Centennial
New York Tax Exempt Trust
Prospectus dated November 1, 1997
Centennial New York Tax Exempt Trust is a no-load "money market" mutual fund
that seeks the maximum current income exempt from Federal, New York State and
New York City income taxes for individual investors that is consistent with
preservation of capital. The Trust seeks to achieve this objective by investing
in municipal obligations meeting specified quality standards, the income from
which is tax[-]exempt as described above. Normally, the Trust will invest at
least 80% of its assets in U.S. dollar- denominated, high quality tax[-]exempt
municipal obligations. The Trust may invest a significant percentage of its
assets in the securities of a single issuer, and therefore an investment in the
Trust may be riskier than an investment in other types of money market funds.
An investment in the Trust is neither insured nor guaranteed by the U.S.
Government. While the Trust seeks to maintain a stable net asset value of $1.00
per share, there can be no assurance that the Trust will be able to do so.
Shares of the Trust may be purchased directly from brokers or dealers
having sales agreements with the Trust's Distributor and also are offered to
participants in Automatic Purchase and Redemption Programs (the "Programs")
established by certain brokerage firms with which the Trust's Distributor has
entered into agreements for that purpose. See "How to Buy Shares" in the
Prospectus. Program participants should also read the description of the Program
provided by their broker.
This Prospectus explains concisely what you should know before investing
in the Trust. Please read this Prospectus carefully and keep it for future
reference. You can find more detailed information about the Trust in the
November 1, 1997 Statement of Additional Information. For a free copy, call
Shareholder Services, Inc., the Trust's Transfer Agent, at 1-800-525-9310 or
write to the Transfer Agent at the address on the back cover. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference (which means
that it is legally part of this Prospectus).
Shares of the Trust are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the F.D.I.C. or any other agency, and
involve investment risks, including the possible loss of the principal amount
invested.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
Contents
ABOUT THE TRUST
Expenses
Financial Highlights
Investment Objective and Policies
Other Investment Restrictions
Performance of the Trust
How the Trust is Managed
ABOUT THE TRUST
How To Buy Shares
Purchases Through Automatic Purchase and Redemption
Programs
Direct Purchases
Payment by Check
Payment by Federal Funds Wire
Guaranteed Payment
Automatic Investment Plans
Service Plan
How To Sell Shares
Program Participants
Direct Shareholders
Regular Redemption Procedure
Expedited Redemption Procedure
Checkwriting
Telephone Redemptions
Automatic Withdrawal Plans
General Information on Redemptions
Exchanges of Shares
Dividends, Distributions and Taxes
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<PAGE>
ABOUT THE TRUST
Expenses
The following table sets forth the fees that an investor in the Trust might pay,
and the expenses paid by the Trust during its fiscal year ended June 30, 1997.
o Shareholder Transaction Expenses
Maximum Sales Charge on Purchases None
(as a percentage of offering price)
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Maximum Sales Charge on Reinvested Dividends None
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Redemption Fees None(1)
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Exchange Fee None
(1) There is a $10 transaction fee for redemptions paid by Federal Funds wire,
but not for redemptions paid by check.
o Annual Trust Operating Expenses
(as a percentage of average net assets)
Management Fees (after expense assumption) 0.44%
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12b-1 Plan Fees 0.20%
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Other Expenses 0.16%
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Total Trust Operating Expenses
(after expense assumption) 0.80%
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Trust will bear directly
(Shareholder Transaction Expenses) or indirectly (Annual Trust 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 Trust Operating Expenses shown are net of a
voluntary expense assumption undertaking by the Trust's investment manager,
Centennial Asset Management Corporation (the "Manager"). Without such
assumption, "Management Fees", "Other Expenses" and "Total Trust Operating
Expenses" would have been 0.50%, 0.18% and 0.88% of average net assets,
respectively. The expense assumption undertaking is described in "The Manager
and Its Affiliates" in the Statement of Additional Information and may be
amended or withdrawn at any time. For further details, see the Trust's Financial
Statements included in the Statement of Additional Information.
o Example. To try to show the effect of these expenses on an investment
over time, we have created the hypothetical example shown below. Assume that you
make a $1,000 investment in shares of the Trust, and the Trust's annual return
is 5%, and that its operating expenses are the ones shown in the Annual Trust
Operating Expenses chart above. If you were to redeem your shares at the end of
each period shown below, your investment would incur the following expenses by
the end of each period shown.
1 year 3 years 5 years 10 years
------ ------- ------- --------
$8 $26 $44 $99
This example shows the effect of expenses on an investment in the Trust,
but is not meant to state or predict actual or expected costs or investment
returns of the Trust, all of which may be more or less than those shown.
Financial Highlights
The table on the following page presents selected financial information about
the Trust, including per share data and expense ratios and other data based on
the Trust's average net assets. This information has been audited by Deloitte &
Touche LLP, independent auditors, whose report on the financial statements of
the Trust for the fiscal year ended June 30, 1997 is included in the Statement
of Additional Information.
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<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Nine Months Period Ended
Year Ended June 30, Ended June3O, September 3O,
---------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989(1)
---- ---- ---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <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 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment
operations--net investment
income and net
realized gain .............. .03 .03 .03 .02 .02 .03 .05 .04 .04
Dividends and distributions
to shareholders ............ (.03) (.03) (.03) (.02) (.02) (.03) (.05) (.04) (.04)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period .............. $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== =====
TOTAL RETURN, AT NET
ASSET VALUE(2) ............. 2.76% 2.79% 2.85% 1.68% 1.83% 3.11% 4.74% 3.87% 3.84%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(in thousands) ............. $48,896 $39,807 $35,846 $26,519 $24,994 $24,103 $21,439 $9,133 $4,935
Average net assets
(in thousands) ............. $45,363 $42,351 $29,590 $25,419 $24,257 $23,221 $16,766 $7,008 $2,084
Ratios to average
net assets:
Net investment income ...... 2.73% 2.76% 2.84% 1.67% 1.74% 3.00% 4.42% 4.98%(3) 5.41%(3)
Expenses, before voluntary
assumption by the
Manager(4) ............... 0.88% 0.93% 0.95% 1.02% 0.98% 1.09% 1.08% 1.48%(3) 2.21%(3)
Expenses, net of voluntary
assumption by the
Manager .................. 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 0.72% 0.96%(3) 1.00%(3)
</TABLE>
1. For the period from January 4, 1989 (commencement of operations) to September
30, 1989.
2. Assumes a hypothetical initial investment on the business day
before the first day of the fiscal period, with all dividends reinvested in
additional shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Total returns
are not annualized for periods of less than one full year. Total returns reflect
changes in net investment income only.
3. Annualized.
4. Beginning in fiscal 1995, the expense ratio reflects the effect of gross
expenses paid indirectly by the Trust. Prior year expense ratios have not been
adjusted.
<PAGE>
Investment Objective and Policies
Objective. The Trust is a no-load tax[-]exempt money market fund. It is an
open-end, non-diversified, management investment company organized on July 29,
1988 as a Massachusetts business trust. The
Trust's investment objective is to seek the maximum current income exempt from
Federal, New York State and New York City income taxes for individual investors
as is consistent with preservation of capital. The Trust'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 Statement of Additional Information for further information).
There can be no assurance, however, that the Trust's net asset value will not
vary or that the Trust will achieve its investment objective. The value of Trust
shares is not insured or guaranteed by any government agency. However, shares
held in brokerage accounts may be eligible for coverage by the Securities
Investor Protection Corporation for losses arising from the insolvency of the
brokerage firm.
Ratings of Securities. Under Rule 2a-7 of the Investment Company Act of 1940, as
amended (the "Investment Company Act"), the Trust uses the amortized cost method
to value its portfolio securities to determine the Trust's net asset value per
share. Rule 2a-7 places restrictions on a money market fund's investments. Under
the Rule, the Trust may purchase only those securities that the Manager, under
procedures approved by the Trust's Board of Trustees, has determined have
minimal credit risks and are "Eligible Securities." An "Eligible Security" is
(a) one that has received a rating 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
investments that are "Eligible Securities" rated by Rating Organizations. The
Rule permits the Trust 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 Trust may also invest in "Second Tier
Securities," which are Eligible Securities that are not "First Tier Securities."
Additionally, under Rule 2a-7, the Trust must maintain a dollar-weighted average
portfolio maturity of no more than 90 days; and the remaining maturity of any
single portfolio investment may not exceed 397 days. Certain of the Trust's
fundamental investment restrictions (which may be changed only by shareholder
vote) are more restrictive than the provisions of Rule 2a-7, and the Trust must
restrict the maturity of portfolio securities to one year or less. The Trust's
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 Trust's investments with the requirements of the Rule and
those procedures.
Appendix A of the Statement of Additional Information 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.
Subsequent downgrades in ratings may require reassessment of the credit risk
presented by a security and may require its sale. The rating restrictions
described in this Prospectus do not apply to banks in which the Trust's cash is
kept. See "Municipal Bonds" and "Ratings of Securities" in "Investment Objective
and Policies" in the Statement of Additional Information for further details.
Investment Policies and Strategies. The Trust's investment policies and
practices are not "fundamental" policies as defined in "Other Investment
Restrictions" unless a particular policy is identified as fundamental. The
Trust's investment objective is a fundamental policy. The Board may change
non-fundamental investment policies without shareholder approval. In seeking its
objective, the Trust may invest in the types of securities listed below and use
the following strategies:
o Municipal Securities. Under normal market conditions, the Trust attempts to
invest 100% of its assets, and will invest at least 80% of its assets in
municipal bonds, municipal notes (including tax anticipation notes, bond
anticipation notes, revenue anticipation notes, construction loan notes and
other short-term loans), tax[-]exempt commercial paper and other debt
obligations issued by or on behalf of the State of New York, and other states,
and the District of Columbia, their political subdivisions, or any commonwealth
or territory of the United States, or their respective agencies,
instrumentalities or authorities, the interest from which is not subject to
Federal individual income tax, in the opinion of bond counsel to the respective
issuer (collectively "Municipal Securities") and will invest at least 65% of its
total assets in obligations of the State of New York and its political
subdivisions, agencies, authorities or instrumentalities or those of
commonwealths or territories of the U.S., the interest from which is not subject
to New York State and New York City personal income tax in the opinion of bond
counsel to the respective issuer ("New York Municipal Securities"). The Trust
may also purchase Municipal Securities with demand features that meet the
requirements of Rule 2a-7 (discussed above). All Municipal Securities in which
the Trust invests must have, or, pursuant to regulations adopted by the
Securities and Exchange Commission, be deemed to have, remaining maturities of
one year or less at the date the Trust purchases them.
As a matter of fundamental policy, normally the Trust will make no investment
that will reduce the portion of its total assets which are invested in Municipal
Securities to less than 80%. The balance of the Trust'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 Statement of
Additional Information); and (iii) certain temporary investments defined below
in "Temporary Investments." The Trust may hold Temporary Investments pending the
investment of proceeds from the sale of Trust shares or portfolio securities,
pending settlement of Municipal Securities purchases or to meet anticipated
redemptions. Normally, the Trust will not invest more than 20% of its total
assets in Private Activity Municipal Securities and other taxable investments
described above. No independent investigation has been made by the Manager as to
the users of proceeds of offerings of Private Activity Municipal Securities or
the application of such proceeds. To the extent the Trust receives income from
taxable investments, it may not achieve its investment objective. Investments in
unrated Municipal Securities will not exceed 20% of the Trust's total assets.
o Floating Rate/Variable Rate Obligations. Some of the Municipal Securities the
Trust may purchase may have variable or floating interest rates. Variable rates
are adjustable at stated periodic intervals of no more than one year. Floating
rates are automatically adjusted according to a specified market rate for such
investments. The Trust may purchase these obligations if they have a remaining
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 Trust to recover
the principal amount of the underlying security at specified intervals not
exceeding one year and on not more than 30 days' notice. The Manager may
determine that an unrated floating rate or variable rate demand obligation meets
the Trust's quality standards solely by reason of being backed by a letter of
credit or guarantee issued by a bank that meets the Trust'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
Statement of Additional Information for more details.
o When-Issued Securities. The Trust may invest in Municipal Securities on a
"when-issued" or "delayed delivery" basis. In those transactions, the Trust
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 take
place at a later date (normally within 120 days of purchase). During the period
between purchase and settlement, no payment is made by the Trust to the issuer
and no interest accrues to the Trust from the investment. Although the Trust is
subject to the risk of adverse market fluctuation during that period, the
Manager does not believe that the Trust's net asset value or income will be
materially adversely affected by the Trust's purchase of Municipal Securities on
a "when-issued" or "delayed delivery" basis. See "When-Issued and Delayed
Delivery Transactions" in the Statement of Additional Information for more
details.
o Municipal Lease Obligations. The Trust may invest in certificates of
participation, which are tax[-]exempt obligations that evidence the holder's
right to share in lease, installment loan or other financing payments by a
public entity. Projects financed with certificates of participation generally
are not subject to state constitutional debt limitations or other statutory
requirements that may be applicable to Municipal Securities. Payments by the
public entity on the obligation underlying the certificates are derived from
available revenue sources; such revenue may be diverted to the funding of other
municipal service projects. Payments of interest and/or principal with respect
to the certificates are not guaranteed and do not constitute an obligation of
the state or any of its political subdivisions. While some municipal lease
securities may be deemed to be "illiquid" securities (the purchase of which
would be limited as described below in "Illiquid and Restricted Securities"),
from time to time the Trust may invest more than 5% of its net assets in
municipal lease obligations that the Manager has determined to be liquid under
guidelines set by the Trust's Board of Trustees.
o Illiquid and Restricted Securities. Under the policies and procedures
established by the Trust's Board of Trustees, the Manager determines the
liquidity of certain of the Trust's investments. Investments may be illiquid
because of the absence of an active trading market, making it difficult to value
them or dispose of them promptly at an acceptable price. A restricted security
is one that has a contractual restriction on its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The Trust will
not invest more than 10% of its net assets in illiquid or restricted securities.
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 that are determined to be liquid by the Board of Trustees
or by the Manager under Board-approved guidelines, or (2) commercial paper that
may be sold without registration under Sections 3(a)(3) or 4(2) of the
Securities Act of 1933. 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 Trust's holdings of those securities may be illiquid. If due to
changes in relative value, more than 10% of the value of the Trust's net assets
consist of illiquid securities, the Manager would consider appropriate steps to
protect the Trust's maximum flexibility. There may be undesirable delays in
selling illiquid securities at prices representing their fair value. The Manager
monitors the holdings of illiquid securities on an ongoing basis and at time the
Trust may be required to sell some holdings to maintain adequate liquidity.
Illiquid securities include repurchase agreements maturing in more than seven
days, or certain participation interests other than those with puts exercisable
within seven days.
o Non-diversification. The Trust is a "non-diversified" investment company
under the. As such, the proportion of the Trust's assets that may be invested in
the securities of a single issuer is not limited by the Investment Company Act.
An investment in the Trust will therefore entail greater risk than an investment
in a diversified investment company because a higher percentage of investments
among fewer issuers may result in greater credit risk exposure to a smaller
number of issuers and greater fluctuation in the total market value of the
Trust's portfolio. Economic, political or regulatory developments may have a
greater impact on the value of the Trust's portfolio than would be the case if
the portfolio were diversified among more issuers.
However, The Trust is currently subject to other requirements relating to
the diversification of its assets. The Trust intends to conduct its operations
so as to qualify as a "regulated investment company" for purposes of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), which
will relieve the Trust from liability for Federal income tax to the extent its
earnings are distributed to shareholders. Among the requirements for such
qualification are that: (1) not more than 25% of the market value of the Trust's
total assets will be invested in the securities of a single issuer, and (2) with
respect to 50% of the market value of its total assets, not more than 5% of the
market value of its total assets may be invested in the securities of a single
issuer and the Trust must not own more than 10% of the outstanding voting
securities of a single issuer. In addition, the Trust is subject to certain
diversification requirements under Rule 2a-7. See "Puts and Demand Features."
o Puts and Demand Features. The Trust may invest a significant percentage
of its assets in Municipal Securities subject to put or demand features and
similar credit and liquidity enhancements. Because the Trust invests in
securities backed by banks and other financial institutions, changes in the
credit quality of these institutions could cause losses to the Trust. Therefore,
an investment in the Trust may be riskier than an investment in other types of
money market funds. A "put" is the right to sell a particular security within a
specified period of time at a stated exercise price. The put may be sold,
transferred, or assigned only with the underlying security. With respect to 75%
of the Trust's total assets, the Trust may not invest more than 5% of its total
assets in securities issued by or subject to "puts" from the same issuer under
current provisions of Rule 2a-7. An unconditional guarantee of, or an
"unconditional put" with respect to a security is not subject to the 5%
limitation if the value of all securities held by the Trust and issued or
guaranteed by the issuer providing the guarantee or put does not exceed 10% of
the Trust's total assets. Unconditional puts of any issuer in excess of 10% of
the Trust's total assets may not exceed 25% of the Trust's total assets under
Rule 2a-7. A demand feature is a put that entitles the holder to receive the
principal amount of the underlying security and may be exercised at specified
intervals not exceeding 397 calendar days and upon no more than 30 days' notice.
Demand features can: (1) shorten the maturity of a variable or floating rate
security, (2) enhance the security's credit quality, and (3) enhance the ability
to sell the security. The aggregate price for a security subject to a put or
demand feature may be higher than the price that would be paid for the security
without the put or demand feature. The effect of the put or demand feature is to
increase the cost of the security and reduce its yield.
o Repurchase Agreements. The Trust may acquire securities that are subject to
repurchase agreements to generate income while providing liquidity. The Trust's
repurchase agreements must be fully collateralized under the requirements of
Rule 2a-7. However, if the seller of the securities fails to pay the agreed-upon
repurchase price on the delivery date, the Trust's risks may include the costs
of disposing of the collateral for the agreement and losses that might result
from any delays in foreclosing on the collateral. The Trust will not enter into
a repurchase agreement that will cause more than 10% of its net assets to be
subject to repurchase agreements maturing in more than seven days and may not
enter into repurchase agreements if the scheduled repurchase date is greater
than one year. Income earned on repurchase transactions is not tax[-]exempt and
accordingly, under normal market conditions, the Trust will limit its
investments in repurchase transactions to 20% of its total assets. See
"Repurchase Agreements" in the Statement of Additional Information for further
details.
o Temporary Investments. The Trust 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 rated in one of
the two highest rating categories of a Rating Organization; or (v) certificates
of deposit of domestic banks with assets of $1 billion or more, and (vi)
repurchase agreements. To the extent the Trust assumes a temporary defensive
position, a significant portion of the Trust's distributions may be subject to
Federal, New York State and local taxes.
o Special Risk Considerations - New York Municipal Securities. The Trust
concentrates its investments in securities issued by the State of New York or
entities within that state, and therefore an investment in the Trust may be
riskier than an investment in other types of money market funds that do not
concentrate their investments in that manner. Because the Trust concentrates its
investments in New York Municipal Securities, the market value and marketability
of such Municipal Securities and the interest income and repayment of principal
to the Trust from them could be adversely affected by a default or financial
crisis relating to any of such issuers. Investors should consider these matters
and the financial difficulties experienced in past years by New York State and
certain of its agencies and subdivisions (particularly New York City), as well
as economic trends in New York, summarized in the Statement of Additional
Information under "Special Investment Considerations - New York Municipal
Securities." In addition, the Trust's portfolio securities are affected by
general changes in interest rates, which result in changes in the value of
portfolio securities held by the Trust, which can be expected to vary inversely
to changes in prevailing interest rates.
Other Investment Restrictions
The Trust has certain investment restrictions which, together with its
investment objective, are fundamental policies, which can be changed only by the
vote of a "majority of the outstanding voting securities" (as defined in the
Investment Company Act) of the Trust. Under some of those restrictions, the
Trust cannot:
o make loans, except that the Trust may purchase debt securities described in
"Investment Objective and Policies" and repurchase agreements, and the Trust may
lend its portfolio securities as described in the Statement of Additional
Information;
o 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 Trust may be pledged, mortgaged or assigned to secure a debt;
o invest more than 25% of its total 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.
Unless the Prospectus states that a percentage restriction applies on an
ongoing basis, it applies only at the time the Trust makes an investment, and
the Trust need not sell securities to meet the percentage limit if the value of
one investment increases in proportion to the size of the Trust. Additional
investment restrictions are listed in "Other Investment Restrictions" in the
Statement of Additional Information.
Performance of the Trust
Explanation of "Yield." Different types of yields may be quoted to show
performance. From time to time, the "yield," "tax-equivalent yield" and
"compounded effective yield" of an investment in the Trust may be advertised.
All yield figures are based on historical earnings per share and are not
intended to indicate future performance. The "yield" of the Trust is the income
generated by an investment in the Trust 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 Trust is assumed to be reinvested. The "compounded effective
yield" will therefore be slightly higher than the yield because of the effect of
the assumed reinvestment. The Trust's "tax- equivalent yield" is calculated by
dividing that portion of the Trust'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 Trust's yield that is not tax[-]exempt.
The "tax-equivalent yield" is then compounded and annualized in the same manner
as the Trust's yield. See "Performance of the Trust" in the Statement of
Additional Information for further information on the methods of calculating
these yields. From time to time the Manager may voluntarily assume a portion of
the Trust's expenses (which may include the management fee), thereby lowering
the overall expense ratio per share and increasing the Trust's yield during the
time such expenses are assumed.
How the Trust is Managed
Organization and History. The Trust's Board of Trustees has overall
responsibility for the management of the Trust under the laws of Massachusetts
governing the responsibilities of trustees of business trusts. "Trustees and
Officers" in the Statement of Additional Information identifies the Trust's
Trustees and officers and provides information about them. Subject to the
authority of the Board, the Manager is responsible for the day-to-day management
of the Trust's business, supervises the investment operations of the Trust and
the composition of its portfolio and furnishes the Trust advice and
recommendations with respect to investments, investment policies and the
purchase and sale of securities, pursuant to an Investment Advisory Agreement
with the Trust (the "Agreement"). The Agreement sets forth the fees paid by the
Trust to the Manager and the expenses that the Trust is responsible to pay.
The Trust's shares are of one class, are transferrable without restriction
and have equal rights and privileges. Each share of the Trust represents an
interest in the Trust equal to the interest of each other share in the Trust and
entitles the holder to one vote per share (and a fractional vote for a
fractional share) on matters submitted to a shareholder vote, and to participate
pro-rata in dividends and distributions and in the net distributable assets of
the Trust on liquidation. The Trustees may divide or combine shares into a
greater or lesser number of shares without thereby changing the proportionate
beneficial interest in the Trust. Shares do not have preemptive, subscription or
cumulative voting rights. The Trust's Board of Trustees is empowered to issue
additional series of shares of the Trust, which may have separate assets and
liabilities.
The Trust will not normally hold annual meetings of shareholders. The Trust
may hold shareholder meetings from time to time on important matters, and
shareholders have the right to call a meeting to remove a Trustee or take other
action described in the Declaration of Trust. Although the Declaration of Trust
states that when issued, shares are fully-paid and nonassessable, shareholders
may be held personally liable as "partners" for the Trust's obligations.
However, the risk of a shareholder incurring any financial loss is limited to
the relatively remote circumstances in which the Trust is unable to meet its
obligations. See "Organization and History of the Trust" in the Statement of
Additional Information for details.
The Manager and Its Affiliates. The Manager, a wholly-owned subsidiary of
OppenheimerFunds, Inc. ("OFI"), has operated as an investment advisor since
1978. The Manager and OFI currently advise U.S. investment companies with assets
aggregating over $75 billion as of September 30, 1997, and having more than 3
million shareholder accounts. OFI is owned by Oppenheimer Acquisition Corp., a
holding company owned in part by senior management of OFI and the Manager, and
ultimately controlled by Massachusetts Mutual Life Insurance Company, a mutual
life insurance company which also advises pension plans and investment
companies.
o Fees and Expenses. The Trust's management fee, payable monthly to the
Manager under the terms of the Agreement, is computed as a percentage of the
Trust's average annual net assets as of the close of business each day at the
following annual rates: 0.50% of the first $250 million of net assets; 0.475% of
the next $250 million; 0.45% of the next $250 million; 0.425% of the next $250
million and 0.40% of net assets in excess of $1 billion.
The Agreement lists examples of expenses paid by the Trust, the major
categories of which relate to interest, taxes, brokerage commissions, 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 costs. For further information about the
Agreement, including a description of expense assumption arrangements by the
Manager, exculpation provisions and portfolio transactions, see "The Manager and
Its Affiliates" in the Statement of Additional Information.
o The Custodian. The Custodian of the assets of the Trust is Citibank, N.A.
The Manager and its affiliates presently have banking relationships with the
Custodian. See "The Manager and Its Affiliates" in the Statement of Additional
Information for further information. The Trust'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 (see "Ratings of Securities," above) do not apply to banks in
which the Trust's cash is kept.
o Transfer Agent. Shareholder Services, Inc., a subsidiary of OFI, acts as
Transfer Agent and shareholder servicing agent on an at-cost basis for the Trust
and other mutual funds advised by the Manager. The fees to the Transfer Agent do
not include payments for any services of the type paid, or to be paid, by the
Trust to the Distributor and to Recipients under the Service Plan (see "Service
Plan" below). Direct Shareholders should direct any inquiries regarding the
Trust to the Transfer Agent at the address or toll-free phone number on the back
cover. Program participants should direct any inquiries regarding the Trust to
their broker.
ABOUT YOUR ACCOUNT
How To Buy Shares
Shares of the Trust may be purchased at their offering price, which is the net
asset value per share, without sales charge. The net asset value will remain
fixed at $1.00 per share, except under extraordinary circumstances (see
"Determination of Net Asset Value Per Share" in the Statement of Additional
Information for further details). There can be no guarantee that the Trust will
maintain a stable net asset value of $1.00 per share. Centennial Asset
Management Corporation, which also acts as the Trust's distributor (and in that
capacity is referred to as the "Distributor"), may in its sole discretion accept
or reject any order for purchase of the Trust's shares. OppenheimerFunds
Distributor, Inc., an affiliate of the Distributor, acts as the Trust's
sub-distributor (the "Sub- Distributor").
The minimum initial investment is $500 ($2,500 if by Federal Funds wire),
except as otherwise described in this Prospectus. Subsequent purchases must be
in amounts of $25 or more, and may be made through authorized dealers or brokers
or by forwarding payment to the Distributor at P.O. Box 5143, Denver, Colorado
80217, with the name(s) of all account owners, the account number and the name
of the Trust. The minimum initial and subsequent purchase requirements are
waived on purchases made by reinvesting dividends from any of the "Eligible
Funds" listed in "Exchange of Shares" in the Statement of Additional Information
or by reinvesting distributions from unit investment trusts for which
reinvestment arrangements have been made with the Distributor. Under an
Automatic Investment Plan, military allotment plan, 403(b)(7) custodial plan or
payroll deduction plan, initial and subsequent investments must be at least $25.
No share certificates will be issued unless specifically requested in writing by
an investor or the dealer or broker.
The Trust intends to be as fully invested as practicable to maximize its
yield. Therefore, dividends will accrue on newly- purchased shares only after
the Distributor accepts the purchase order for them at its address in Colorado,
on a day The New York Stock Exchange is open (a "regular business day"), under
one of the methods of purchasing shares described below. The purchase will be
made at the net asset value next determined after the Distributor accepts the
purchase order.
The Trust's net asset value per share is determined twice each regular
business day, at 12:00 Noon and the close of The New York Stock Exchange that
day, which is normally 4:00 P.M. but may be earlier on some days (all references
to time in this Prospectus mean New York time) by dividing the net assets of the
Trust by the total number of its shares outstanding. The Trust's Board of
Trustees has established procedures for valuing the Trust's assets, using the
amortized cost method as described in "Determination of Net Asset Value Per
Share" in the Statement of Additional Information.
Dealers and brokers who process orders for the Trust'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 Trust. The Distributor, in its sole
discretion, may accept or reject any order for purchases of the Trust'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 Trust to do so.
Purchases Through Automatic Purchase and Redemption Programs. Shares of the
Trust are available under Automatic Purchase and Redemption Programs
("Programs") of broker-dealers that have entered into agreements with the
Distributor for that purpose. Broker-dealers whose clients participate in such
Programs will invest the "free cash balances" of such client's Program account
in shares of the Trust if the Trust has been selected as the primary Trust by
the client for the Program account. Such purchases will be made by the
broker-dealer under the procedures described in "Guaranteed Payment," below. The
Program may have minimum investment requirements established by the
broker-dealer. The description of the Program provided by the broker-dealer
should be consulted for details, and all questions about investing in,
exchanging or redeeming shares of the Trust through a Program should be directed
to the broker-dealer.
Direct Purchases. An investor (who is not a Program participant, but instead a
"Direct Shareholder") may directly purchase shares of the Trust through any
dealer which has a sales agreement with the Distributor or the Sub-Distributor.
There are two ways to make a direct initial investment: either (1) complete a
Centennial Funds New Account Application and mail it with payment to the
Distributor at P.O. Box 5143, Denver, Colorado 80217-5143 (if no dealer is named
in the Application, the Sub-Distributor will act as the dealer), 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.
o Payment by Check. Orders for shares purchased by check in U.S. dollars
drawn on a U.S. bank will 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.
o Payment by Federal Funds Wire. Shares of the Trust may be purchased by
Direct Shareholders by Federal Funds wire. The minimum investment by wire is
$2,500. You must first call the Distributor's Wire Department at 1-800-852-8457
to notify the Distributor of the wire and to receive further instructions. The
investor's bank must wire the Federal Funds to Citibank, N.A., ABA No.
0210-0008-9 for credit to Concentration Account No. 3737-5674, for further
credit to Centennial New York Tax Exempt Trust Custodian Account No. 845-766.
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 the close of The New York Stock Exchange (which is normally 4:00 P.M.
but may be earlier on some days) and the Distributor has received and accepted
the investor's notification of the wire order prior to the close of the New York
Stock Exchange. Shares will be purchased at the net asset value next determined
after receipt of the Federal Funds and the order. Dividends on newly purchased
shares will begin to accrue on the purchase date if the Federal Funds and order
for the purchase are received and accepted by 12:00 Noon. Dividends will begin
to accrue on the next regular business day if the Federal Funds and purchase
order are received and accepted between 12:00 Noon and the close of The New York
Stock Exchange (which is normally 4:00 P.M. but may be earlier on some days).
The investor must also send the Distributor a completed Application when the
purchase order is placed to establish a new account.
o Guaranteed Payment. Broker-dealers with sales agreements with the
Distributor (including broker-dealers who have made special arrangements with
the Distributor for purchases for Program accounts) may place purchase orders
with the Distributor for purchases of the Trust's shares prior to 12:00 Noon on
a regular business day, and the order will be effected at net asset value
determined at 12:00 Noon that day if the broker-dealer guarantees that payment
for such shares in Federal Funds will be received by the Trust's Custodian prior
to 2:00 P.M. on the same day. Dividends will begin to accrue on the purchase
date. If an order is received between 12:00 Noon and the close of The New York
Stock Exchange (which is normally 4:00 P.M., but may be earlier on some days)
with the broker-dealer's guarantee that payment for such shares in Federal Funds
will be received by the Trust's Custodian by the close of the Exchange on the
next regular business day, the order will be effected on the day the order is
received, and dividends on such shares will begin to accrue on the next regular
business day the Federal Funds are received by the required time. If the
broker-dealer guarantees that the Federal Funds payment will be received by the
Trust's Custodian by 2:00 P.M. on a regular business day on which an order is
placed for shares after 12:00 Noon, the order will be effected at the close of
the Exchange that day and dividends will begin to accrue on such shares on the
purchase date.
o Automatic Investment Plans. Direct investors may purchase shares of the
Trust automatically. Automatic Investment Plans may be used to make regular
monthly investments ($25 minimum) from the investor's account at a bank or other
financial institution. To establish an Automatic Investment Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
Application. Shares purchased by Automatic Investment Plan payments are subject
to the redemption restrictions for recent purchases described in "How to Sell
Shares." The amount of the Automatic Investment Plan payment may be changed or
the automatic investments may be terminated at any time by writing to the
Transfer Agent. A reasonable period (approximately 15 days) is required after
receipt of such instructions to implement them. The Trust reserves the right to
amend, suspend, or discontinue offering such Automatic Investment Plans at any
time without prior notice.
Service Plan. The Trust has adopted a service plan (the "Plan") under Rule 12b-1
of the Investment Company Act pursuant to which the Trust will reimburse the
Distributor for a portion of its costs incurred in connection with the personal
service and maintenance of accounts that hold Trust shares. The Distributor will
use all the fees received from the Trust to reimburse dealers, brokers, banks,
or other financial institutions ("Recipients") each quarter for providing
personal service and maintenance of accounts that hold Trust shares. The
services to be provided by Recipients under the Plan include, but shall not be
limited to, the following: answering routine inquiries from the Recipient's
customers concerning the Trust, providing such customers with information on
their investment in Trust shares, assisting in the establishment and maintenance
of accounts or sub-accounts in the Trust, making the Trust'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 Trust may reasonably request. Plan payments by the Trust to the Distributor
will be made quarterly in the amount of the lesser of: (i) 0.05% (0.20%
annually) of the net asset value of the Trust, computed as of the close of each
business day, or (ii) the Distributor's actual distribution expenses for that
quarter of the type approved by the Board. Any unreimbursed expenses incurred
for any quarter by the Distributor may not be recovered in later periods. The
Plan has the effect of increasing annual expenses of the Trust by up to 0.20% of
average annual net assets from what its expenses would otherwise be. In
addition, the Manager may, under the Plan, from time to time from its own
resources (which may include the profits derived from the advisory fee it
receives from the Trust), make payments to Recipients for distribution,
administrative and accounting services performed by Recipients. For further
details, see "Service Plan" in the Statement of Additional Information.
How to Sell Shares
Program Participants. A Program participant may redeem shares in the Program by
writing checks as described below, or by contacting the dealer or broker. A
Program participant may also arrange for "Expedited Redemptions," as described
below, only through his or her dealer or broker.
Direct Shareholders. Those shareholders whose ownership of shares of the Trust
is direct rather than through a Program, may redeem shares by either regular
redemption procedures or expedited redemption procedures.
o Regular Redemption Procedure. A Direct Shareholder who wishes to redeem
some or all shares in an account (whether or not represented by certificates)
under the Trust's regular redemption procedure, must send the following to the
Transfer Agent for the Trust, Shareholder Services, Inc., P.O. Box 5143, 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 1-800-525-9310 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.
o Expedited Redemption Procedure. In addition to the regular redemption
procedure set forth above, Direct Shareholders 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 place a wire redemption request, call the
Transfer Agent at 1-800-852-8457. There is a $10 fee for each Federal Funds
wire. The account number of the designated financial institution, and the Bank
ABA number 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 of shares redeemed prior to 12:00 Noon, normally will be
transmitted by the Transfer Agent to the shareholder's designated bank account
on the day the shares are redeemed (or, if that day is not a bank business day,
on the next bank business day). No dividends are paid on the proceeds of
redeemed shares awaiting transmittal by wire. Shares redeemed prior to 12:00
Noon do not earn dividends on the redemption date. The wire for the redemption
proceeds of shares redeemed between 12:00 Noon and the close of The New York
Stock Exchange (which is normally 4:00 P.M., but may be earlier on some days)
normally will be transmitted by the Transfer Agent to the shareholder's
designated bank account on the next bank business day after the redemption.
Shares redeemed between 12:00 Noon and the close of the Exchange earn dividends
on the redemption date. See "Purchase, Redemption and Pricing of Shares" in the
Statement of Additional Information for further details.
o Checkwriting. Upon request, the Transfer Agent will provide any Direct
Shareholder of the Trust or any Program participant whose shares are not
represented by certificates with forms of drafts ("checks") payable through a
bank selected by the Trust (the "Bank"). Program participants must arrange for
Checkwriting through their brokers or dealers. The Transfer Agent will arrange
for checks written by Direct Shareholders to be honored by the Bank after
obtaining a specimen signature card from the shareholder(s). Shareholders of
joint accounts may elect to have checks honored with a single signature. Program
participants trust arrange for Checkwriting through their broker or dealer.
Checks may be made payable to the order of anyone in any amount not less than
$250 and will be subject to the Bank's rules and regulations governing checks.
If a check is presented for an amount greater than the account value, it will
not be honored. For Program participants, checks will be drawn against the
primary account designated by the Program participant. 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 been changed.
Shares purchased by check or Automatic Investment Plan payments within the prior
10 days may not be redeemed by Checkwriting. A check presented to the Bank for
payment that would require redemption of some or all of the shares so purchased
is subject to non-payment. When a check is presented to the Bank for clearance,
the Bank will request the Trust to redeem a sufficient number of full and
fractional shares in the shareholder's account to cover the amount of the check.
This enables the shareholder to continue receiving dividends on those shares
until the check is presented to the Trust. Checks may not be presented for cash
payment at the offices of the Bank or the Trust's Custodian. This limitation
does not affect the use of checks for the payment of bills or to obtain cash at
other banks. The Trust reserves the right to amend, suspend or discontinue
Checkwriting privileges at any time without prior notice.
o Telephone Redemptions. Direct Shareholders of the Trust may redeem their
shares by telephone by calling the Transfer Agent at 1-800-852-8457. This
procedure for telephone redemptions is not available to Program participants.
Proceeds of telephone redemptions will be paid by check payable to the
shareholder(s) of record and sent to the address of record for the account.
Telephone redemptions are not available within 30 days of a change of the
address of record. Up to $50,000 may be redeemed by telephone, in any 7 day
period. The Transfer Agent may record any calls. Telephone redemptions may not
be available if all lines are busy, and shareholders would have to use the
Trust's regular redemption procedure described above. Telephone redemption
privileges are not available for newly-purchased (within the prior 10 days)
shares or for shares represented by certificates. Telephone redemption
privileges apply automatically to each Direct 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.
o Automatic Withdrawal Plan. Direct Shareholders of the Trust 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 as of the close of The New York Stock Exchange
(which is normally 4:00 P.M. but may be earlier on some days) three business
days prior to the date requested by the shareholder for receipt of the payment.
The Trust cannot guarantee receipt of payment on the date requested and reserves
the right to amend, suspend or discontinue offering such Plan at any time
without prior notice. For further details, refer to "Automatic Withdrawal Plan
Provisions" included as Appendix D in the Statement of Additional Information.
General Information on Redemptions. The redemption price will be the net asset
value per share of the Trust next determined after the receipt by the Transfer
Agent of a request in proper form. Under certain unusual circumstances, shares
of the Trust may be redeemed "in kind" (i.e., by payment in portfolio
securities). Under certain circumstances, the Trust may involuntarily redeem
small accounts if the account has fallen below $200 in value. For details, see
"Purchase, Redemption and Pricing of Shares" in the Statement of Additional
Information. Under the Internal Revenue Code, the Trust may be required to
impose "backup" withholding of Federal income tax at the rate of 31% from any
taxable dividends, distributions and redemptions (including exchanges) the Trust
may make, if the shareholder has not furnished the Trust a certified taxpayer
identification number or has not complied with provisions of the Internal
Revenue Code and regulations thereunder.
Payment for redeemed shares is made ordinarily in cash and forwarded within
7 days of the Transfer Agent's receipt of redemption instructions in proper
form, except under unusual circumstances as determined by the SEC. For accounts
registered in the name of a broker-dealer, payment will be forwarded within 3
business days. The Transfer Agent may delay forwarding a redemption check for
recently purchased shares only until the purchase check has cleared which may
take up to 10 days or more. 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. The Trust makes no charge for redemption. Dealers or
brokers may charge a fee for handling redemption transactions, but such fee can
be avoided by Direct Shareholders by requesting the redemption directly through
the Transfer Agent. Under certain circumstances, the proceeds of redemptions of
shares of the Trust acquired by exchange of Class A 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).
Exchanges of Shares
Exchange Privilege. Shares of the Trust held under a Program may be exchanged
for shares of Centennial Money Market Trust, Centennial Government Trust,
Centennial Tax Exempt Trust, and Centennial California Tax Exempt Trust
(collectively the "Centennial Trusts") if available for sale in the
shareholder's state of residence and only by instructions of the broker.
Shares of the Trust may, under certain conditions, be exchanged by Direct
Shareholders for Class A shares of certain Oppenheimer funds. A list of the
Oppenheimer funds currently available for exchange is included in the Statement
of Additional Information. That list can change from time to time. (The funds
included on the list are collectively referred to as "Eligible Funds"). There is
an initial sales charge on the purchase of Class A shares of each Eligible Fund
except the Money Market Funds (as defined in the Statement of Additional
Information). Under certain circumstances described below, redemption proceeds
of Money Market Fund shares may be subject to a CDSC.
Shares of the Trust and of the other Eligible Funds may be exchanged at
net asset value, if all of the following conditions are met: (1) shares of the
fund selected for exchange are available for sale in the shareholder's state of
residence; (2) the respective prospectuses of the funds whose shares are to be
exchanged and acquired offer the Exchange Privilege to the investor; (3)
newly-purchased shares (by initial or subsequent investment) are held in an
account for at least seven days prior to the exchange; and (4) the aggregate net
asset value of the shares surrendered for exchange into a new account is at
least equal to the minimum investment requirements of the fund whose shares are
to be acquired.
In addition to the conditions stated above, shares of Eligible Funds may be
exchanged for shares of any Money Market Fund; shares of any Money Market Fund
held by Direct Shareholders (including the Trust) 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 Trust acquired by
reinvestment of dividends and distributions from any Eligible Fund, except
Oppenheimer Cash Reserves, or from any unit investment trust for which
reinvestment arrangements have been made with the Distributor or Sub-Distributor
may be exchanged at net asset value for shares of any Eligible Fund. The
redemption proceeds of shares of the Trust acquired by exchange of Class A
shares of an Eligible Fund purchased subject to a CDSC, that are redeemed within
12 months of the end of the calendar month of the initial purchase of the
exchanged shares (18 months for shares purchased prior to May 1, 1997), 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 Trust 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 Trust 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.
How to Exchange Shares. An exchange may be made by a Direct Shareholder by
submitting an Exchange Authorization Form to the Transfer Agent, signed by all
registered owners. In addition, Direct Shareholders of the Trust may exchange
shares of the Trust for shares of any Eligible Fund by telephone exchange
instructions to the Transfer Agent by a shareholder or the dealer representative
of record for an account. The Trust may modify, suspend or discontinue these
exchange privileges at any time. Although the Trust will attempt to provide
notice whenever it is reasonably able to do so, it may impose these changes at
any time. The Trust reserves the right to reject requests submitted in bulk on
behalf of more than one account. Exchange requests must be received by the
Transfer Agent by the close of the Exchange 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. Direct Shareholders may place a telephone exchange request
by calling the Transfer Agent at 1-800-852-8457. 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
Automatic Investment Plans and Automatic Withdrawal Plans will be switched to
the new account unless the Transfer Agent is otherwise instructed. Telephone
exchange privileges automatically apply to each Direct Shareholder of record and
the dealer representative of record unless and until the Transfer Agent receives
written instructions from a shareholder of record canceling such privileges. If
an account has multiple owners, the Transfer Agent may rely on the instructions
of any one owner.
Telephone Instructions. 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. If all telephone exchange lines are busy
(which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request telephone exchanges and
would have to submit written exchange requests. The Transfer Agent has adopted
procedures concerning telephone transactions including confirming that telephone
instructions are genuine by requiring callers to provide tax identification
number(s) and other account data or by using PINs, and by recording calls and
confirming such transactions in writing. If the Transfer Agent does not use
reasonable procedures, it may be liable for losses due to unauthorized
transactions, but otherwise neither it nor the Trust will be liable for losses
or expenses arising out of telephone instructions reasonably believed to be
genuine. The Transfer Agent reserves the right to require shareholders to
confirm, in writing, telephone exchange privileges for an account.
General Information on Exchanges. Shares to be exchanged are redeemed on the day
the Transfer Agent receives an exchange request in proper form (the "Redemption
Date") as of the close of The New York Stock Exchange (which is normally 4:00
P.M., but may be earlier on some days). Normally, shares of the fund to be
acquired are purchased on the Redemption Date, but such purchases may be delayed
by either fund for up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Trust in
its discretion reserves the right to refuse any exchange request that will
disadvantage it.
The Eligible Funds have different investment objectives and policies. Each
of those funds imposes a sales charge on purchases of Class A shares (except the
Money Market Funds). 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. Dealers and brokers who process exchange orders on
behalf of their customers may charge for their services. Direct Shareholders may
avoid those charges by requesting the Trust directly to exchange shares. For
Federal tax purposes, an exchange is treated as a redemption and purchase of
shares.
Shareholder Transactions by Fax. Requests for certain account transactions may
be sent to the Transfer Agent by fax (telecopier). Please call 1-800-525-7048
for information about which transactions are include. Transaction requests
submitted by fax are subject to the same rules and restrictions as written and
telephone requests described in this Prospectus.
Dividends, Distributions and Taxes
This discussion relates solely to Federal tax laws and New York income tax laws
and is not exhaustive. A qualified tax advisor should be consulted. A portion of
the Trust's dividends and distributions may be subject to Federal, state and
local taxation. The Statement of Additional Information contains further
discussion of tax matters affecting the Trust and its distributions, and
information about the possible applicability of the Alternative Minimum Tax to
the Trust's dividends and distributions as well as a procedure for electing to
reinvest dividends and distributions of any of the Eligible Funds into shares of
the Trust at net asset value(see "Investment Objective and Policies" "Private
Activity Municipal Securities").
Dividends and Distributions. The Trust intends to declare all of its net income,
as defined below, as dividends on each regular business day and to pay dividends
monthly. Dividends will be payable to shareholders as described in "How to Buy
Shares" above.
All dividends and capital gains distributions for the accounts of Program
participants are automatically reinvested in additional shares of the Trust.
Dividends accumulated since the prior payment will be reinvested in full and
fractional shares of the Trust (or paid in cash) at net asset value on the third
Thursday of each calendar month. Program participants may receive cash payments
by asking the broker to redeem shares. Dividends and distributions payable to
Direct Shareholders will also be automatically reinvested in shares of the Trust
at net asset value, unless the shareholder asks the Transfer Agent in writing to
pay dividends in cash, or to reinvest them in another Eligible Fund, as
described in "Dividend Reinvestment in Another Fund" in the Statement of
Additional Information. That notice must be received prior to a dividend record
date to be effective as to that dividend. If a shareholder redeems all shares at
any time during a month, the redemption proceeds include all dividends accrued
up to the redemption date for shares redeemed prior to 12:00 Noon, and include
all dividends accrued through the redemption date for shares redeemed between
12:00 Noon and the close of The New York Stock Exchange. Dividends,
distributions and the proceeds of redemptions of Trust shares represented by
checks returned to the Transfer Agent by the Postal Service as undeliverable
will be reinvested in shares of the Trust, as promptly as possible after the
return of such checks to the Transfer Agent, to enable the investor to earn a
return on otherwise idle funds.
Under the terms of a Program, a broker-dealer may pay out the value of
some or all of a Program participant's Trust shares prior to redemption of such
shares by the Trust. In such cases, the shareholder will be entitled to
dividends on such shares only up to and including the date of such payment.
Dividends on such shares accruing between the date of payment and the date such
shares are redeemed by the Trust will be paid to the broker-dealer. Program
participants should discuss these arrangements with their broker-dealer.
The Trust's net investment income for dividend purposes consists of all
interest accrued on portfolio assets, less all expenses of the Trust for such
period. Distributions from net realized gains on securities, if any, will be
paid at least once each year, and may be made more frequently in compliance with
the Internal Revenue Code and the Investment Company Act. Any net realized
capital loss is carried forward to offset against capital gains in later years.
The Trust will not make any distributions from net realized securities gains
unless capital loss carry forwards, if any, have been used or have expired.
Long-term capital gains, if any, will be identified separately when tax
information for the Trust is distributed to shareholders. Receipt of
tax[-]exempt income must be reported on the taxpayer's Federal income tax
return. The Statement of Additional Information describes how dividends and
distributions received by Direct Shareholders of the Trust may be reinvested in
shares of any Eligible Fund at net asset value. To effect its policy of
maintaining a net asset value of $1.00 per share, the Trust, under certain
circumstances, may withhold dividends or make distributions from capital or
capital gains.
Tax Status of the Trust's Dividends. The Trust intends to qualify under the
Internal Revenue Code during each fiscal year to pay "exempt-interest dividends"
to its shareholders, and so qualified during its last fiscal year.
Exempt-interest dividends which are derived from net investment income earned by
the Trust on Municipal Securities will be excludable from gross income of
shareholders for Federal income tax purposes. This allocation will be made by
uniformly applying a designated percentage to all income dividends made during
the Trust's calendar year. Such designation will normally be made following the
end of such fiscal year as to income dividends paid in the prior year. The
percentage of income designated as tax[-]exempt may differ substantially from
the percentage of the Trust's income that was tax[-]exempt for a given period.
A 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 Trust from one or more of: (i) certain taxable temporary
investments (such as certificates of deposit, commercial paper and obligations
of the U.S. government, its agencies or instrumentalities and repurchase
agreements), (ii) income from securities loans or repurchase agreements, (iii)
an excess of net short-term capital gains over net long-term capital losses.
Losses realized by shareholders on the redemption or other disposition of Trust
shares within six months of purchase (which period may be shortened by
regulation and may be extended in certain circumstances) will be disallowed for
Federal income tax purposes to the extent of exempt-interest dividends received
on such shares. For corporate shareholders, all of the Trust's dividends will be
a component of adjusted current earnings for determining Federal corporate
alternative minimum tax. 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. Interest on loans used to purchase
shares of the Trust may not be deducted for Federal tax purposes. Under rules
used by the Internal Revenue Service to determine when borrowed funds are deemed
used for the purpose of purchasing or carrying particular assets, the purchase
of Trust shares may be considered to have been made with borrowed funds even
though the borrowed funds are not directly traceable to the purchase of shares.
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 bond or Private Activity Municipal Securities should
refer to "Private Activity Municipal Securities" in the Statement of Additional
Information and should consult their own tax advisors before purchasing shares.
No investigation as to the users of the facilities financed by such bonds is
made by the Trust. The Trust also intends to qualify during each fiscal year to
pay "exempt- interest dividends" that will be exempt from New York State and New
York City personal income taxes to the extent the Trust's income is derived from
New York State municipal securities. Distributions, including "exempt-interest
dividends," may be subject to New York State franchise taxes if received by a
corporation.
Dividends paid by the Trust derived from net short-term capital gains are
taxable to shareholders as ordinary income whether received in cash or
reinvested. Any distribution of long-term capital gain, when designated by the
Trust as a capital gain
dividend, is taxable to shareholders as long-term capital gain, whether received
in cash or reinvested and regardless of how long Trust shares have been held.
The Trust will report annually to its shareholders the percentage of interest
income it received during the preceding year on Municipal Securities. It will
also report the net amount of its income that is subject to alternative minimum
tax. Receipt of tax[-]exempt income must be reported on a taxpayer's Federal
income tax return.
Tax Status of the Trust. If the Trust 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 Trust so
qualified during its last fiscal year and intends to qualify in the current and
future fiscal years, while reserving the right not to so qualify. However, the
Internal Revenue Code contains a number of complex tests relating to
qualification which the Trust might not meet in any particular year. If the
Trust does not 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.
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<PAGE>
No dealer, broker, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus or the Statement of Additional Information, and if given or made
such information and representations must not be relied upon as having been
authorized by the Trust, the Manager, the Distributor 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.
Investment Advisor and Distributor
Centennial Asset Management Corporation
6803 South Tucson Way
Englewood, Colorado 80112
Sub Distributor
OppenheimerFunds Distributor, Inc.
PO Box 5234
Denver, Colorado 80217 Centennial
New York Tax Exempt Trust
Transfer and Shareholder Servicing Agent
Shareholder Services, Inc.
P.O. Box 5143 Prospectus
Denver, Colorado 80217
1-800-525-9310 Dated November 1, 1997
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
PR0780.001.1197 Printed on recycled paper
-5-
<PAGE>
Centennial New York Tax Exempt Trust
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-9310
Statement of Additional Information dated November 1, 1997
This Statement of Additional Information is not a Prospectus. This
document contains additional information about the Trust and supplements
information in the Prospectus dated November 1, 1997. It should be read together
with the Prospectus, which may be obtained by writing to the Trust's Transfer
Agent, Shareholder Services, Inc. at P.O. Box 5143, Denver, Colorado 80217-5143,
or by calling the toll-free number shown above.
Contents Page
About the Trust
Investment Objective and Policies............................................2
Special Investment Considerations - New York Municipal Securities............8
Other Investment Restrictions...............................................16
Organization and History of the Trust.......................................18
Trustees and Officers.......................................................19
The Manager and Its Affiliates..............................................23
Service Plan................................................................25
Performance of the Trust....................................................27
About Your Account
Purchase, Redemption and Pricing of Shares..................................28
Exchange of Shares..........................................................31
Dividend, Distributions and Taxes...........................................32
Financial Information About the Trust
Independent Auditors' Report................................................34
Financial Statements........................................................35
Appendices
Appendix A: Description of Securities Ratings............................A-1
Appendix B: Industry Classifications.....................................B-1
Appendix C: Tax Equivalent Yield Tables..................................C-1
Appendix D: Automatic Withdrawal Plan Provisions.........................D-1
<PAGE>
ABOUT THE TRUST
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and policies of the
Trust are described in the Prospectus. Set forth below is supplemental
information about those policies. Certain capitalized terms used in this
Statement of Additional Information are defined in the Prospectus.
The Trust will not make investments with the objective of seeking capital
growth. However, the value of the securities held by the Trust 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 Trust since
the Trust 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 Trust 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 Trust believes such disposition advisable or it needs to generate cash to
satisfy redemptions. In such cases, the Trust may realize a capital gain or
loss.
There are, of course, variations in the quality 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 conditions of the Municipal Securities market, 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 Bonds. The principal classifications of Municipal Bonds are "general
obligations" (secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest), "revenue obligations"
(payable only from the revenues derived from a particular facility or class of
facilities, or specific excise tax or other revenue source) and "industrial
development bonds".
o 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.
o Revenue Bonds. The principal security for a revenue bond is generally
the net revenues derived from a particular facility, group of facilities, or, in
some cases, the proceeds of a special excise or other specific revenue source.
Revenue bonds are issued to finance a wide variety of capital projects
including: electric, gas, water and sewer systems; highways, bridges, and
tunnels; port and airport facilities; colleges and universities; and hospitals.
Although the principal security behind these bonds may vary, many provide
additional security in the form of a debt service reserve fund whose money may
be used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security, including partially
or fully insured mortgages, rent subsidized and/or collateralized mortgages,
and/or the net revenues from housing or other public projects. Some authorities
provide further security in the form of a state's ability (without obligation)
to make up deficiencies in the debt service reserve fund.
o 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:
o Tax Anticipation Notes. Tax anticipation notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of seasonal tax revenue, such as income, sales, use or business
taxes, and are payable from these specific future taxes.
o Revenue Anticipation Notes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue, such as Federal revenues
available under Federal revenue sharing programs.
o 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.
o 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.
o Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a short-term
obligation issued by state and local governments or their agencies to finance
seasonal working capital needs or as short-term financing in anticipation of
longer-term financing.
Municipal Lease Obligations. From time to time the Trust may invest more than 5%
of its net assets in municipal lease obligations, generally through the
acquisition of certificates of participation, that the Manager has determined to
be liquid under guidelines set by the Board of Directors. Those guidelines
require the Manager to evaluate: (1) the frequency of trades and price
quotations for such securities; (2) the number of dealers or other potential
buyers willing to purchase or sell such securities; (3) the availability of
market-makers; and (4) the nature of the trades for such securities. The Manager
will also evaluate the likelihood of a continuing market for such securities
throughout the time they are held by the Trust and the credit quality of the
instrument. Municipal leases may take the form of a lease or an installment
purchase contract issued by a state or local government authority to obtain
funds to acquire a wide variety of equipment and facilities. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. 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. Payments by the public entity on the obligation underlying
the certificates are derived from available revenue sources; such revenue may be
diverted to the funding of other municipal service projects. Payments of
interest and/or principal with respect to the certificates are not guaranteed
and do not constitute an obligation of the municipality.
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 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 more 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.
Puts and Stand-By Commitments. When the Trust buys Municipal Securities, it may
obtain a stand-by commitment from the seller to repurchase the securities that
entitles the Trust 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 Trust to sell the underlying
security within a specified period of time at a fixed exercise price. The Trust
may pay for a stand-by commitment or put either separately in cash or by paying
a higher price for the securities acquired subject to the stand-by commitment or
put. The Trust will enter into these transactions only with banks and dealers
which, in the Manager's opinion, present minimal credit risks.
The Trust's purchases of puts are subject to the provisions of Rule 2a-7
under the Investment Company Act because the Trust uses the amortized cost
method to value its portfolio securities. For purposes of the Trust's compliance
with Rule 2a-7 when investing in puts, a put will be considered to be issued by
the party to which the Trust will look for payment of the exercise price, and an
unconditional put will be considered to be a guarantee of the underlying
security. An unconditional put or guarantee with respect to a security will not
be deemed to be issued by the institution providing the guarantee or put
provided that the value of all securities held by the Trust and issued or
guaranteed by the issuer providing the guarantee or put shall not exceed 10% of
the Trust's total assets. The Trust's ability to exercise a put or stand-by
commitment will depend on the ability of the bank or dealer to pay for the
securities if the put or stand-by commitment is exercised. If the bank or dealer
should default on its obligation, the Trust might not be able to recover all or
a portion of any loss sustained from having to sell the security elsewhere. Puts
and stand-by commitments are not transferable by the Trust, and therefore
terminate if the Trust sells the underlying security to a third party. The Trust
intends to enter into these arrangements to facilitate portfolio liquidity,
although such arrangements may enable the Trust to sell a security at a
pre-arranged price which may be higher than the prevailing market price at the
time the put or stand-by commitment is exercised. However, the Trust might
refrain from exercising a put or stand-by commitment if the exercise price is
significantly higher than the prevailing market price, to avoid imposing a loss
on the seller which could jeopardize the Trust's business relationship with the
seller. Any consideration paid by the Trust for the put or stand-by commitment
(which increases the cost of the security and reduces the yield otherwise
available from the security) will be reflected on the Trust's books as
unrealized depreciation while the put or stand-by commitment is held, and a
realized gain or loss when the put or commitment is exercised or expires.
Interest income received by the Trust from Municipal Securities subject to puts
or stand-by commitments may not qualify as tax-exempt in its hands if the terms
of the put or stand-by commitment cause the Trust not to be treated as the tax
owner of the underlying Municipal Securities.
When-Issued and Delayed Delivery Transactions. As stated in the Prospectus, the
Trust may invest in Municipal Securities on a "when-issued" or "delayed
delivery" basis. Payment for and delivery of the securities shall not exceed 120
days from 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 the
time of commitment and settlement, no payment is made by the Trust to the issuer
and no interest accrues to the Trust from the investment. However, the Trust
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 Trust 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 liquid high- grade 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 Trust 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 Trust 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 advisors 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 on the
dollar 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 Trust'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 users, a 5% threshold is
substituted for this 10% threshold. (The term "private business use" means any
direct or indirect use in a trade or business carried on by an individual or
entity other than a state or municipal governmental unit.) Under the private
loan restriction, the amount of bond proceeds which may be used to make private
loans is limited to the lesser of 5% or $5.0 million of the proceeds. Thus,
certain issues of Municipal Securities could lose their tax-exempt status
retroactively if the issuer fails to meet certain requirements as to the
expenditure of the proceeds of that issue or use of the bond-financed facility.
The Trust makes no independent investigation of the users of such bonds or their
use of proceeds. If the Trust holds a bond that loses its tax-exempt status
retroactively, an adjustment to the tax-exempt income previously paid to
shareholders may result.
The Federal alternative minimum tax is designed to ensure that all
taxpayers pay some tax, even if they have no other income tax obligation. 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 Trust may hold Municipal
Securities the interest on which (and thus a proportionate share of the
exempt-interest dividends paid by the Trust) will be subject to the Federal
alternative minimum tax. For calendar year 1996, approximately 11.60% of the
Trust dividends paid to shareholders were a tax preference item for shareholders
subject to the Federal alternative minimum tax. The Trust anticipates that under
normal circumstances it will not purchase any such securities in an amount
greater than 20% of the Trust's total assets.
Ratings of Securities. The prospectus describes "Eligible Securities" in which
the Trust 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 Trust's Board of Trustees shall promptly reassess whether
the security presents minimal credit risks and whether it is in the best
interests of the Trust to dispose of it. 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
Trust to dispose of the security. In each of the foregoing instances, Board
action is not required if the Trust 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. 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, 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 Trust acquires a
security from, and simultaneously resells it to, an approved vendor which meets
the requirements of Rule 2a-7. 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 Trust'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 repayment obligation 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. To attempt to increase its income, the Trust may
lend its portfolio securities to qualified borrowers (other than in repurchase
transactions) if the loan is collateralized in accordance with applicable
regulatory requirements and if, after any loan, the value of the securities
loaned does not exceed 25% of the value of its total assets. The Trust presently
does not intend that the value of securities loaned during the current fiscal
year will exceed 5% of the Trust's total assets. The income from such loans,
when distributed by the Trust, will be taxable.
Under applicable regulatory requirements (which are subject to change),
the loan collateral must, on each business day, be at least equal to the value
of the loaned securities and must consist of cash, bank letters of credit or
securities of the U.S. Government (or its agencies or instrumentalities) or
other cash equivalents in which the Trust is permitted to invest. To be
acceptable as collateral, letters of credit must obligate a bank to pay amounts
demanded by the Trust if the demand meets the terms of the letter. Such terms
and the issuing bank must be satisfactory to the Trust. The Trust receives an
amount equal to the dividends or interest on loaned securities and also receives
one or more of: (a) negotiated loan fees, (b) interest on securities used as
collateral, or (c) interest on short-term debt securities purchased with such
loan collateral; either type of interest may be shared with the borrower. The
Trust may also pay reasonable finder's, custodian and administrative fees and
will not lend its portfolio securities to any officer, trustee, employee or
affiliate of the Trust or the Manager. The terms of the Trust's loans must meet
certain tests under the Internal Revenue Code and permit the Trust to reacquire
loaned securities on five days' notice or in time to vote on any important
matter. Income from securities loans is not included in the exempt-interest
dividends paid by the Trust.
Special Investment Considerations - New York Municipal Securities
As explained in the Prospectus, the Trust is highly sensitive to the fiscal
stability of New York State (the "State") and its subdivisions, agencies,
instrumentalities or authorities, including New York City, which issue the
Municipal Securities in which the Trust concentrates its investments. The
following information on risk factors in concentrating in New York Municipal
Securities is only a summary, based on publicly available official statements
relating to offerings of New York issuers of Municipal Securities on or prior to
September 29, 1997, with respect to offerings of the State, and September 30,
1997, with respect to offerings of New York City. No representation is made as
to the accuracy of such information.
During the mid-1970's the State, some of its agencies, instrumentalities
and public benefit corporations (the "Authorities"), and certain of its
municipalities faced serious financial difficulties. To address many of these
financial problems, the State developed various programs, many of which were
successful in ameliorating the financial crisis. Any further financial problems
experienced by these Authorities or municipalities could have a direct adverse
effect on the New York Municipal Securities in which the Trust invests.
New York City. More than any other municipality, the fiscal health of New
York City (the "City") has a significant effect on the fiscal health of the
State. The national economic downturn which began in July 1990 adversely
affected the local economy which had been declining since late 1989. As a
result, the City experienced job losses in 1990 and 1991 and real Gross City
Product ("GCP") fell in those two years. Beginning in 1992, the improvement in
the national economy helped stabilize conditions in the City. Employment losses
moderated toward year-end and real GCP increased, boosted by strong wage gains.
After noticeable improvements in the City's economy during 1994, economic growth
slowed in 1995, and thereafter improved commencing in calendar year 1996,
reflecting improved securities industry earnings and employment in other
sectors. The City's current four-year financial plan assumes that moderate
economic growth will exist through calendar year 2001, with moderate job growth
and wage increases.
For each of the 1981 through 1996 fiscal years, the City achieved balanced
operating results as reported in accordance with applicable generally accepted
accounting principles ("GAAP"). The City has been required to close substantial
gaps between forecast revenues and forecast expenditures in order to maintain
balanced operating results. There can be no assurance that the City will
continue to maintain balanced operating results as required by State law without
additional tax or other revenue increases or additional reduction in City
services or entitlement programs, which could adversely affect the City's
economic base.
The Mayor is responsible for preparing the City's four-year financial
plan, including the City's current financial plan for the 1998 through 2001
fiscal years (the "1998-2001 Financial Plan", "Financial Plan" or "City Plan").
The City's projections set forth in the City Plan are based on various
assumptions and contingencies which are uncertain and which may not materialize.
Changes in major assumptions could significantly affect the City's ability to
balance its budget as required by State law and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include the condition
of the regional and local economies, the impact on real estate tax revenues of
the real estate market, wage increases for City employees consistent with those
assumed in the City Plan, employment growth, the ability to implement reductions
in City personnel and other cost reduction initiatives, the ability of the New
York City Health and Hospitals Corporation and the Board of Education to take
actions to offset potential budget shortfalls, the ability to complete revenue
generating transactions, provision of State and Federal aid and mandate relief
and the impact on City revenues and expenditures of Federal and State welfare
reform and any future legislation affecting Medicare or other entitlements.
Implementation of the Financial Plan is also dependent upon the City's
ability to market its securities successfully. The City's financing program for
fiscal years 1998 through 2001 contemplates the issuance of $4.9 billion of
general obligation bonds and $7.1 billion of bonds to be issued by the New York
City Transitional Finance Authority (the "Finance Authority") to finance City
capital projects. The Finance Authority was created as part of the City's effort
to assist in keeping the City's indebtedness within the forecast level of the
constitutional restrictions on the amount of debt the City is authorized to
incur. The City is involved in litigation seeking to have the New York City
Transitional Finance Authority Act (the "Finance Authority Act") declared
unconstitutional. In addition, the City issues revenue and tax anticipation
notes to finance its seasonal working capital requirements. The success of
projected public sales of City bonds and notes, New York City Municipal Water
Finance Authority ("Water Authority") bonds and Finance Authority bonds will be
subject to prevailing market conditions. The City's planned capital and
operating expenditures are dependent upon the sale of its general obligation
bonds and notes, and the Water Authority and Finance Authority bonds. Future
developments concerning the City and public discussion of such developments, as
well as prevailing market conditions, may affect the market for outstanding City
general obligation bonds and notes.
The City Comptroller and other agencies and public officials have issued
reports and make public statements which, among other things, state that
projected revenues and expenditures may be different form those forecasted in
the City Plan. It is reasonable to expect that such reports and statements will
continue to be issued and to engender public comment.
o 1998-2001 Financial Plan. The most recent quarterly modification in the
City's financial plan for the 1997 fiscal year projects a balanced budget in
accordance with GAAP for the 1997 fiscal year, after taking into account an
increase in projected tax revenues of $1.2 billion during the 1997 fiscal year
and a discretionary prepayment in the 1997 fiscal year of $1.3 billion of debt
service due in the 1998 and 1999 fiscal years. The Financial Plan projects
revenues and expenditures for the 1998 fiscal year balanced in accordance with
GAAP. The Financial Plan includes increased tax revenue projections; reduced
debt service costs; the assumed restoration of Federal funding for programs
assisting certain legal aliens; additional expenditure for textbooks, computers,
improved education programs and welfare reform, law enforcement, immigrant
naturalization, initiatives proposed by the City Council and other initiatives;
and a proposed discretionary transfer to the 1998 fiscal year of $300 million of
debt service due in the 1999 fiscal year for budget stabilization purposes. In
addition, the Financial Plan reflects the discretionary transfer to the 1997
fiscal year of $1.3 billion of debt service due in the 1998 and 1999 fiscal
years, and includes actions to eliminate a previously projected budget gap for
the 1998 fiscal year. These gap closing actions include (i) additional agency
actions totaling $621 million; (ii) the proposed sale of various assets; (iii)
additional State aid of $294 million, including a proposal that the State
accelerate a $142 million revenue sharing payment to the City from March 1999;
and (iv) entitlement savings of $128 million which would result from certain of
the reductions in Medicaid spending proposed in the Governor's 1997-1998
Executive Budget and the State making available to the City $77 million of
additional Federal block grant aid, as proposed in the Governor's 1997-1998
Executive Budget. The Financial Plan also sets forth projections for the 1999
though 2001 fiscal years and projects gaps of $1.8 billion, $2.8 billion and
$2.6 billion for the 1999 through 2001 fiscal years, respectively.
The Financial Plan assumes approval by the State Legislature and the
Governor of (i) a tax reduction program proposed by the City totaling $272
million, $435 million, $465 million and $481 million in the 1998 through 2001
fiscal years, respectively, which includes a proposed elimination of the 4% City
sales tax on clothing items under $500 as of December 1, 1997, and (ii) a
proposed State tax relief program, which would reduce the City property tax and
personal income tax, and which the Financial Plan assumes will be offset by
proposed increased State aid totaling $47 million, $254 million, $472 million
and $722 million in the 1998 through 2001 fiscal years, respectively.
The Financial Plan also assumes (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge, which is
scheduled to expire on December 31, 1999, and of the extension of the 12.5%
personal income tax surcharge, which is scheduled to expire on December 31,
1998; (ii) collection of the projected rent payments for the City's airports;
and (iii) State approval of the cost containment initiatives and State aid
proposed by the City for the 1998 fiscal year, and $115 million in State aid
which is assumed in the Financial Plan but was not provided for in the
Governor's 1997-1998 Executive budget. The Financial Plan reflects the increased
costs which the City is prepared to incur as a result of welfare legislation
recently enacted by Congress. In addition, the economic and financial condition
of the City may be affected by various financial, social, economic and political
factors which could have a material effect on the City.
The City's financial plans have been the subject of extensive public
comment. On September 11, 1997, the New York State Comptroller issued a report
which noted that the ability to deal with future budget gaps could become a
significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.
Various actions proposed in the Financial Plan are uncertain. If these
measures cannot be implemented, the City will be required to take other actions
to decrease expenditures or increase revenues to maintain a balanced financial
plan.
The projections for the 1998 through 2001 fiscal years reflect the costs of
the settlements with the United Federation of Teachers ("UFT") and a coalition
of unions headed by District Council 37 of the American Federation of State,
County and Municipal Employees, which together represent approximately
two-thirds of the City's workforce, and assume that the City will reach
agreement with its remaining municipal unions under terms which are generally
consistent with such settlements. The settlement provides for a wage freeze in
the first two years, followed by a cumulative effective wage increase of 11% by
the end of the five year period covered by the proposed agreements, ending in
fiscal years 2000 and 2001. Additional benefit increases would raise the total
cumulative effective increase to 13% above present costs. Costs associated with
similar settlements for all City-funded employees would total $49 million, $459
million and $1.2 billion in the 1997, 1998 and 1999 fiscal years, respectively,
and exceed $2 billion in each fiscal year after the 1999 fiscal year. There can
be no assurance that the City will reach an agreement with the unions that have
not reached a settlement with City on the terms contained in the Financial Plan.
In the event of a collective bargaining impasse, the terms of wage
settlements could be determined through statutory impasse procedures, which can
impose a binding settlement except in the case of collective bargaining with the
UFT, which may be subject to a non-binding arbitration.
o Ratings. On July 10, 1995, Standard & Poor's Ratings Group ("Standard &
Poor's") revised downward its rating on City general obligations bonds from A-
to BBB+ and removed City bond from CreditWatch. Standard & Poor's stated that
"structural budgetary balance remains elusive because of persistent softness in
the City's economy, highlighted by weak job growth and a growing dependence on
the historically volatile financial services sector." Other factors identified
by Standard & Poor's in lowering its rating on City bonds included a trend of
using one-time measures, including debt refinancings, to close projected budget
gaps, dependence on unratified labor savings to help balance the Financial Plan,
optimistic projections of additional Federal and State aid or mandate relief, a
history of cash flow difficulties caused by State budget delays and continued
high debt levels. Fitch Investors Service, Inc. ("Fitch") continues to rate the
City general obligation bond A-. On February 28, 1996, Fitch placed the City's
general obligation bonds on Fitch Alert with negative implications. Moody's
Investors Service, Inc. ("Moody's") rating for City general obligation bonds is
Baa1. On July 17, 1997 Moody's changed its outlook on city bonds to positive
from stable. Such ratings reflect only the views of these rating agencies, from
which an explanation of the significance of such ratings may be obtained. There
is no assurance that such ratings will continue for any given period of time or
that they will not be revised downward or withdrawn entirely. Any such downward
revision or withdrawal could have an adverse effect on the market prices of
bonds.
o Outstanding Net Indebtedness. As of June 30, 1997, the City and the
Municipal Assistance Corporation for the City of New York had, respectively,
$26.180 billion and $3.717 billion of outstanding net long-term debt.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. There can be no assurance
that there will not be reductions in State aid to the City from amounts
currently projected; that State budgets in future fiscal years will be adopted
by the April 1 statutory deadline, or interim appropriations enacted; or that
any such reductions or delays will not have adverse effects on the City's cash
flow or expenditures.
o Litigation. The City is a defendant in lawsuits pertaining to material
matters, including claims asserted which are incidental to performing routine
governmental and other functions. This litigation includes, but is not limited
to, actions commenced and claims asserted against the City arising out of
alleged torts, alleged breaches of contracts, alleged violations of law and
condemnation proceedings. As of June 30, 1996 and 1995, claims in excess of $380
billion and $311 billion, respectively, were outstanding against the City, for
which the City estimates its potential future liability to be $2.8 billion and
$2.5 billion, respectively.
New York State. The State has historically been one of the wealthiest states in
the nation. For decades, however, the State economy has grown more slowly than
that of the nation as a whole, resulting in the gradual erosion of its relative
economic affluence. The causes of this relative decline are varied and complex,
in many cases involving national and international developments beyond the
State's control.
o Recent Developments. The national economy has resumed a more robust rate
of growth after a "soft landing" in 1995, with over 14 million jobs added
nationally since early 1992. The State economy has continued to expand, but
growth remains somewhat slower than in the nation. Although the State has added
approximately 300,000 jobs since late 1992, employment growth in the State has
been hindered during recent years by significant cutbacks in the computer and
instrument manufacturing, utility, defense and banking industries. Government
downsizing has also moderated these job gains.
The 1997-1998 New York State Financial Plan (the "State Plan") is partly
based on the forecast that the State's economy shows moderate expansion during
the first half of the 1997 calendar year with the trend continuing through the
year. Although industries that export goods and services are expected to
continue to do well, growth is expected to be moderated by tight fiscal
constraints on the health care and social services industries. On an average
annual basis, employment growth in the State is expected to be up substantially
from the 1996 rate. Personal income is expected to record moderate gains in
1997. Bonus payments in the securities industry are expected to increase further
from last year's record level.
The State Plan is based upon forecasts of national and State economic
activity developed through both internal analysis and review of State and
national economic forecasts prepared by commercial forecasting services and
other public and private forecasters. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
the State economies. Many uncertainties exist in forecasts of both the national
and State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, federal fiscal and monetary policies,
the level of interest rates, and the condition of the world economy, which could
have an adverse effect on the State. There can be no assurance that the State
economy will not experience results in the current fiscal year that are worse
than predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
o The 1997-98 Fiscal Year. The State's General Fund (the major operating
Fund of the State) is projected to be balanced on a cash basis for the 1997-98
fiscal year. Total receipts and transfers from other funds are projected to be
$35.09 billion, an increase of $2.05 billion from the prior fiscal year. Total
General Fund disbursements and transfers to other funds are projected to be
$34.60 billion, an increase of $1.70 billion from the total in the prior fiscal
year.
Projections of total State receipts in the State Financial Plan are based
on the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. In preparing projections of State receipts, economic forecasts
relating to personal income, wages, consumption, profits and employment have
been particularly important. The projection of receipts from most tax or revenue
sources is generally made by estimating the change in yield of such tax or
revenue source caused by economic and other factors, rather than by estimating
the total yield of such tax or revenue source from its estimated tax base. The
forecasting methodology, however, ensures that State fiscal year estimates for
taxes that are based on a computation of annual liability, such as the business
and personal income taxes, are consistent with estimates of total liability
under such taxes.
Projections of total State disbursements are based on assumptions relating
to economic and demographic factors, levels of disbursements for various
services provided by local governments (where the cost is partially reimbursed
by the State), and the results of various administrative and statutory
mechanisms in controlling disbursements for State operations. Factors that may
affect the level of disbursements in the fiscal year include uncertainties
relating to the economy of the nation and the State, the policies of the federal
government, and changes in the demand for and use of State services.
In recent years, State actions affecting the level of receipts and
disbursements, the relative strength of the State and regional economy, actions
of the federal government and other factors, have created structural gaps for
the State. These gaps resulted from a significant disparity between recurring
revenues and the costs of maintaining or increasing the level of support for
State programs. To address a potential imbalance in any given fiscal year, the
State would be required to take actions to increase receipts and/or reduce
disbursements as it enacts the budget for that year, and under the State
Constitution, the Governor is required to propose a balanced budget each year.
There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts of
disbursements in future fiscal years.
o Composition of State's Governmental Funds Group. Substantially all State
non-pension financial operations are accounted for in the State's governmental
funds group. Governmental funds include the General Fund, which receives all
income not required by law to be deposited in another fund; Special Revenue
Funds, which receive the preponderance of moneys received by the State from the
Federal government and other income the use of which is legally restricted to
certain purposes; Capital Projects Funds, used to finance the acquisition and
construction of major capital facilities by the State and to aid in certain of
such projects conducted by local governments or public authorities; and Debt
Service Funds, which are used for the accumulation of moneys for the payment of
principal of and interest on long-term debt and to meet lease-purchase and other
contractual- obligation commitments.
o Local Government Assistance Corporation ("LGAC"). In 1990, as part of a
State fiscal reform program, legislation was enacted creating LGAC, a public
benefit corporation empowered to issue long-term obligations to fund certain
payments to local governments traditionally funded through the State's annual
seasonal borrowing. The legislation authorized LGAC to issue its bonds and notes
in an amount not in excess of $4.7 billion (exclusive of certain refunding
bonds). Over a period of years, the issuance of these long-term obligations,
which are to be amortized over no more than 30 years, was expected to eliminate
the need for continued short-term seasonal borrowing. The legislation also
dedicated revenues equal to one-quarter of the four percent State sales and use
tax to pay debt service on these bonds. The legislation also imposed a cap on
the annual seasonal borrowing of the State at $4.7 billion, less net proceeds of
bonds issued by LGAC and bonds issued to provide for capitalized interest,
except in cases where the Governor and the legislative leaders have certified
the need for additional borrowing and provided a schedule for reducing it to the
cap. If borrowing above the cap is thus permitted in any fiscal year, it is
required by law to be reduced to the cap by the fourth fiscal year after the
limit was first exceeded. This provision capping the seasonal borrowing was
included as a covenant with LGAG's bondholders in the resolution authorizing
such bonds.
As of June 1995, LGAC had issued bonds and notes to provide net proceeds of
$4.7 billion completing the program. The impact of LGAC's borrowing is that the
State is able to meet its cash flow needs in the first quarter of the fiscal
year without relying on short-term seasonal borrowings.
o Authorities. The fiscal stability of the State is related to the fiscal
stability of its public Authorities. Authorities have various responsibilities,
including those which finance, construct and/or operate revenue-producing public
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts and restrictions set forth in their legislative
authorization. As of September 30, 1996, the latest data available, there were
17 Authorities that had outstanding debt of $100 million or more, and the
aggregate outstanding debt, including refunding bonds, of these 17 Authorities
was $75.4 billion only a portion of which constitutes State-supported or State
related debt.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges or tunnels, highway
tolls, rentals for dormitory rooms and housing units and charges for occupancy
at medical care facilities. In addition, State legislation authorizes several
financing techniques for Authorities. Also, there are statutory arrangements
providing for State local assistance payments otherwise payable to localities to
be made under certain circumstances to Authorities. Although the State has no
obligation to provide additional assistance to localities whose local assistance
payments have been paid to Authorities under these arrangements, if local
assistance payments are diverted the affected localities could seek additional
State assistance. Some Authorities also receive moneys from State appropriations
to pay for the operating costs of certain of their programs.
o Ratings. On January 13, 1992, Standard & Poor's reduced its ratings on
the State's general obligation bonds from A to A- and, in addition, reduced its
ratings on the State's moral obligation, lease purchase, guaranteed and
contractual obligation debt. Standard & Poor's also continued its negative
rating outlook assessment on State general obligation debt. On April 26, 1993,
Standard & Poor's revised the rating outlook assessment to stable. On February
14, 1994, Standard & Poor's raised its outlook to positive and, on October 3,
1995, confirmed its A-rating. On August 28, 1997, Standard & Poor's revised its
ratings on the State's general obligation bonds from A- to A and, in addition
revised its ratings on the State's moral obligation, lease purchase, guaranteed
and contractual obligation debt. On January 6, 1992, Moody's reduced its ratings
on outstanding limited- liability State lease purchase and contractual
obligations from A to Baa1. On October 2, 1995, Moody's reconfirmed its A rating
on the State's general obligation long-term indebtedness. On February 10, 1997,
Moody's confirmed its A2 rating on the State's general obligation long-term
indebtedness. Ratings reflect only the respective views of such organizations,
and an explanation of the significance of such ratings may be obtained from the
rating agency furnishing the same. There is no assurance that a particular
rating will continue for any given period of time or that any such rating will
not be revised downward or withdrawn entirely, if in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an effect on
the market price of the State Municipal Securities in which the Trust invests.
o General Obligation Debt. As of March 31, 1997, the State had
approximately $5.03 billion in general obligation bonds, including $294 million
in bond anticipation notes outstanding. Principal and interest due on general
obligation bonds and interest due on bond anticipation notes were $749.6 million
for the 1996-97 fiscal year and are estimated to be $720.9 million for the
State's 1997-98 fiscal year.
o Litigation. The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings and other alleged violations of State and Federal laws.
These proceedings could affect adversely the financial condition of the State in
the 1997-1998 fiscal year or thereafter.
The State believes that the State Plan includes sufficient reserves for
the payment of judgments that may be required during the 1997-98 fiscal year.
There can be no assurance, however, that an adverse decision in any of these
proceedings would not exceed the amount the State Plan reserves for the payment
of judgments and, therefore, could affect the ability of the State to maintain
a balanced 1997-1998 Financial Plan. The General Purpose Financial Statements
for the 1996-1997 fiscal year report estimated probable awarded and anticipated
unfavorable judgements of $364 million, of which $134 million is expected to be
paid during the 1997-1998 fiscal year.
In addition, the State is party to other claims and litigations which its
counsel has advised are not probable of adverse court decisions. Although, the
amounts of potential losses, if any, are not presently determinable, it is the
State's opinion that its ultimate liability in these cases is not expected to
have a material adverse effect on the State's financial position in the 1997-98
fiscal year or thereafter.
o Other Localities. Certain localities in addition to the City could have
financial problems leading to requests for additional State assistance during
the State's 1997-98 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the Governor
or the State Legislature to assist Yonkers could result in increased State
expenditures for extraordinary local assistance.
Other Investment Restrictions
The Trust's most significant investment restrictions are set forth in the
Prospectus. The following investment restrictions are also fundamental
investment policies of the Trust, and, together with the fundamental policies
and investment objective described in the Prospectus, cannot be changed without
the vote of a majority of the Trust'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
shareholder's 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 Trust cannot:
o 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;
o enter into a repurchase agreement or purchase a security subject to a
call if the scheduled repurchase or redemption date is greater than one year;
o invest in commodities or commodity contracts, or invest in interests in
oil, gas, or other mineral exploration or development programs;
o invest in real estate; however, the Trust may purchase debt securities
issued by companies which invest in real estate or interests therein;
o purchase securities on margin or make short sales of securities;
o invest in or hold securities of any issuer if those officers and
trustees or directors of the Trust or its advisor 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;
o underwrite securities of other companies except insofar as the Trust may
be deemed an underwriter under the Securities Act of 1933 in connection with the
disposition of portfolio securities;
o invest more than 5% of the value of its total assets in securities of
companies that have operated less than three years, including the operations of
predecessors; or
o purchase securities of other investment companies, except in connection
with a merger, consolidation, acquisition or reorganization.
For purposes of the sixth investment restriction listed above 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.
In applying the restrictions in the Prospectus as to the Trust's
investments, the Manager will consider a nongovernmental user of facilities
financed by industrial development bonds as being in a particular industry,
despite the fact that there is no industry concentration limitation as to
municipal securities the Trust may own. Although this application of the
restriction is not technically a fundamental policy of the Trust, it will not be
changed without shareholder approval. This is not a fundamental policy, and
therefore may be changed without shareholder approval. Should any such change be
made, the Prospectus and/or Statement of Additional Information will be
supplemented to reflect the change.
Unless the Prospectus or this Statement of Additional Information states
that a percentage restriction applies on an ongoing basis, it applies only at
the time the Trust makes an investment and the Trust need not sell securities to
meet the percentage limits if the value of the investment increased in
proportion to the size of the Trust. For purposes of the Trust's policy not to
concentrate its assets, described under the third restriction listed in the
Prospectus, the Trust has adopted the industry classifications set forth in
Appendix B to this Statement of Additional Information. This is not a
fundamental policy.
Organization and History of the Trust
Until February 1, 1990, the Trust's name was "Oppenheimer New York Tax-Exempt
Cash Reserves." The Trust's Declaration of Trust contains an express disclaimer
of shareholder or Trustee liability for the Trust'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 Trust shall, upon request, assume a defense of any claim
made against any shareholder for any act or obligation of the Trust and satisfy
any judgment thereon. Thus, while Massachusetts law permits a shareholder of a
trust (such as the Trust) to be held personally liable as a "partner" for the
Trust's obligations under certain circumstances, the risk of a Trust shareholder
incurring any financial loss on account of shareholder liability is highly
unlikely and is limited to the relatively remote circumstance in which the Trust
itself would be unable to meet its obligations. Any person doing business with
the Trust, and any shareholder of the Trust, agrees under the Trust's
Declaration of Trust to look solely to the assets of the Trust for satisfaction
of any claim or demand which may arise out of any dealings with the Trust, and
the Trustees shall have no personal liability to any such person, to the extent
permitted by law. It is not contemplated that regular annual meetings of
shareholders will be held. The Trust 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. Shareholders have the right, upon the
declaration in writing or vote of two-thirds of the outstanding shares of the
Trust, to remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record holders
of 10% of its outstanding shares. In addition, if the Trustees receive a request
from at least 10 shareholders (who have been shareholders for at least six
months) holding in the aggregate shares of the Trust valued at $25,000 or more
or holding 1% or more of the Trust'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 Trust'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.
Trustees and Officers
The Trustees and officers of the Trust and their principal business
affiliations and occupations during the past five years are listed below. Sam
Freedman became a Trustee on June 27, 1996. The Trustees are also trustees,
directors, or managing general partners of Centennial America Fund, L.P.,
Centennial California Tax Exempt Trust, Centennial Government Trust, Centennial
Money Market Trust, Centennial Tax Exempt Trust, Daily Cash Accumulation Fund,
Inc., Oppenheimer Cash Reserves, Oppenheimer Champion Income Fund, Oppenheimer
Equity Income Fund, Oppenheimer High Yield Fund, Oppenheimer Integrity Funds,
Oppenheimer International Bond Fund, Oppenheimer Limited-Term Government Fund,
Oppenheimer Main Street Funds, Inc., Oppenheimer Municipal Fund, Oppenheimer
Real Asset Fund, Oppenheimer Strategic Income Fund, Oppenheimer Total Return
Fund, Inc., Oppenheimer Variable Account Funds, Panorama Series Fund, Inc. and
The New York Tax Exempt Income Fund, Inc. (all of the foregoing funds along with
the Trust are collectively referred to as the "Denver Oppenheimer funds") except
for Ms. Macaskill, who is a Trustee, Director or Managing Partner of all the
Denver-based Oppenheimer funds except Oppenheimer Integrity Funds, Oppenheimer
Strategic Income Fund, Oppenheimer Variable Account Funds and Panorama Series
Fund Inc. Mr. Fossel is not a trustee of the Trust and he is not a Managing
General Partner of Centennial America Fund, L.P. Ms. Macaskill is President and
Mr. Swain is Chairman and Chief Executive Officer of the Denver Oppenheimer
funds. All of the officers except Mr. Carbuto hold similar positions with each
of the Denver Oppenheimer funds. As of October 10, 1997, the Trustees and
officers of the Trust in the aggregate owned less than 1% of the outstanding
shares of the Trust. This does not reflect ownership of shares held of record by
an employee benefit plan for employees of OppenheimerFunds, Inc., the parent of
the Manager (for which two of the officers listed below, Ms. Macaskill and Mr.
Donohue are Trustees) other than the shares beneficially owned under that plan
by the officers of the funds listed above.
ROBERT G. AVIS, Trustee*; Age 66
One North Jefferson Avenue, 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 advisor and trust company,
respectively).
WILLIAM A. BAKER, Trustee; Age 82
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
CHARLES CONRAD, JR., Trustee; Age 67
1501 Quail Street, Newport Beach, California 92660
Chairman and Chief Executive Officer of Universal Space Lines, Inc. (A space
services management company); formerly, Vice President of McDonnell Douglas
Space Systems Co. and associated with National Aeronautics and Space
Administration. JON S. FOSSEL, Trustee; Age 55 Box 44 Mead Street, Waccabuc, New
York 10597 Member of the Board of Governors of the Investment Company Institute
(a national trade association of investment companies), Chairman of the
Investment Company Institute Education Foundation; Formerly Chairman and a
director of OppenheimerFunds, Inc. ("OFI"), the immediate parent of Centennial
Asset Management Corporation ("Manager"); formerly President and a director of
Oppenheimer Acquisition Corp.("OAC"), OFI's parent holding company; formerly a
director of Shareholder Services, Inc. ("SSI") and Shareholder Financial
Services, Inc. ("SFSI"), transfer agent subsidiaries of OFI.
SAM FREEDMAN, Trustee; Age 56
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly Chairman and Chief Executive Officer of OppenheimerFunds Services (a
transfer agent); Formerly Chairman, Chief Executive Officer and a director of
SSI; Formerly Chairman, Chief Executive Officer and director of SFSI; Vice
President and a director of OAC and a director of OFI.
RAYMOND J. KALINOWSKI, Trustee; Age 68
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc.(a computer products training
company), 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; Age 75
2552 E. Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
ROBERT M. KIRCHNER, Trustee; Age 75
7500 East Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
BRIDGET A. MACASKILL, President and Trustee*; Age 49
Two World Trade Center, New York, New York 10048-0203
President, Chief Executive Officer and a director of OFI and HarbourView Asset
Management Corporation ("HarbourView"), a subsidiary of OFI; Chairman and a
director of SSI and SFSI; President and a director of OAC and Oppenheimer
Partnership Holdings Inc., a holding company subsidiary of OFI; a director of
Oppenheimer Real Asset Management, Inc. ("Real Asset"); formerly an Executive
Vice President of OFI.
NED M. STEEL, Trustee; Age 82
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; a director of Visiting Nurse
Corporation of Colorado; formerly Senior Vice President and a director of the
Van Gilder Insurance Corp. (insurance brokers).
JAMES C. SWAIN, Chairman, Chief Executive Officer and Trustee*; Age 63
6803 South Tucson Way, Englewood, Colorado 80112
Vice Chairman of OFI; formerly President and a director of the Manager, and
formerly Chairman of the Board of SSI.
MICHAEL A. CARBUTO, Vice President and Portfolio Manager; Age 42 Two World Trade
Center, New York, New York 10048-0203 Vice President of the Manager and OFI; an
officer of other Oppenheimer funds.
ANDREW J. DONOHUE, Vice President and Secretary; Age 47
Two World Trade Center, New York, New York 10048-0203
Executive Vice President, General Counsel and a director of OFI and
OppenheimerFunds Distributor, Inc. ("OFDI") Harbour View, SSI, SFSI, Oppenheimer
Partnership Holdings Inc. and MultiSource Services, Inc. (a broker-dealer);
President and a director of the Manager; President and a director of Real Asset;
Secretary and General Counsel of OAC; an officer of other Oppenheimer funds.
GEORGE C. BOWEN, Vice President, Treasurer and Assistant Secretary; Age 61
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer of OFI; Vice President and Treasurer of OFDI
and HarbourView; Senior Vice President, Treasurer Assistant Secretary and a
director of the Manager; President, Treasurer and a director of Centennial
Capital Corporation; Senior Vice President, Treasurer and Secretary of SSI; Vice
President, Treasurer and Secretary of SFSI; Treasurer of OAC; Treasurer of
Oppenheimer Partnership Holdings, Inc.; Vice President and Treasurer of Real
Asset; Chief Executive Officer, Treasurer and a director of MultiSource
Services, Inc.; an officer of other Oppenheimer funds.
ROBERT G. ZACK, Assistant Secretary; Age 49
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of OFI; Assistant Secretary
of SSI and SFSI; an officer of other Oppenheimer funds.
ROBERT J. BISHOP, Assistant Treasurer; Age 38
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the OFI/Mutual Fund Accounting; an officer of other
Oppenheimer funds; formerly a Fund Controller for OFI.
SCOTT T. FARRAR, Assistant Treasurer; Age 32
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of OFI/Mutual Fund Accounting; an officer of other Oppenheimer
funds; formerly a Fund Controller for OFI.
- ---------------------
* A Trustee who is an "interested person" of the Trusts as defined in the
Investment Company Act.
Remuneration of Trustees. The officers of the Trust and certain Trustees of the
Trust (Ms. Macaskill and Mr. Swain) who are affiliated with the Manager receive
no salary or fee from the Trust. Mr. Fossel did not receive any salary or fees
from the Trusts prior to January 1, 1997. The remaining Trustees of the Trust
received the compensation shown below. Mr. Freedman became a Trustee on June 27,
1996 and received no compensation from the Trust before that date. The
compensation from the Trust was paid during its fiscal year ended June 30, 1997.
The compensation from all of the Denver-based Oppenheimer funds include the
Trust and is compensation received as a director, trustee, managing general
partner or member of a committee of the Board during the calendar year 1996.
<TABLE>
<CAPTION>
Total Compensation
Aggregate From All
Compensation Denver-based
Name Position from Trust Oppenheimer funds(1)
<S> <C> <C> <C>
Robert G. Avis Trustee $290 $58,003
William A. Baker Audit and Review $398 $79,715
Committee Ex Officio
Member(2) and Trustee
Charles Conrad, Jr. Trustee (3) $135 $74,717
Jon S. Fossel Trustee $135 None
Sam Freedman Audit and Review $213 $29,502
Committee Member(2)
and Trustee
Raymond J. Kalinowski Audit and Review $356 $74,173
Committee Member
and Trustee
C. Howard Kast Audit and Review $372 $74,173
Committee Chairman(2)
and Trustee
Robert M. Kirchner Trustee(3) $373 $74,717
Ned M. Steel Trustee $290 $58,003
</TABLE>
- ----------------------
(1) For the 1996 calendar year.
(2) Committee positions effective July 1, 1997.
(3) Prior to July 1, 1997, Messrs. Conrad and Kirchner were also members of the
Audit and Review Committee.
Deferred Compensation Plan. The Board of Trustees has adopted a Deferred
Compensation Plan for disinterested Trustees that enables them to elect to defer
receipt of all or a portion of the annual fees they receive from the Trust.
Under the plan, the compensation deferred by a Trustee is periodically adjusted
as though an equivalent amount had been invested in shares of one or more
Oppenheimer funds selected by the Trustee. The amount paid to the Trustee under
the plan will be determined based upon the performance of the selected funds.
Deferral of Trustees' fees under the plan will not materially affect the Trust's
assets, liabilities and net income per share. The plan will not obligate the
Trust to retain the services of any Trustee or to pay any particular level of
compensation to the Trustee. Pursuant to an Order issued by the Securities and
Exchange Commission, the Trust may invest in the funds selected by the Trustee
under the plan without shareholder approval.
Major Shareholders. As of October 10, 1997, A.G. Edwards & Sons, Inc.
("Edwards"), 1 North Jefferson Avenue, St. Louis, MO 63103, which in turn is
owned by A.G. Edwards, Inc., was the record owner of 46,848,967.450 shares of
the Trust (90.53% of outstanding shares). The Trust is informed that the shares
held of record by Edwards were beneficially owned for the benefit of its
brokerage clients. As of that date, no other person owned of record or was known
by the Trust to own beneficially 5% or more of the outstanding shares of the
Trust.
The Manager and Its Affiliates
The Manager is wholly-owned by OFI which is a wholly-owned subsidiary of
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. OAC is owned by certain of OFI's
directors and officers, some of whom may serve as officers of the Trust, and two
of whom (Mr. Swain and Ms. Macaskill) serve as Trustees of the Trust.
Investment Advisory Agreement. A management fee is payable monthly to the
Manager under the terms of the investment advisory agreement between the Manager
and the Trust (the "Agreement"), and is computed on the aggregate net assets of
the Trust as of the close of business each day. The Agreement requires the
Manager, at its expense, to provide the Trust 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 of the Trust, 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 Trust. Expenses not expressly assumed by
the Manager under the Agreement or by the Distributor of the shares of the Trust
are paid by the Trust. A description of examples of such expenses is in the
Prospectus.
The Agreement contains no expense limitation. However, because of state
regulations limiting Trust expenses that previously applied, the Manager had
voluntarily undertaken that the total expenses (including the investment
advisory fee but exclusive of taxes, interest, brokerage commissions,
distribution plan payments and any extraordinary non-recurring expenses,
including litigation) of the Trust in any fiscal year would not exceed the most
stringent state securities law expense limitation. Due to changes in federal
securities laws, such state regulations no longer apply and the Manager's
undertaking is therefore inapplicable and has been withdrawn. During the Trust's
last fiscal year the Trust's expenses did not exceed the most stringent state
regulatory limit and the voluntary undertaking was not involved.
In addition, independently of the Agreement, the Manager has temporarily
undertaken to assume any expenses of the Trust in any fiscal year they exceed
0.80% of the Trust's average annual net assets. 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 those expense limitations. Any assumption of
the Trust's expenses under this arrangement lowers the Trust's overall expense
ratio and increases its yield and total return during the time such expenses are
assumed. The Manager reserves the right to terminate or amend either of these
undertakings at any time. For the fiscal years ended June 30, 1995, 1996 and
1997 the management fees payable by the Trust to the Manager would have been
$147,859, $211,940 and $226,414, respectively without the Manager's voluntary
expense assumption. Those amounts do not reflect the effect of the expense
assumptions of $44,890, $45,647 and $24,124, 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 thereunder. The Manager is permitted by the Agreement to act as
investment advisor for any other person, firm or corporation. If the Manager
shall no longer act as investment advisor to the Trust, the right of the Trust
to use the name "Centennial" as part of its name may be withdrawn.
The Custodian. The Custodian's responsibilities include safeguarding and
controlling the Trust's portfolio securities and handling the delivery of
portfolio securities to and from the Trust. The Manager has represented to the
Trust that its banking relationships between the Manager and the Custodian have
been and will continue to be unrelated to and unaffected by the relationships
between the Trust and the Custodian. It will be the practice of the Trust 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. The Transfer Agent (Shareholder Services, Inc.) is
responsible for maintaining the Trust's shareholder registry and shareholder
accounting records, and for shareholder servicing and administrative functions.
The Distributor. Under the General Distributor's Agreement between the Trust and
the Distributor, the Distributor acts as the Trust's principal underwriter in
the continuous public offering of its shares. The General Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales (other than those paid under the Service 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 and Financial Statements. The independent auditors of the
Trust audit the Trust's financial statements and perform other related audit
services. They also act as auditors for the Manager and for OFI, the Manager's
immediate parent, as well as for certain other funds advised by the Manager and
OFI.
Portfolio Transactions. Portfolio decisions are based upon the recommendations
and judgment of the Manager subject to the overall authority of the Board of
Trustees. As most purchases made by the Trust are principal transactions at net
prices, the Trust incurs little or no brokerage costs. The Trust deals directly
with the selling or purchasing principal or market maker without incurring
charges for the services of a broker on its behalf unless it is determined that
a better price or execution may be obtained by using the services of a broker.
Purchases of portfolio securities from underwriters include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
include a spread between the bid and asked prices.
The Trust seeks to obtain prompt and reliable execution of orders at the
most favorable net price. If dealers or brokers are used for portfolio
transactions, transactions may be directed to dealers or brokers furnishing
execution and research services. The research services provided by a particular
dealer or broker may be useful only to one or more of the advisory accounts of
the Manager or its affiliates and investment research received for the
commissions of those other accounts may be useful to both the Trust and one or
more of such other accounts. Such research, which may be supplied by a third
party at the instance of a dealer or 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 dealers or 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 Trust's portfolio or
being considered for purchase. The Trust 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 Trust. No portfolio transactions are
handled by firms which are affiliated with the Trust or the Manager if that
dealer or broker is acting as principal. The Trust'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 Trust.
Other funds advised by the Manager have investment objectives and policies
similar to that of the Trust. Such other funds may purchase or sell the same
securities at the same time as the Trust, which could affect the supply or price
of such securities. If two or more of such funds purchase the same security on
the same day from the same dealer, the Manager may average the price of the
transactions and allocate the cost among such funds.
Service Plan
The Trust has adopted a service plan (the "Plan") under Rule 12b-1 of the
Investment Company Act, as described in the Prospectus. No payment will be made
by the Distributor to any Recipient if the aggregate net asset value of Trust
shares held by it or its customers at the end of a calendar quarter is less than
the minimum level of qualified holdings, if any, established under the Plan from
time to time by the "Independent Trustees". Currently, no minimum level of
qualified holdings has been established by the Board of Trustees. For the
Trust's fiscal year ended June 30, 1997, payments under the Plan totaled $87,996
all of which were paid by the Distributor to Recipients, as reimbursement for
costs incurred with the personal service and maintenance of accounts that hold
Trust shares.
The Distributor has entered into Supplemental Distribution Assistance
Agreements ("Supplemental Agreements") under the Plan with selected dealers
distributing shares of Centennial America Fund, L.P., Centennial California Tax
Exempt Trust, Centennial Government Trust, Oppenheimer Cash Reserves and the
Trust. Quarterly payments by the Distributor for distribution- related services
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 net asset value of shares of the
above-mentioned funds owned during that quarter by the dealer or its customers
is less than $5 million. Payments made pursuant to Supplemental Agreements are
not a Trust expense, but are made by the Distributor out of its own resources or
out of the resources of the Manager which may include profits derived from the
advisory fee it receives from the Trust. Payments to affiliates of the
Distributor are not permitted under the Supplemental Agreements.
The Plan shall, unless terminated as described below, continue in effect
from year to year but only so long as such continuance is specifically approved
at least annually by the Trust's Board of Trustees including its Independent
Trustees by a vote cast in person at a meeting called for that purpose. The
Supplemental Agreements are subject to the same renewal requirement. The Plan
and the Supplemental 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 of the Trust's outstanding voting securities" (as defined in the
Investment Company Act). The Supplemental 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 Trust terminates the Plan, or (ii) if the net asset value of shares of the
above-mentioned funds covered by Supplemental Agreements held by the dealer or
its customers is less than $5 million for two or more consecutive quarters. A
dealer may terminate a Supplemental Agreement 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.
Under the Plan, no payment will be made to any Recipient in any quarter if
the aggregate net asset value of all Trust shares held by the Recipient for
itself and its customers did not exceed a minimum amount, if any, that may be
determined from time to time by a majority of the Trust's Independent Trustees.
The Board of Trustees has set the fee at the maximum rate and set no minimum
amount. The Plan permits the Distributor and the Manager to make additional
distribution payments to Recipients from their own resources (including profits
from advisory fees) at no cost to the Trust. The Distributor and the Manager
may, in their sole discretion, increase or decrease the amount of distribution
assistance payments they make to Recipients from their own assets.
While the Plan is in effect, the Treasurer of the Trust shall provide a
report to the Board of Trustees in writing at least quarterly on the amount of
all payments made pursuant to the Plan and the identity of each Recipient that
received any such payment and the purposes for which payments were made. The
Plan further provides that while it is in effect, the selection and nomination
of those Trustees of the Trust who are not "interested persons" of the Trust 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.
Performance of the Trust
Yield Information. The Trust's current yield is calculated for a seven-day
period of time in accordance with regulations adopted under the Investment
Company Act. 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. For the
seven-day period ended June 30, 1997, the Trust's current yield was 3.07%, and
its compounded effective yield was 3.11%.
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 Trust'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 Trust's "tax-equivalent yield" adjusts the Trust's current yield, as
calculated above, by a combined Federal, New York State and New York City tax
rate. The tax-equivalent yield is computed by dividing the tax-exempt portion of
the Trust's current yield by one minus a stated income tax rate and adding the
result to the portion (if any) of the Trust'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 Trust 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,
New York State and City taxable income (the net amount subject to income tax
after deductions and exemptions). The tax equivalent yield table assumes that
the investor is taxed at the highest applicable 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. For the seven-day period ended June 30, 1997, the
Trust's tax-equivalent yield was 4.28% and its tax-equivalent compounded yield
was 4.33% for an investment subject to a 36% combined effective tax rate (the
maximum for a New York City resident).
Yield information may be useful to investors in reviewing the Trust's
performance. The Trust's yield may be compared to that of other investments, by
citing various indices. However, a number of factors should be considered before
using yield information as a basis for comparison with other investments. An
investment in the Trust 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 Trust of future yields or rates of return on
its shares. The Trust's yield is affected by portfolio quality, portfolio
maturity, type of instruments held and operating expenses. The Trust's
performance reflects the voluntary assumption of expenses by the Manager, absent
which such figures would have been lower than those shown above. When comparing
the Trust's yield and investment risk with that of other investments, investors
should understand that certain other investment alternatives, such as
certificates of deposit, 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 or guaranteed. 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 Trust's dividends to the rate of return on taxable investments
federal and New York state and city income taxes on such investments should be
considered.
ABOUT YOUR ACCOUNT
Purchase, Redemption and Pricing of Shares
Determination of Net Asset Value Per Share. The net asset value per share of the
Trust is determined twice each day, as of 12:00 Noon (all references to time
mean New York time) and the close of The New York Stock Exchange (the
"Exchange") which is normally 4:00 P.M., but may be earlier on some days, each
day the Exchange is open (a "regular business day") by dividing the Trust's net
assets (the total value of the Trust's portfolio securities, cash and other
assets less all liabilities) by the total number of shares outstanding. Shares
of the Trust are sold at their offering price (net asset value, without a sales
charge) as described in the Prospectus. The Exchange's most recent annual
holiday schedule 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 Exchange may also close on other days. Dealers other than
Exchange members may conduct trading in Municipal Securities on certain days on
which the Exchange is closed (e.g., Good Friday), so that securities of the same
type held by the Trust may be traded, and its net asset value per share may be
significantly affected, on such days when shareholders may not purchase or
redeem shares.
The Trust's Board of Trustees has established procedures for the valuation
of the Trust's securities, which provides that money market debt securities that
have a remaining maturity of less than 397 days shall be valued at cost,
adjusted for amortization of premiums and accretion of discounts; and securities
(including restricted securities) not having readily-available market quotations
are valued at fair value determined under the Board's procedures.
The Trust will seek to maintain a net asset value of $1.00 per share for
purchases and redemptions. There can be no assurance that the Trust will do so.
The Trust operates under Rule 2a-7 under which a trust may use the amortized
cost method of valuing its shares. The amortized cost method values a security
initially at its cost and thereafter 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. This method does not take
into account unrealized capital gains or losses.
The Trust's Board of Trustees has established procedures intended to
stabilize the Trust's net asset value at $1.00 per share. If the Trust'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 Trust shares without monetary
consideration, or calculating net asset value per share by using available
market quotations.
As long as the Trust uses Rule 2a-7, the Trust must abide by certain
conditions described in the Prospectus. Some of those conditions which relate to
portfolio management are that the Trust 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" ("Rating Organizations") as defined in Rule 2a-7, or by one
Rating Organization if only one Rating Organization has rated the security; an
instrument that is not rated must be a comparable quality as determined by the
Manager under procedures approved by the Board; and (iii) not purchase any
instruments with a remaining maturity of more than 397 days. 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 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 Trust would receive if it sold the
instrument. During periods of declining interest rates, the daily yield on
shares of the Trust may tend to be lower (and net investment income and daily
dividends higher) than market prices or estimates of market prices for its
portfolio. Thus, if the use of amortized cost by the Trust resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in the
Trust would be able to obtain a somewhat higher yield than would result from
investment in a fund utilizing solely market values, and existing investors in
the Trust would receive less investment income than if the Trust were priced at
market value. Conversely, during periods of rising interest rates, the daily
yield on Trust 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 Rust would receive more investment income than
if the Trust were priced at market value.
Redemption of Shares. Information on how to redeem shares of the Trust 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 Trust 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 Trust in lieu of cash or in conformity with applicable
Securities and Exchange Commission rules. The Trust has elected to be governed
by Rule 18f-1 under the Investment Company Act, pursuant to which the Trust is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net assets of the Trust during any 90-day period for any one shareholder. If
shares are redeemed in kind, the redeeming shareholder might incur transaction
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 securities described under "Determination of Net Asset Value" above, and
such valuation will be made as of the same time the redemption price is
determined.
The Trust's Board of Trustees has the right, in conformity with applicable
law, 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 applicable law, the requirements for any notice to be
given to the shareholder(s) in question (not less than 30 days) or may set
requirements for permission to allow the shareholder to increase the investment
so that the shares would not be involuntarily redeemed.
Expedited Redemption Procedures. Under the Expedited Redemption Procedure
discussed in the Prospectus, the wiring of redemption proceeds may be delayed if
the Trust's Custodian bank is not open for business on a day that the Trust
would normally authorize the wire to be made, which is usually the same day for
redemptions prior to 12:00 Noon and the Trust's next regular business day for
redemptions between 12:00 Noon and the close of the Exchange, which is normally
4:00 P.M., but may be earlier on some days. In those circumstances, the wire
will not be transmitted until the next bank business day on which the Trust is
open for business, and no dividends will be paid on the
proceeds of redeemed shares awaiting transfer by wire.
Dividend Reinvestment in Another Fund. Direct shareholders of the Trust may
elect to reinvest all dividends and/or distributions in Class A shares of any of
the other funds listed below as "Eligible Funds" at net asset value without
sales charge. To elect this option, a shareholder must notify the Transfer Agent
in writing, and either must have an existing account in the fund selected for
reinvestment or must obtain a prospectus for that fund and an application from
the Transfer Agent to establish an account. The investment will be made at the
net asset value per share next determined on the payable date of the dividend or
distribution.
Checkwriting. Checkwriting procedures are described in the Prospectus. By
choosing the Checkwriting privilege, whether done by signing the Account
Application or by completing a Checkwriting card, the individuals signing (1)
represent that they are either the registered owner(s) of the shares of the
Trust, or are an officer, general partner, trustee or other fiduciary or agent,
as applicable, duly authorized to act on behalf of such registered owner(s); (2)
authorize the Trust its Transfer Agent and any bank through which the Trust's
drafts ("checks") are payable (the "Bank"), to pay all checks drawn on the Trust
account of such person(s) and to effect a redemption of sufficient shares in the
account to cover payment of such checks; (3) specifically acknowledge(s) that if
you choose to permit a single signature on checks drawn against joint accounts,
or accounts for corporations, partnerships, trusts or other entities, the
signature of any one signatory on a check will be sufficient to authorize
payment of that check and redemption from an account even if that account is
registered in the names of more than one person or even if more than one
authorized signature appears on the Checkwriting card or the Application, as
applicable; and (4) understand(s) that the Checkwriting privilege may be
terminated or amended at any time by the Trust and/or the Bank and neither shall
incur any liability for such amendment or termination or for effecting
redemptions to pay checks reasonably believed to be genuine, or for returning or
not paying checks which have not been accepted for any reason.
Exchange of Shares
Eligible Funds. As stated in the Prospectus, shares of the Trust may, under
certain circumstances, be exchanged by direct shareholders for Class A shares of
the following Oppenheimer funds ("Eligible Funds"):
Limited Term New York Municipal Fund
Oppenheimer Bond Fund
Oppenheimer Bond Fund for Growth
Oppenheimer California Municipal Fund
Oppenheimer Champion Income Fund
Oppenheimer Developing Markets Fund
Oppenheimer Disciplined Allocation Fund
Oppenheimer Disciplined Value Fund
Oppenheimer Discovery Fund
Oppenheimer Enterprise Fund
Oppenheimer Equity Income Fund
Oppenheimer Florida Municipal Fund
Oppenheimer Global Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Intermediate Municipal Fund
Oppenheimer International Bond Fund
Oppenheimer International Growth Fund
Oppenheimer LifeSpan Balanced Fund
Oppenheimer LifeSpan Growth Fund
Oppenheimer LifeSpan Income Fund
Oppenheimer Limited-Term Government Fund
Oppenheimer Main Street California Municipal Fund
Oppenheimer Main Street Income & Growth Fund
Oppenheimer Multi-Sector Income Trust
Oppenheimer Multiple Strategies Fund
Oppenheimer Municipal Bond Fund
Oppenheimer New Jersey Municipal Fund
Oppenheimer New York Municipal Fund
Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Growth & Income Value Fund
Oppenheimer Quest Officers Value Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Quest Small Cap Value Fund
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Real Asset Fund
Oppenheimer Strategic Income Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer U.S. Government Trust
Oppenheimer World Bond Fund
Rochester Fund Municipals
The New York Tax-Exempt Income Fund, Inc.
the following "Money Market Funds":
Centennial America Fund, L.P.
Centennial California Tax Exempt Trust
Centennial Government Trust
Centennial New York Tax Exempt Trust
Centennial Tax Exempt Trust
Daily Cash Accumulation Fund, Inc.
Oppenheimer Cash Reserves
Oppenheimer Money Market Fund, Inc.
Dividends, Distributions and Taxes
Tax Status of the Trust's Dividends and Distributions. The Federal and New York
tax treatment of the Trust's dividends and distributions to shareholders is
explained in the Prospectus under the caption "Dividends, Distributions and
Taxes." Under the Internal Revenue Code, by December 31 each year, the Trust
must distribute 98% of its taxable investment income earned from January 1
through December 31 of that year and 98% of its capital gains realized in the
period from November 1 of the prior year through October 31 of the current year
or else the Trust must pay an excise tax on the amounts not distributed. While
it is presently anticipated that the Trust's distributions will meet those
requirements, the Trust's Board and the Manager might determine in a particular
year that it might be in the best interest of the Trust's shareholders not to
distribute income or capital gains at the mandated levels and to pay the excise
tax on the undistributed amounts.
-2-
<PAGE>
FINANCIAL INFORMATION ABOUT THE TRUST
INDEPENDENT AUDITORS' REPORT
Centennial New York Tax Exempt Trust
The Board of Trustees and Shareholders of Centennial New York Tax Exempt Trust:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Centennial New York Tax Exempt Trust as of June
30, 1997, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended June 30, 1997 and 1996,
and the financial highlights for the period July 1, 1992 to June 30, 1997. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June 30,
1997 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 Centennial New York
Tax Exempt Trust at June 30, 1997, 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.
DELOITTE & TOUCHE LLP
Denver, Colorado
July 22, 1997
<PAGE>
<TABLE>
<CAPTION>
================================================================================
STATEMENT OF INVESTMENTS JUNE 30, 1997 Centennial New York Tax Exempt Trust
FACE VALUE
AMOUNT SEE NOTE 1
===========================================================================================================================
SHORT-TERM TAX-EXEMPT OBLIGATIONS - 98.6%
- ---------------------------------------------------------------------------------------------------------------------------
NEW YORK - 92.2%
<S> <C> <C> <C>
Averill Park, NY Central School District GOB, FGIC Insured,
5.25%, 5/1/98 $1,715,000 $ 1,733,016
- ----------------------------------------------------------------------------------------------------------------------------
Babylon, NY IDA RB, J. D'Addario & Co. Project, 4.10% (1) 500,000 500,000
- ----------------------------------------------------------------------------------------------------------------------------
Buffalo, NY RAN, Series A, 4.25%, 7/15/97 2,500,000 2,500,642
- ----------------------------------------------------------------------------------------------------------------------------
Franklin Cnty., NY IDA RAN, McAdam Cheese Co. Project, 4.20% (1) 1,900,000 1,900,000
- ----------------------------------------------------------------------------------------------------------------------------
Hempstead Town, NY GOB, AMBAC Insured, 5%, 2/15/98 2,000,000 2,013,030
- ----------------------------------------------------------------------------------------------------------------------------
Monroe Cnty., NY RAN, 4.25%, 12/12/97 2,000,000 2,005,276
- ----------------------------------------------------------------------------------------------------------------------------
NY MTAU Transportation Facilities RB, Series SG36, 4.35% (1) 1,700,000 1,700,000
- ----------------------------------------------------------------------------------------------------------------------------
NY PAU RB, Series SG4, 4.35% (1) 1,900,000 1,900,000
- ----------------------------------------------------------------------------------------------------------------------------
NYC GOB, MBIA Insured, 3.65%, 8/1/97 1,000,000 1,000,000
- ----------------------------------------------------------------------------------------------------------------------------
NYC IDA Civic Facility RB, Columbia Grammar School Project,
4% (1) 1,000,000 1,000,000
- ----------------------------------------------------------------------------------------------------------------------------
NYC IDA RB, Brooklyn Navy Yard Cogeneration,
Series A, 4.20% (1) 2,700,000 2,700,000
- ----------------------------------------------------------------------------------------------------------------------------
NYC Trust Cultural Resources RRB, American Museum
of Natural History:
Series A, MBIA Insured, 4.05% (1) 200,000 199,999
Series B, MBIA Insured, 4.05% (1) 200,000 200,000
- ----------------------------------------------------------------------------------------------------------------------------
NYS DA COP, Rockefeller University, 3.52% (1) 500,000 500,000
- ----------------------------------------------------------------------------------------------------------------------------
NYS Environmental Solid Waste RB, General Electric:
3.80%, 7/9/97 1,000,000 1,000,000
3.85%, 7/9/97 1,000,000 1,000,000
- ----------------------------------------------------------------------------------------------------------------------------
NYS ERDAUEF RB, L.I. Lighting Co.:
Series A, 4.095% (1) 600,000 600,000
Series B, 4.20% (1) 1,600,000 1,600,000
- ----------------------------------------------------------------------------------------------------------------------------
NYS ERDAUPC RB, NYS Electric & Gas Corp., Series B,
3.85%, 10/15/97 (2) 1,700,000 1,700,000
- ----------------------------------------------------------------------------------------------------------------------------
NYS ERDAUPC RB, Rochester Gas & Electric Co., 3.55% (1) 600,000 600,000
- ----------------------------------------------------------------------------------------------------------------------------
NYS ERDAUPC RRB, NYS Electric & Gas Corp. Series B, 4% (1) 300,000 300,000
- ----------------------------------------------------------------------------------------------------------------------------
NYS ERDAUPC RRB, Orange/Rockland Utility Project,
Series A, AMBAC Insured, 4.05% (1) 800,000 800,000
- ----------------------------------------------------------------------------------------------------------------------------
NYS GOB Anticipation Nts., 3.60%, 7/22/97 2,300,000 2,300,000
- ----------------------------------------------------------------------------------------------------------------------------
NYS HFA RB, Normandie Court I Project, 4% (1) 1,000,000 1,000,000
- ----------------------------------------------------------------------------------------------------------------------------
NYS LGAC RB, Series A, 4% (1) 1,900,000 1,900,000
- ----------------------------------------------------------------------------------------------------------------------------
NYS MCFFA RB, Lenox Hill Hospital Project, Series A, 4.10% (1) 400,000 400,000
- ----------------------------------------------------------------------------------------------------------------------------
NYS MCFFA, Mental Health Services, Series A, 8.875%, 8/15/97 (2) 5,200,000 5,335,413
- ----------------------------------------------------------------------------------------------------------------------------
NYS TBTAU Beneficial Interest COP, MBIA Insured, 3.80%,
7/15/97 (2) 1,900,000 1,900,000
- ----------------------------------------------------------------------------------------------------------------------------
NYS TBTAU COP, Series A, 4.25% (1) 1,900,000 1,900,000
- ----------------------------------------------------------------------------------------------------------------------------
PAUNYNJ RB, 3.70%, 8/1/97 1,005,000 1,005,000
- ----------------------------------------------------------------------------------------------------------------------------
PAUNYNJ Special Obligation RRB, Versatile Structure
Obligation, Series 2, 4% (1) 700,000 700,000
- ----------------------------------------------------------------------------------------------------------------------------
Suffolk Cnty., NY IDA RB, Nissequogue Cogeneration
Partnership, 4.15% (1) 1,200,000 1,200,000
------------
45,092,376
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================================
STATEMENT OF INVESTMENTS (CONTINUED)
Centennial New York Tax Exempt Trust
FACE VALUE
AMOUNT SEE NOTE 1
- ----------------------------------------------------------------------------------------------------------------------------
U.S. POSSESSIONS - 6.4%
<S> <C> <C> <C>
PR Industrial, Medical & Environmental PC Facilities FAU RB:
Key Pharmaceuticals, 3.75%, 12/1/97 (2) $1,500,000 $ 1,500,000
Reynolds Metals Co. Project, 3.80%, 9/1/97 (2) 1,600,000 1,600,359
------------
3,100,359
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE 98.6% 48,192,735
- ----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 1.4 703,201
------ ------------
NET ASSETS 100.0% $48,895,936
====== ============
</TABLE>
To simplify the listing of securities abbreviations are used per the table
below: COP - Certificates of Participation DA - Dormitory Authority ERDAUEF -
Energy Research & Development Authority Electric Facilities ERDAUPC - Energy
Research & Development Authority Pollution Control FAU - Finance Authority GOB -
General Obligation Bonds HFA - Housing Finance Agency IDA - Industrial
Development Agency LGAC - Local Government Assistance Corp. L.I. - Long Island
MCFFA - Medical Care Facilities Finance Agency MTAU - Metropolitan
Transportation Authority NYC - New York City NYS - New York State PAUNYNJ - Port
Authority of New York & New Jersey PAU - Power Authority PC - Pollution Control
RAN - Revenue Anticipation Notes RB - Revenue Bonds RRB - Revenue Refunding
Bonds TBTAU - Triborough Bridge & Tunnel Authority
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 June 30,
1997. This instrument may also have a demand feature which 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.
See accompanying Notes to Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
================================================================================
STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1997 Centennial New York Tax Exempt
Trust
=============================================================================================================================
ASSETS
<S> <C>
Investments, at value - see accompanying statement $48,192,735
- -----------------------------------------------------------------------------------------------------------------------------
Cash 23,424
- -----------------------------------------------------------------------------------------------------------------------------
Receivables:
Shares of beneficial interest sold 1,045,625
Interest 579,090
- -----------------------------------------------------------------------------------------------------------------------------
Other 4,485
------------
Total assets 49,845,359
=============================================================================================================================
LIABILITIES Payables and other liabilities:
Shares of beneficial interest redeemed 854,294
Dividends 44,750
Service plan fees 23,182
Shareholder reports 10,760
Transfer and shareholder servicing agent fees 4,900
Other 11,537
------------
Total liabilities 949,423
=============================================================================================================================
NET ASSETS $48,895,936
============
=============================================================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $48,897,826
- -----------------------------------------------------------------------------------------------------------------------------
Accumulated net realized loss on investment transactions (1,890)
- -----------------------------------------------------------------------------------------------------------------------------
Net assets - applicable to 48,897,826 shares of beneficial interest outstanding $48,895,936
============
=============================================================================================================================
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $1.00
======
</TABLE>
See accompanying Notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
================================================================================
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1997 Centennial New York Tax
Exempt Trust
=============================================================================================================================
<S> <C>
INVESTMENT INCOME - Interest $1,603,539
=============================================================================================================================
EXPENSES
Management fees - Note 3 226,414
- -----------------------------------------------------------------------------------------------------------------------------
Service plan fees - Note 3 87,996
- -----------------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees - Note 3 39,640
- -----------------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 14,296
- -----------------------------------------------------------------------------------------------------------------------------
Legal and auditing fees 10,417
- -----------------------------------------------------------------------------------------------------------------------------
Shareholder reports 7,853
- -----------------------------------------------------------------------------------------------------------------------------
Registration and filing fees 5,018
- -----------------------------------------------------------------------------------------------------------------------------
Trustees' fees and expenses 2,800
- -----------------------------------------------------------------------------------------------------------------------------
Insurance expenses 2,512
- -----------------------------------------------------------------------------------------------------------------------------
Other 838
-----------
Total expenses 397,784
-----------
Less expenses paid indirectly - Note 3 (9,838)
Less assumption of expenses by Centennial Asset Management Corp. - Note 3 (24,124)
-----------
Net expenses 363,822
=============================================================================================================================
NET INVESTMENT INCOME 1,239,717
=============================================================================================================================
NET REALIZED LOSS ON INVESTMENTS (172)
=============================================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,239,545
===========
</TABLE>
<TABLE>
<CAPTION>
================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED JUNE 30,
1997 1996
=============================================================================================================================
OPERATIONS
<S> <C> <C>
Net investment income $ 1,239,717 $ 1,170,126
- -----------------------------------------------------------------------------------------------------------------------------
Net realized loss (172) (395)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 1,239,545 1,169,731
=============================================================================================================================
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS (1,239,717) (1,170,126)
=============================================================================================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase in net assets resulting from
beneficial interest transactions - Note 2 9,088,907 3,961,784
=============================================================================================================================
NET ASSETS
Total increase 9,088,735 3,961,389
- -----------------------------------------------------------------------------------------------------------------------------
Beginning of period 39,807,201 35,845,812
---------------------------------
End of period $48,895,936 $39,807,201
=================================
</TABLE>
See accompanying Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
================================================================================
FINANCIAL HIGHLIGHTS
Centennial New York Tax Exempt Trust
Year Ended June 30,
1997 1996 1995 1994 1993
==============================================================================================================================
PER SHARE OPERATING DATA:
<S> <C> <C> <C> <C> <C>
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 .03 .03 .03 .02 .02
Dividends and distributions to shareholders (.03) (.03) (.03) (.02) (.02)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
=====================================================================
==============================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(1) 2.76% 2.79% 2.85% 1.68% 1.83%
==============================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $48,896 $39,807 $35,846 $26,519 $24,994
- ------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $45,363 $42,351 $29,590 $25,419 $24,257
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 2.73% 2.76% 2.84% 1.67% 1.74%
Expenses, before voluntary assumption
by the Manager (2) 0.88% 0.93% 0.95% 1.02% 0.98%
Expenses, net of voluntary assumption
by the Manager 0.80% 0.80% 0.80% 0.80% 0.80%
</TABLE>
1. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends reinvested in additional
shares on the reinvestment date, and redemption at the net asset value
calculated on the last business day of the fiscal period. Total returns reflect
changes in net investment income only. 2. Beginning in fiscal 1995, the expense
ratio reflects the effect of gross expenses paid indirectly by the Trust. Prior
year expense ratios have not been adjusted.
See accompanying Notes to Financial Statements.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Centennial New York Tax Exempt Trust
1. SIGNIFICANT ACCOUNTING POLICIES
Centennial New York Tax Exempt Trust (the Trust) is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company. The Trust's investment objective is to seek the
maximum current income exempt from Federal, New York State and New York City
income taxes for individual investors that is consistent with preservation of
capital. The Trust's investment adviser is Centennial Asset Management
Corporation (the Manager), a subsidiary of OppenheimerFunds, Inc. (OFI). The
following is a summary of significant accounting policies consistently followed
by the Trust.
INVESTMENT VALUATION. Portfolio securities are valued on the basis of amortized
cost, which approximates market value.
FEDERAL TAXES. The Trust 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 or excise tax provision is required.
DISTRIBUTIONS TO SHAREHOLDERS. The Trust intends to declare dividends from net
investment income each day the New York Stock Exchange is open for business and
pay such dividends monthly. To effect its policy of maintaining a net asset
value of $1.00 per share, the Trust 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. The Trust concentrates its investments in New York and,
therefore, may have more credit risks related to the economic conditions of New
York than a portfolio with a broader geographical diversification.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
2. SHARES OF BENEFICIAL INTEREST
The Trust 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 JUNE 30, 1997 YEAR ENDED JUNE 30, 1996
-------------------------------- ---------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
Sold 144,009,060 $ 144,009,060 123,079,408 $ 123,079,408
Dividends and distributions
reinvested 1,193,252 1,193,252 1,153,820 1,153,820
Redeemed (136,113,405) (136,113,405) (120,271,444) (120,271,444)
------------- -------------- ------------- --------------
Net increase 9,088,907 $ 9,088,907 3,961,784 $ 3,961,784
============= ============== ============= ==============
</TABLE>
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Centennial New York Tax Exempt Trust
3. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Management fees paid
to the Manager were in accordance with the investment advisory agreement with
the Trust which provides for a fee of 0.50% of the first $250 million of net
assets; 0.475% of the next $250 million of net assets; 0.45% of the next $250
million; 0.425% of the next $250 million and 0.40% of net assets in excess of $1
billion. The Manager has voluntarily undertaken to assume Trust expenses in
excess of 0.80% of average annual net assets.
Shareholder Services, Inc. (SSI), a subsidiary of OFI, is the transfer and
shareholder servicing agent for the Trust, and for other registered investment
companies. SSI's total costs of providing such services are allocated ratably to
these companies.
Expenses paid indirectly represent a reduction of custodian fees for earnings on
cash balances maintained by the Trust.
Under an approved service plan, the Trust may expend up to 0.20% of its net
assets annually to reimburse the Manager, as distributor, for costs incurred in
connection with the personal service and maintenance of accounts that hold
shares of the Trust, including amounts paid to brokers, dealers, banks and other
institutions.
10
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 Trust. 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 Trust 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.
A- 5
<PAGE>
APPENDIX B
INDUSTRY CLASSIFICATIONS
Electric Resource Recovery
Gas
Water Higher Education
Sewer Education
Telephone
Adult Living Facilities Lease Rental
Hospital
General Obligation Non Profit Organization
Special Assessment
Sales Tax
Highways
Marine/Aviation Facilities
Manufacturing, Non Durables
Manufacturing, Durables
Multiple Family Housing
Single Family Housing
Pollution Control
B- 1
<PAGE>
APPENDIX C
TAX EQUIVALENT YIELD TABLES
The equivalent yield tables below compare tax-free income with taxable income
under Federal, New York State and New York City income tax rates effective
January 1, 1997. Combined taxable income refers to the net amount subject to (i)
Federal and New York State income tax as to the first two tables below and (ii)
Federal, New York State and New York City income tax as to the third and fourth
tables below, in each case after deductions and exemptions. The tables assume
that an investor's highest tax bracket applies to the change in taxable income
resulting from a switch between taxable and non-taxable investments, that the
investor is not subject to the Alternative Minimum Tax and that New York State
and local income tax payments are fully deductible for Federal income tax
purposes. They do not reflect the phaseout of itemized deductions and personal
exemptions at higher income levels, resulting in higher effective tax rates and
tax equivalent yields.
<TABLE>
<CAPTION>
New York State Residents
Combined Taxable Income
Centennial New York
Tax-Exempt Trust Yield
Single Return Joint Return of:
Combined 2.0% 2.5% 3.0%
Effective Is Approximately
Not Not Tax Equivalent to a Taxable
Over Over Over Over Bracket Yield of:
<S> <C> <C> <C> <C> <C> <C> <C>
$ 22,000 $ 26,000 19.46% 2.48% 3.10% 3.72%
$ 26,000 $ 40,000 20.01% 2.50% 3.13% 3.75%
$ 20,000 $ 24,650 $ 40,000 $ 41,200 20.82% 2.53% 3.16% 3.79%
$ 24,650 $ 59,750 $ 41,200 $ 99,600 32.93% 2.98% 3.73% 4.47%
$ 59,750 $124,650 $ 99,600 $151,750 35.73% 3.11% 3.89% 4.67%
$124,650 $271,050 $151,750 $271,050 40.38% 3.35% 4.19% 5.03%
$271,050 $271,050 43.74% 3.55% 4.44% 5.33%
C-1
<PAGE>
New York State Residents
Combined Taxable Income
Centennial New York
Tax-Exempt Trust Yield
Single Return Joint Return of:
- ------------- ------------
Combined 3.5% 4.0% 4.5%
Effective Is Approximately
Not Not Tax Equivalent to a Taxable
Over Over Over Over Bracket Yield of:
$ 22,000 $ 26,000 19.46% 4.35% 4.97% 5.59%
$ 26,000 $ 40,000 20.01% 4.38% 5.00% 5.63%
$ 20,000 $ 24,650 $ 40,000 $ 41,200 20.82% 4.42% 5.05% 5.68%
$ 24,650 $ 59,750 $ 41,200 $ 99,600 32.93% 5.22% 5.96% 6.71%
$ 59,750 $124,650 $ 99,600 $151,750 35.73% 5.45% 6.22% 7.00%
$124,650 $271,050 $151,750 $271,050 40.38% 5.87% 6.71% 7.55%
$271,050 $271,050 43.74% 6.22% 7.11% 8.00%
New York City Residents
Combined Taxable Income
Centennial New York
Tax-Exempt Trust Yield
Single Return Joint Return of:
- ------------- ------------
Combined 2.0% 2.5% 3.0%
Effective Is Approximately
Not Not Tax Equivalent to a Taxable
Over Over Over Over Bracket Yield of:
$ 26,000 $ 40,000 23.21% 2.60% 3.26% 3.91%
$ 20,000 $ 24,650 $ 40,000 $ 41,200 24.02% 2.63% 3.29% 3.95%
$ 24,650 $ 25,000 $ 41,200 $ 45,900 35.64% 3.11% 3.88% 4.66%
$ 25,000 $ 50,000 $ 45,000 $ 90,000 35.68% 3.11% 3.89% 4.66%
$ 50,000 $ 59,750 $ 90,000 $ 99,600 35.73% 3.11% 3.89% 4.67%
$ 99,600 $108,000 38.40% 3.25% 4.06% 4.87%
$ 59,750 $124,650 $108,000 $151,750 38.40% 3.25% 4.06% 4.87%
$124,650 $271,050 $151,750 $271,050 42.87% 3.50% 4.38% 5.25%
$271,050 $271,050 46.08% 3.71% 4.64% 5.56%
New York City Residents
Combined Taxable Income
Centennial New York
Tax-Exempt Trust Yield
Single Return Joint Return of:
- ------------- ------------
Combined 3.5% 4.0% 4.5%
Effective Is Approximately
Not Not Tax Equivalent to a Taxable
Over Over Over Over Bracket Yield of:
$ 26,000 $ 40,000 23.21% 4.56% 5.21% 5.86%
$ 20,000 $ 24,650 $ 40,000 $ 41,200 24.02% 4.61% 5.26% 5.92%
$ 24,650 $ 25,000 $ 41,200 $ 45,900 35.64% 5.44% 6.21% 6.99%
$ 25,000 $ 50,000 $ 45,000 $ 90,000 35.68% 5.44% 6.22% 7.00%
$ 50,000 $ 59,750 $ 90,000 $ 99,600 35.73% 5.45% 6.22% 7.00%
$ 99,600 $108,000 38.40% 5.68% 6.49% 7.31%
$ 59,750 $124,650 $108,000 $151,750 38.40% 5.68% 6.49% 7.31%
$124,650 $271,050 $151,750 $271,050 42.87% 6.13% 7.00% 7.88%
$271,050 $271,050 46.08% 6.49% 7.42% 8.35%
</TABLE>
C-2
<PAGE>
APPENDIX D
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 Statement of Additional
Information as they may be amended from time to time by the Trust and/or the
Distributor. When adopted, such amendments will automatically apply to existing
Plans.
Trust shares will be redeemed as necessary to meet withdrawal payments.
Shares acquired without a sales charge will be redeemed first and thereafter
shares acquired with reinvested dividends and distributions followed by shares
acquired with a sales charge will be redeemed to the extent necessary to make
withdrawal payments. Depending upon the amount withdrawn, the investor's
principal may be depleted. Payments made to shareholders under such plans should
not be considered as a yield or income on an 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.
1. Shareholder Services, Inc., the Transfer Agent of the Trust, will
administer the Automatic Withdrawal Plan (the "Plan") as agent for the person
(the "Planholder") who executed the Plan authorization and application submitted
to the Transfer Agent.
2. Certificates will not be issued for shares of the Trust purchased for
and held under the Plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Trust. Any share
certificates now held by the Planholder may be surrendered unendorsed to the
Transfer Agent with the Plan application so that the shares represented by the
certificate may be held under the Plan. Those shares will be carried on the
Planholder's Plan Statement.
3. Distributions of capital gains must be reinvested in shares of the
Trust, 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 approximately 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 Trust) to redeem all, or any part of, the shares held under
the Plan. In such case, the Transfer Agent will redeem the number of shares
requested at the net asset value per share in effect in accordance with the
Trust's usual redemption procedures and will mail a check for the proceeds of
such redemption to the Planholder.
8. The Plan may, at any time, be terminated by the Planholder on written
notice to the Transfer Agent, or by the Transfer Agent upon receiving directions
to that effect from the Trust. the Transfer Agent will also terminate the Plan
upon receipt of evidence satisfactory to it of the death or legal incapacity of
the Planholder. Upon termination of the Plan by the Transfer Agent or the Trust,
shares remaining unredeemed will be held in an uncertificated account in the
name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder, his executor or guardian, or as
otherwise appropriate.
9. For purposes of using shares held under the Plan as collateral, the
Planholder may request issuance of a portion of his shares in certificated form.
Upon written request from the Planholder, the Transfer Agent will determine the
number of shares as to which a certificate may be issued, so as not to cause the
withdrawal checks to stop because of exhaustion of uncertificated shares needed
to continue payments. Should such uncertificated shares become exhausted, Plan
withdrawals will terminate.
10. The Transfer Agent shall incur no liability to the Planholder for any
action taken or omitted by the Transfer Agent in good faith.
11. In the event that the Transfer Agent shall cease to act as transfer
agent for the Trust, the Planholder will be deemed to have appointed any
successor transfer agent to act as his agent in administering the Plan.
D-3
<PAGE>
Investment Advisor and Distributor
Centennial Asset Management Corporation
6803 South Tucson Way
Englewood, Colorado 80112
Sub Distributor
OppenheimerFunds Distributor, Inc.
PO Box 5254
Denver, Colorado 80217
Transfer and Shareholder Servicing Agent
Shareholder Services, Inc.
P.O. Box 5143
Denver, Colorado 80217-5143
1-800-525-9310
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street
Denver, Colorado 80202
Legal Counsel
Myer, Swanson, Adams & Wolf, P.C.
1600 Broadway
Denver, Colorado 80202
PXO780.001.1197
