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Centennial New York Tax Exempt Trust
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6803 South Tucson Way, Englewood, Colorado 80112
1.800.525.9310
Statement of Additional Information dated November 1, 2000
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, 2000. 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, or
by calling the Transfer Agent at the toll-free number shown above.
Contents
Page
About the Trust
Additional Information about the Trust's Investment Policies and Risks....2
The Trust's Investment Policies......................................2
Other Investment Strategies..........................................9
Investment Restrictions.............................................18
How the Trust is Managed.................................................21
Organization and History............................................21
Trustees and Officers of the Trust..................................23
The Manager.........................................................27
Service Plan.............................................................29
Performance of the Trust.................................................30
About Your Account
How To Buy Shares........................................................33
How To Sell Shares.......................................................34
How To Exchange Shares...................................................35
Dividends and Taxes......................................................37
Additional Information About the Trust...................................39
Financial Information About the Trust
Independent Auditors' Report.............................................40
Financial Statements.....................................................41
Appendix A: Securities Ratings..........................................A-1
Appendix B: Industry Classifications....................................B-1
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A B O U T T H E T R U S T
Additional Information About the Trust's Investment Policies and Risks
The investment objective and the principal investment policies of the Trust are
described in the Prospectus. This Statement of Additional Information contains
supplemental information about those policies and the types of securities that
the Trust's investment manager, Centennial Asset Management Corporation
(referred to as the "Manager"), will select for the Trust. Additional
explanations are also provided about the strategies the Trust may use to try to
achieve its objective.
The Trust's Investment Policies. The composition of the Trust's portfolio and
the techniques and strategies that the Trust's Manager uses in selecting
portfolio securities will vary over time. The Trust is not required to use all
of the investment techniques and strategies described below at all times in
seeking its goal. It may use some of the special investment techniques and
strategies at some times or not at all.
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, if 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.
The Trust may sell securities prior to their maturity, to attempt to take
advantage of short-term market variations, or because of a revised credit
evaluation of the issuer or other considerations. The Trust may also do so to
generate cash to satisfy redemptions of Trust shares. In such cases, the Trust
may realize a capital gain or loss on the security.
There are variations in the credit quality of municipal securities, both
within a particular rating classification and between classifications. These
variations depend on numerous factors. The yields of municipal securities depend
on a number of factors, including general conditions in the municipal securities
market, the size of a particular offering, the maturity of the obligation and
rating (if any) of the issue. These factors are discussed in greater detail
below.
Municipal Securities. The types of municipal securities in which the Trust may
invest are described in the Prospectus under "About the Trust's Investments."
Municipal securities are generally classified as general obligation bonds,
revenue bonds and notes. A discussion of the general characteristics of these
principal types of municipal securities follows below.
|X| Municipal Bonds. We have classified municipal securities having a
maturity (when the security is issued) of more than one year as "municipal
bonds." The principal classifications of long-term municipal bonds are "general
obligation" and "revenue" (including "industrial development") bonds. They may
have fixed, variable or floating rates of interest, as described below.
Some bonds may be "callable," allowing the issuer to redeem them before
their maturity date. To protect bondholders, callable bonds may be issued with
provisions that prevent them from being called for a period of time. Typically,
that is 5 to 10 years from the issuance date. When interest rates decline, if
the call protection on a bond has expired, it is more likely that the issuer may
call the bond. If that occurs, the Trust might have to reinvest the proceeds of
the called bond in bonds that pay a lower rate of return.
|_| General Obligation Bonds. The basic security behind general
obligation bonds is the issuer's pledge of its full faith and credit and taxing
power, if any, for the repayment of principal and the payment of interest.
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 rate of taxes that can be
levied for the payment of debt service on these bonds may be limited or
unlimited. Additionally, there may be limits as to the rate or amount of special
assessments that can be levied to meet these obligations.
|_| 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 tax or other
specific revenue source. Revenue bonds are issued to finance a wide variety of
capital projects. Examples include electric, gas, water and sewer systems;
highways, bridges, and tunnels; port and airport facilities; colleges and
universities; and hospitals.
Although the principal security for these types of bonds may vary from
bond to bond, many provide additional security in the form of a debt service
reserve fund that may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range of security,
including partially or fully insured mortgages, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. Some authorities provide further security in the form of a state's
ability (without obligation) to make up deficiencies in the debt service reserve
fund.
|_| Industrial Development Bonds. Industrial development bonds are
considered municipal bonds if the interest paid is exempt from federal income
tax. They 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 may also be 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 financed by the bond as security
for those payments.
|_| 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 certain types of 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 general obligation bonds
issued by or on behalf of state or local governments, the proceeds of which are
used to finance the operations of such governments, continues to be tax-exempt.
However, the Tax Reform Act 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 is
taxable under the revised rules. There is an exception for "qualified"
tax-exempt private activity bonds, for example, exempt facility bonds including
certain industrial development bonds, qualified mortgage bonds, qualified
Section 501(c)(3) bonds, and qualified student loan bonds. Normally, the Trust
will not invest more than 20% of its total assets in private activity municipal
securities or other taxable investments.
In addition, limitations as to the amount of private activity bonds which
each state may issue were revised downward by the Tax Reform Act, which will
reduce the supply of such bonds. The value of the Trust's portfolio could be
affected if there is a reduction in the availability of such bonds.
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. 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 on individuals
and corporations.
The federal alternative minimum tax is designed to ensure that all persons
who receive income pay some tax, even if their regular tax is zero. This is
accomplished in part by including in taxable income certain tax preference items
that are used to calculate 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 the proportionate relationship the interest the investment company
receives on such bonds bears to all its exempt interest dividends.
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. That could occur in
situations where the "adjusted current earnings" of the corporation exceeds its
alternative minimum taxable income.
To determine whether a municipal security is treated as a taxable private
activity bond, it is subject to 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 the bond proceeds are used for private business
purposes and (ii) 10% or more of the payment of principal or interest on the
issue is directly or indirectly derived from such private use or is secured by
the privately used property or the payments related to the use of the property.
For certain types of uses, a 5% threshold is substituted for this 10% threshold.
The term "private business use" means any direct or indirect use in a
trade or business carried on by an individual or entity other than a state or
municipal governmental unit. Under the private loan restriction, the amount of
bond proceeds that 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 the
use of the bond-financed
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facility. The Trust makes no independent investigation of the users of such
bonds or their use of proceeds of the bonds. If the Trust should hold a bond
that loses its tax-exempt status retroactively, there might be an adjustment to
the tax-exempt income previously distributed to shareholders.
Additionally, a private activity bond that 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 applies primarily to exempt
facility bonds, including industrial development bonds. The Trust may invest in
industrial development bonds and other private activity bonds. Therefore, the
Trust may not be an appropriate investment for entities which are "substantial
users" (or persons related to "substantial users") of such exempt facilities.
Those entities and persons should consult their tax advisers before purchasing
shares of the Trust.
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 individual or the
individual'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.
|X| Municipal Notes. Municipal securities having a maturity (when the
security is 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. Some of the types of municipal notes the Trust can invest in are
described below.
|_| Tax Anticipation Notes. These are issued to finance working capital
needs of municipalities. Generally, they are issued in anticipation of various
seasonal tax revenue, such as income, sales, use or other business taxes, and
are payable from these specific future taxes.
|_| Revenue Anticipation Notes. These are notes issued in expectation of
receipt of other types of revenue, such as federal revenues available under
federal revenue-sharing programs.
|_| Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. The
long-term bonds that are issued typically also provide the money for the
repayment of the notes.
|_| Construction Loan Notes. These are sold to provide project
construction financing until permanent financing can be secured. After
successful completion and acceptance of the project, it may receive permanent
financing through public agencies, such as the Federal Housing Administration.
|X| Tax Exempt Commercial Paper. This type of short-term obligation
(usually having a maturity of 270 days or less) is issued by a municipality to
meet current working capital needs.
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|X| Municipal Lease Obligations. The Trust's investments in municipal
lease obligations may be through certificates of participation that are offered
to investors by public entities. 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.
Some municipal lease securities may be deemed to be "illiquid" securities.
Their purchase by the Trust would be limited as described below in "Illiquid
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 Board of Trustees. Those guidelines require
the Manager to evaluate:
|_| the frequency of trades and price quotations for such securities; |_|
the number of dealers or other potential buyers willing to purchase or
sell such securities; |_| the availability of market-makers; and |_| the
nature of the trades for such securities.
Municipal leases have special risk considerations. 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 that purpose on a yearly basis. While the obligation
might be secured by the lease, it might be difficult to dispose of that property
in case of a default.
Projects financed with certificates of participation generally are not
subject to state constitutional debt limitations or other statutory requirements
that may apply to other municipal securities. Payments by the public entity on
the obligation underlying the certificates are derived from available revenue
sources. That revenue might 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 a state
or any of its political subdivisions.
In addition to the risk of "non-appropriation," municipal lease securities
do not have as highly liquid a market as conventional municipal bonds. Municipal
leases, like other municipal debt obligations, are subject to the risk of
non-payment of interest or repayment of principal by the issuer. The ability of
issuers of municipal leases to make timely lease payments may be adversely
affected in general economic downturns and as relative governmental cost burdens
are reallocated among federal, state and local governmental units. A default in
payment of income would result in a reduction of income to the Trust. It could
also result in a reduction in the value of the municipal lease and that, as well
as a default in repayment of principal, could result in a decrease in the net
asset value of the Trust. While the Trust holds such securities, the Manager
will also evaluate the likelihood of a continuing market for these securities
and their credit quality.
Ratings of Securities - Portfolio Quality and Diversification. Under Rule 2a-7
of 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 imposes requirements for the maturity, quality and
<PAGE>
diversification of the securities which the Trust buys. The Trust may purchase
only those securities that the Manager, under procedures approved by the Board
of Trustees, has determined have minimal credit risk and, as such, are "eligible
securities".
|_| Quality. Eligible securities are securities that have received a
rating in one of the two highest short-term rating categories by a rating
organization. Rating organizations are designated by the SEC. Eligible
securities may be "first tier" or "second tier" securities. First tier
securities are those that have received a rating in the highest category for
short term debt obligations by at least two rating organizations. If only one
rating organization has rated the security, it must be rated in the highest
category for that rating organization. U.S. government securities and securities
issued by a registered money market mutual fund are also first tier securities.
The Trust may also buy second tier "conduit securities". These eligible
securities are securities rated by rating organizations but are not first tier
securities. Conduit securities are municipal securities such as industrial
development or revenue bonds issued to finance non-government projects. The
payment of the principal and interest on a conduit security is not the
obligation of the municipal issuer, but is the obligation of another person who
is ultimately responsible for the payment of principal and interest, such as the
user of the facility. The Trust may not invest more than 5% of its total assets
in second tier conduit securities.
The Trust may also buy unrated securities that the Manager determines are
comparable in quality to a first or second tier security by applying certain
criteria established by the Board to determine its creditworthiness. These
criteria require a high quality short term or long-term rating (depending on the
security) from a rating organization. Unrated securities the Trust may buy
include asset backed securities and securities subject to "demand features" or
"guarantees".
The Trust may purchase a security subject to a guarantee if the guarantee
is an eligible security or a first tier security. The trust may also purchase a
security subject to a "conditional" demand feature if the demand feature is an
eligible security and the Manager has decided that the conditional demand
feature meets the requirements imposed by Rule 2a-7.
If a security's rating is downgraded, the Manager and/or the Board of
Trustees may have to reassess the security's credit risk. If a security has
ceased to be a first tier security, the Manager will promptly reassess whether
the security continues to present minimal credit risk. 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 risk and whether it is in the best interests of the
Trust to dispose of it. If the Trust disposes of the security within five days
of the Manager learning of the downgrade, the Manager will provide the Board of
Trustees with subsequent notice of such downgrade. If a security is in default,
or ceases to be an eligible security, or is determined no longer to present
minimal credit risks, the Board of Trustees must determine whether it would be
in the best interests of the Trust to dispose of the security.
|_| Diversification. With respect to 75% of its total assets, the Trust
cannot invest more than 5% of its total assets in securities issued by one
issuer. It cannot invest more than 5% of its total assets in securities of one
issuer unless the security is a first tier security. The Trust also cannot
invest more than 1% of its total assets or $1.0 million, whichever is greater,
in second tier securities of one issuer. For diversification purposes, the Trust
is considered to have purchased the security underlying a repurchase agreement
if the repurchase agreement is fully collateralized. For a refunded security,
the Trust is considered to have the U.S. government securities underlying the
refunded security. For conduit securities, the Trust considers the issuer to be
the person ultimately responsible for payment of the obligation. If the Trust
buys an asset backed security, the issuer of the security is deemed to be the
"special purpose" entity which issued the security. A special purpose entity is
an entity which is organized solely for the purpose of issuing asset backed
securities. If the asset backed securities issued by the special purpose entity
include the obligations of another person or another special purpose entity and
those obligations amount to 10% or more of the asset backed securities the Trust
buys, that other person or entity is considered to be the issuer of a pro rata
percentage of the asset backed security.
The Trust may buy a security subject to a demand feature or guarantee. In
this case, with respect to 75% of its total assets, the Trust may not invest
more than 10% of its total assets in securities issued by or subject to demand
features or guarantees issued by the same issuer. If the demand feature or
guarantee is a second tier security, the Trust may not invest more than 5% of
its total assets in securities subject to demand features or guarantees from the
same issuer. And, the Trust may not invest more than 10% of its total assets in
securities issued by or subject to demand features or guarantees from the same
issuer. However, if the demand feature or guarantee is issued by a person who is
a non-controlled person, the Trust does not have to limit its investments to no
more than 10% of its total assets in securities issued by or subject to demand
features or guarantees from the same issuer.
|_| Maturity. The Trust must maintain a dollar-weighted average portfolio
maturity of not more than 90 days, and the maturity of any single security must
not be in excess of one year from the date of purchase. The Board of Trustees
has recommended that shareholders approve increasing the maximum permitted
maturity to the maximum permitted under Rule 2a-7 (or any other applicable rule)
which is currently 397 days. If that change is not approved by shareholders, the
prospectus and this Statement of Additional Information will be supplemented.
The Trust also may buy adjustable and floating rate securities, enter into
repurchase agreements and lend portfolio securities. Rule 2a-7 defines how the
maturities of these securities are determined. The Trust may buy these
securities if their maturities do not exceed one year from the date of the
investment (or if the changes are approved by shareholder, the maximum time
period provided for in Rule 2a-7).
|_| Demand Features and Guarantees. Demand features and gurantees and some
of their uses are described in the Prospectus. The Trust also uses demand
features and guarantees to satisfy the maturity, quality and diversifications
requirements described above. The Trust considers the person which issues the
demand feature as the person to whom the Trust will look for payment. An
unconditional demand feature is considered a guarantee and the Trust looks to
the person making the guarantee for payment of the obligation of the underlying
security.
When the Trust buys municipal securities, it may obtain a demand feature
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. Another type of demand feature 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 demand features either separately in cash or by paying a higher price for
the securities acquired subject to the demand features. 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 demand features
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.
The Trust's ability to exercise a demand feature or guarantee will depend
on the ability of the bank or dealer to pay for the securities if the demand
feature or guarantee 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. Demand features and
guarantees 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 demand
feature or guarantee is exercised. Any considerations paid by the Trust for the
demand feature (which increases the cost of the security and reduces the yield
otherwise available for the security) will be reflected on the Trust's books as
unrealized depreciation while the demand feature or guarantee is held, and a
realized gain or loss when demand feature is exercised or expires.
Other Investment Strategies
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 from the purchase date, but may include features that permit the holder
to recover the principal amount of the underlying security at specified
intervals not exceeding one year on not more than thirty days' notice at any
time (or if the changes are approved by shareholders, the maximum time period
provided for in Rule 2a-7). 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. There is no limit on the amount of the Trust's assets that may be
invested in floating rate and variable rate obligations that meet the
requirements of Rule 2a-7. Floating rate or variable rate obligations which do
not provide for recovery of principal and interest within seven days may be
subject to the limitations applicable to illiquid securities described in
"Investment Objective and Policies - Illiquid and Restricted Securities" in the
Prospectus.
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 identify on its books liquid assets 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.
Loans of Portfolio Securities. To attempt to increase its income, the Trust may
lend its portfolio securities to brokers, dealers and other financial
institutions. These loans are limited to not more than 10% of the value of the
Trust's total assets and are subject to other conditions described below. The
Trust will not enter into any securities lending agreements having a maturity in
excess of one year (or if the changes are approved by shareholders, the maximum
time period provided for in Rule 2a-7). The Trust presently does not intend to
lend its securities, but if it does, the value of securities loaned is not
expected to exceed 5% of the value of the Trust's total assets. There are some
risks in lending securities. The Trust could experience a delay in receiving
additional collateral to secure a loan, or a delay in recovering the loaned
securities.
The Trust must receive collateral for a loan. Any securities received as
collateral for a loan must mature in twelve months or less. Under current
applicable regulatory requirements (which are subject to change), on each
business day the loan collateral must be at least equal to the market value of
the loaned securities. The collateral must consist of cash, bank letters of
credit, U.S. government securities 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.
When it lends securities, the Trust receives from the borrower an amount
equal to the interest paid or the dividends declared on the loaned securities
during the term of the loan. It may also receive negotiated loan fees and the
interest on the collateral securities, less any finders', custodian,
administrative or other fees the Trust pays in connection with the loan. The
Trust may share the interest it receives on the collateral securities with the
borrower as long as it realizes at least a minimum amount of interest required
by the lending guidelines established by its Board of Trustees.
The Trust will not lend its portfolio securities to any officer, Trustee,
employee or affiliate of the Trust or its 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 business days notice or in time to
vote on any important matter.
Repurchase Agreements. In a repurchase transaction, the Trust acquires a
security from, and simultaneously resells it to, an approved vendor (a U.S.
commercial bank or the U.S. branch of a foreign bank having total domestic
assets of at least $1 billion or a broker-dealer with a net capital of at least
$50 million and which has been designated a primary dealer in government
securities). 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 of 1940, as amended (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 repurchase price to fully
collateralize the repayment obligation. Additionally, the Manager will monitor
the vendor's creditworthiness to confirm that the vendor is financially sound
and will continuously monitor the collateral's value.
Special Investment Considerations - New York Municipal Securities. As explained
in the Prospectus, the Trust's investments are highly sensitive to the fiscal
stability of New York State (referred to in the section as the "State") and its
subdivisions, agencies, instrumentalities or authorities, including New York
City, which issue the municipal securities in which the Trust invests. 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 by issuers of New York municipal securities on or prior to
July 15, 2000 with respect to offerings of New York State, and on or prior to
May 11, 2000 with respect to offerings by New York City. No representation is
made as to the accuracy of this 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 reducing 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.
|X| Factors Affecting Investments in New York State Securities. The
State's published forecast of its economy showed continued expansion during the
2000 calendar year, with employment growth gradually slowing from the 1999
calendar year. Most major sectors of the economy recorded significant employment
gains for the first quarter of 2000, with the service sector accounting for the
largest increases. On an average annual basis, the employment growth rate in the
State was expected to be lower than in 1999, but to exceed national employment
growth. Personal income was expected to record moderate gains in 2000. Wage
growth in 2000 was expected to remain strong because of much
stronger-than-expected bonus payments in the first half of the year; however,
the expectation of continued strong growth was checked by less optimism with
respect to end-of-year financial sector performance.
The forecast for continued growth, and any resultant impact on the State
Plan, contained uncertainties. The inflation rate may differ significantly from
expectations due to the upward pressure of a tight labor market and higher
prices for commodities such as petroleum products and the downward pressure of
improved productivity growth. In addition, the State economic forecast could
over- or under-estimate the level of future bonus payments or inflation growth,
resulting in forecasted average wage growth that could differ significantly from
actual growth. Similarly, the State forecast could over- or under-estimate
actions by the Federal Reserve Board to moderate inflation. An increase in
interest rates could have an adverse impact in New York given the sensitivity of
financial markets to interest rate shifts and the prominence of these markets in
the New York economy. There is also the possibility that
greater-than-anticipated mergers, downsizing, and relocation of firms caused by
deregulation and global competition may have a significant adverse effect on
employment growth.
Relative to the nation, the State has a smaller share of manufacturing and
construction and a larger share of service-related industries. The State's
finance, insurance, and real estate share, as measured by wages, is particularly
large relative to the nation. The State projected that it is likely to be less
affected than the nation as a whole during an economic recession that is
concentrated in manufacturing and construction, but likely to be more affected
by any economic downturn that is concentrated in the services sector.
On May 10, 2000 the State issued the 2000-01 Financial Plan (the "May
Financial Plan"). On July 31, 2000, the State released the first of three
quarterly updates to the May Financial Plan (the "July Update"; the May
Financial Plan, as updated by the July Update, being the "State Plan"). The
State's General Fund (the major operating Fund of the State) was projected in
the State Plan to be balanced on a cash basis for the 2000-01 fiscal year. Total
receipts and transfers from other funds was projected to reach $39.72 billion,
an increase of $2.32 billion from the prior fiscal year, and disbursements and
transfers to other funds were projected to be $38.92 billion, an increase of
$1.75 billion from the total disbursed in the prior fiscal year.
The State reported that at the end of the first quarter of the 2000-01
fiscal year, the General Fund had a cash balance of $6.75 billion, $446 million
above the estimate in the May Financial Plan. Total General Fund receipts and
transfers from other funds totaled $14.93 billion in the first quarter, $464
million higher than the May cash flow projections. Total General Fund
disbursements and transfers to other funds totaled $9.35 billion in the first
quarter, $18 million above the May cash flow projections, which the State
attributed to the timing of payments and did not anticipate would affect
year-end totals.
General Fund receipt results through the first quarter remained strong as
the New York economy continued to expand at a healthy pace. However, several
factors with a potentially negative impact on future receipts mitigated against
any upward revision in the receipt estimates at the time of the July Update,
including: a possible slowdown in national economic activity engineered by
Federal Reserve Board policy; an easing of growth in equity markets; and
continued uncertainty with respect to financial sector profits and bonus
payments which determine a significant portion of year end income and corporate
tax receipts.
Projections of total State receipts in the State 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 were
deemed to be particularly important. The State stated that its projection of
receipts from most tax or revenue sources was 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, was designed
to ensure that State fiscal year collection 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 those taxes.
Projections of total State disbursements were based on assumptions
relating to economic and demographic factors, potential collective bargaining
agreements, 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 included uncertainties relating to the economy
of the nation and the State, the policies of the federal government, collective
bargaining negotiations and changes in the demand for and use of State services.
Despite recent budgetary surpluses recorded by the State, actions
affecting the level of receipts and disbursements, the relative strength of the
State and regional economy, and actions of the federal government could impact
projected budget gaps for the State. These gaps would result from a disparity
between recurring revenues and the costs of 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 and
disbursements in future fiscal years.
|_| State Governmental Funds Group. Substantially all State
non-pension financial operations are accounted for in the State's
governmental funds group.
Governmental funds include:
o the General Fund, which receives all income not required by law to
be deposited in another fund;
o Special Revenue Funds, which receive most of the money the State gets
from the Federal government and other income the use of which is
legally restricted to certain purposes;
o Capital Projects Funds, used to finance the acquisition and
construction of major capital facilities by the State and to aid in
certain projects conducted by local governments or public authorities;
and
o Debt Service Funds, which are used for the accumulation of money for
the payment of principal of and interest on long-term debt and to meet
lease-purchase and other contractual-obligation commitments.
|_| Local Government Assistance Corporation. In 1990, as part of a State
fiscal reform program, legislation was enacted creating Local Government
Assistance Corporation, a public benefit corporation empowered to issue
long-term obligations to fund payments to local governments that had been
traditionally funded through the State's annual seasonal borrowing. The
legislation authorized the corporation 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 percent 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 the corporation and bonds
issued to provide for capitalized interest. An exception is in cases where the
Governor and the legislative leaders have certified the need for additional
borrowing and have 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
the corporation's bondholders in the resolution authorizing such bonds.
As of June 1995, the corporation had issued bonds and notes to provide net
proceeds of $4.7 billion, completing the program. The impact of its borrowing,
as well as other changes in revenue and spending patterns, is that the State has
been able to meet its cash flow needs throughout the fiscal year without relying
on short-term seasonal borrowings.
|X| Authorities. The fiscal stability of the State is related to the
fiscal stability of its public Authorities. Authorities have various
responsibilities, including those that 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.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as tolls charged for use of highways, bridges or
tunnels, charges for electric power, electric and gas utility services, rentals
charged for housing units and charges for occupancy at medical care facilities.
In addition, State legislation authorizes several financing techniques for
Authorities. 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.
|X| Ratings of the State's Securities. Moody's Investors Service,
Inc. has rated the State's general obligation bonds "A2" and Standard &
Poor's Ratings Services, a Division of the McGraw-Hill Companies, has rated
those bonds "A+."
Ratings reflect only the views of the ratings organizations, and an
explanation of the significance of a rating may be obtained from the rating
agency furnishing the rating. There is no assurance that a particular rating
will continue for any given period of time or that a rating will not be revised
downward or withdrawn entirely if, in the judgment of the agency originally
establishing the rating, circumstances warrant. A downward revision or
withdrawal of a rating may have an effect on the market price of the State and
municipal securities in which the Trust invests.
|X| The State's General Obligation Debt. As of March 31, 2000, the State
had approximately $4.6 billion in general obligation bonds outstanding.
Principal and interest due on general obligation bonds were $724 million for the
1999-2000 fiscal year and are estimated to be $687.4 million for the State's
2000-01 fiscal year.
|X| Pending Litigation. The State is a defendant in numerous legal
proceedings pertaining to matters incidental to the performance of routine
governmental operations. That litigation includes, but is not limited to, claims
asserted against the State involving State finances and programs and arising
from alleged violations of civil rights, alleged torts, alleged breaches of
contracts, real property proceedings and other alleged violations of State and
federal laws. These proceedings could affect adversely the financial condition
of the State in the 2000-01 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 2000-01 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 2000-01 financial plan.
In addition, the State is party to other claims and litigation that its
legal counsel has advised are not probable of adverse court decisions or are not
deemed to be materially adverse. 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 2000-01 fiscal year or thereafter.
|X| Other Functions. Certain localities in addition to New York City have
experienced financial problems and have requested and received additional State
assistance during the last several State fiscal years. The potential impact on
the State of any future requests by localities for additional oversight or
financial assistance is not included in the projections of the State's receipts
and disbursements for the State's 2000-01 fiscal year.
|X| Factors Affecting Investments in New York City Municipal Securities.
New York City (the "City") has a diversified economic base, with a substantial
volume of business activity in the service, wholesale and retail trade and
manufacturing industries and is the location of many securities, banking, law,
accounting, new media and advertising firms.
Economic activity in the City has experienced periods of growth and
recession and can be expected to experience periods of growth and recession in
the future. Changes in the economic activity in the City, particularly
employment, per capita personal income and retail sales, may have an impact on
the City. From 1969 to 1977, the City experienced substantial declines in
employment, but from 1978 to 1987 the City experienced strong growth in jobs,
especially in the City's finance, insurance and real estate sectors due in large
part to lower inflation, lower interest rates and a strong securities market.
Beginning in 1988, employment growth in the City slowed, and in 1990 the City
experienced job losses, although the U.S. economy expanded during that period.
During 1991 and 1992, employment levels in the City continued to decline. In
recent years, the City experienced increases in employment. Real per capita
personal income (i.e., per capita personal income adjusted for the effects of
inflation and the differential in living costs) has generally experienced fewer
fluctuations than employment in the City. Although the City periodically
experienced declines in real per capita personal income between 1969 and 1981,
real per capita personal income in the City has generally increased from the
mid-1980s until the present. In nearly all of the years between 1969 and 1990
the City experienced strong increases in retail sales. However, from 1991 to
1993, the City experienced a weak period of retail sales. Since 1994, the City
has returned to a period of growth in retail sales. Overall, the City's economic
improvement accelerated significantly between 1997 and 1999. Much of the
increase can be traced to the performance of the securities industry, but the
City's economy also produced gains in the retail trade sector, the hotel and
tourism industry, and business services, with private sector employment growing
at a record pace. The City's current financial plan assumes that, after strong
growth in 2000, moderate economic growth will exist through calendar year 2003,
with moderating job growth and wage increases.
For each of the 1981 through 1999 fiscal years, the City had an operating
surplus, before discretionary and other transfers, and achieved balanced
operating results as reported in accordance with generally accepted accounting
principles after discretionary and other transfers. 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 tax or other revenue increases or reductions in City services or
entitlement programs, which could adversely affect the City's economic base.
The Mayor is responsible for preparing the City's financial plan,
including the City's current financial plan for the 2000 through 2004 fiscal
years (referred to below as the "2000-2004 Financial Plan", or "Financial
Plan").
The City's projections set forth in the Financial Plan are based on
various assumptions and contingencies which are uncertain and which may not
materialize. Implementation of the Financial Plan is dependent upon the City's
ability to market its securities successfully. The City's financing program for
fiscal years 2000 through 2004 contemplates the issuance of $8.22 billion of
general obligation bonds and $5.75 billion of bonds to be issued by the New York
City Transitional Finance Authority (the "Finance Authority") to finance City
capital projects. The City's financing program assumes the passage of
legislation by the State to increase the financing capacity of the Finance
Authority by $4 billion. It also assumes the effectiveness in fiscal year 2002
of a proposed State Constitutional amendment to increase the City's general
obligation debt limit. In addition, it is currently expected that the City will
have access to approximately $2.4 billion of proceeds from the sale of tobacco
settlement bonds to be issued by TSASC, Inc. ("TSASC"). Such bonds will be
payable from funds derived from the settlement of litigation with tobacco
companies selling cigarettes in the United States. The Finance Authority and
TSASC were created to assist the City in financing its capital program while
keeping the City's indebtedness within the forecast level of the constitutional
restrictions on the amount of debt the City is authorized to incur.
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, New York City Municipal Water Finance Authority ("Water Authority"),
Finance Authority, TSASC and other bonds and notes are 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, Finance Authority and TSASC 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 issue reports
and make public statements which, among other things, state that projected
revenues and expenditures may be different from those forecast in the City's
financial plans. It is reasonable to expect that such reports and statements
will continue to be issued and to engender public comment.
|X| 2000-2004 Financial Plan. The Financial Plan for the 2000 through 2004
fiscal years, released on May 1, 2000, projects that revenues and expenditures
for the 2000 and 2001 fiscal years will be balanced in accordance with generally
accepted accounting principles, and projects gaps of $1.68 billion, $1.95
billion and $1.84 billion for fiscal years 2002 through 2004, respectively,
after implementation of a gap closing program. The Financial Plan depends upon
its projections of increased tax revenues in fiscal years 2000 through 2004; a
delay in the assumed collection of $350 million of projected rent payments for
the City's airports from fiscal year 2001 to fiscal years 2002 through 2004; and
an increase in merit pay wages for City employees in fiscal years 2000-2004. The
Financial Plan also presumes a net expenditure savings in fiscal year 2000; net
expenditure increases in fiscal years 2000 through 2004; a pension fund savings
in fiscal years 2000 through 2002; and increased pension fund costs in fiscal
years 2003 and 2004. The Financial Plan also provides for increased spending for
education and other agencies. The Financial Plan further includes proposed
discretionary transfers in the fiscal year 1999 for debt service due in fiscal
year 2000, in fiscal year 2000 for debt service due in fiscal year 2001, in
fiscal year 2001 for debt service due in fiscal year 2002, and in fiscal year
2002 for debt service due in fiscal year 2003.
In addition, the Financial Plan sets forth gap-closing actions to
eliminate a previously projected gap for the 2001 fiscal year and to reduce
projected gaps for fiscal years 2002 through 2004. The gap-closing actions for
the 2000 through 2004 fiscal years include additional agency actions, assumed
additional Federal and State actions (which are subject to Federal and state
approval) and proposed productivity savings and reductions in fringe benefit
costs. The Financial Plan also reflects a proposed tax reduction program
including the elimination of the commercial rent tax over three years commencing
June 1, 2000; a 50% reduction in the 14% personal income tax surcharge starting
July 1, 2001; the extension of current tax reductions for owners of cooperative
and condominium apartments; and repeal of the $2 flat fee hotel occupancy tax
effective December 1, 2000.
The Financial Plan provides no additional wage increases for City
employees after their contracts expire in fiscal years 2000 and 2001. In
addition, the economic and financial condition of the City may be affected by
various financial, social, economic and political factors that could have a
material effect on the City.
Various actions proposed in the City's 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.
|X| Ratings of the City's Bonds. Moody's Investors Service, Inc.
("Moody's") has rated the City's general obligation bonds "A3." Standard &
Poor's Ratings Group, a division of the McGraw-Hill Companies, Inc.
("Standard & Poor's") has rated those bonds "A-." Fitch, Inc. ("Fitch"), the
international rating agency, has rated those bonds "A." These ratings
reflect only the views of Moody's, Standard & Poor's and Fitch from which an
explanation of the significance of such ratings may be obtained. There is no
assurance that those ratings will continue for any given period of time or
that they will not be revised downward or withdrawn entirely. Any downward
revision or withdrawal could have an adverse effect on the market prices of
the City's bonds. On July 10, 1995, Standard & Poor's revised its rating of
City bonds downward to "BBB+." On July
<PAGE>
16, 1998, Standard & Poor's revised its rating of City bonds upward to "A-."
Moody's rating of City bonds was revised in February 1998 to "A3" from "Baal."
On March 8, 1999, Fitch revised its rating of City bonds upward to "A."
|X| The City's Outstanding Indebtedness. As of March 31, 2000, the City
and the Municipal Assistance Corporation for the City of New York had,
respectively, $26.206 billion and $2.921 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 will be enacted; or
that any such reductions or delays will not have adverse effects on the City's
cash flow or expenditures.
|X| Pending Litigation. The City is a defendant in lawsuits pertaining to
material matters, including claims asserted that are incidental to performing
routine governmental and other functions. That litigation includes, but is not
limited to, actions commenced and claims asserted against the City arising out
of alleged constitutional violations, torts, breaches of contract, and other
violations of law and condemnation proceedings. For the fiscal year ended on
June 30, 1999, the City paid $424.3 million for judgments and claims. The
2000-2004 Financial Plan includes provisions for the payment of judgments and
claims of $481.9 million, $442.3 million, $463.5 million, $482.7 million and
$507.7 million for the 2000 through 2004 fiscal years, respectively. As of June
30, 1999, the City estimates its potential future liability for outstanding
claims against it to be $3.5 billion.
Investment Restrictions
|X| What Are "Fundamental Policies?" Fundamental policies are those
policies that the Trust has adopted to govern its investments that can be
changed only by the vote of a "majority" of the Trust's outstanding voting
securities. Under the Investment Company Act, a "majority" vote is defined as
the vote of the holders of the lesser of:
|_| 67% or more of the shares present or represented by proxy at a
shareholder meeting, if the holders of more than 50% of the outstanding
shares are present or represented by proxy, or |_| more than 50% of the
outstanding shares.
The Trust's investment objective is a fundamental policy. Other policies
described in the Prospectus or this Statement of Additional Information are
"fundamental" only if they are identified as such. The Trust's Board of Trustees
can change non-fundamental policies without shareholder approval. However,
significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as
appropriate. The Trust's most significant investment policies are described in
the Prospectus.
|X| Does the Trust Have Additional Fundamental Policies? The following
investment restrictions are fundamental policies of the Trust.
<PAGE>
|_| The Trust cannot 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;
|_| The Trust cannot borrow money in excess of 10% of the value of its
total assets or make any investment when borrowings exceed 5% of the value of
its total assets; it may borrow only as a temporary measure for extraordinary or
emergency purposes; no assets of the Trust may be pledged, mortgaged or assigned
to secure a debt;
|_| The Trust cannot invest in commodities or commodity contracts, or
invest in interests in oil, gas, or other mineral exploration or development
programs;
|_| The Trust cannot invest in real estate; however, the Trust may
purchase debt securities issued by companies which invest in real estate or
interests therein;
|_| The Trust cannot purchase securities on margin or make short
sales of securities;
|_| The Trust cannot 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;
|_| The Trust cannot 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;
|_| The Trust cannot purchase securities of other investment companies,
except in connection with a merger, consolidation, acquisition or
reorganization.
|_| The Trust cannot issue "senior securities," but this does not prohibit
certain investment activities for which assets of the Trust are designated as
segregated, or margin, collateral or escrow arrangements are established, to
cover the related obligations.
The Board of Trustees has recommended that shareholders approve changing
or eliminating certain fundamental policies of the Trust. These changes are
expected to be approved by shareholders at a meeting which is scheduled to be
held on or about December 15, 2000 (or any adjournments of that meeting). If the
changes are not approved by shareholders, the Manager will supplement this
Statement of Additional Information to reflect that the changes were not
approved. The changes to fundamental policies that the Board of Trustees has
recommended that shareholders approve are as follows:
|X|Eliminating the fundamental investment restriction that limited investments
in securities of unseasoned issuers. Specifically, the Board has recommended
that shareholders approve the elimination of the following fundamental
investment restriction:
<PAGE>
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Current
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The Trust cannot 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.
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|X| Approving amendments to certain fundamental investment restrictions.
A. Amending the fundamental investment restriction on investing in debt
securities having a maturity greater than one year. The Trust currently
has two fundamental investment restrictions that limit the maturity on
debt securities it can purchase to one year or less. That is more
restrictive than is required under Rule 2a-7. Accordingly, the Board is
recommending that shareholders approve the following changes:
-------------------------------------
Current
-------------------------------------
-------------------------------------
The Trust cannot 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.
The Trust cannot 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.
-------------------------------------
-------------------------------------
Proposed
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-------------------------------------
As a fundamental policy, The Trust cannot invest in any debt instrument
having a maturity in excess of the time period provided for in Rule 2a-7
of the Investment Company Act of 1940, or any other applicable rule, or in
the case of a debt instrument subject to a repurchase agreement or called
for redemption, unless purchased subject to a demand feature which may not
exceed the time period provided for in Rule 2a-7, or any other applicable
rule.
-------------------------------------
B. Amending the Trust's concentration policy. The Securities and Exchange
Commission has requested that the Trust's concentration
policy be amended to prohibit the purchase of securities
of companies in any one industry if "25% or more of its
total assets" would consist of securities of companies in
that industry (as opposed to more than 25%). Accordingly,
the Board is recommending that shareholders approve the
following change:
-------------------------------------
Current
-------------------------------------
-------------------------------------
The Trust cannot 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.
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-------------------------------------
Proposed
-------------------------------------
-------------------------------------
The Trust cannot invest 25% or more 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.
-------------------------------------
These proposed changes are described in more detail in the Proxy Statement
which was previously sent to shareholders. If you have any questions about these
changes, please contact the Transfer Agent at 1.800.525.9310.
For purposes of the investment restrictions listed above, the
identification of the "issuer" of a municipal security depends on the terms and
conditions of the security. When the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the security is backed only
by the assets and revenues of the subdivision, such subdivision would be deemed
to be the sole issuer. Similarly, in the case of an industrial development bond,
if that bond is backed only by the assets and revenues of the nongovernmental
user, then such nongovernmental user would be deemed 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. Conduit
securities are deemed to be issued by the person ultimately responsible for
payments of interest and principal on the security.
In applying the restrictions 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. 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. The Trust need not sell securities to
meet the percentage limits if the value of the investment increases in
proportion to the size of the Trust.
For purposes of the Trust's policy not to concentrate its investments in
securities of issuers, the Trust has adopted the industry classifications set
forth in Appendix B to this Statement of Additional Information. This is not a
fundamental policy.
How the Trust Is Managed
Organization and History. The Trust is an open-end, non-diversified management
investment company organized as a Massachusetts business trust in 1988, with an
unlimited number of authorized shares of beneficial interest.
The Trust is governed by a Board of Trustees, which is responsible for
protecting the interests of shareholders under Massachusetts law. The Trustees
meet periodically throughout the year to oversee the Trust's activities, review
its performance, and review the actions of the Manager. Although the Trust will
not normally hold annual meetings of its shareholders, it may hold shareholder
meetings from time to time on important matters. Shareholders of the Trust may
have the right to call a meeting to remove a Trustee or to take other action
described in the Declaration of Trust.
|X| Classes of Shares. The Trust has a single class of shares of stock.
While that class has no designation, it is deemed to be the equivalent of Class
A for purposes of the shareholder account policies that apply to Class A shares
of the Oppenheimer funds. Shares of the Trust are freely transferable. Each
share has one vote at shareholder meetings, with fractional shares voting
proportionally on matters submitted to a vote of shareholders. There are no
preemptive or conversion rights and shares participate equally in the assets of
the Trust upon liquidation.
|X| Meetings of Shareholders. As a Massachusetts business trust, the Trust
is not required to hold, and does not plan to hold, regular annual meetings of
shareholders. The Trust will hold meetings when required to do so by the
Investment Company Act or other applicable law. It will also do so when a
shareholder meeting is called by the Trustees or upon proper request of the
shareholders.
Shareholders have the right, upon the declaration in writing or vote of
two-thirds of the outstanding shares of the 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 the outstanding shares
of the Trust. If the Trustees receive a request from at least 10 shareholders
stating that they wish to communicate with other shareholders to request a
meeting to remove a Trustee, the Trustees will then either make the shareholder
lists of the Trust available to the applicants or mail their communication to
all other shareholders at the applicants' expense. The shareholders making the
request must have been shareholders for at least six months and must hold shares
of the Trust valued at $25,000 or more or constituting at least 1% of the
outstanding shares of the Trust, whichever is less. The Trustees may also take
other action as permitted by the Investment Company Act.
|_| Shareholder and Trustee Liability. The Declaration of Trust contains
an express disclaimer of shareholder or Trustee liability for the Trust's
obligations. It also provides for indemnification and reimbursement of expenses
out of the Trust's property for any shareholder held personally liable for its
obligations. The Declaration of Trust also states that upon request, the Trust
shall assume the defense of any claim made against a shareholder for any act or
obligation of the Trust and shall satisfy any judgment on that claim.
Massachusetts law permits a shareholder of a business trust (such as the Trust)
to be held personally liable as a "partner" under certain circumstances.
However, the risk that a Trust shareholder will incur financial loss from being
held liable as a "partner" of the Trust is limited to the relatively remote
circumstances in which the Trust would be unable to meet its obligations.
The Trust's contractual arrangements state that any person doing business
with the Trust (and each shareholder of the Trust) agrees under the Declaration
of Trust to look solely to the assets of the Trust for satisfaction of any claim
or demand that may arise out of any dealings with the Trust. Additionally, the
Trustees and shareholders shall have no personal liability to any such person,
to the extent permitted by law.
1. Ms. Macaskill is not a Trustee or Director of Oppenheimer Integrity
Funds, Oppenheimer Strategic Income Fund, or Panorama Series Fund, Inc.
<PAGE>
Trustees and Officers of the Trust. The Trust's Trustees and officers and their
principal occupations and business affiliations during the past five years are
listed below. Trustees denoted with an asterisk (*) below are deemed to be
"interested persons" of the Trust under the Investment Company Act. All of the
Trustees are also trustees, directors or managing general partners of the
following Denver-based Oppenheimer funds1:
Oppenheimer Cash Reserves Oppenheimer Senior Floating Rate Fund
Oppenheimer Champion Income Fund Oppenheimer Strategic Income Fund
Oppenheimer Capital Income Fund Oppenheimer Total Return Fund, Inc.
Oppenheimer High Yield Fund Oppenheimer Variable Account Funds
Oppenheimer International Bond Fund Panorama Series Fund, Inc.
Oppenheimer Integrity Funds Centennial America Fund, L. P.
Oppenheimer Limited-Term Government
Fund Centennial California Tax Exempt Trust
Oppenheimer Main Street Funds, Inc. Centennial Government Trust
Oppenheimer Main Street Opportunity
Fund Centennial Money Market Trust
Oppenheimer Main Street Small Cap
Fund Centennial New York Tax Exempt Trust
Oppenheimer Municipal Fund Centennial Tax Exempt Trust
Oppenheimer Real Asset Fund
Robert G. Avis*, Trustee, Age: 69.
10369 Clayton Road, St. Louis, Missouri 63131
Director and President of A.G. Edwards Capital, Inc. (General Partner of
private equity funds), formerly, until March 2000, Chairman, President and
Chief Executive Officer of A.G. Edwards Capital, Inc.; formerly, until March
1999, Vice Chairman and Director of A.G. Edwards and Vice Chairman of A.G.
Edwards & Sons, Inc. (its brokerage company subsidiary); until March 1999,
Chairman of A.G. Edwards Trust Company and A.G.E. Asset Management
(investment advisor); until March 2000, a Director of A.G. Edwards & Sons and
A.G. Edwards Trust Company.
Sam Freedman, Trustee, Age: 60.
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly (until October 1994) Chairman and Chief Executive Officer of
OppenheimerFunds Services, Chairman, Chief Executive Officer and a director
of Shareholder Services, Inc., the Trust's Transfer Agent; Chairman, Chief
Executive Officer and director of Shareholder Financial Services, Inc., a
transfer agent subsidiary of OppenheimerFunds, Inc.; Vice President and
director of Oppenheimer Acquisition Corp., OppenheimerFunds, Inc.'s parent
holding company and a director of OppenheimerFunds, Inc. of which the Manager
is a wholly-owned subsidiary.
Raymond J. Kalinowski, Trustee, Age: 71.
44 Portland Drive, St. Louis, Missouri 63131
Formerly a director of Wave Technologies International, Inc. (a computer
products training company), self-employed consultant (securities matters).
<PAGE>
C. Howard Kast, Trustee, Age: 78.
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).
Robert M. Kirchner, Trustee, Age: 79.
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
Bridget A. Macaskill*, President and Trustee, Age: 52.
Two World Trade Center, New York, New York 10048-0203
Chairman (since August 2000), Chief Executive Officer (since September 1995) and
a director (since December 1994) of OppenheimerFunds, Inc.; President (since
September 1995) and a director (since October 1990) of Oppenheimer Acquisition
Corp.; President, Chief Executive Officer and a director (since March 2000) of
OFI Private Investments, Inc., an investment advisor subsidiary of
OppenheimerFunds, Inc.; Chairman and a director of Shareholder Services, Inc.
(since August 1994) and Shareholder Financial Services, Inc. (since September
1995); President (since September 1995) and a director (since November 1989) of
Oppenheimer Partnership Holdings, Inc, a holding company subsidiary of
OppenheimerFunds, Inc.; President and a director (since October 1997) of
OppenheimerFunds International Ltd. and of Oppenheimer Millennium Funds plc),
offshore fund management subsidiaries of OppenheimerFunds, Inc.; a director of
HarbourView Asset Management Corporation (since July 1991) and of Oppenheimer
Real Asset Management, Inc. (since July 1996) investment advisor subsidiaries of
OppenheimerFunds, Inc.; a director (since April 2000) of OppenheimerFunds Legacy
Program, a charitable trust program established by OppenheimerFunds, Inc.; a
director of Prudential Corporation plc (a U.K. financial service company);
President and a trustee of other Oppenheimer funds; formerly President of
OppenheimerFunds, Inc. (June 1991 - August 2000).
James C. Swain*, Chairman, Chief Executive Officer and Trustee, Age: 66
6803 South Tucson Way, Englewood, Colorado 80112
Vice Chairman (since September 1988) of OppenheimerFunds, Inc.; formerly
President and a director of the Manager and Chairman of the Board of
Shareholder Services, Inc.
Michael A. Carbuto, Vice President and Portfolio Manager, Age: 45.
Two World Trade Center, New York, New York 10048-0203
Vice President (since May 1988) of OppenheimerFunds, Inc.; an officer and
portfolio manager of other Oppenheimer funds; formerly Vice President of the
Distributor (May 1988 - September 1999).
Andrew J. Donohue, Vice-President and Secretary, Age: 50.
Two World Trade Center, New York, New York 10048-0203
Executive Vice President (since January 1993), General Counsel (since October
1991) and a director (since September 1995) of OppenheimerFunds, Inc.; Executive
Vice President (since September 1993) and a director (since January 1992) of
OppenheimerFunds Distributor, Inc.; Executive Vice President, General Counsel
and a director (since September 1995) of HarbourView Asset Management
Corporation, Shareholder Services, Inc., Shareholder Financial Services, Inc.
and Oppenheimer Partnership Holdings, Inc., of OFI Private Investments, Inc.
(since March 2000), and of PIMCO Trust Company (since May 2000); President and a
director of the Manager; (since September 1995) and of Oppenheimer Real Asset
Management, Inc. (since July 1996); Vice President and a director (since
September 1997) of OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc; a director (since April 2000) of OppenheimerFunds Legacy
Program; General Counsel (since May 1996) and Secretary (since April 1997) of
Oppenheimer Acquisition Corp.; an officer of other Oppenheimer funds.
Brian W. Wixted, Treasurer, Age: 41.
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer (since March 1999) of OppenheimerFunds,
Inc.; Treasurer (since March 1999) of HarbourView Asset Management
Corporation, Shareholder Services, Inc., Oppenheimer Real Asset Management
Corporation, Shareholder Financial Services, Inc. and Oppenheimer Partnership
Holdings, Inc., of OFI Private Investments, Inc. (since March 2000) and of
OppenheimerFunds International Ltd. and Oppenheimer Millennium Funds plc
(since May 2000); Treasurer and Chief Financial Officer (since May 2000) of
PIMCO Trust Company; Assistant Treasurer (since March 1999) of Oppenheimer
Acquisition Corp. and of the Manager; an officer of other Oppenheimer funds;
formerly Principal and Chief Operating Officer, Bankers Trust Company -
Mutual Fund Services Division (March 1995 - March 1999); Vice President and
Chief Financial Officer of CS First Boston Investment Management Corp.
(September 1991 - March 1995).
Robert G. Zack, Assistant Secretary, Age: 52.
Two World Trade Center, New York, New York 10048-0203
Senior Vice President (since May 1985) and Associate General Counsel (since
May 1981) of OppenheimerFunds, Inc.; Assistant Secretary of Shareholder
Services, Inc. (since May 1985), Shareholder Financial Services, Inc. (since
November 1989); OppenheimerFunds International Ltd. and Oppenheimer
Millennium Funds plc (since October 1997); an officer of other Oppenheimer
funds.
Robert J. Bishop, Assistant Treasurer, Age: 41.
Vice President of OppenheimerFunds, Inc. (since May 1996); an officer of other
Oppenheimer funds; formerly an Assistant Vice President (April 1994 - May 1996)
and a Fund Controller of OppenheimerFunds, Inc.
Scott T. Farrar, Assistant Treasurer, Age: 35.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of OppenheimerFunds, Inc. (since May 1996); Assistant Treasurer
of Oppenheimer Millennium Funds plc (since October 1997); an officer of other
Oppenheimer funds; formerly an Assistant Vice President (April 1994 - May 1996)
and a Fund Controller of OppenheimerFunds, Inc.
o 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. The remaining Trustees of the Trust
received the compensation shown below. The compensation from the Trust was paid
during its fiscal year ended June 30, 2000. The compensation from all of the
Denver-based Oppenheimer funds includes the Trust and is compensation received
as a trustee, director, managing general partner or member of a committee of the
Board during the calendar year 1999.
<PAGE>
-----------------------------------------------------------------------------
Aggregate Total Compensation
Trustee's Name Compensation from all Denver-Based
and Other Positions from Trust1 Oppenheimer Funds2
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Robert G. Avis $235 $67,998
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
William A. Baker4 $235 $67,998
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Sam Freedman $254 $73,998
Chairman Review Committee
------------------------------------------------
-----------------------------------------------------------------------------
Raymond J. Kalinowski $249 $73,248
Audit Committee Member
------------------------------------------------
-----------------------------------------------------------------------------
C. Howard Kast $276 $78,873
Chairman Audit Committee and
Review Committee Member
-----------------------------------------------------------------------------
------------------------------------------------
Robert M. Kirchner3 $242 $69,248
Audit Committee Member
------------------------------------------------
-----------------------------------------------------------------------------
Ned M. Steel4 $235 $67,998
-----------------------------------------------------------------------------
1. For the Trust's fiscal year ended 6/30/00
2. For the 1999 calendar year.
3. Committee positions held during a portion of the period shown.
4. Effective July 1, 2000, Messrs. Baker and Steel resigned as Trustees of
the Trust.
o Deferred Compensation Plan for Trustees. The Trustees have 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 are entitled to
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 this plan will be determined based upon the performance of
the selected funds.
Deferral of fees of the Trustees under this plan will not materially
affect the Trust's assets, liabilities or net income per share. This plan will
not obligate the Trust to retain the services of any Trustee or to pay any
particular level of compensation to any Trustee. Pursuant to an Order issued by
the Securities and Exchange Commission, the Trust may invest in the funds
selected by any Trustee under this plan without shareholder approval for the
limited purpose of determining the value of the Trustees' deferred fee accounts.
|X| Major Shareholders. As of October 10, 2000 the only
person who owned of record or was known by the Trust to own beneficially 5%
or more of the Trust's outstanding retail shares was A.G. Edwards & Sons,
Inc. ("Edwards"), 1 North Jefferson Avenue, St. Louis, Missouri 63103,
<PAGE>
which owned 53,422,640.260 shares of the Trust which was 81.2% of the
outstanding shares of the Trust on that date, for accounts of its customers none
of whom individually owned more than 5% of the outstanding shares.
The Manager. The Manager, Centennial Asset Management Corporation, is
wholly-owned by OppenheimerFunds, Inc., which is a wholly-owned subsidiary of
Oppenheimer Acquisition Corp., a holding company controlled by Massachusetts
Mutual Life Insurance Company.
The portfolio manager of the Trust is principally responsible for the
day-to-day management of the Trust's investment portfolio. Other members of the
Manager's fixed-income portfolio department, particularly security analysts,
traders and other portfolio managers, have broad experience with fixed-income
securities. They provide the Trust's portfolio manager with research and support
in managing the Trust's investments.
|X| The Investment Advisory Agreement. The Manager provides investment
advisory and management services to the Trust under an investment advisory
agreement between the Manager and the Trust. The Manager selects securities for
the Trust's portfolio and handles its day-to-day business. The agreement
requires the Manager, at its expense, to provide the Trust with adequate office
space, facilities and equipment. It also requires the Manager to provide and
supervise the activities of all administrative and clerical personnel required
to provide effective administration for the Trust. Those responsibilities
include 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 investment
advisory agreement are paid by the Trust. The investment advisory agreement
lists examples of expenses paid by the Trust. The major categories relate to
interest, taxes, fees to unaffiliated Trustees, legal and audit expenses,
custodian and transfer agent expenses, share issuance costs, certain printing
and registration costs and non-recurring expenses, including litigation costs.
The management fees paid by the Trust to the Manager are calculated at the rates
described in the Prospectus.
--------------------------------------------------------------------------------
Fiscal Year Management Fee Paid to Centennial Asset Management Corporation
ended 6/30
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1998 $269,488
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1999 $296,653
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2000 $305,700
--------------------------------------------------------------------------------
The Manager has undertaken that the total expenses of the Trust, in any
fiscal year of the Trust, exclusive of taxes, interest, brokerage commissions
(if any) and non-recurring expenses, including litigation, shall not exceed
0.80% of the average annual net assets of the Trust. 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 this
undertaking at any time. For the fiscal years ended June 30, 1998, 1999 and 2000
the management fees payable by the Trust to the Manager would have been
$269,488, $296,653 and $305,700, respectively, without the Manager's voluntary
expense assumption. Those amounts do not reflect the effect of the expense
assumptions of $24,124, $37,962 and $48,269, respectively, in those periods by
the Manager. Following the Trust's fiscal year ended June 30, 2000, the Manager
reimbursed the Trust $9,302.
The investment advisory agreement states that in the absence of willful
misfeasance, bad faith, gross negligence in the performance of its duties or
reckless disregard of its obligations and duties under the investment advisory
agreement, the Manager is not liable for any loss resulting from a good faith
error or omission on its part with respect to any of its duties under the
agreement.
|X| The Distributor. Under its General Distributor's agreement with the
Trust, Centennial Asset Management Corporation acts as the Trust's principal
underwriter and Distributor in the continuous public offering of the Trust's
shares. The Distributor is not obligated to sell a specific number of shares.
The Distributor bears the expenses normally attributable to sales, including
advertising and the cost of printing and mailing prospectuses, other than those
furnished to existing shareholders. For other distribution expenses paid by the
Trust, see the section entitled "Service Plan" below.
Portfolio Transactions. Portfolio decisions are based upon recommendations and
judgment of the Manager subject to the overall authority of the Board of
Trustees. Most purchases made by the Trust are principal transactions at net
prices, so 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 the Manager
determines 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 execution of orders at the most favorable
net price. If broker/dealers are used for portfolio transactions, transactions
may be directed to broker/dealers for their execution and research services. The
research services provided by a particular broker may be useful only to one or
more of the advisory accounts of the Manager and its affiliates. Investment
research received for the commissions of those other accounts may be useful both
to the Trust and one or more of such other accounts. Investment research
services may be supplied to the Manager by a third party at the instance of a
broker through which trades are placed. It may include information and analyses
on particular companies and industries as well as market or economic trends and
portfolio strategy, receipt of market quotations for portfolio evaluations,
information systems, computer hardware and similar products and services. If a
research service also assists the Manager in a non-research capacity (such as
bookkeeping or other administrative functions), then only the percentage or
component that provides assistance to the Manager in the investment
decision-making process may be paid in commission dollars.
The research services provided by brokers broaden the scope and supplement
the research activities of the Manager. That research provides additional views
and comparisons for consideration, and helps the Manager obtain market
information for the valuation of securities held in the Trust's portfolio or
being considered for purchase.
<PAGE>
Subject to applicable rules covering the Manager's activities in this
area, sales of shares of the Trust and/or the other investment companies managed
by the Manager or distributed by the Distributor may also be considered as a
factor in the direction of transactions to dealers. That must be done in
conformity with the price, execution and other considerations and practices
discussed above. Those other investment companies may also give similar
consideration relating to the sale of the Trust's shares. No portfolio
transactions will be handled by any securities dealer affiliated with the
Manager.
The Trust may experience high portfolio turnover that may increase the
Trust's transaction costs. However, since brokerage commissions, if any, are
small, high turnover does not have an appreciable adverse effect upon the income
of the Trust.
Service Plan
The Trust has adopted a Service Plan for the shares. The plan has been approved
by a vote of the Board of Trustees, including a majority of the Independent
Trustees2, cast in person at a meeting called for the purpose of voting on that
plan.
Under the plan, the Manager and the Distributor may make payments to
affiliates and, in their sole discretion, from time to time, may use their own
resources (at no direct cost to the Trust) to make payments to brokers, dealers
or other financial institutions for distribution and administrative services
they perform. The Manager may use its profits from the advisory fee it receives
from the Trust. In their sole discretion, the Distributor and the Manager may
increase or decrease the amount of payments they make from their own resources
to plan recipients.
Unless a plan is terminated as described below, the plan continues in
effect from year to year but only if the Trust's Board of Trustees and its
Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of
voting on continuing the plan. A plan may be terminated at any time by the vote
of a majority of the Independent Trustees or by the vote of the holders of a
"majority" (as defined in the Investment Company Act) of the outstanding shares
of the Trust.
The Board of Trustees and the Independent Trustees must approve all
material amendments to a plan. An amendment to increase materially the amount of
payments to be made under a plan must be approved by shareholders. The approval
must be by a "majority" (as defined in the Investment Company Act) of the
shares.
While the plan is in effect, the Treasurer of the Trust shall provide
separate written reports on the plan to the Board of Trustees at least quarterly
for its review. The Reports shall detail the amount of all payments made under
the plan and the purpose for which the payments were made. Those reports are
subject to the review and approval of the Independent Trustees.
2. In accordance with Rule 12b-1 of the Investment Company Act, the term
"Independent Trustees" in this Statement of Additional Information refers to
those Trustees who are not "interested persons" of the Fund (or its parent
corporation) and who do not have any direct or indirect financial interest in
the operation of any agreement under the plan.
The plan states 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 the selection and nomination process as long as the
final decision as to selection or nomination is approved by a majority of the
Independent Trustees.
Under the plan, no payment will be made to any recipient in any quarter in
which the aggregate net asset value of all Trust shares held by the recipient
for itself and its customers does not exceed a minimum amount, if any, that may
be set from time to time by a majority of the Independent Trustees. The Board of
Trustees has set no minimum amount of assets to qualify for payments under the
plan.
|X| Service Plan Fees. Under the service plan, the Distributor currently
uses the fees it receives from the Trust to pay brokers, dealers and other
financial institutions (they are referred to as "recipients") for personal
services and account maintenance services they provide for their customers who
hold shares. The services include, among others, answering customer inquiries
about the Trust, assisting in establishing and maintaining accounts in the
Trust, making the Trust's investment plans available and providing other
services at the request of the Trust or the Distributor. The service plan
permits reimbursements to the Distributor at a rate of up to 0.20% of average
annual net assets of the shares. While the plan permits the Board to authorize
payments to the Distributor to reimburse itself for services under the plan, the
Board has not yet done so. The Distributor makes payments to plan recipients
quarterly at an annual rate not to exceed 0.20% of the average annual net assets
consisting of shares held in the accounts of the recipients or their customers.
For the fiscal year ended June 30, 2000 payments under the plan totaled
$120,981, all of which was paid by the Distributor to recipients. That included
$179 paid to an affiliate of the Distributor's parent company. For the fiscal
year ended June 30, 2000, the Manager paid, in the aggregate, $164,528 in fees
out of its own resources for distribution assistance. Any unreimbursed expenses
the Distributor incurs with respect to the shares in any fiscal year cannot be
recovered in subsequent years. The Distributor may not use payments received
under the plan to pay any of its interest expenses, carrying charges, or other
financial costs, or allocation of overhead.
Performance of the Trust
Explanation of Performance Terminology. The Trust uses a variety of terms to
illustrate its performance. These terms include "yield," "compounded effective
yield," "tax-equivalent yield" and "average annual total return." An explanation
of how yields and total returns are calculated is set forth below. The charts
below show the Trust's performance as of the Trust's most recent fiscal year
end. You can obtain current performance information by calling the Trust's
Transfer Agent at 1.800.525.9310.
The Trust's illustrations of its performance data in advertisements must
comply with rules of the Securities and Exchange Commission. Those rules
describe the types of performance data that may be used and how it is to be
calculated. If the Trust shows total returns in addition to its yields, the
returns must be for the 1-, 5- and 10-year periods ending as of the most recent
calendar quarter prior to the publication of the advertisement (or its
submission for publication).
Use of standardized performance calculations enables an investor to
compare the Trust's performance to the performance of other funds for the same
periods. However, a number of factors should be considered before using the
Trust's performance information as a basis for comparisons with other
investments:
o Yields and total returns measure the performance of a hypothetical account
in the Trust over various periods and do not show the performance of each
shareholder's account. Your account's performance will vary from the model
performance data if your dividends are received in cash, or you buy or
sell shares during the period, or you bought your shares at a different
time than the shares used in the model.
o An investment in the Trust is not insured by the FDIC or any other
government agency.
o The Trust's yield is not fixed or guaranteed and will fluctuate.
o Yields and total returns for any given past period represent historical
performance information and are not, and should not be considered, a
prediction of future yields or returns.
|_| Yields. The Trust's current yield is calculated for a seven-day
period of time as follows. First, a base period return is calculated for the
seven-day period by determining the net change in the value of a hypothetical
pre-existing account having one share at the beginning of the seven-day period.
The change includes dividends declared on the original share and dividends
declared on any shares purchased with dividends on that share, but such
dividends are adjusted to exclude any realized or unrealized capital gains or
losses affecting the dividends declared. Next, the base period return is
multiplied by 365/7 to obtain the current yield to the nearest hundredth of one
percent.
The compounded effective yield for a seven-day period is calculated by (1)
adding 1 to the base period return (obtained as described above), (2)
raising the sum to a power equal to 365 divided by 7, and (3) subtracting
1 from the result.
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. 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. Therefore, 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 stated federal 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.
For taxpayers with income above certain levels, otherwise allowable
itemized deductions are limited. The Trust's tax equivalent yield for the
seven-day period ended June 30, 2000 was 6.10%. Its tax-equivalent compounded
effective yield for the same period was 6.21% for an investor in the highest
federal tax bracket.
The tax-equivalent yield may be used to compare the tax effects of income
derived from the Fund with income from taxable investments at the tax rates
stated. Your tax bracket is determined by your federal and state taxable income
(the net amount subject to federal and state income tax after deductions and
exemptions). The tax-equivalent yield table assumes that the investor is taxed
at the highest bracket, regardless of whether a switch to non-taxable
investments would cause a lower bracket to apply. For taxpayers with income
above certain levels, otherwise allowable itemized deductions are limited. The
Trust's tax equivalent yield for the highest tax bracket for the seven-day
period ended June 30, 2000 was 6.39%. Its tax-equivalent compounded effective
yield for the same period was 6.51% for an investor in the highest tax bracket.
o Total Return Information. There are different types of "total returns"
to measure the Trust's performance. Total return is the change in value of a
hypothetical investment in the Trust over a given period, assuming that all
dividends and capital gains distributions are reinvested in additional shares
and that the investment is redeemed at the end of the period. The cumulative
total return measures the change in value over the entire period (for example,
ten years). An average annual total return shows the average rate of return for
each year in a period that would produce the cumulative total return over the
entire period. However, average annual total returns do not show actual
year-by-year performance. The Trust uses standardized calculations for its total
returns as prescribed by the SEC. The methodology is discussed below.
|_| Average Annual Total Return. The "average annual total return" of each
class is an average annual compounded rate of return for each year in a
specified number of years. It is the rate of return based on the change in value
of a hypothetical initial investment of $1,000 ("P" in the formula below) held
for a number of years ("n") to achieve an Ending Redeemable Value ("ERV" in the
formula) of that investment, according to the following formula:
1/n
(ERV)
(---) -1 = Average Annual Total Return
( P )
|_| Cumulative Total Return. The "cumulative total return" calculation
measures the change in value of a hypothetical investment of $1,000 over an
entire period of years. Its calculation uses some of the same factors as average
annual total return, but it does not average the rate of return on an annual
basis. Cumulative total return is determined as follows:
ERV - P
------- = Total Return
P
--------------------------------------------------------------------------------
Yield Compounded Average Annual Total Returns (at 6/30/00)
(7 days ended Effective Yield
6/30/00) (7 days ended
6/30/00)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1-Year 5 Years 10 Years
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
3.45% 3.51% 2.92% 2.75% 2.78%
--------------------------------------------------------------------------------
<PAGE>
|X| Other Performance Comparisons. Yield information may be useful to
investors in reviewing the Trust's performance. The Trust may make comparisons
between its yield and that of other investments, by citing various indices such
as The Bank Rate Monitor National Index (provided by Bank Rate Monitor(TM))
which measures the average rate paid on bank money market accounts, NOW accounts
and certificates of deposits by the 100 largest banks and thrifts in the top ten
metro areas. When comparing the Trust's yield 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 and may be insured or guaranteed.
From time to time, the Trust may include in its advertisements and sales
literature performance information about the Trust cited in other newspapers and
periodicals, such as The New York Times, which may include performance
quotations from other sources.
From time to time, the Trust's Manager may publish rankings or ratings of
the Manager (or the Transfer Agent) or the investor services provided by them.
Those ratings or rankings of investor/shareholder services by third parties may
compare the services provided to those of other mutual fund families selected by
the rating or ranking services. They may be based on the opinions of the rating
or ranking service itself, based on its research or judgment, or based on
surveys of investors, brokers, shareholders or others.
A B O U T Y O U R A C C O U N T
How to Buy Shares
Determination of Net Asset Value Per Share. The net asset value per share of the
Trust is determined twice each day that the New York Stock Exchange ("Exchange")
is open, at 12:00 Noon and at 4:00 P.M, on each day that the Exchange is open,
by dividing the value of the Trust's net assets by the total number of shares
outstanding. All references to time in this Statement of Additional Information
mean New York time. The Exchange's most recent annual announcement (which is
subject to change) states that it will close on New Year's Day, Martin Luther
King Jr. Day, Washington's Birthday, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. It may also close on other
days.
The Trust's Board of Trustees has adopted the amortized cost method to
value the Trust's portfolio securities. Under the amortized cost method, a
security is valued initially at its cost and its valuation assumes a constant
amortization of any premium or accretion of any discount, regardless of the
impact of fluctuating interest rates on the market value of the security. This
method does not take into consideration any unrealized capital gains or losses
on securities. While this method provides certainty in valuing securities, in
certain periods the value of a security determined by amortized cost may be
higher or lower than the price the Trust would receive if it sold the security.
<PAGE>
The Trust's Board of Trustees has established procedures reasonably
designed to stabilize the Trust's net asset value at $1.00 per share. Those
procedures include a review of the valuations of the Trust's portfolio holdings
by the Board of Trustees, at intervals it deems appropriate, to determine
whether the Trust's net asset value calculated by using available market
quotations deviates from $1.00 per share based on amortized cost.
The Board of Trustees will examine the extent of any deviation between the
Trust's net asset value based upon available market quotations and amortized
cost. If the Trust's net asset value were to deviate from $1.00 by more than
0.5%, Rule 2a-7 requires the Board of Trustees to consider what action, if any,
should be taken. If they find that the extent of the deviation may cause a
material dilution or other unfair effects on shareholders, the Board of Trustees
will take whatever steps it considers appropriate to eliminate or reduce the
dilution, including, among others, withholding or reducing dividends, paying
dividends from capital or capital gains, selling portfolio instruments prior to
maturity to realize capital gains or losses or to shorten the average maturity
of the portfolio, or calculating net asset value per share by using available
market quotations.
During periods of declining interest rates, the daily yield on shares of
the Trust may tend to be lower (and net investment income and dividends higher)
than those of a fund holding the identical investments as the Trust but which
used a method of portfolio valuation based on market prices or estimates of
market prices. During periods of rising interest rates, the daily yield of the
Trust would tend to be higher and its aggregate value lower than that of an
identical portfolio using market price valuation.
How to Sell Shares
The information below supplements the terms and conditions for redeeming shares
set forth in the Prospectus.
Checkwriting. When a check is presented to the Bank for clearance, the Bank will
ask 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 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 offering checkwriting
privileges at any time without prior notice.
In choosing to take advantage of the Checkwriting privilege, by signing
the Account Application or by completing a Checkwriting card, each individual
who signs:
(1) for individual accounts, represents that they are the registered
owner(s) of the shares of the Trust in that account;
(2) for accounts for corporations, partnerships, trusts and other entities,
represents that they are an officer, general partner, trustee or other
fiduciary or agent, as applicable, duly authorized to act on behalf of
the registered owner(s);
(3) authorizes the Trust, its Transfer Agent and any bank through which the
Trust's drafts (checks) are payable to pay all checks drawn on the
Trust account of such person(s) and to redeem a sufficient amount of
shares from that account to cover payment of each check;
(4) specifically acknowledges that if they choose to permit checks to
be honored if there is 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 the
account, even if that account is registered in the names of more than
one person or more than one authorized signature appears on the
Checkwriting card or the Application, as applicable;
(5) understands that the Checkwriting privilege may be terminated or
amended at any time by the Trust and/or the Trust's bank; and
(6) acknowledges and agrees that neither the Trust nor its bank shall incur
any liability for that amendment or termination of checkwriting
privileges or for redeeming shares to pay checks reasonably believed by
them to be genuine, or for returning or not paying checks that have not
been accepted for any reason.
Sending Redemption Proceeds by Federal Funds Wire. The Federal Funds wire of
redemptions proceeds may be delayed if the Trust's custodian bank is not open
for business on a day when the Trust would normally authorize the wire to be
made, which is usually the Trust's next regular business day following the
redemption. In those circumstances, the wire will not be transmitted until the
next bank business day on which the Trust is open for business. No distributions
will be paid on the proceeds of redeemed shares awaiting transfer by Federal
Funds wire
How to Exchange Shares
As stated in the Prospectus, direct shareholders can exchange shares of the
Trust for Class A shares of any of the following eligible funds:
Oppenheimer Bond Fund Oppenheimer Limited-Term Government Fund
Oppenheimer Main Street California
Oppenheimer California Municipal Fund Municipal Fund
Oppenheimer Main Street Growth & Income
Oppenheimer Capital Appreciation Fund Fund
Oppenheimer Capital Preservation Fund Oppenheimer Main Street Opportunity Fund
Oppenheimer Capital Income Fund Oppenheimer Main Street Small Cap Fund
Oppenheimer Champion Income Fund Oppenheimer MidCap Fund
Oppenheimer Convertible Securities Fund Oppenheimer Multiple Strategies Fund
Oppenheimer Developing Markets Fund Oppenheimer Municipal Bond Fund
Oppenheimer Disciplined Allocation Fund Oppenheimer New York Municipal Fund
Oppenheimer Disciplined Value Fund Oppenheimer New Jersey Municipal Fund
Oppenheimer Discovery Fund Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Emerging Technologies Fund Oppenheimer Quest Balanced Value Fund
Oppenheimer Quest Capital Value Fund,
Oppenheimer Enterprise Fund Inc.
Oppenheimer Quest Global Value Fund,
Oppenheimer Europe Fund Inc.
Oppenheimer Florida Municipal Fund
Oppenheimer Quest Opportunity Value Fund
Oppenheimer Global Fund
Oppenheimer Quest Small Cap Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Real Asset Fund
Oppenheimer Growth Fund
Oppenheimer Senior Floating Rate Fund
Oppenheimer High Yield Fund
Oppenheimer Strategic Income Fund
Oppenheimer Insured Municipal Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer Intermediate Municipal Fund
Oppenheimer Trinity Core Fund
Oppenheimer International Bond Fund
Oppenheimer Trinity Growth Fund
Oppenheimer International Growth Fund
Oppenheimer Trinity Value Fund
Oppenheimer International Small Company Fund
Oppenheimer U.S. Government Trust
Oppenheimer Large Cap Growth Fund
Oppenheimer World Bond Fund
Limited-Term New York Municipal Fund
Rochester Fund Municipals
and the following money market funds:
Centennial America Fund, L. P.
Centennial America Fund, L. P.
Centennial California Tax Exempt Trust
Centennial Tax Exempt Trust
Centennial Government Trust
Oppenheimer Cash Reserves
Centennial Money Market Trust
Oppenheimer Money Market Fund, Inc.
Shares of the Trust purchased without a sales charge may be exchanged for
shares of an eligible fund offered with a sales charge upon payment of the sales
charge. Shares of the Trust acquired by reinvestment of dividends or
distributions from the Trust or any of the other eligible funds (other than
Oppenheimer Cash Reserves) or from any unit investment trust for which
reinvestment arrangements have been made with the Distributor may be exchanged
at net asset value for shares of any of the eligible funds.
|_| Limits on Multiple Exchange Orders. The Trust reserves the right to
reject telephone or written exchange requests submitted in bulk by anyone on
behalf of more than one account. The Trust may accept requests for exchanges of
up to 50 accounts per day from representatives of authorized dealers that
qualify for this privilege.
|_| Telephone Exchange Requests. When exchanging shares by telephone, a
direct shareholder must have an existing account in the fund to which the
exchange is to be made. Otherwise, the investor must obtain a prospectus of that
fund before the exchange request may be submitted. If all telephone lines are
busy (which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone
and would have to submit written exchange requests.
|_| Processing Exchange Requests. Shares to be exchanged are redeemed on
the regular business day the Transfer Agent receives an exchange request in
proper form (the "Redemption Date"). Normally, shares of the fund to be acquired
are purchased on the Redemption Date, but such purchases may be delayed by
either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Trust
reserves the right, in its discretion, to refuse any exchange request that may
disadvantage it (for example, if the receipt of multiple exchange requests from
a dealer might require the disposition of portfolio securities at a time or at a
price that might be disadvantageous to the Trust).
In connection with any exchange request, the number of shares exchanged
may be less than the number requested if the exchange or the number requested
would include shares subject to a restriction cited in the Prospectus or this
Statement of Additional Information or would include shares covered by a share
certificate that is not tendered with the request. In those cases, only the
shares available for exchange without restriction will be exchanged.
<PAGE>
The different eligible funds available for exchange have different
investment objectives, policies and risks. A shareholder should assure that the
fund selected is appropriate for his or her investment and should be aware of
the tax consequences of an exchange. For federal income tax purposes, an
exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. The Trust, the Distributor, the Sub-Distributor,
and the Transfer Agent are unable to provide investment, tax or legal advice to
a shareholder in connection with an exchange request or any other investment
transaction.
The Trust may amend, suspend or terminate the exchange privilege at any
time. Although the Trust may impose these changes at any time, it will provide
you with notice of those changes whenever it is required to do so by applicable
law. It may be required to provide 60 days notice prior to materially amending
or terminating the exchange privilege. That 60-day notice is not required in
extraordinary circumstances.
Dividends and Taxes
Tax Status of the Trust's Dividends and Distributions. The Trust intends to
qualify under the Internal Revenue Code during each fiscal year to pay
"exempt-interest dividends" to its shareholders. Exempt-interest dividends that
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.
Net investment income includes the allocation of amounts of income from
the municipal securities in the Trust's portfolio that are free from federal
income taxes. This allocation will be made by the use of one designated
percentage applied uniformly to all income dividends paid during the Trust's tax
year. That designation will normally be made following the end of each fiscal
year as to income dividends paid in the prior year. The percentage of income
designated as tax-exempt may substantially differ from the percentage of the
Trust's income that was tax-exempt for a given period.
A portion of the exempt-interest dividends paid by the Trust may be an
item of tax preference for shareholders subject to the alternative minimum tax.
The amount of any dividends attributable to tax preference items for purposes of
the alternative minimum tax will be identified when tax information is
distributed by the Trust.
A shareholder receiving a dividend from income earned by the Trust from
one or more of the following sources treats the dividend as a receipt of either
ordinary income or long-term capital gain in the computation of gross income,
regardless of whether the dividend is reinvested:
(1) certain taxable temporary investments (such as certificates of deposit,
repurchase agreements, commercial paper and obligations of the U.S.
government, its agencies and instrumentalities);
(2) income from securities loans;
(3) income or gains from options or futures; or
(4) an excess of net short-term capital gain over net long-term capital
loss from the Trust.
<PAGE>
The Trust's dividends will not be eligible for the dividends-received
deduction for corporations. Shareholders receiving Social Security benefits
should be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to federal income tax. Losses realized by
shareholders on the redemption of Trust shares within six months of purchase
(which period may be shortened by regulation) will be disallowed for federal
income tax purposes to the extent of exempt-interest dividends received on such
shares.
If the 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. That qualification enables the Trust
to "pass through" its income and realized capital gains to shareholders without
having to pay tax on them. The Trust qualified as a regulated investment company
in its last fiscal year and intends to qualify in future years, but reserves the
right not to qualify. The Internal Revenue Code contains a number of complex
tests to determine whether the Trust qualifies. The Trust might not meet those
tests in a particular year. If it does not qualify, the Trust will be treated
for tax purposes as an ordinary corporation and will receive no tax deduction
for payments of dividends and distributions made to shareholders.
In any year in which the Trust qualifies as a regulated investment company
under the Internal Revenue Code, the Trust will also be exempt from New York
corporate income and franchise taxes. It will also be qualified under New York
law to pay exempt interest dividends that will be exempt from New York State and
New York City personal income tax. That exemption applies to the extent that the
Trust's distributions are attributable to interest on New York municipal
securities. Distributions from the Trust attributable to income from sources
other than New York municipal securities and U.S. government obligations will
generally be subject to New York income tax as ordinary income.
Distributions by the Trust from investment income and long- and short-term
capital gains will generally not be excludable from taxable net investment
income in determining New York corporate franchise tax and New York City general
corporation tax for corporate shareholders of the Trust. Additionally, certain
distributions paid to corporate shareholders of the Trust may be includable in
income subject to the New York alternative minimum tax.
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. If it
does not, the Trust must pay an excise tax on the amounts not distributed. It is
presently anticipated that the Trust will meet those requirements. However, the
Trust's Board of Trustees and the Manager might determine in a particular year
that it would be in the best interest of shareholders not to make distributions
at the required levels and to pay the excise tax on the undistributed amounts.
That would reduce the amount of income or capital gains available for
distribution to shareholders.
Dividend Reinvestment in Another Trust. Direct shareholders of the Trust may
elect to reinvest all dividends and/or capital gains distributions in Class A
shares of any eligible fund listed above. To elect this option, the shareholder
must notify the Transfer Agent in writing and must have an existing account in
the fund selected for reinvestment. Otherwise, the shareholder first must obtain
a prospectus for that fund and an application from the Distributor to establish
an account. The investment will be made at the close of business on the payable
date of the dividend or distribution.
Additional Information About the Trust
The Distributor. The Trust's shares are sold through dealers, brokers and other
financial institutions that have a sales agreement with the Sub-Distributor. The
Distributor and the Sub-Distributor also distribute shares of the other funds
managed by the Manager or an affiliate.
The Transfer Agent. Shareholder Services, Inc. the Trust's Transfer Agent,
is responsible for maintaining the Trust's shareholder registry and
shareholder accounting records, and for paying dividends and distributions to
shareholders of the Trust. It also handles shareholder servicing and
administrative functions. It is paid on a "at-cost" basis.
The Custodian. Citibank, N.A. is the Custodian of the Trust's assets. The
Custodian's responsibilities include safeguarding and controlling the Trust's
portfolio securities and handling the delivery of such securities to and from
the Trust. 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 and its affiliates. The Trust's cash balances with the Custodian in
excess of $100,000 are not protected by federal deposit insurance. Those
uninsured balances at times may be substantial.
Independent Auditors. Deloitte & Touche LLP are the independent auditors of the
Trust. They audit the Trust's financial statements and perform other related
audit services. They also act as auditors for the Manager and OFI and for
certain other funds advised by the Manager and its affiliates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of
Centennial New York Tax Exempt Trust:
We have audited the accompanying statement of assets and liabilities of
Centennial New York Tax Exempt Trust, including the statement of investments, as
of June 30, 2000, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of June 30, 2000, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Centennial New York Tax Exempt Trust as of June 30, 2000, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
July 24, 2000
<PAGE>
3 Centennial New York Tax Exempt Trust
Statement of Investments June 30, 2000
<TABLE>
<CAPTION>
Principal Value
Amount See Note 1
--------------------------------------------------------------------------------------------------------------------
Short-Term Tax-Exempt Obligations - 96.0%
--------------------------------------------------------------------------------------------------------------------
New York - 93.9%
--------------------------------------------------------------------------------------------------------------------
<S>
<C> <C> <C>
Babylon, NY IDA RB, J. D'Addario & Co. Project, 4.75%
(1) $ 500,000 $ 500,000
--------------------------------------------------------------------------------------------------------------------
Jefferson Cnty., NY IDA RB, 4.30%
(1) 2,500,000 2,499,998
--------------------------------------------------------------------------------------------------------------------
NYC Health & Hospital Corp. RB, Health Systems, Series A, 4.45%
(1) 1,000,000 1,000,000
--------------------------------------------------------------------------------------------------------------------
NYC IDA Civic Facility RB, Casa Project, 4.90%
(1) 1,000,000 1,000,000
--------------------------------------------------------------------------------------------------------------------
NYC MTAU RB, 4.25%, 8/1/00
(2) 2,500,000 2,500,000
--------------------------------------------------------------------------------------------------------------------
NYC Water FAU WSS RB, Series 1032, 4.60%, 12/15/00
(2) 2,000,000 2,000,000
--------------------------------------------------------------------------------------------------------------------
NYC Water FAU WSS RB, Series SGB 26, MBIA Insured, 4.84%
(1) 500,000 500,000
--------------------------------------------------------------------------------------------------------------------
NYS DA COP, Rockefeller University, 4.84%
(1) 1,000,000 1,000,000
--------------------------------------------------------------------------------------------------------------------
NYS DA RB, 4.77%
(1) 2,800,000 2,800,000
--------------------------------------------------------------------------------------------------------------------
NYS DA RB, 4.84%
(1) 1,500,000 1,500,000
--------------------------------------------------------------------------------------------------------------------
NYS DA RRB, Series CMC1B, 4.80%
(1) 1,300,000 1,300,000
--------------------------------------------------------------------------------------------------------------------
NYS Environmental SWD RB, General Electric Project, 4.10%, 7/10/00
(2) 1,300,000 1,300,000
--------------------------------------------------------------------------------------------------------------------
NYS ERDAUEF RRB, Con Edison Co., Subseries A-3, 4.60%
(1) 600,000 600,000
--------------------------------------------------------------------------------------------------------------------
NYS GOB, 4.25%, 8/1/00
(2) 1,000,000 1,000,000
--------------------------------------------------------------------------------------------------------------------
NYS GOUN, Series A, 4.40%, 2/8/01
(2) 2,400,000 2,400,000
--------------------------------------------------------------------------------------------------------------------
NYS LGAC RB, Series SG99, MBIA Insured, 4.82%
(1)(2) 1,600,000 1,600,000
--------------------------------------------------------------------------------------------------------------------
NYS LGAC RB, Series 1040, 4.60%, 10/1/00
(2) 1,500,000 1,500,000
--------------------------------------------------------------------------------------------------------------------
NYS MAG RB, Series 302, 4.85%
(1) 1,500,000 1,500,000
--------------------------------------------------------------------------------------------------------------------
NYS MCFFA RB, MHESF, Prerefunded, Series B, 7.875%, 8/15/00
(2) 11,625,000 11,904,860
--------------------------------------------------------------------------------------------------------------------
NYS TBTAU RB, Series SG-41, 4.82%
(1) 2,730,000 2,730,000
--------------------------------------------------------------------------------------------------------------------
NYS Thruway Authority RB, Highway & Bridge Trust Fund,
Series 267, FSA Insured, 4.82%
(1) 2,225,000 2,225,000
--------------------------------------------------------------------------------------------------------------------
NYS Urban Empire Development Corp. RB, Series A, 4.84%
(1) 2,600,000 2,600,000
--------------------------------------------------------------------------------------------------------------------
PAUNYNJ RB, 4.15%, 7/13/00
(2) 2,500,000 2,500,000
--------------------------------------------------------------------------------------------------------------------
Southeast NY IDA RB, Unilock NY, Inc. Project, 4.80%
(1) 2,000,000 2,000,000
--------------------------------------------------------------------------------------------------------------------
TBTAU NY RB, Series T, 7%, 1/1/01
(2) 2,000,000 2,065,922
---------------
52,525,780
--------------------------------------------------------------------------------------------------------------------
U.S. Possessions - 2.1%
--------------------------------------------------------------------------------------------------------------------
PR CMWLTH GOB, 4.42%
(1) 1,200,000 1,200,000
--------------------------------------------------------------------------------------------------------------------
Total Investments, at
Value
96.0% 53,725,780
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Other Assets Net of
Liabilities
4.0 2,237,178
------ --------------
Net
Assets
100.0% $55,962,958
====== ==============
4 Centennial New York Tax Exempt Trust
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Statement of Investments June 30,
2000 Continued
--------------------------------------------------------------------------------------------------------------------
To simplify the listings of securities, abbreviations are used per the table
below:
<S> <C>
CMWLTH - Commonwealth MCFFA - Medical Care
Facilities Finance Agency
COP - Certificates of Participation MHESF - Mental Health Services
Facilities
DA - Dormitory Authority MTAU - Metropolitan
Transportation Authority
ERDAUEF - Energy Research & Development NYC - New York City
Authority Electric Facilities NYS - New York State
FAU - Finance Authority PAUNYNJ - Port Authority of New
York & New Jersey
GOB - General Obligation Bonds RB - Revenue Bonds
GOUN - General Obligation Unlimited Nts. RRB - Revenue Refunding Bonds
IDA - Industrial Development Agency SWD - Solid Waste Disposal
LGAC - Local Government Assistance Corp. TBTAU - Triborough Bridge &
Tunnel Authority
MAG - Mtg. Agency WSS - Water & Sewer System
</TABLE>
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,
2000. This instrument may also have a demand feature which allows, on up to 30
days' notice, the recovery of principal at any time, or at specified intervals
not exceeding one year.
2. Put obligation redeemable at full face value on the date reported.
See accompanying Notes to Financial Statements.
5 Centennial New York Tax Exempt Trust
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Statement of Assets and
Liabilities June 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
Assets
<S>
<C>
Investments, at value - see accompanying
statement
$53,725,780
--------------------------------------------------------------------------------------------------------------------------------
Cash
971,785
--------------------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Shares of beneficial interest
sold
1,288,611
Interest
792,049
Other
13,545
------------
Total
assets
56,791,770
--------------------------------------------------------------------------------------------------------------------------------
Liabilities Payables and other liabilities:
Shares of beneficial interest
redeemed
671,939
Dividends
76,803
Shareholder
reports
39,133
Service plan
fees
26,376
Trustees'
compensation
556
Other
14,005
------------
Total
liabilities
828,812
-----------------------------------------------------------------------------------------------------------------------------------
Net
Assets
$55,962,958
============
-----------------------------------------------------------------------------------------------------------------------------------
Composition of Net Assets
Paid-in
capital
$55,956,473
-----------------------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment
transactions
6,485
-----------------------------------------------------------------------------------------------------------------------------------
Net assets - applicable to 55,956,473 shares of beneficial
interest
outstanding
$55,962,958
============
-----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Redemption Price Per Share and Offering Price Per
Share $1.00
======
</TABLE>
See accompanying Notes to Financial Statements.
6 Centennial New York Tax Exempt Trust
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Statement of
Operations For
the Year Ended June 30, 2000
-----------------------------------------------------------------------------------------------------------------------------------
Investment Income
<S>
<C>
Interest
$2,228,141
-----------------------------------------------------------------------------------------------------------------------------------
Expenses
Management
fees
305,700
-----------------------------------------------------------------------------------------------------------------------------------
Service plan
fees
120,981
-----------------------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent
fees
47,237
-----------------------------------------------------------------------------------------------------------------------------------
Shareholder
reports
36,661
-----------------------------------------------------------------------------------------------------------------------------------
Custodian fees and
expenses
23,850
-----------------------------------------------------------------------------------------------------------------------------------
Trustees'
compensation
1,726
-----------------------------------------------------------------------------------------------------------------------------------
Other
21,684
-----------
Total
expenses
557,839
-----------
Less reimbursement of
expenses
(48,269)
Less expenses paid
indirectly
(12,001)
-----------
Net
expenses
497,569
-----------------------------------------------------------------------------------------------------------------------------------
Net Investment
Income
1,730,572
-----------------------------------------------------------------------------------------------------------------------------------
Net Realized Gain on
Investments
9,958
-----------------------------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from
Operations
$1,740,530
===========
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Statements of Changes in Net Assets
Year Ended June 30,
2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
Operations
<S>
<C> <C>
Net investment
income
$1,730,572 $1,410,445
-----------------------------------------------------------------------------------------------------------------------------------
Net realized gain
(loss)
9,958 (739)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting
from
operations
1,740,530 1,409,706
-----------------------------------------------------------------------------------------------------------------------------------
Dividends and/or Distributions to
Shareholders
(1,730,572) (1,418,059)
-----------------------------------------------------------------------------------------------------------------------------------
Beneficial Interest Transactions Net increase (decrease) in net assets resulting
from beneficial interest transactions
(5,838,875) 4,993,614
-----------------------------------------------------------------------------------------------------------------------------------
Net Assets
Total increase
(decrease)
(5,828,917) 4,985,261
-----------------------------------------------------------------------------------------------------------------------------------
Beginning of
period
61,791,875 56,806,614
------------ ------------
End of
period
$55,962,958 $61,791,875
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
7 Centennial New York Tax Exempt Trust
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Financial Highlights
Year Ended June 30,
2000 1999
1998 1997 1996
--------------------------------------------------------------------------------------------------------------------
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
.02 .03 .03 .03
Dividends and/or distributions to shareholders (.03)
(.02) (.03) (.03) (.03)
--------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00
$1.00 $1.00 $1.00 $1.00
======
====== ====== ====== ======
--------------------------------------------------------------------------------------------------------------------
Total Return(1) 2.92%
2.42% 2.87% 2.76% 2.79%
--------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
Net assets, end of period (in thousands) $55,963 $61,792
$56,807 $48,896 $39,807
--------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $61,033 $59,345
$53,923 $45,363 $42,351
--------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(2)
Net investment income 2.84%
2.38% 2.85% 2.73% 2.76%
Expenses 0.92%
0.89% 0.89%(3) 0.88%(3) 0.93%(3)
Expenses, net of indirect expenses and/or
voluntary assumption of expenses 0.82%
0.80% 0.80% 0.80% 0.80%
</TABLE>
1. Assumes a $1,000 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. Total returns are not annualized for
periods of less than one full year.
2. Annualized for periods of less than one full year.
3. Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.
See accompanying Notes to Financial Statements.
8 Centennial New York Tax Exempt Trust
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Centennial New York Tax Exempt Trust (the Trust) is registered under the
Investment Company Act of 1940, as amended, as an 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 as is consistent with the preservation of capital. The
Trust's investment advisor 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.
SECURITIES VALUATION Portfolio securities are valued on the basis of amortized
cost, which approximates market value.
NON-DIVERSIFICATION RISK The Trust is "non-diversified" and can invest in the
securities of a single issuer. To the extent the Trust invests a relatively high
percentage of its assets in the obligations of a single issuer or a limited
number of issuers, the Trust is subject to additional risk of loss if those
obligations lose market value or the borrower or issuer of those obligations
defaults.
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.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
EXPENSE OFFSET ARRANGEMENTS Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Trust.
OTHER Investment transactions are accounted for as of 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.
There are certain risks arising from geographic concentration in any state.
Certain revenue or tax related event in a state may impair the ability of
certain issuers of municipal securities to pay principal and interest on their
obligations.
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, 2000 YEAR ENDED JUNE 30, 1999
SHARES
AMOUNT SHARES AMOUNT
----------------------------------- -----------------------------------
<S> <C>
<C> <C> <C>
Sold 235,166,364 $
235,166,364 194,238,424 $ 194,238,424
Dividends and/or distributions reinvested 1,666,312
1,666,312 1,385,354 1,385,354
Redeemed (242,671,551)
(242,671,551) (190,630,164) (190,630,164)
-------------
-------------- ------------- --------------
Net increase (decrease) (5,838,875) $
(5,838,875) 4,993,614 $ 4,993,614
=============
============== ============= ==============
</TABLE>
9 Centennial New York Tax Exempt Trust
NOTES TO FINANCIAL STATEMENTS Continued
3. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
MANAGEMENT FEES 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 average annual 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 Manager has voluntarily
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 Manager reserves the right
to amend or terminate that expense assumption at any time. The Trust's
management fee for the year ended June 30, 2000 was an annualized rate of 0.50%,
before any waiver by the Manager if applicable.
TRANSFER AGENT Shareholder Services, Inc. (SSI) acts as the transfer and
shareholder servicing agent for the Trust and for other registered investment
companies on an "at-cost" basis.
SERVICE PLAN FEES Under an approved service plan, the Trust may expend up to
0.20% of its average annual 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 financial institutions.
10 Centennial New York Tax Exempt Trust
<PAGE>
<PAGE>
A-12
Appendix A
------------------------------------------------------------------------------
Description of Securities Ratings
------------------------------------------------------------------------------
Below is a description of the two highest rating categories for Short Term Debt
and Long Term Debt by the "Nationally-Recognized Statistical Rating
Organizations" which the Manager evaluates in purchasing securities on behalf of
the Fund. The ratings descriptions are based on information supplied by the
ratings organizations to subscribers.
Short Term Debt Ratings.
Moody's Investors Service, Inc. ("Moody's")
------------------------------------------------------------------------------
The following rating designations for commercial paper (defined by Moody's as
promissory obligations not having original maturity in excess of nine months),
are judged by Moody's to be investment grade, and indicate the relative
repayment capacity of rated issuers:
Prime-1: Superior capacity for repayment. Capacity will normally be evidenced by
the following characteristics: (a) leading 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:
MIG 1/VMIG 1: Denotes superior credit quality. Excellent protection is afforded
by established cash flows, highly reliable liquidity support or demonstrated
broad-based access to the market for refinancing..
MIG 2/VMIG 2: Denotes strong credit quality. Margins of protection are ample
although not as large as in the preceding group.
<PAGE>
Standard & Poor's Rating Services ("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: Obligation is rated in the highest category. The obligor's capacity to meet
its financial commitment on the obligation is strong. Within this category, a
plus (+) sign designation indicates the obligor's capacity to meet its financial
obligation is extremely strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its financial commitment on
the obligation is satisfactory.
S&P's ratings for Municipal Notes due in three years or less are:
SP-1: Strong capacity to pay principal and interest. An issue with a very
strong capacity to pay debt service is given a (+) designation.
SP-2: Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
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, Inc. ("Fitch")
------------------------------------------------------------------------------
("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:
F1: Highest credit quality. Strongest capacity for timely payment of
financial commitments. May have an added "+" to denote any exceptionally
strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the
case of higher ratings.
THOMSON FINANCIAL BANKWATCH ("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 a very high likelihood that principal
and interest will be paid on a timely basis.
TBW-2: The second highest rating category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated "TBW-1".
Long Term Debt Ratings.
These ratings are relevant for securities purchased by the Fund with a remaining
maturity of 397 days or less, or for rating issuers of short-term obligations.
------------------------------------------------------------------------------
Moody's Investors Service, Inc. ("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. 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, the changes that can be expected are most unlikely to impair the
fundamentally strong position 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 with "Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the
long-term risk appear somewhat larger than that of "Aaa" securities.
Moody's applies numerical modifiers "1", "2" and "3" in its "Aa" rating
classification. The modifier "1" indicates that the obligation ranks in the
higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates a ranking in the lower end of
that generic rating category.
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Standard & Poor's Rating Services ("S&P")
------------------------------------------------------------------------------
Bonds (including municipal bonds) are rated as follows:
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's.
The highest rating assigned by S&P. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small
degree. A strong capacity to meet its financial commitment on the obligation
is very strong.
<PAGE>
Fitch, Inc. ("Fitch")
------------------------------------------------------------------------------
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in the case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
------------------------------------------------------------------------------
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of
credit risk. They indicate a very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
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+".
THOMSON FINANCIAL BANKWATCH ("TBW")
------------------------------------------------------------------------------
TBW issues the following ratings for companies.
Investment Grade. Long-Term Debt Ratings assigned by TBW also weigh heavily
government ownership and support. The quality of both the company's management
and franchise are of even greater importance in the long-term debt rating
decisions.
AAA: Indicates that the ability to repay principal and interest on a timely
basis is extremely high.
AA: Indicates a very strong ability to repay principal and interest on a timely
basis, with limited incremental risk compared to issuers rated in the highest
category.
Global Issuer Ratings. 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: The company possesses an exceptionally strong balance sheet and earnings
record, translating into an excellent reputation and unquestioned access to its
natural money markets. If weakness or vulnerability exists in any aspect of the
company's business, it is entirely mitigated by the strengths of the
organization.
A/B: The company is financially very solid with a favorable track record and no
readily apparent weakness. Its overall risk profile, while low, is not quite as
favorable as for companies in the highest rating category.
<PAGE>
B-1
Appendix B
Municipal Bond Industry Classifications
Adult Living Facilities
Bond Anticipation Notes
Education
Electric Utilities
Gas Utilities
General Obligation
Higher Education
Highways/Railways
Hospital/Healthcare
Manufacturing, Durable Goods
Manufacturing, Non Durable Goods
Marine/Aviation Facilities
Multi-Family Housing
Municipal Leases
Non Profit Organization
Parking Fee Revenue
Pollution Control
Resource Recovery
Revenue Anticipation Notes
Sales Tax Revenue
Sewer Utilities
Single Family Housing
Special Assessment
Special Tax
Sports Facility Revenue
Student Loans
Tax Anticipation Notes
Tax & Revenue Anticipation Notes
Telephone Utilities
Water Utilities
<PAGE>
------------------------------------------------------------------------------
Centennial New York Tax Exempt Trust
------------------------------------------------------------------------------
Investment Advisor and Distributor
Centennial Asset Management Corporation
6803 South Tucson Way
Englewood, Colorado 80112
Sub-Distributor OppenheimerFunds Distributor, Inc.
P.O. Box 5254
Denver, Colorado 80217
Transfer Agent
Shareholder Services, Inc.
P.O. Box 5143
Denver, Colorado 80217
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
PX0780.001.1100
