centennial California Tax Exempt Trust, Centennial
Government Trust and Centennial America Fund, L.P. Quarterly payments by
the Distributor, which are not a Fund expense, will range from 0.10% to
0.30%, annually, of the average net asset value of shares of the above-
mentioned funds owned during the quarter beneficially or of record by the
dealer or its customers. However, no payment shall be made to any dealer
for any quarter during which the average value of the above-mentioned
funds shares owned during that quarter by the dealer or its customers is
less than $5 million.
The Plan shall, unless terminated as described below, continue from year
to year only so long as such continuance is specifically approved at least
annually by the Fund's Board of Trustees and those of its Trustees who are
not "interested persons" (as defined in the Investment Company Act) and
have no direct or indirect financial interest in the operation of the Plan
or in any agreements relating to the Plan ("Independent Trustees"), by a
vote cast in person at a meeting called for the purpose of voting on such
continuance. The Agreements are subject to the same renewal requirement.
The Plan and the Agreements 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 Fund's
outstanding voting securities. The Agreements will automatically
terminate in the event of their "assignment" (as defined in the Investment
Company Act), and each may be terminated by the Distributor: (i) in the
event the Fund amends the Plan or (ii) if the net asset value of the funds
whose shares are covered by the Agreements held by the dealer or its
customers is less than $5 million for two or more consecutive quarters.
The Agreements may be terminated by the dealer at any time upon giving 30
days notice. The Plan may not be amended without shareholder approval,
as set forth above, to increase materially the amount of payments to be
made, and all material amendments must be approved by the Board and the
Independent Trustees.
While the Plan is in effect, the Treasurer of the Fund shall provide a
written report to the Fund's Board of Trustees at least quarterly on the
amount of all payments made pursuant to the Plan, the identity of each
Recipient that received any such payment, and the purpose of the payments.
The Plan further provides that while it is in effect, the selection and
nomination of those Trustees of the Fund who are not "interested persons"
of the Fund is committed to the discretion of the Independent Trustees.
This does not prevent the involvement of others in such selection and
nomination if the final decision as to the selection or nomination is
approved by a majority of the Independent Trustees.
The Glass-Steagall Act and other applicable laws and regulations, among
other things, generally prohibit Federally-chartered or supervised banks
from engaging in the business of underwriting, selling or distributing
securities as principals. Accordingly, the Distributor may pay banks only
for sales made on an agency basis or for the performance of administrative
and shareholder servicing functions. In addition, certain banks and
financial institutions may be required to register as dealers under state
law. It is the understanding of the Manager and the Distributor that the
Glass-Steagall Act and other applicable laws and regulations do not
prohibit banks and other financial institutions from providing the
services described above. However, judicial or administrative decisions
or interpretations of such laws, as well as changes in either Federal or
state statutes or regulations relating to the permissible activities of
banks or their subsidiaries or affiliates, could prevent certain banks
from continuing to perform all or a part of their selling or servicing
activities. If a bank were so prohibited, shareholders of the Fund who
were clients of such bank would be permitted to remain as shareholders,
and if a bank could no longer provide those service functions, alternate
means for continuing the servicing of such shareholders would be sought.
In such event, shareholders serviced by such bank might no longer be able
to avail themselves of any automatic investment or other services than
being prohibited by such bank. The Board of Trustees will consider
appropriate modifications to the Fund's operations, including
discontinuance of payments under the Plan to such institutions, in the
event of any future change in such laws or regulations which may adversely
affect the ability of such institutions to provide these services. It is
not expected that shareholders would suffer any adverse financial
consequences as a result of any of those occurrences.
ADDITIONAL INFORMATION
Description of the Fund. The Fund's Declaration of Trust contains an
express disclaimer of shareholder or Trustee liability for the Fund's
obligations, and provides for indemnification and reimbursement of
expenses out of its property for any shareholder held personally liable
for its obligations. The Declaration of Trust also provides that the Fund
shall, upon request, assume 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 trust
(such as the Fund) to be held personally liable as a "partner" under
certain circumstances, the risk of a Fund shareholder incurring any
financial loss on account of shareholder liability is highly unlikely and
is limited to the relatively remote circumstance in which the Fund would
be unable to meet its obligations described above. Any person doing
business with the Fund, and any shareholder of the Fund, agrees under the
Fund's Declaration of Trust to look solely to the assets of the Fund for
satisfaction of any claim or demand which may arise out of any dealings
with the Fund, and the Trustees shall have no personal liability to any
such person, to the extent permitted by law.
It is not contemplated that regular annual meetings of shareholders will
be held. The Fund will hold meetings when required to do so by the
Investment Company Act or other applicable law, or when a shareholder
meeting is called by the Trustees or upon proper request of the
shareholders. Shareholders have the right, upon the declaration in writing
or vote of two-thirds of the outstanding shares of the Fund, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on the
removal of a Trustee upon the written request of the shareholders 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 in the aggregate shares of the Fund valued at $25,000 or
more or holding 1% or more of the Fund's outstanding shares, whichever is
less, that they wish to communicate with other shareholders to request a
meeting to remove a Trustee, the Trustees will then 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 in Section 16(c) of the Investment
Company Act.
Tax Status of the Fund's Dividends and Distributions. The Federal tax
treatment of the Fund's dividends and distributions to shareholders is
explained in the Prospectus under the caption "Dividends, Distributions
and Taxes." Under the Internal Revenue Code, the Fund must distribute
by December 31 each year 98% of its taxable investment income earned from
January 1 through December 31 of that year, and 98% of its capital gains
realized from the prior November 1 of the prior year through October 31
of that year, or else must pay an excise tax on the amounts not
distributed. While it is presently anticipated that the Fund's
distributions will meet those requirements, the Fund's Board and Manager
might determine in a particular year that it might be in the best interest
of the Fund not to distribute income or capital gains at the mandated
levels and to pay the excise tax on the undistributed amounts, which would
reduce the amount available for distribution to shareholders.
The Custodian and the Transfer Agent. The Custodian's responsibilities
include safeguarding and controlling the Fund's portfolio securities and
handling the delivery of portfolio securities to and from the Fund. The
Manager has represented to the Fund that its banking relationships with
the Custodian have been and will continue to be unrelated to and
unaffected by the relationship between the Fund and the Custodian. It
will be the practice of the Fund to deal with the Custodian in a manner
uninfluenced by any banking relationship the Custodian may have with the
Manager or its affiliates.
The Transfer Agent is responsible for maintaining the Fund's shareholder
registry and shareholder accounting records, and for shareholder servicing
and administrative functions.
General Distributor's Agreement. Under the General Distributor's
Agreement between the Fund and the Distributor, the Distributor acts as
the Fund's principal underwriter in the continuous public offering of the
Fund's shares but is not obligated to sell a particular amount of shares.
Expenses normally attributable to sales (other than those paid under the
Plan), including advertising and the cost of printing and mailing
prospectuses (other than those furnished to existing shareholders), are
borne by the Distributor.
Independent Auditors. The independent auditors of the Fund examine the
Fund's financial statements and perform other related audit services.
They also act as auditors for the Manager and certain other funds advised
by the Manager.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the shareholder agrees to
the terms and conditions applicable to such plans, as stated below and
elsewhere in the Application for such Plans, the Prospectus and this
Additional Statement as they may be amended from time to time by the Fund
and/or the Distributor. When adopted, such amendments will automatically
apply to existing Plans.
Fund shares will be redeemed as necessary to meet withdrawal payments.
Depending upon the amount withdrawn, the investor's principal may be
depleted. Payments made to shareholders under such plans should not be
considered as a yield or income on investment. Purchases of additional
shares concurrently with withdrawals are undesirable because of sales
charges on purchases when made. Accordingly, a shareholder may not
maintain an Automatic Withdrawal Plan while simultaneously making regular
purchases. The Fund reserves the right to amend, suspend or cease
offering such plans at any time without prior notice.
1. The Transfer Agent of the Fund will administer the Automatic
Withdrawal Plan (the "Withdrawal Plan") as agent for the person (the
"Planholder") who executed the Withdrawal Plan authorization and
application submitted to the Transfer Agent.
2. Certificates will not be issued for shares of the Fund purchased for
and held under the Withdrawal Plan, but the Transfer Agent will credit all
such shares to the account of the Planholder on the records of the Fund.
Any share certificates now held by the Planholder may be surrendered
unendorsed to the Transfer Agent with the Withdrawal Plan application so
that the shares represented by the certificate may be held under the
Withdrawal Plan. Those shares will be carried on the Planholder's
Withdrawal Plan Statement.
3. Distributions of capital gains must be reinvested in shares of the
Fund, which will be done at net asset value without a sales charge.
Dividends may be paid in cash or reinvested.
4. Redemptions of shares in connection with disbursement payments will
be made at the net asset value per share determined on the redemption
date.
5. Checks or ACH payments will be transmitted three business days prior
to the date selected for receipt of the monthly or quarterly payment (the
date of receipt is approximate), according to the choice specified in
writing by the Planholder.
6. The amount and the interval of disbursement payments and the address
to which checks are to be mailed may be changed at any time by the
Planholder on written notification to the Transfer Agent. The Planholder
should allow at least two weeks' time in mailing such notification before
the requested change can be put in effect.
7. The Planholder may, at any time, instruct the Transfer Agent by
written notice (in proper form in accordance with the requirements of the
then-current Prospectus of the Fund) to redeem all, or any part of, the
shares held under the Withdrawal Plan. In such case, the Transfer Agent
will redeem the number of shares requested at the net asset value per
share in effect in accordance with the Fund's usual redemption procedures
and will mail a check for the proceeds of such redemption to the
Planholder.
8. The Withdrawal Plan may, at any time, be terminated by the
Planholder on written notice to the Transfer Agent, or by the Transfer
Agent upon receiving directions to that effect from the Fund. The
Transfer Agent will also terminate the Withdrawal Plan upon receipt of
evidence satisfactory to it of the death or legal incapacity of the
Planholder. Upon termination of the Withdrawal Plan by the Transfer Agent
or the Fund, shares remaining unredeemed will be held in an uncertificated
account in the name of the Planholder, and the account will continue as
a dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder, his executor or guardian,
or as otherwise appropriate.
9. For purposes of using shares held under the Withdrawal Plan as
collateral, the Planholder may request issuance of a portion of his shares
in certificated form. Upon written request from the Planholder, the
Transfer Agent will determine the number of shares as to which a
certificate may be issued, so as not to cause the withdrawal checks to
stop because of exhaustion of uncertificated shares needed to continue
payments. Should such uncertificated shares become exhausted, Withdrawal
Plan withdrawals will terminate.
10. The Transfer Agent shall incur no liability to the Planholder for
any action taken or omitted by the Transfer Agent in good faith.
11. In the event that the Transfer Agent shall cease to act as transfer
agent for the Fund, the Planholder will be deemed to have appointed any
successor transfer agent to act as his agent in administering the
Withdrawal Plan.
<PAGE>
Appendix A
DESCRIPTION OF SECURITIES RATINGS
Below is a description of the two highest rating categories for Short Term
Debt and Long Term Debt by the "Nationally-Recognized Statistical Rating
Organizations" which the Manager evaluates in purchasing securities on
behalf of the Fund. The ratings descriptions are based on information
supplied by the ratings organizations to subscribers.
Short Term Debt Ratings.
Moody's Investors Service, Inc. ("Moody's"): The following rating
designations for commercial paper (defined by Moody's as promissory
obligations not having original maturity in excess of nine months), are
judged by Moody's to be investment grade, and indicate the relative
repayment capacity of rated issuers:
Prime-1: Superior capacity for repayment. Capacity will normally be
evidenced by the following characteristics: (a) leveling market positions
in well-established industries; (b) high rates of return on funds
employed; (c) conservative capitalization structures with moderate
reliance on debt and ample asset protection; (d) broad margins in earning
coverage of fixed financial charges and high internal cash generation; and
(e) well established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2: Strong capacity for repayment. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may
be more affected by external conditions. Ample alternate liquidity is
maintained.
Moody's ratings for state and municipal short-term obligations are
designated "Moody's Investment Grade" ("MIG"). Short-term notes which
have demand features may also be designated as "VMIG". These rating
categories are as follows:
MIG1/VMIG1: Best quality. There is present strong protection by
established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG2/VMIG2: High quality. Margins of protection are ample although not
so large as in the preceding group.
Standard & Poor's Corporation ("S&P"): The following ratings by S&P for
commercial paper (defined by S&P as debt having an original maturity of
no more than 365 days) assess the likelihood of payment:
A-1: Strong capacity for timely payment. Those issues determined to
possess extremely strong safety characteristics are denoted with a plus
sign (+) designation.
A-2: Satisfactory capacity for timely payment. However, the relative
degree of safety is not as high as for issues designated "A-1".
S&P's ratings for Municipal Notes due in three years or less are:
SP-1: Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
S&P assigns "dual ratings" to all municipal debt issues that have a demand
or double feature as part of their provisions. The first rating addresses
the likelihood of repayment of principal and interest as due, and the
second rating addresses only the demand feature. With short-term demand
debt, S&P's note rating symbols are used with the commercial paper symbols
(for example, "SP-1+/A-1+").
Fitch Investors Service, Inc. ("Fitch"): Fitch assigns the following
short-term ratings to debt obligations that are payable on demand or have
original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and
investment notes:
F-1+: Exceptionally strong credit quality; the strongest degree of
assurance for timely payment.
F-1: Very strong credit quality; assurance of timely payment is only
slightly less in degree than issues rated "F-1+".
F-2: Good credit quality; satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues assigned
"F-1+" or "F-1" ratings.
Duff & Phelps, Inc. ("Duff & Phelps"): The following ratings are for
commercial paper (defined by Duff & Phelps as obligations with maturities,
when issued, of under one year), asset-backed commercial paper, and
certificates of deposit (the ratings cover all obligations of the
institution with maturities, when issued, of under one year, including
bankers' acceptance and letters of credit):
Duff 1+: Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources
of funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
Duff 1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.
Duff 1-: High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are
very small.
Duff 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors
are small.
IBCA Limited or its affiliate IBCA Inc. ("IBCA"): Short-term ratings,
including commercial paper (with maturities up to 12 months), are as
follows:
A1+: Obligations supported by the highest capacity for timely repayment.
A1: Obligations supported by a very strong capacity for timely repayment.
A2: Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in business,
economic, or financial conditions.
Thomson BankWatch, Inc. ("TBW"): The following short-term ratings apply
to commercial paper, certificates of deposit, unsecured notes, and other
securities having a maturity of one year or less.
TBW-1: The highest category; indicates the degree of safety regarding
timely repayment of principal and interest is very strong.
TBW-2: The second highest rating category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1".
Long Term Debt Ratings. These ratings are relevant for securities
purchased by the Fund with a remaining maturity of 397 days or less, or
for rating issuers of short-term obligations.
Moody's: Bonds (including municipal bonds) are rated as follows:
Aaa: Judged to be the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally stable margin,
and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong positions of such issues.
Aa: Judged to be of high quality by all standards. Together with the
"Aaa" group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may
not be as large as in "Aaa" securities or fluctuations of protective
elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in
"Aaa" securities.
Moody's applies numerical modifiers "1", "2" and "3" in its "Aa" rating
classification. The modifier "1" indicates that the security ranks in the
higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in
the lower end of its generic rating category.
Standard & Poor's: Bonds (including municipal bonds) are rated as
follows:
AAA: The highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.
AA: A strong capacity to pay interest and repay principal and differ from
"AAA" rated issues only in small degree.
Fitch:
AAA: Considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable
events.
AA: Considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Plus (+) and minus (-)
signs are used in the "AA" category to indicate the relative position of
a credit within that category.
Because bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+".
Duff & Phelps:
AAA: The highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
Plus (+) and minus (-) signs are used in the "AA" category to indicate the
relative position of a credit within that category.
IBCA: Long-term obligations (with maturities of more than 12 months) are
rated as follows:
AAA: The lowest expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial such that adverse
changes in business, economic, or financial conditions are unlikely to
increase investment risk significantly.
AA: A very low expectation for investment risk. Capacity for timely
repayment of principal and interest is substantial. Adverse changes in
business, economic, or financial conditions may increase investment risk
albeit not very significantly.
A plus (+) or minus (-) sign may be appended to a long term rating to
denote relative status within a rating category.
TBW: TBW issues the following ratings for companies. These ratings
assess the likelihood of receiving payment of principal and interest on
a timely basis and incorporate TBW's opinion as to the vulnerability of
the company to adverse developments, which may impact the market's
perception of the company, thereby affecting the marketability of its
securities.
A: Possesses an exceptionally strong balance sheet and earnings record,
translating into an excellent reputation and unquestioned access to its
natural money markets. If weakness or vulnerability exists in any aspect
of the company's business, it is entirely mitigated by the strengths of
the organization.
A/B: The company is financially very solid with a favorable track record
and no readily apparent weakness. Its overall risk profile, while low,
is not quite as favorable as for companies in the highest rating category.
<PAGE>
Appendix B
TAX EXEMPT/TAX EQUIVALENT YIELDS
The equivalent yield table below compares tax-free income with taxable
income under Federal income tax rates effective in 1994. 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 the state income tax payments are fully deductible for
Federal income tax purposes. The income tax brackets are subject to
indexing in future years to reflect changes in the Consumer Price Index.
Example: Assuming a 3.5% tax-free yield, the equivalent taxable yield
would be 5.07% for a person in the 31% tax bracket.
<TABLE>
<CAPTION>
Federal Effective Oppenheimer Tax-Exempt Cash Reserves Yield of:
Taxable Tax 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%
Income Bracket Is Approximately Equivalent To a Taxable Yield of:
JOINT RETURN
</CAPTION>
Over Not over
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 $38,000 15% 1.76% 2.35% 2.94% 3.53% 4.12% 4.71% 5.29%
$38,000 $91,850 28% 2.08% 2.78% 3.47% 4.17% 4.86% 5.56% 6.25%
$91,850 $140,000 31% 2.17% 2.90% 3.62% 4.35% 5.07% 5.80% 6.52%
$140,000 $250,000 36% 2.34% 3.13% 3.91% 4.69% 5.47% 6.25% 7.03%
$250,000 and above 39.6% 2.48% 3.31% 4.14% 4.97% 5.79% 6.62% 7.45%
</TABLE>
<TABLE>
<CAPTION>
SINGLE RETURN
Over Not over
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$0 $22,750 15% 1.76% 2.35% 2.94% 3.53% 4.12% 4.71% 5.29%
$22,750 $55,100 28% 2.08% 2.78% 3.47% 4.17% 4.86% 5.56% 6.25%
$55,100 $115,000 31% 2.17% 2.90% 3.62% 4.35% 5.07% 5.80% 6.52%
$115,000 $250,000 36% 2.34% 3.13% 3.91% 4.69% 5.47% 6.25% 7.03%
$250,000 and above 39.6% 2.48% 3.31% 4.14% 4.97% 5.79% 6.62% 7.45%
</TABLE>
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders of Oppenheimer Tax-Exempt Cash
Reserves:
We have audited the accompanying statement of assets and liabilities,
including the statement of investments, of Oppenheimer Tax-Exempt Cash
Reserves as of December 31, 1993, the related statement of operations for the
year then ended, the statements of changes in net assets for the years ended
December 31, 1993 and 1992, and the financial highlights for the period
January 3, 1989 (commencement of operations) to December 31, 1993. 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 also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of securities
owned at December 31, 1993 by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Oppenheimer
Tax-Exempt Cash Reserves at December 31, 1993, the results of its operations,
the changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche
DELOITTE & TOUCHE
Denver, Colorado
January 21, 1994
<PAGE>
Statement of Investments December 31, 1993
<TABLE>
<CAPTION>
Face Market Value
Amount See Note 1
<S> <C> <C>
Municipal Bonds and Notes--97.5%
Alaska--5.4%
Alaska Industrial Development and Export Authority Revenue Refunding
Bonds, Safeway, Inc. Project, 2.75%, 6/1/94(2) $ 400,000 $ 400,080
Alaska Industrial Development Authority Revenue Bonds, Providence
Medical Office Building, 2.55%(1) 885,000 885,000
1,285,080
Arizona--2.5%
Tempe, Arizona Industrial Development Authority Revenue Refunding
Bonds, Safeway, Inc. Project, 2.75%, 5/2/94(2) 600,000 600,000
Arkansas--3.5%
Subiaco, Arkansas Industrial Development Revenue Bonds, Cloves Gear
& Products, 3.36%(1) 850,000 850,000
Colorado--4.2%
Arapahoe County, Colorado Multifamily Housing Revenue Refunding
Bonds, Hunters Run Rental Apartments Project, 3.80%(1) 1,000,000 1,000,000
Florida--7.1%
Dade County, Florida Housing Finance Authority Multifamily Mortgage
Revenue Bonds, Flamingo Plaza Apartments, Series 18, 3.20%(1) 900,000 900,000
Orange County, Florida Housing Finance Authority Multifamily Housing
Revenue Refunding Bonds, Monterey, Series B, 3.30%(1) 800,000 800,000
1,700,000
Hawaii--4.2%
Hawaii State Department Budget and Finance Special Purpose Mortgage
Revenue Bonds, Kuakini Medical Center Project, 3%(1) 1,000,000 1,000,000
Illinois--12.5%
Illinois State General Obligation Certificates of Participation, 3.50%, 6/15/94 1,000,000 1,002,338
Lakemoor, Illinois Multifamily Housing Revenue Subordinated Bonds,
Lakemoor Apartments, Series C, 2.90%, 3/10/94(2) 1,000,000 1,000,000
Oakbrook Terrace, Illinois Multifamily Housing Mortgage Revenue Bonds,
3.20%, 7/1/94(2) 1,000,000 1,000,000
3,002,338
Kansas--7.1%
Ottawa, Kansas Industrial Revenue Refunding Bonds,
Laich Project, 3.36%(1) 900,000 900,000
Wichita, Kansas Multifamily Revenue Bonds, Shore, Inc. Project, 2.60%(1) 800,000 800,000
1,700,000
Massachusetts--2.3%
Massachusetts State Industrial Finance Agency Industrial Development
Revenue Bonds, Hazen Paper Co., 3.55%(1) 550,000 550,000
Michigan--2.5%
Madison Heights, Michigan Economic Development Corp. Revenue Bonds,
Red Roof Inns Project, 2.60%(1) 100,000 100,000
Michigan State Job Development Authority Revenue Bonds, East Lansing
Residence Associates Project, Series 1984, 2.90%(1) 500,000 500,000
600,000
New Jersey--6.3%
New Jersey Economic Development Authority Manufacturing Facilities
Revenue Bonds, VPR Commerce Center Project, 3.40%(1) 500,000 500,000
New Jersey State Housing and Mortgage Finance Agency Revenue Bonds,
Series A, 3%, 4/1/94(2) 1,000,000 1,000,000
1,500,000
Ohio--9.9%
Cuyahoga County, Ohio Industrial Development Revenue Bonds,
Southwest Ltd. Partnership, 3%, 12/1/94(2) $ 500,000 $ 500,000
Licking County, Ohio Industrial Development Revenue Bonds,
Power Industries, Inc. Project, 2.80%, 6/1/94(2) 400,000 400,000
Miami Valley, Ohio Tax-Exempt Bond Trust, 4.88%, 10/15/94(2) 1,090,000 1,090,000
Scioto County, Ohio Health Care Facilities Revenue Bonds,
Hill View Retirement Center, 2.75%, 6/1/94(2) 375,000 375,000
2,365,000
Oklahoma--4.2%
Cleveland County, Oklahoma Public Facilities Authority Multifamily Housing
Revenue Bonds, Hunt Development Project, Series A, 3.40%(1) 1,000,000 1,000,000
Mid-West Tax-Exempt Mortgage Bond Trust Certificates, 2.50%, 1/14/94(2) 15,000 15,000
1,015,000
Pennsylvania--9.0%
Chartiers Valley, Pennsylvania Industrial and Commercial Development
Authority Revenue Refunding Bonds, Sycamore Creek Project,
2.70%, 3/1/94(2) 485,000 485,023
Commonwealth Tax-Exempt Mortgage Bond Trust Six-Month Demand
Certificates, Series A, 2.95%, 5/1/94(2) 155,000 155,000
Pennsylvania Energy Development Authority Revenue Bonds,
Continental Energy Associates Project, 3.20%(1) 900,000 900,000
Philadelphia, Pennsylvania Hospitals and Higher Educational Facilities
Authority Hospital Revenue Bonds, Friends Hospital, Series A, 3.20%(1) 600,000 600,000
2,140,023
South Carolina--5.9%
Florence County, South Carolina Industrial Development Revenue Bonds,
Stone Container Corp., 2.75%(1) 400,000 400,000
South Carolina Jobs Economic Development Authority Industrial
Development Revenue Refunding Bonds, Wellman, Inc. Project, 3.25%(1) 1,000,000 1,000,000
1,400,000
Tennessee--4.2%
Knox County, Tennessee Industrial Development Board Revenue Bonds,
Weisgarber Partners, 2.45%(1) 1,000,000 1,000,000
Utah--2.5%
Murray City, Utah Hospital Revenue Refunding Bonds, IHC Hospital,
AMBAC Insured, 3%, 5/15/94 600,000 600,313
Washington--4.2%
Washington State General Obligation Refunding Bonds, Series R-94A,
3.25%, 8/1/94 1,000,000 1,001,755
Total Investments, at Value (Cost $23,309,509) 97.5% 23,309,509
Other Assets Net of Liabilities 2.5 587,398
Net Assets 100.0% $23,896,907
<FN>
1. Floating or variable rate obligation maturing in more than one year. The
interest rate, which is based on specific, or an index of, market interest
rates, is subject to change periodically and is the effective rate on
December 31, 1993. A demand feature allows the recovery of principal at any
time, or at specified intervals not exceeding one year, on up to 30 days'
notice.
2. Put obligation redeemable at full face value on the date reported.
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Statement of Assets and Liabilities December 31, 1993
<TABLE>
<S> <C>
Assets
Investments, at value (cost $23,309,509)--see accompanying statement $23,309,509
Cash 351,523
Receivables:
Shares of beneficial interest sold 465,701
Interest 128,155
Other 10,405
Total assets 24,265,293
Liabilities
Payables and other liabilities:
Shares of beneficial interest redeemed 266,974
Dividends 45,478
Distribution assistance--Note 3 20,806
Other 35,128
Total liabilities 368,386
Net Assets $23,896,907
Composition of
Net Assets
Paid-in capital $23,897,803
Accumulated net realized loss from investment transactions (896)
Net assets--applicable to 23,897,803 shares of beneficial interest outstanding $23,896,907
Net Asset Value, Redemption Price and Offering Price Per Share $ 1.00
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Statement of Operations For the Year Ended December 31, 1993
<TABLE>
<S> <C>
Investment Income
Interest $687,607
Expenses
Management fees--Note 3 118,909
Transfer and shareholder servicing agent fees--Note 3 74,240
Distribution assistance--Note 3 42,869
Registration and filing fees 34,926
Custodian fees and expenses 23,022
Shareholder reports 20,302
Legal and auditing fees 9,810
Trustees' fees and expenses 1,596
Other 9,483
Total expenses 335,157
Less assumption of expenses by Oppenheimer Management Corporation--Note 3 (73,570)
Net expenses 261,587
Net Investment Income 426,020
Net Realized Gain on Investments 452
Net Increase in Net Assets Resulting from Operations $426,472
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992
<S> <C> <C>
Operations
Net investment income $ 426,020 $ 566,929
Net realized gain on investments 452 --
Net increase in net assets resulting from operations 426,472 566,929
Dividends and Distributions
to Shareholders (426,020) (567,167)
Beneficial Interest
Transactions
Net increase (decrease) in net assets resulting from beneficial
interest transactions--Note 2 (835,869) 908,869
Net Assets
Total increase (decrease) (835,417) 908,631
Beginning of year 24,732,324 23,823,693
End of year $23,896,907 $24,732,324
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1992 1991 1990 1989(1)
<S> <C> <C> <C> <C> <C>
Per Share Operating Data:
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
Income from investment operations--
net investment income and
net realized gain on investments .02 .02 .04 .05 .06
Dividends and distributions to shareholders (.02) (.02) (.04) (.05) (.06)
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
Ratios/Supplemental Data:
Net assets, end of period (in thousands) $23,897 $24,732 $23,824 $22,628 $9,383
Average net assets (in thousands) $23,781 $24,810 $25,347 $15,968 $5,207
Number of shares outstanding at end of
period (in thousands) 23,898 24,734 23,825 22,628 9,383
Ratios to average net assets:
Net investment income 1.79% 2.28% 4.00% 5.21% 5.72%(2)
Expenses, before voluntary assumption
by the Manager 1.41% 1.32% 1.22% 1.44% 1.50%(2)
Expenses, net of voluntary assumption
by the Manager 1.10% 1.00% 1.00% 1.00% 1.00%(2)
<FN>
1. For the period from January 3, 1989 (commencement of operations) to December 31, 1989.
2. Annualized.
</TABLE>
See accompanying Notes to Financial Statements.
<PAGE>
Notes to Financial Statements
1. Significant Accounting Policies
Oppenheimer Tax-Exempt Cash Reserves (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 following is a summary of
significant accounting policies consistently followed by the Fund.
Investment Valuation. Portfolio securities are valued on the basis of
amortized cost, which approximates market value.
Federal Income Taxes. The Fund intends to continue to comply with provisions
of the Internal Revenue Code applicable to regulated investment companies and
to distribute all of its taxable income to shareholders. Therefore, no
federal income tax provision is required.
Distributions to Shareholders. The Fund intends to declare dividends from net
investment income each regular business day and pay such dividends monthly.
To effect its policy of maintaining a net asset value of $1.00 per share, the
Fund may withhold dividends or make distributions of net realized gains.
Other. Investment transactions are accounted for on the date the investments
are purchased or sold (trade date). Realized gains and losses on investments
are determined on an identified cost basis, which is the same basis used for
federal income tax purposes.
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of no par value shares of
beneficial interest. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1993 Year Ended December 31, 1992
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 38,650,212 $ 38,650,212 40,632,217 $ 40,632,217
Dividends and distributions reinvested 356,917 356,917 547,727 547,727
Redeemed (39,842,998) (39,842,998) (40,271,075) (40,271,075)
Net increase (decrease) (835,869) $ (835,869) 908,869 $ 908,869
</TABLE>
3. Management Fees And Other Transactions With Affiliates
Management fees paid to the Manager were in accordance with the investment
advisory agreement with the Fund which provides for an annual fee of .50% on
the first $250 million of net assets with a reduction of .025% on each $250
million thereafter, to .40% on net assets in excess of $1 billion. The
Manager has agreed to assume Fund expenses (with specified exceptions) in
excess of the most stringent applicable regulatory limit on Fund expenses. In
addition, the Manager has voluntarily undertaken to assume Fund expenses in
excess of 1.10% of average annual net assets. This voluntary undertaking was
terminated, effective January 22, 1994.
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 an approved plan of distribution, the Fund may expend up to .20% of its
net assets annually to reimburse Oppenheimer Funds Distributor, Inc. (OFDI),
a subsidiary of the Manager, for amounts paid to brokers, dealers, banks and
other institutions for costs incurred in distributing shares of the Fund.
During the year ended December 31, 1993, OFDI paid $7,202 to an affiliated
broker/dealer as reimbursement for distribution-related expenses.
<PAGE>
Investment Adviser
Oppenheimer Management Corporation
Two World Trade Center
New York, New York 10048-0203
Distributor
Oppenheimer Funds Distributor, Inc.
Two World Trade Center
New York, New York 10048-0203
Transfer and Shareholder Servicing Agent
Oppenheimer Shareholder Services
P.O. Box 5270
Denver, Colorado 80217
1-800-525-7048
Custodian
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche
1560 Broadway
Denver, Colorado 80202
Legal Counsel
Myer, Swanson & Adams, P.C.
1600 Broadway
Denver, Colorado 80202-4918
