Centennial
California Tax Exempt Trust
Prospectus dated November 1, 1996
Centennial California Tax Exempt Trust is a no-load "money market" mutual fund
with the investment objective of seeking the maximum current interest income
exempt from Federal and California personal income taxes for individual
investors as is consistent with preservation of capital. The Trust seeks to
achieve this objective by investing in municipal obligations meeting specified
quality standards, the income from which is tax-exempt as described above.
Normally, the Trust will invest at least 80% of its assets in U.S.
dollar-denominated, high quality tax-exempt municipal obligations. The Trust may
invest a significant percentage of its assets in the securities of a single
issuer, and therefore an investment in the Trust may be riskier than an
investment in other types of money market funds.
An investment in the Trust is neither insured nor guaranteed by the
U.S. Government. While the Trust seeks to maintain a stable net asset value of
$1.00 per share, there can be no assurance that the Trust will be able to do so.
Shares of the Trust may be purchased directly from brokers or dealers
having sales agreements with the Trust's Distributor and also are offered to
participants in Automatic Purchase and Redemption Programs (the "Programs")
established by certain brokerage firms with which the Trust's Distributor has
entered into agreements for that purpose. See "How to Buy Shares" in the
Prospectus. Program participants should also read the description of the Program
provided by their broker.
This Prospectus explains concisely what you should know before
investing in the Trust. Please read this Prospectus carefully and keep it for
future reference. You can find more detailed information about the Trust in the
November 1, 1996 Statement of Additional Information. For a free copy, call
Shareholder Services, Inc., the Trust's Transfer Agent, at 1-800-525-9310 or
write to the Transfer Agent at the address on the back cover. The Statement of
Additional Information has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference (which means
that it is legally part of this Prospectus).
Shares of the Trust are not deposits or obligations of any bank, are not
guaranteed by any bank, are not insured by the F.D.I.C. or any other agency and
involve investment risks, including the possible loss of the principal amount
invested.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
Contents
3 Expenses
4 Financial Highlights
5 Performance of the Trust
5 Investment Objective and Policies
12 Investment Restrictions
13 How the Trust is Managed
15 How To Buy Shares
16 Purchases Through Automatic Purchase and Redemption
Programs
17 Direct Purchases
17 Payment by Check
17 Payment by Federal Funds Wire
18 Guaranteed Payment
18 Automatic Investment Plans
19 Service Plan
19 How To Sell Shares
19 Program Participants
20 Shares of the Trust Owned Directly
20 Regular Redemption Procedure
21 Expedited Redemption Procedure
21 Check Writing
22 Telephone Redemptions
22 Automatic Withdrawal Plans
23 General Information on Redemptions
23 Exchanges of Shares
27 Dividends, Distributions and Taxes
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Expenses
The following table sets forth the fees that an investor in the Trust might pay,
and the expenses paid by the Trust during its fiscal year ended June 30, 1996.
o Shareholder Transaction Expenses
Maximum Sales Charge on Purchases
(as a percentage of offering price) None
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Sales Charge on Reinvested Dividends None
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Redemption Fees None
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Exchange Fee None
o Annual Trust Operating Expenses
(as a percentage of average net assets)
Management Fees (after expense assumption) 0.49%
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12b-1 (Service Plan) Fees 0.20%
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Other Expenses 0.10%
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Total Trust Operating Expenses
(after expense assumption) 0.79%
The purpose of this table is to assist an investor in understanding the
various costs and expenses that an investor in the Trust will bear directly
(Shareholder Transaction Expenses) or indirectly (Annual Trust Operating
Expenses). "Other Expenses" includes such expenses as custodial and transfer
agent fees, audit, legal and other business operating expenses, but excludes
extraordinary expenses. The Annual Trust Operating Expenses shown are net of a
voluntary expense assumption undertaking by the Trust's investment manager,
Centennial Asset Management Corporation (the "Manager"). Without such
assumption, "Management Fees" and "Total Trust Operating Expenses" would have
been 0.50% and 0.80% of average net assets, respectively. The expense assumption
undertaking is described in "The Manager and Its Affiliates" in the Statement of
Additional Information and may be withdrawn or amended at any time. For further
details, see the Trust's Financial Statements included in the Statement of
Additional Information.
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o Example. To try to show the effect of these expenses on an investment
over time, we have created the hypothetical example shown below. Assume that you
make a $1,000 investment in shares of the Trust, and the Trust's annual return
is 5%, and that its operating expenses are the ones shown in the Annual Trust
Operating Expenses chart above. If you were to redeem your shares at the end of
each period shown below, your investment would incur the following expenses by
the end of each period shown.
1 year 3 years 5 years 10 years
------ ------- ------- --------
$8 $25 $44 $98
This example shows the effect of expenses on an investment, but is not
meant to state or predict actual or expected costs or investment returns of the
Trust, all of which may be more or less than those shown.
Financial Highlights
The table on the following page presents selected financial information about
the Trust, including per share data and expense ratios and other data based on
the Trust's average net assets. This information has been audited by Deloitte &
Touche LLP, independent auditors, whose report on the financial statements of
the Trust for the fiscal year ended June 30, 1996 is included in the Statement
of Additional Information.
<TABLE>
<CAPTION>
Financial Highlights
Centennial California Tax Exempt Trust
Year Ended June 30,
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1996 1995 1994 1993 1992 1991 1990(1)
<S> <C> <C> <C> <C> <C> <C> <C>
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Per Share Operating Data:
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
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Income from investment operations - net
investment income and net realized gain .03 .03 .02 .02 .03 .04 .003
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Dividends and distributions to shareholders (.03) (.03) (.02) (.02) (.03) (.04) (.003)
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Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
============================================================================
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Total Return, at Net Asset Value(2) 2.97% 3.00% 1.82% 2.00% 3.29% 4.79% N/A
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Ratios/Supplemental Data:
Net assets, end of period (in thousands) $118,838 $ 92,318 $ 60,376 $ 58,079 $48,483 $ 32,337 $ 2,018
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Average net assets (in thousands) $112,911 $ 71,278 $ 65,520 $ 56,082 $ 40,684 $ 16,150 $ 1,914
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Ratios to average net assets:
Net investment income 2.94% 2.99% 1.79% 1.90% 3.13% 4.09% 6.29%(3)
Expenses, before voluntary assumption
by the Manager 0.80% 0.83% 0.87% 0.86% 0.91% 1.09% 2.53%(3)
Expenses, net of voluntary assumption
by the Manager 0.79% 0.80% 0.80% 0.80% 0.80% 0.84% 0.90%(3)
<FN>
1. For the period from June 12, 1990 (commencement of operations) to June 30, 1990.
2. Assumes a hypothetical initial investment on the business day before the first day of the fiscal period, with all
dividends reinvested in additional shares on the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Total returns are not annualized for periods of less than one full year. Total
returns reflect changes in net investment income only.
3. Annualized.
</FN>
</TABLE>
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Performance of the Trust
Explanation of "Yield." From time to time, the "yield," "tax- equivalent yield"
and "compounded effective yield" of an investment in the Trust may be
advertised. All yield figures are based on historical earnings per share and are
not intended to indicate future performance. The "yield" of the Trust is the
income generated by an investment in the Trust over a seven-day period, which is
then "annualized." In annualizing, the amount of income generated by the
investment during that seven days is assumed to be generated each week over a
52-week period, and is shown as a percentage of the investment. The "compounded
effective yield" is calculated similarly, but the annualized income earned by an
investment in the Trust is assumed to be reinvested. The "compounded effective
yield" will therefore be slightly higher than the yield because of the effect of
the assumed reinvestment. The Trust's "tax-equivalent yield" is calculated by
dividing that portion of the Trust's "yield" (calculated as described above)
which is tax-exempt by one minus a stated income tax rate and adding the result
to the portion (if any) of the Trust's yield that is not tax-exempt. The
"tax-equivalent yield" is then compounded and annualized in the same manner as
the Trust's yield. See "Performance of the Trust" in the Statement of Additional
Information for further information on the methods of calculating these yields.
From time to time the Manager may voluntarily assume a portion of the Trust's
expenses (which may include the management fee), thereby lowering the overall
expense ratio per share and increasing the Trust's yield during the time such
expenses are assumed.
Investment Objective and Policies
Objective. The Trust is a no-load tax-exempt money market fund. It is an
open-end, non-diversified, management investment company organized as a
Massachusetts business trust on August 7, 1989. The Trust's investment objective
is to seek the maximum current interest income exempt from Federal and
California personal income taxes for individual investors as is consistent with
preservation of capital. The Trust's shares may be purchased at their net asset
value, which will remain fixed at $1.00 per share except under extraordinary
circumstances (see "Determination of Net Asset Value Per Share" in the Statement
of Additional Information for further information). There can be no assurance,
however, that the Trust's net asset value will not vary or that the Trust will
achieve its investment objective. The value of Trust shares is not insured or
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guaranteed by any government agency. However, shares held in brokerage accounts
may be eligible for coverage by the Securities Investor Protection Corporation
for losses arising from the insolvency of the brokerage firm.
Portfolio Quality/Ratings of Securities. Under Rule 2a-7 of the Investment
Company Act of 1940, as amended (the "Investment Company Act"), the Trust uses
the amortized cost method to value its portfolio securities to determine the
Trust's net asset value per share. Rule 2a-7 places restrictions on a money
market fund's investments. Under the Rule, the Trust may purchase only those
securities that the Manager, under procedures approved by the Trust's Board of
Trustees, has determined have minimal credit risks and are "Eligible
Securities." An "Eligible Security" is (a) one that has received a rating in one
of the two highest short-term rating categories by any two
"nationally-recognized statistical rating organizations" (as defined in the
Rule) ("Rating Organizations"), or, if only one Rating Organization has rated
that security, by that Rating Organization, or (b) an unrated security that is
judged by the Manager to be of comparable quality to investments that are
"Eligible Securities" rated by Rating Organizations.
The Rule permits the Trust to purchase "First Tier Securities," which
are Eligible Securities rated in the highest rating category for short-term debt
obligations by at least two Rating Organizations, or, if only one Rating
Organization has rated a particular security, by that Rating Organization, or
comparable unrated securities. Under the Rule, the Trust may also invest in
"Second Tier Securities," which are Eligible Securities that are not "First Tier
Securities." Additionally, under Rule 2a-7, the Trust must maintain a
dollar-weighted average portfolio maturity of no more than 90 days; and the
remaining maturity of any single portfolio investment may not exceed 397 days.
Certain of the Trust's fundamental investment restrictions (which may be changed
only by shareholder vote) are more restrictive than the provisions of Rule 2a-7,
and the Trust must restrict the maturity of portfolio securities to one year or
less. The Trust's Board has adopted procedures under Rule 2a-7 pursuant to which
the Board has delegated to the Manager certain responsibilities, in accordance
with that Rule, of conforming the Trust's investments with the requirements of
the Rule and those procedures.
Appendix A of the Statement of Additional Information contains
descriptions of the rating categories of Rating Organizations.
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Ratings at the time of purchase will determine whether securities may be
acquired under the above restrictions. Subsequent downgrades in ratings may
require reassessment of the credit risk presented by a security and may require
its sale. The rating restrictions described in this Prospectus do not apply to
banks in which the Trust's cash is kept. See "Municipal Bonds" and "Ratings of
Securities" in "Investment Objective and Policies" in the Statement of
Additional Information for further details.
Investment Policies and Strategies. The Trust's investment policies and
practices are not "fundamental" policies as defined in "Investment Restrictions"
unless a particular policy is identified as fundamental. The Trust's investment
objective is a fundamental policy. The Board may change non-fundamental
investment policies without shareholder approval. In seeking its objective, the
Trust may invest in the types of securities listed below and use the following
strategies:
o Municipal Securities. The Trust invests in tax-exempt securities,
consisting of municipal bonds, municipal notes (which include tax anticipation
notes, bond anticipation notes, revenue anticipation notes, construction loan
notes and other short-term loans), tax-exempt commercial paper and other debt
obligations, which include variable rate demand notes and put bonds issued by or
on behalf of the State of California, other states, and the District of
Columbia, their political subdivisions, or any commonwealth or territory of the
United States, or their respective agencies, instrumentalities or authorities,
the interest from which is not subject to Federal individual income tax, in the
opinion of bond counsel to the respective issuer (collectively, these are
referred to as "Municipal Securities"), and in Municipal Securities the interest
from which is not subject to California personal income tax in the opinion of
bond counsel to the respective issuer (collectively, these are referred to as
"California Municipal Securities"). The Trust may also purchase Municipal
Securities with demand features that meet the requirements of Rule 2a-7
(discussed above). All Municipal Securities in which the Trust invests must
have, or, pursuant to regulations adopted by the SEC, be deemed to have,
remaining maturities of one year or less at the date the Trust purchases them.
Under normal market conditions, the Trust attempts to invest 100% of
its assets in Municipal Securities and at least 65% of its assets in California
Municipal Securities, and, as a fundamental
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policy, the Trust will make no investment that will reduce the portion of its
total assets that are invested in Municipal Securities to less than 80%. The
balance of the Trust's assets may be invested in investments the income from
which may be taxable, including: (i) repurchase agreements (explained below);
(ii) Municipal Securities issued to benefit a private user ("Private Activity
Municipal Securities"), the interest from which may be subject to Federal
alternative minimum tax (see "Dividends, Distributions and Taxes" below and
"Private Activity Municipal Securities" in the Statement of Additional
Information); and (iii) certain temporary investments defined below in
"Temporary Investments." The Trust may hold Temporary Investments pending the
investment of proceeds from the sale of Trust shares or portfolio securities,
pending settlement of Municipal Securities purchases or to meet anticipated
redemptions. Normally, the Trust will not invest more than 20% of its total
assets in Private Activity Municipal Securities and the taxable investments
described above. No independent investigation has been made by the Manager as to
the users of proceeds of such offerings or the application of such proceeds. To
the extent the Trust receives income from taxable investments, it may not
achieve its investment objective.
o Floating Rate/Variable Rate Obligations. Some of the Municipal
Securities the Trust may purchase may have variable or floating interest rates.
Variable rates are adjustable at stated periodic intervals of no more than one
year. Floating rates are automatically adjusted according to a specified market
rate for such investments, such as the PSA Municipal Swap Index or the J.J.
Kenney Index. The Trust may purchase these obligations if they have a remaining
maturity of one year or less; if their maturity is greater than one year, they
may be purchased if they have a demand feature that permits the Trust to recover
the principal amount of the underlying security at specified intervals not
exceeding one year and on not more than 30 days' notice. The Manager may
determine that an unrated floating rate or variable rate demand obligation meets
the Trust's quality standards solely by reason of being backed by a letter of
credit or guarantee issued by a bank that meets the Trust's quality standards.
However, the letter of credit or bank guarantee must be rated or meet the other
requirements of Rule 2a-7.
o Municipal Lease Obligations. The Trust may invest in
certificates of participation, which are tax-exempt obligations
that evidence the holder's right to share in lease, installment
loan or other financing payments by a public entity. Projects
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financed with certificates of participation generally are not subject to state
constitutional debt limitations or other statutory requirements that may be
applicable to Municipal Securities. Payments by the public entity on the
obligation underlying the certificates are derived from available revenue
sources; such revenue may be diverted to the funding of other municipal service
projects. Payments of interest and/or principal with respect to the certificates
are not guaranteed and do not constitute an obligation of the state or any of
its political subdivisions. While some municipal lease securities may be deemed
to be "illiquid" securities (the purchase of which would be limited as described
below in "Illiquid and Restricted Securities"), from time to time the Trust may
invest more than 5% of its net assets in municipal lease obligations that the
Manager has determined to be liquid under guidelines set by the Trust's Board of
Trustees.
o Puts and Demand Features. The Trust may invest a significant
percentage of its assets in Municipal Securities subject to put or demand
features. Because the Trust invests in securities backed by banks and other
financial institutions, changes in the credit quality of these institutions
could cause losses to the Trust. Therefore, an investment in the Trust may be
riskier than an investment in other types of money market funds.
A "put" is the right to sell a particular security within a specified period of
time at a stated exercise price. The put may be sold, transferred, or assigned
only with the underlying security. A demand feature is a put that may be
exercised at specified intervals not exceeding 397 calendar days and upon no
more than thirty days' notice. Demand features can: (1) shorten the maturity of
a variable or floating rate security, (2) enhance the security's credit quality,
and (3) enhance the ability to sell the security. The aggregate price for a
security subject to a put or demand feature may be higher than the price that
would be paid for the security without the put or demand feature. The effect of
the put or demand feature is to increase the cost of the security and reduce its
yield.
o When-Issued or Delayed-Delivery Securities. The Trust may invest in
Municipal Securities on a "when-issued" or "delayed delivery" basis. In those
transactions, the Trust obligates itself to purchase or sell securities, with
delivery and payment to occur at a later date, to secure what is considered to
be an advantageous price and yield at the time the obligation is entered into.
The price, which is generally expressed in yield terms, is fixed at the time the
commitment to purchase is made, but delivery and payment
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for when-issued securities take place at a later date (normally within 120 days
of purchase). During the period between purchase and settlement, no payment is
made by the Trust to the issuer and no interest accrues to the Trust from the
investment. Although the Trust is subject to the risk of adverse market
fluctuation during that period, the Manager does not believe that the Trust's
net asset value or income will be materially adversely affected by the Trust's
purchase of Municipal Securities on a "when-issued" or "delayed delivery" basis.
See "When-Issued and Delayed Delivery Transactions" in the Statement of
Additional Information for more details.
o Non-diversification. The Trust is a "non-diversified" investment
company under the Investment Company Act. As a result, it may invest its assets
in a single issuer or limited number of issuers without limitation by the
Investment Company Act. However, the Trust intends to conduct its operations so
as to qualify as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended (the "Internal Revenue Code"), pursuant to
which: (1) not more than 25% of the market value of the Trust's total assets
will be invested in the securities of a single issuer, and (2) with respect to
50% of the market value of its total assets, not more than 5% of the market
value of its total assets may be invested in the securities of a single issuer
and the Trust must not own more than 10% of the outstanding voting securities of
a single issuer. An investment in the Trust therefore will entail greater risk
than an investment in a diversified investment company because a higher
percentage of investments among fewer issuers may result in greater credit risk
exposure to a smaller number of issuers, greater fluctuation in the total market
value of the Trust's portfolio, and economic, political or regulatory
developments may have a greater impact on the value of the Trust's portfolio
than would be the case if the portfolio were diversified among more issuers.
o Repurchase Agreements. The Trust may acquire securities that are
subject to repurchase agreements to generate income while providing liquidity.
The Trust's repurchase agreements must be fully collateralized under the
requirements of Rule 2a-7. However, if the seller of the securities fails to pay
the agreed-upon repurchase price on the delivery date, the Trust's risks may
include the costs of disposing of the collateral for the agreement and losses
that might result from any delays in foreclosing on the collateral. The Trust
will not enter into a repurchase agreement that will cause more than 10% of its
net assets to be subject to
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repurchase agreements maturing in more than seven days and may not enter into
repurchase agreements if the scheduled repurchase date is greater than one year.
Income earned on repurchase transactions is not tax-exempt and accordingly,
under normal market conditions, the Trust will limit its investments in
repurchase transactions to 20% of its total assets. See "Repurchase Agreements"
in the Statement of Additional Information for further details.
o Illiquid and Restricted Securities. Under the policies and procedures
established by the Trust's Board of Trustees, the Manager determines the
liquidity of certain of the Trust's investments. Investments may be illiquid
because of the absence of an active trading market, making it difficult to value
them or dispose of them promptly at an acceptable price. A restricted security
is one that has a contractual restriction on its resale or which cannot be sold
publicly until it is registered under the Securities Act of 1933. The Trust will
not invest more than 10% of its net assets in illiquid or restricted securities.
This policy does not limit purchases of: (1) restricted securities eligible for
resale to qualified institutional purchasers pursuant to Rule 144A under the
Securities Act of 1933 that are determined to be liquid by the Board of Trustees
or by the Manager under Board-approved guidelines, or (2) commercial paper that
may be sold without registration under Sections 3(a)(3) or 4(2) of the
Securities Act of 1933. Such guidelines take into account trading activity for
such securities and the availability of reliable pricing information, among
other factors. If there is a lack of trading interest in particular Rule 144A
Securities, the Trust's holdings of those securities may be illiquid. If due to
changes in relative value, more than 10% of the value of the Trust's net assets
consist of illiquid securities, the Manager would consider appropriate steps to
protect the Trust's maximum flexibility. There may be undesirable delays in
selling illiquid securities at prices representing their fair value.
o Temporary Investments. The Trust may hold the following "Temporary
Investments" that are Eligible Securities: (i) obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities; (ii) bankers'
acceptances; (iii) taxable commercial paper rated in the highest category by a
Rating Organization; (iv) short-term taxable debt obligations rated in one of
the two highest rating categories of a Rating Organization; or (v) certificates
of deposit of domestic banks with assets of $1 billion or more and repurchase
agreements. To the extent the Trust assumes a temporary defensive position, a
significant portion of
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the Trust's distributions may be subject to Federal and California
income taxes.
o Special Risk Considerations - California Municipal Securities. The
Trust concentrates its investment in securities issued by the State of
California or entities within that state, and therefore an investment in the
Trust may be riskier than an investment in other types of money market funds
that do not concentrate their investments in that manner. Because the Trust
concentrates its investments in California Municipal Securities, the market
value and marketability of such Municipal Securities and the interest income to
the Trust from them could be adversely affected by a default or a financial
crisis relating to any of such issuers. Investors should consider these matters
as well as economic trends in California, summarized in the Statement of
Additional Information under "Special Investment Considerations - California
Municipal Securities."
Investment Restrictions
The Trust has certain investment restrictions which, together with its
investment objective, are fundamental policies, which can be changed only by the
vote of a "majority of the outstanding voting securities" (as defined in the
Investment Company Act) of the Trust. Under some of those restrictions, the
Trust cannot: (1) make loans, except that the Trust, may purchase debt
securities described in "Investment Objective and Policies," and other
securities substantially similar thereto, and repurchase agreements; and the
Trust may lend its portfolio securities as described in its investment policy
stated above; (2) 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; (3) 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;
(4) 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; (5) 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; or (6) invest more
than 5% of the value of its total assets in securities of
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companies that have operated less than three years, including the operations of
predecessors. The percentage restrictions described above and in the Statement
of Additional Information apply only at the time of investment and require no
action by the Trust as a result of subsequent changes in value of the
investments or the size of the Trust. A supplementary list of investment
restrictions is contained in "Other Investment Restrictions" in the Statement of
Additional Information.
How the Trust is Managed
Organization and History. The Trust's Board of Trustees has overall
responsibility for the management of the Trust under the laws of Massachusetts
governing the responsibilities of trustees of business trusts. "Trustees and
Officers" in the Statement of Additional Information identifies the Trust's
Trustees and officers and provides information about them. Subject to the
authority of the Board, the Manager is responsible for the day-to-day management
of the Trust's business, supervises the investment operations of the Trust and
the composition of its portfolio and furnishes the Trust advice and
recommendations with respect to investments, investment policies and the
purchase and sale of securities, pursuant to a management agreement (the
"Agreement") with the Trust. The Agreement sets forth the fees paid by the Trust
to the Manager and the expenses that the trust is responsible to pay.
The Trust's shares are of one class, are transferrable without
restriction and have equal rights and privileges. Each share of the Trust
represents an interest in the Trust equal to the interest of each other share in
the Trust and entitles the holder to one vote per share (and a fractional vote
for a fractional share) on matters submitted to a shareholder vote, and to
participate pro-rata in dividends and distributions and in the net distributable
assets of the Trust on liquidation. The Trustees may divide or combine shares
into a greater or lesser number of shares without thereby changing the
proportionate beneficial interest in the Trust. Shares do not have cumulative
voting rights or conversion, preemptive or subscription rights. The Trust's
Board of Trustees is empowered to issue additional "series" of shares of the
Trust, which may have separate assets and liabilities.
The Trust will not normally hold annual meetings of the shareholders.
The Trust may hold shareholder meetings from time to time on important matters
and shareholders have the right to call a meeting to remove a Trustee or take
other action described in the
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Declaration of Trust. Although the Declaration of Trust states that when issued,
shares are fully-paid and nonassessable, shareholders may be held personally
liable as "partners" for the Trust's obligations. However, the risk of a
shareholder incurring any financial loss is limited to the relatively remote
circumstances in which the Trust is unable to meet its obligations. See
"Organization and History of the Trust" in the Statement of Additional
Information for details.
The Manager and Its Affiliates. The Manager, a wholly-owned subsidiary of
OppenheimerFunds, Inc. ("OFI"), has operated as an investment advisor since
1978. The Manager and OFI currently advise U.S. investment companies with assets
aggregating over $55 billion as of September 30, 1996, and having more than 3
million shareholder accounts. OFI is owned by Oppenheimer Acquisition Corp., a
holding company owned in part by senior management of OFI and the Manager and
ultimately controlled by Massachusetts Mutual Life Insurance Company, a mutual
life insurance company which also advises pension plans and investment
companies.
o Fees and Expenses. The Trust's management fee, payable monthly to the
Manager under the terms of the Agreement, is computed on the average annual net
assets as of the close of business each day at the following annual rates: 0.50%
of the first $250 million of net assets; 0.475% of the next $250 million of net
assets; 0.45% of the next $250 million of net assets; 0.425% of the next $250
million of net assets and 0.40% of net assets in excess of $1 billion.
The Agreement lists examples of expenses paid by the Trust, the major
categories of which relate to interest, taxes, brokerage commissions, certain
insurance premiums, fees to certain Trustees, legal and audit expenses, transfer
agent and custodian expenses, certain registration expenses and non-recurring
expenses, including litigation costs. For further information about the
Agreement, including a description of expense assumption arrangements by the
Manager, exculpation provisions and portfolio transactions, see "The Manager and
Its Affiliates" in the Statement of Additional Information.
o The Custodian. The Custodian of the assets of the Trust
is Citibank, N.A. The Manager and its affiliates presently have
banking relationships with the Custodian. See "The Manager and Its
Affiliates" in the Statement of Additional Information for further
information. The Trust's cash balances in excess of $100,000 held
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by the Custodian are not protected by Federal deposit insurance. Such uninsured
balances may at times be substantial. The rating restrictions under Rule 2a-7
(see "Portfolio Quality/Ratings of Securities," above) do not apply to banks in
which the Trust's cash is kept.
o Transfer Agent. Shareholder Services, Inc., a subsidiary of OFI, acts
as Transfer Agent and shareholder servicing agent on an at-cost basis for the
Trust and other mutual funds advised by the Manager. The fees to the Transfer
Agent do not include payments for any services of the type paid, or to be paid,
by the Trust to the Distributor and to Recipients under the Service Plan (see
"Service Plan"). Direct shareholders should direct any inquiries regarding the
Trust to the Transfer Agent at the address or toll-free phone number on the back
cover. Program participants should direct any inquiries regarding the Trust to
their broker.
How To Buy Shares
Shares of the Trust may be purchased at their offering price, which is the net
asset value per share, without sales charge. The net asset value will remain
fixed at $1.00 per share, except under extraordinary circumstances (see
"Determination of Net Asset Value Per Share" in the Statement of Additional
Information for further details). There can be no guarantee that the Trust will
maintain a stable net asset value of $1.00 per share. Centennial Asset
Management Corporation, which also acts as the Trust's distributor (and in that
capacity is referred to as the "Distributor"), may in its sole discretion accept
or reject any order for purchase of the Trust's shares. OppenheimerFunds
Distributor, Inc., an affiliate of the Distributor, acts as the Trust's
sub-distributor (the "Sub- Distributor").
The minimum initial investment is $500 ($2,500 if by Federal Funds
wire), except as otherwise described in this Prospectus. Subsequent purchases
must be in amounts of $25 or more, and may be made through authorized dealers or
brokers or by forwarding payment to the Distributor at P.O. Box 5143, Denver,
Colorado 80217, with the name(s) of all account owners, the account number and
the name of the Trust. The minimum initial and subsequent purchase requirements
are waived on purchases made by reinvesting dividends from any of the "Eligible
Funds" listed in "Exchange of Shares" in the Statement of Additional Information
or by reinvesting distributions from unit investment trusts for which
reinvestment arrangements have been made with the Distributor. Under an
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Automatic Investment Plan, military allotment plan, 403(b)(7) custodial plan or
payroll deduction plan, initial and subsequent investments must be at least $25.
No share certificates will be issued unless specifically requested in writing by
an investor or
the dealer or broker.
The Trust intends to be as fully invested as practicable to maximize
its yield. Therefore, dividends will accrue on newly- purchased shares only
after the Distributor accepts the purchase order for them at its address in
Denver, Colorado, on a day The New York Stock Exchange is open (a "regular
business day") under one of the methods of purchasing shares described below.
The purchase will be made at the net asset value next determined after the
Distributor accepts the purchase order.
The Trust's net asset value per share is determined twice each regular
business day, at 12:00 Noon and the close of The New York Stock Exchange that
day, which is normally 4:00 P.M. but may be earlier on some days (all references
to time in this Prospectus mean New York time) by dividing the net assets of the
Trust by the total number of its shares outstanding. The Trust's Board of
Trustees has established procedures for valuing the Trust's assets, using the
amortized cost method, as described in "Determination of Net Asset Value Per
Share" in the Statement of Additional Information.
Dealers and brokers who process orders for the Trust's shares on behalf
of their customers may charge a fee for this service. That fee can be avoided by
purchasing shares directly from the Trust. The Distributor, in its sole
discretion, may accept or reject any order for purchases of the Trust's shares.
The sale of shares will be suspended during any period when the determination of
net asset value is suspended, and may be suspended by the Board of Trustees
whenever the Board judges it in the best interest of the Trust to do so.
Purchases Through Automatic Purchase and Redemption Programs. Shares of the
Trust are available under Automatic Purchase and Redemption Programs
("Programs") of broker-dealers that have entered into agreements with the
Distributor for that purpose. Broker-dealers whose clients participate in such
Programs will invest the "free cash balances" of such client's Program account
in shares of the Trust if the Trust has been selected as the primary Trust by
the client for the Program account. Such purchases will be made by the
broker-dealer under the procedures described in
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"Guaranteed Payment," below. The Program may have minimum investment
requirements established by the broker-dealer. The description of the Program
provided by the broker-dealer should be consulted for details, and all questions
about investing in, exchanging or redeeming shares of the Trust through a
Program should be directed to the broker-dealer.
Direct Purchases. An investor (who is not a program participant, a "direct
purchaser") may directly purchase shares of the Trust through any dealer which
has a sales agreement with the Distributor or the Sub-Distributor. There are two
ways to make a direct initial investment: either (1) complete a Centennial Funds
New Account Application and mail it with payment to the Distributor at P.O. Box
5143, Denver, Colorado 80217-5143 (if no dealer is named in the Application, the
Sub-Distributor will act as the dealer), or (2) order the shares through your
dealer or broker. Purchases made by Application should have a check enclosed, or
payment may be made by one of the alternative means described below.
o Payment by Check. Orders for shares purchased by check in U.S.
dollars drawn on a U.S. bank will be effected on the regular business day on
which the check (and a purchase application, if the account is new) is accepted
by the Distributor. Dividends will begin to accrue on such shares the next
regular business day after the purchase order is accepted. For other checks, the
shares will not be purchased until the Distributor is able to convert the
purchase payment to Federal Funds, and dividends will begin to accrue on such
shares on the next regular business day.
o Payment by Federal Funds Wire. Shares of the Trust may be
purchased by Federal Funds wire. The minimum investment by wire is
$2,500. The investor must first call the Distributor's Wire
Department at 1-800-852-8457 to notify the Distributor of the
transmittal of the wire and to order the shares. The investor's
bank must wire the Federal Funds to Citibank, N.A., ABA No. 0210-
0008-9 for credit to Concentration Account No. 3737-5674, for
further credit to Centennial California Tax Exempt Trust, Custodian
Account No. 845-873.
The wire must state the investor's name. Shares will be purchased on
the regular business day on which the Federal Funds are received by Citibank,
N.A. prior to the close of The New York Stock Exchange (which is normally 4:00
P.M. but may be earlier on some days) and the Distributor has received and
accepted the investor's notification of the wire order prior to the close of the
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New York stock Exchange. Shares will be purchased at the net asset value next
determined after receipt of the Federal Funds and the order. Dividends on newly
purchased shares will begin to accrue on the purchase date if the Federal Funds
and order for the purchase are received and accepted by 12:00 Noon. Dividends
will begin to accrue on the next regular business day if the Federal Funds and
purchase order are received and accepted between 12:00 Noon and the close of The
New York Stock Exchange (which is normally 4:00 P.M. but may be earlier on some
days). The investor must also send the Distributor a completed Application when
the purchase order is placed to establish a new account.
o Guaranteed Payment. Broker-dealers with sales agreements with the
Distributor (including broker-dealers who have made special arrangements with
the Distributor for purchases for Program accounts) may place purchase orders
with the Distributor for purchases of the Trust's shares prior to 12:00 Noon on
a regular business day, and the order will be effected at net asset value
determined at 12:00 Noon that day if the broker-dealer guarantees that payment
for such shares in Federal Funds will be received by the Trust's Custodian prior
to 2:00 P.M. on the same day. Dividends will begin to accrue on the purchase
date. If an order is received between 12:00 Noon and the close of The New York
Stock Exchange (which is normally 4:00 P.M., but may be earlier on some days)
with the broker-dealer's guarantee that payment for such shares in Federal Funds
will be received by the Trust's Custodian by the close of the Exchange on the
next regular business day, the order will be effected on the day the order is
received, and dividends on such shares will begin to accrue on the next regular
business day the Federal Funds are received by the required time. If the
broker-dealer guarantees that the Federal Funds payment will be received by the
Trust's Custodian by 2:00 P.M. on a regular business day on which an order is
placed for shares after 12:00 Noon, the order will be effected at the close of
the Exchange that day and dividends will begin to accrue on such shares on the
purchase date.
o Automatic Investment Plans. Direct investors may purchase shares of
the Trust automatically. Automatic Investment Plans may be used to make regular
monthly investments ($25 minimum) from the investor's account at a bank or other
financial institution. To establish an Automatic Investment Plan from a bank
account, a check (minimum $25) for the initial purchase must accompany the
application. Shares purchased by Automatic Investment Plan payments are subject
to the redemption restrictions for recent
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purchases described in "How to Sell Shares." The amount of the Automatic
Investment Plan payment may be changed or the automatic investments may be
terminated at any time by writing to the Transfer Agent. A reasonable period
(approximately 15 days) is required after receipt of such instructions to
implement them. The Trust reserves the right to amend, suspend, or discontinue
offering such Automatic Investment Plans at any time without prior notice.
Service Plan. The Trust has adopted a service plan (the "Plan") under Rule 12b-1
of the Investment Company Act pursuant to which the Trust will reimburse the
Distributor for a portion of its costs incurred in connection with the personal
service and maintenance of accounts that hold Trust shares. The Distributor will
use all the fees received from the Trust to reimburse dealers, brokers, banks,
or other financial institutions ("Recipients") each quarter for providing
personal service and maintenance of accounts that hold Trust shares. The
services to be provided by Recipients under the Plan include, but shall not be
limited to, the following: answering routine inquiries from the Recipient's
customers concerning the Trust, providing such customers with information on
their investment in Trust shares, assisting in the establishment and maintenance
of accounts or sub-accounts in the Trust, making the Trust's investment plans
and dividend payment options available, and providing such other information and
customer liaison services and the maintenance of accounts as the Distributor or
the Trust may reasonably request. Plan payments by the Trust to the Distributor
will be made quarterly in the amount of the lesser of: (i) 0.05% (0.20%
annually) of the net asset value of the Trust, computed as of the close of each
business day or (ii) the Distributor's actual distribution expenses for that
quarter of the type approved by the Board. Any unreimbursed expenses incurred
for any quarter by the Distributor may not be recovered in later periods. The
Plan has the effect of increasing annual expenses of the Trust by up to 0.20% of
average annual net assets from what its expenses would otherwise be. In
addition, the Manager may, under the Plan, from time to time from its own
resources (which may include the profits derived from the advisory fee it
receives from the Trust), make payments to Recipients for distribution,
administrative and accounting services performed by Recipients. For further
details, see "Service Plan" in the Statement of Additional Information.
How to Sell Shares
Program Participants. A program participant may redeem shares in
the Program by writing checks as described below, or by contacting
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the dealer or broker. A program participant may also arrange for "Expedited
Redemptions," as described below, only through his or her dealer or broker.
Shares of the Trust Owned Directly. Shares of the Trust owned by a shareholder
directly (not through a Program) (a "direct shareholder"), may be redeemed in
the following ways:
o Regular Redemption Procedure. A direct shareholder who wishes to
redeem some or all shares in an account (whether or not represented by
certificates) under the Trust's regular redemption procedure, must send the
following to the Transfer Agent for the Trust, Shareholder Services, Inc., P.O.
Box 5143, Denver, Colorado 80217 [send courier or express mail deliveries to
10200 E. Girard Avenue, Building D, Denver, Colorado 80231]: (1) a written
request for redemption signed by all registered owners exactly as the shares are
registered, including fiduciary titles, if any, and specifying the account
number and the dollar amount or number of shares to be redeemed; (2) a guarantee
of the signatures of all registered owners on the redemption request or on the
endorsement on the share certificate or accompanying stock power, by a U.S.
bank, trust company, credit union or savings association, or a foreign bank
having a U.S. correspondent bank, or by a U.S. registered dealer or broker in
securities, municipal securities or government securities, or by a U.S. national
securities exchange, registered securities association or clearing agency; (3)
any share certificates issued for any of the shares to be redeemed; and (4) any
additional documents which may be required by the Transfer Agent for redemption
by corporations, partnerships or other organizations, executors, administrators,
trustees, custodians or guardians, or if the redemption is requested by anyone
other than the shareholder(s) of record. Transfers of shares are subject to
similar requirements. A signature guarantee is not required for redemptions of
$50,000 or less, requested by and payable to all shareholders of record, to be
sent to the address of record for that account. To avoid delay in redemption or
transfer, shareholders having questions about these requirements should contact
the Transfer Agent in writing or by calling 1-800-525-9310 before submitting a
request. From time to time the Transfer Agent in its discretion may waive any or
certain of the foregoing requirements in particular cases. Redemption or
transfer requests will not be honored until the Transfer Agent receives all
required documents in proper form.
o Expedited Redemption Procedure. In addition to the regular
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redemption procedure set forth above, direct shareholders whose shares are not
represented by certificates may arrange to have redemption proceeds of $2,500 or
more wired in Federal Funds to a designated commercial bank if the bank is a
member of the Federal Reserve wire system. To place a wire redemption request,
call the Transfer Agent at 1-800-852-8457. The account number of the designated
financial institution and the bank ABA number must be supplied to the Transfer
Agent on the Application or dealer settlement instructions establishing the
account or may be added to existing accounts or changed only by
signature-guaranteed instructions to the Transfer Agent from all shareholders of
record. Such redemption requests may be made by telephone, wire or written
instructions to the Transfer Agent. The wire for the redemption proceeds of
shares redeemed prior to 12:00 Noon, normally will be transmitted by the
Transfer Agent to the shareholder's designated bank account on the day the
shares are redeemed (or, if that day is not a bank business day, on the next
bank business day). No dividends are paid on the proceeds of redeemed shares
awaiting transmittal by wire. Shares redeemed prior to 12:00 Noon do not earn
dividends on the redemption date. The wire for the redemption proceeds of shares
redeemed between 12:00 Noon and the close of The New York Stock Exchange (which
is normally 4:00 P.M., but may be earlier on some days) normally will be
transmitted by the Transfer Agent to the shareholder's designated bank account
on the next bank business day after the redemption. Shares redeemed between
12:00 Noon and the close of the Exchange earn dividends on the redemption date.
See "Purchase, Redemption and Pricing of Shares" in the Statement of Additional
Information for further details.
o Check Writing. Upon request, the Transfer Agent will provide any
direct shareholder of the Trust or any Program participant whose shares are not
represented by certificates with forms of drafts ("checks") payable through a
bank selected by the Trust (the "Bank"). Program participants must arrange for
check writing through their brokers or dealers. The Transfer Agent will arrange
for checks written by direct shareholders to be honored by the Bank after
obtaining a specimen signature card from the shareholder(s). Shareholders of
joint accounts may elect to have checks honored with a single signature. Program
participants must arrange for check writing through their broker or dealer.
Checks may be made payable to the order of anyone in any amount not less than
$250 and will be subject to the Bank's rules and regulations governing checks.
If a check is presented for an amount greater than the account value, it will
not be honored. For Program participants, checks will be drawn against the
primary account
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designated by the Program participant. Checks issued for one Fund account must
not be used if the shareholder's account has been transferred to a new account
or if the account number or registration has been changed. Shares purchased by
check or Automatic Investment Plan payments within the prior 10 days may not be
redeemed by check writing. A check presented to the Bank for payment that would
require redemption of some or all of the shares so purchased is subject to
non-payment. The Bank will present checks to the Trust to redeem shares to cover
the amount of the check. Checks may not be presented for cash payment at the
offices of the Bank or the Trust's Custodian. This limitation does not affect
the use of checks for the payment of bills or to obtain cash at other banks. The
Trust reserves the right to amend, suspend or discontinue check writing
privileges at any time without prior notice.
o Telephone Redemptions. Direct shareholders of the Trust may redeem
their shares by telephone by calling the Transfer Agent at 1-800-852-8457. This
procedure for telephone redemptions is not available to Program participants.
Proceeds of telephone redemptions will be paid by check payable to the
shareholder(s) of record and sent to the address of record for the account.
Telephone redemptions are not available within 30 days of a change of the
address of record. Up to $50,000 may be redeemed by telephone, in any seven day
period. The Transfer Agent may record any calls. Telephone redemptions may not
be available if all lines are busy, and shareholders would have to use the
Trust's regular redemption procedure described above. Telephone redemption
privileges are not available for newly-purchased (within the prior 10 days)
shares or for shares represented by certificates. Telephone redemption
privileges apply automatically to each direct shareholder and the dealer
representative of record unless the Transfer Agent receives cancellation
instructions from a shareholder of record. If an account has multiple owners,
the Transfer Agent may rely on the instructions of any one owner.
o Automatic Withdrawal Plans. Direct shareholders of the Trust can
authorize the Transfer Agent to redeem shares (minimum $50) automatically on a
monthly, quarterly, semi-annual or annual basis under an Automatic Withdrawal
Plan. Shares will be redeemed as of the close of The New York Stock Exchange
(which is normally 4:00 P.M., but may be earlier on some days) three business
days prior to the date requested by the shareholder for receipt of the payment.
The Trust cannot guarantee receipt of payment on the date requested and reserves
the right to amend, discontinue or cease
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offering such plans at any time without prior notice. For further details, see
the "Automatic Withdrawal Plan Provisions" included as Appendix D in the
Statement of Additional Information.
General Information on Redemptions. The redemption price will be the net asset
value per share of the Trust next determined after the receipt by the Transfer
Agent of a request in proper form. Under certain unusual circumstances, shares
of the Trust may be redeemed "in kind" (i.e., by payment in portfolio
securities). Under certain circumstances, the Trust may involuntarily redeem
small accounts if the account has fallen below $200 in value. For details, see
"Purchase, Redemption and Pricing of Shares" in the Statement of Additional
Information. Under the Internal Revenue Code, the Trust may be required to
impose "backup" withholding of Federal income tax at the rate of 31% from any
taxable dividends and distributions (including exchanges) the Trust may make, if
the shareholder has not furnished the Trust a certified taxpayer identification
number or has not complied with the provisions of the Internal Revenue Code and
regulations thereunder.
Payment for redeemed shares is made ordinarily in cash and forwarded
within seven days of the Transfer Agent's receipt of redemption instructions in
proper form, except under unusual circumstances as determined by the Securities
and Exchange Commission. For accounts registered in the name of a broker-dealer,
payment will be forwarded within three business days. The Transfer Agent may
delay forwarding a redemption check for recently purchased shares only until the
purchase check has cleared, which may take up to 10 days or more. Such delay may
be avoided if the shareholder arranges telephone or written assurance
satisfactory to the Transfer Agent from the bank on which the payment was drawn
or by purchasing shares by Federal Funds wire, as described above. The Trust
makes no charge for redemption. Dealers or brokers may charge a fee for handling
redemption transactions, but such fee can be avoided by requesting the
redemption directly through the Transfer Agent. Under certain circumstances, the
proceeds of redemptions of shares of the Trust acquired by exchange of Class A
shares of "Eligible Funds" (described below) that were purchased subject to a
contingent deferred sales charge ("CDSC") may be subject to the CDSC (see
"Exchange Privilege" below).
Exchanges of Shares
Exchange Privilege. Shares of the Trust held under a Program may
be exchanged for shares of Centennial Money Market Trust,
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Centennial Government Trust, Centennial Tax Exempt Trust, and Centennial New
York Tax Exempt Trust (collectively, the "Centennial Trusts") if available for
sale in the shareholder's state of residence and only by instructions of the
broker.
Shares of the Trust may, under certain conditions, be exchanged by
direct shareholders for Class A shares of certain Oppenheimer funds. A list of
the Oppenheimer funds currently available for exchange is included in the
Statement of Additional Information. That list can change from time to time.
(The funds included on the list are collectively referred to as "Eligible
Funds"). There is an initial sales charge on the purchase of Class A shares of
each Eligible Fund except the Money Market Funds (as defined in the Statement of
Additional Information). Under certain circumstances described below, redemption
proceeds of Money Market Fund shares may be subject to a CDSC.
Shares of the Trust and of the other Eligible Funds may be exchanged at
net asset value, if all of the following conditions are met: (1) shares of the
fund selected for exchange are available for sale in the shareholder's state of
residence; (2) the respective prospectuses of the funds whose shares are to be
exchanged and acquired offer the Exchange Privilege to the investor; (3)
newly-purchased shares (by initial or subsequent investment) are held in an
account for at least seven days prior to the exchange; and (4) the aggregate net
asset value of the shares surrendered for exchange into a new account is at
least equal to the minimum investment requirements of the fund whose shares are
to be acquired.
In addition to the conditions stated above, shares of Eligible Funds
may be exchanged for shares of any Money Market Fund; shares of any Money Market
Fund held by direct shareholders (including the Trust) purchased without a sales
charge may be exchanged for shares of Eligible Funds offered with a sales charge
upon payment of the sales charge (or, if applicable, may be used to purchase
shares of Eligible Funds subject to a CDSC); and shares of the Trust acquired by
reinvestment of dividends and distributions from any Eligible Fund, except
Oppenheimer Cash Reserves, or from any unit investment trust for which
reinvestment arrangements have been made with the Distributor or Sub-Distributor
may be exchanged at net asset value for shares of any Eligible Fund. The
redemption proceeds of shares of the Trust, acquired by exchange of Class A
shares of an Eligible Fund purchased subject to a CDSC, that are redeemed within
18 months of the end of the calendar month of the initial purchase of
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the exchanged shares, will be subject to the CDSC as described in the prospectus
of that other Eligible Fund. In determining whether the CDSC is payable, shares
of the Trust not subject to the CDSC are redeemed first, including shares
purchased by reinvestment of dividends and capital gains distributions from any
Eligible Fund or shares of the Trust acquired by exchange of shares of Eligible
Funds on which a front-end sales charge was paid or credited, and then other
shares are redeemed in the order of purchase.
How to Exchange Shares. An exchange may be made by a direct shareholder by
submitting an Exchange Authorization Form to the Transfer Agent, signed by all
registered owners. In addition, direct shareholders of the Trust may exchange
shares of the Trust for shares of any Eligible Fund by telephone exchange
instructions to the Transfer Agent by a shareholder or the dealer representative
of record for an account. The Trust may modify, suspend or discontinue this
exchange privilege at any time. Although the Trust will attempt to provide
notice whenever it is reasonably able to do so, it may impose these changes at
any time. The Trust reserves the right to reject requests submitted in bulk on
behalf of more than one account. Exchange requests must be received by the
Transfer Agent by the close of the Exchange on a regular business day to be
effected that day. The number of shares exchanged may be less than the number
requested if the number requested would include shares subject to a restriction
cited above or shares covered by a certificate that is not tendered with such
request. Only the shares available for exchange without restriction will be
exchanged.
Telephone Exchanges. Direct shareholders may place a telephone exchange request
by calling the Transfer Agent at 1-800-852-8457. Telephone exchange calls may be
recorded by the Transfer Agent. Telephone exchanges are subject to the rules
described above. By exchanging shares by telephone, the shareholder is
acknowledging receipt of a prospectus of the fund to which the exchange is made
and that for full or partial exchanges, any special account features such as
Automatic Investment Plans and Automatic Withdrawal Plans will be switched to
the new account unless the Transfer Agent is otherwise instructed. Telephone
exchange privileges automatically apply to each direct shareholder of record and
the dealer representative of record unless and until the Transfer Agent receives
written instructions from a shareholder of record canceling such privileges. If
an account has multiple owners, the Transfer Agent may rely on the instructions
of any one owner.
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The Transfer Agent has adopted procedures concerning telephone
transactions including confirming that telephone instructions are genuine by
requiring callers to provide tax identification number(s) and other account data
or by using PINS, and by recording calls and confirming such transactions in
writing. If the Transfer Agent does not use reasonable procedures, it may be
liable for losses due to unauthorized transactions, but otherwise neither it nor
the Trust will be liable for losses or expenses arising out of any telephone
instructions it reasonably believed to be genuine. The Transfer Agent reserves
the right to require shareholders to confirm, in writing, telephone exchange
privileges for an account. Shares acquired by telephone exchange must be
registered exactly as the account from which the exchange was made. Certificated
shares are not eligible for telephone exchange. If all telephone exchange lines
are busy (which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request telephone exchanges and
would have to submit written exchange requests.
General Information on Exchanges. Shares to be exchanged are redeemed on the day
the Transfer Agent receives an exchange request in proper form (the "Redemption
Date") as of the close of The New York Stock Exchange (which is normally 4:00
P.M., but may be earlier on some days). Normally, shares of the fund to be
acquired are purchased on the Redemption Date, but such purchases may be delayed
by either fund for up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Trust in
its discretion reserves the right to refuse any exchange request that will
disadvantage it.
The Eligible Funds have different investment objectives and policies.
Each of those funds except the Money Market Funds imposes a sales charge on
purchases of Class A shares. For complete information, including sales charges
and expenses, a prospectus of the fund into which the exchange is being made
should be read prior to an exchange. Dealers and brokers who process exchange
orders on behalf of customers may charge for their services. Direct shareholders
may avoid those charges by requesting the Trust directly to exchange shares. For
Federal tax purposes, an exchange is treated as a redemption and purchase of
shares.
Dividends, Distributions and Taxes
This discussion relates solely to Federal tax laws and California
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income tax laws and is not exhaustive; a qualified tax advisor should be
consulted. A portion of the Trust's dividends and distributions may be subject
to federal, state and local taxation. The Statement of Additional Information
contains further discussion of tax matters affecting the Trust and its
distributions, and information about the possible applicability of the
Alternative Minimum Tax to the Trust's as well as a procedure for electing to
reinvest dividends and distributions of any of the Eligible Funds into shares of
The Trust at net asset value.
Dividends and Distributions. The Trust intends to declare all of its net income,
as defined below, as dividends on each regular business day and to pay dividends
monthly. Dividends will be payable to shareholders as described in "How to Buy
Shares" above.
All dividends and capital gains distributions for the accounts of
Program participants are automatically reinvested in additional shares of the
Trust. Dividends accumulated since the prior payment will be reinvested in full
and fractional shares of the Trust (or paid in cash) at net asset value on the
third Thursday of each calendar month. Program participants may receive cash
payments by asking the broker to redeem shares. Dividends and distributions
payable to direct shareholders will also be automatically reinvested in shares
of the Trust at net asset value, unless the shareholder asks the Transfer Agent
in writing to pay dividends in cash, or to reinvest them in another Eligible
Fund, as described in "Dividend Reinvestment in Another Fund" in the Statement
of Additional Information. That notice must be received prior to a dividend
record date to be effective as to that dividend. If a shareholder redeems all
shares at any time during a month, the redemption proceeds include all the
dividends accrued up to the redemption date for shares redeemed prior to 12:00
Noon, and include all dividends accrued through the redemption date for shares
redeemed between 12:00 Noon and the close of The New York Stock Exchange.
Dividends, distributions and the proceeds of redemptions of Trust shares
represented by checks returned to the Transfer Agent by the Postal Service as
undeliverable will be reinvested in shares of the Trust, as promptly as possible
after the return of such checks to the Transfer Agent, to enable the investor to
earn a return on otherwise idle funds.
Under the terms of a Program, a broker-dealer may pay out the value of
some or all of a Program participant's Trust shares prior to redemption of such
shares by the Trust. In such cases, the shareholder will be entitled to
dividends on such shares only up to
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and including the date of such payment. Dividends on such shares accruing
between the date of payment and the date such shares are redeemed by the Trust
will be paid to the broker-dealer. Program participants should discuss these
arrangements with their broker-dealer.
The Trust's net investment income for dividend purposes consists of all
interest accrued on portfolio assets, less all expenses of the Trust for such
period. Distributions from net realized gains on securities, if any, will be
paid at least once each year, and may be made more frequently in compliance with
the Internal Revenue Code and the Investment Company Act. Any net realized
capital loss is carried forward to offset against capital gains in later years.
The Trust will not make any distributions from net realized securities gains
unless capital loss carry forwards, if any, have been used or have expired.
Long-term capital gains, if any, will be identified separately when tax
information for the Trust is distributed to shareholders. Receipt of tax-exempt
income must be reported on the taxpayer's Federal income tax return. The
Statement of Additional Information describes how dividends and distributions
received by direct shareholders of the Trust may be reinvested in shares of any
Eligible Fund at net asset value. To effect its policy of maintaining a net
asset value of $1.00 per share, the Trust, under certain circumstances, may
withhold dividends or make distributions from capital or capital gains.
Tax Status of the Trust's Dividends. The Trust intends to qualify under the
Internal Revenue Code during each fiscal year to pay "exempt-interest dividends"
to its shareholders, and qualified during its last fiscal year. Exempt-interest
dividends which are derived from net investment income earned by the Trust on
Municipal Securities will be excludable from gross income of the shareholders
for Federal income tax purposes. Net investment income includes income allocated
from Municipal Securities in the Trust's portfolio which are free from Federal
and California individual income taxes. This allocation will be made by
uniformly applying a designated percentage to all income dividends made during
the tax year. Such designation will normally be made following the end of each
fiscal year as to income dividends paid in the prior year. The percentage of
income designated as tax-exempt may differ substantially from the percentage of
the Trust's income that was tax-exempt for a given period. The net amount of any
income on Municipal Securities subject to the alternative minimum tax will be
identified when tax information is distributed by the Trust. All or a portion of
the
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Trust's exempt-interest dividends may be a component of the "adjusted current
earnings" preference item under the corporate alternative minimum tax. The Trust
will report annually to shareholders the percentage of interest income it
received during the preceding year on Municipal Securities. Although not subject
to tax, the receipt of tax-exempt income must be reported on the taxpayer's
Federal income tax return. Shareholders receiving Social Security benefits
should be aware that exempt-interest dividends are a factor in determining
whether such benefits are subject to Federal income tax.
A shareholder treats a dividend as a receipt of ordinary income
(whether paid in cash or reinvested in additional shares) if derived from net
interest income earned by the Trust from one or more of: (i) certain taxable
temporary investments (such as certificates of deposit, commercial paper,
obligations of the U.S. government, its agencies or instrumentalities or
repurchase agreements), (ii) income from securities loans, or (iii) an excess of
net short-term capital gains over net long-term capital losses. Losses realized
by shareholders on the redemption or other disposition of Trust shares within
six months of purchase (which period may be shortened by regulation and may be
extended in certain circumstances) will be disallowed for Federal income tax
purposes to the extent of exempt-interest dividends received on such shares.
In any year in which the Trust qualifies as a regulated investment
company under the Internal Revenue Code, (i) the Trust will also qualify as a
regulated investment company for California corporate income and franchise tax
purposes, and (ii) provided that the Trust's assets satisfy the 50% requirement
discussed below, the Trust will be qualified under California law to pay
"exempt- interest dividends" which will be exempt from the California personal
income tax. Individual shareholders of the Trust will not be subject to
California personal income tax on exempt-interest dividends received from the
Trust to the extent such distributions are attributable to interest on
obligations which, if held by an individual, would not be subject to California
personal income tax, provided that at least 50% of the Trust's assets at the
close of each quarter of its taxable year are invested in such obligations.
Distributions from the Trust attributable to other sources will generally be
taxable to shareholders as ordinary income. However, amounts treated as
long-term capital gain distributions for Federal income tax purposes are treated
as long-term capital gains for California personal income tax purposes. In
addition,
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distributions to shareholders of other than exempt-interest dividends are
includable in income subject to the California alternative minimum tax. Interest
on indebtedness incurred or continued by shareholders to purchase or carry
shares of the Trust will not be deductible for Federal or California personal
income tax purposes.
Distributions from investment income and long-term and short-term
capital gains will generally not be excluded from taxable income in determining
the California corporate franchise or income tax for corporate shareholders.
Distributions are also includable in income that is subject to the corporate
alternative minimum tax.
If the Trust has net realized long-term capital gains in a taxable
year, it may make an annual "long-term capital gains distribution," which will
be so identified when paid and when tax information is distributed. Long-term
gains are taxable to shareholders as long-term capital gains, whether received
in cash or reinvested, regardless of how long the Trust shares have been held.
Losses realized by shareholders on the redemption or other sale of shares within
six months of purchase (which period may be shortened by regulation and may be
extended in certain circumstances) will be treated for Federal income tax
purposes as a long-term capital loss to the extent that the shareholder received
(or was treated as receiving, as described below) a capital-gain dividend on the
shares. The Trust will report annually to its shareholders the percentage of
interest income it received during the preceding year on Municipal Securities.
It will also report the net amount of its income that is subject to the
alternative minimum tax. Receipt of tax-exempt income must be reported on a
taxpayer's Federal income tax return.
Furthermore, under Section 147(a) of the Internal Revenue Code, persons
who are "substantial users" (or persons related thereto) of facilities financed
by industrial development bonds or Private Activity Municipal Securities should
refer to "Private Activity Municipal Securities" in the Statement of Additional
Information and should consult their own tax advisors before purchasing shares.
No investigation as to the users of the facilities financed by such bonds is
made by the Trust.
Tax Status of the Trust. If the Trust qualifies as a "regulated investment
company" under the Internal Revenue Code, it will not be liable for Federal
income taxes on amounts paid by it as dividends and distributions. The Trust so
qualified during its last fiscal
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year and intends to qualify in the current and future fiscal years, while
reserving the right not to so qualify. However, the Internal Revenue Code
contains a number of complex tests relating to qualification which the Trust
might not meet in any particular year. If the Trust does not qualify, it would
be treated for Federal tax purposes as an ordinary corporation, would receive no
tax deduction for payments made to shareholders and would be unable to pay
"exempt-interest dividends" as discussed above.
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No dealer, broker, salesperson or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus or the Statement of Additional Information, and if given or made
such information and representations must not be relied upon as having been
authorized by the Trust, the Manager, the Distributor, or any affiliate thereof.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby in any state to any person to
whom it is unlawful to make such offer in such state.
Investment Advisor and Distributor
Centennial Asset Management Corporation
3410 South Galena Street
Denver, Colorado 80231 Centennial
California Tax Exempt Trust
Transfer and Shareholder Servicing Agent
Shareholder Services, Inc.
P.O. Box 5143 Prospectus
Denver, Colorado 80217-5143
1-800-525-9310 Dated November 1, 1996
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street, Suite 3600
Denver, Colorado 80202-3942
Legal Counsel
Myer, Swanson, Adams & Wolf P.C.
Colorado State Bank Building
1600 Broadway, Suite 1480
Denver, Colorado 80202
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Centennial California Tax Exempt Trust
3410 South Galena Street, Denver, Colorado 80231
1-800-525-9310
Statement of Additional Information dated November 1, 1996
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, 1996. It should be read together
with the Prospectus, which may be obtained by writing to the Trust's Transfer
Agent, Shareholder Services, Inc. at P.O. Box 5143, Denver, Colorado 80217- 5143
or by calling the toll-free number shown above.
Contents Page
About the Trust
Investment Objective and Policies............................................2
Special Investment Considerations - California Municipal Securities..........9
Other Investment Restrictions...............................................10
Organization and History of the Trust.......................................11
Trustees and Officers.......................................................12
The Manager and Its Affiliates..............................................16
Service Plan................................................................19
Performance of the Trust....................................................20
About Your Account
Purchase, Redemption and Pricing of Shares..................................21
Exchange of Shares .........................................................23
Dividends, Distributions and Taxes..........................................24
Financial Information About the Trust
Independent Auditors' Report................................................25
Financial Statements........................................................26
Appendices
Appendix A: Description of Securities Ratings............................A-1
Appendix B: Industry Classifications.....................................B-1
Appendix C: Tax Equivalent Yield Tables..................................C-1
Appendix D: Automatic Withdrawal Plan Provisions.........................D-1
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ABOUT THE TRUST
Investment Objective and Policies
Investment Policies and Strategies. The investment objective and policies of the
Trust are described in the Prospectus. Set forth below is supplemental
information about those policies. Certain capitalized terms used in this
Statement of Additional Information are defined in the Prospectus.
The Trust will not make investments with the objective of seeking
capital growth. However, the value of the securities held by the Trust may be
affected by changes in general interest rates. Because the current value of debt
securities varies inversely with changes in prevailing interest rates, if
interest rates increase after a security is purchased, that security would
normally decline in value. Conversely, should interest rates decrease after a
security is purchased, its value would rise. However, those fluctuations in
value will not generally result in realized gains or losses to the Trust since
the Trust does not usually intend to dispose of securities prior to their
maturity. A debt security held to maturity is redeemable by its issuer at full
principal value plus accrued interest. To a limited degree, the Trust may engage
in short-term trading to attempt to take advantage of short-term market
variations, or may dispose of a portfolio security prior to its maturity if, on
the basis of a revised credit evaluation of the issuer or other considerations,
the Trust believes such disposition advisable or it needs to generate cash to
satisfy redemptions. In such cases, the Trust may realize a capital gain or
loss. The Trust will not engage in option activity.
There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between classifications,
depending on numerous factors. The yields of Municipal Securities depend on,
among other things, general conditions of the Municipal Securities market, size
of a particular offering, the maturity of the obligation and rating of the
issue. The market value of Municipal Securities will vary as a result of
changing evaluations of the ability of their issuers to meet interest and
principal payments, as well as changes in the interest rates payable on new
issues of Municipal Securities.
Municipal Bonds. The principal classifications of Municipal Bonds are "general
obligations" (secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest), "revenue obligations"
(payable only from the revenues derived from a particular facility or class of
facilities, or specific excise tax or other revenue source) and "industrial
development bonds."
o General Obligation Bonds. Issuers of general obligation bonds include
states, counties, cities, towns, and regional districts. The proceeds of these
obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer
systems. The basic security behind general obligation bonds is the issuer's
pledge of its full faith and credit and taxing power for the payment of
principal and interest. The taxes that can be levied for the payment of debt
service may be limited or unlimited as to the rate or amount of special
assessments.
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o Revenue Bonds. The principal security for a revenue bond is generally
the net revenues derived from a particular facility, group of facilities, or, in
some cases, the proceeds of a special excise or other specific revenue source.
Revenue bonds are issued to finance a wide variety of capital projects
including: electric, gas, water and sewer systems; highways, bridges, and
tunnels; port and airport facilities; colleges and universities; and hospitals.
Although the principal security behind these bonds may vary, many provide
additional security in the form of a debt service reserve fund whose money may
be used to make principal and interest payments on the issuer's obligations.
Housing finance authorities have a wide range of security, including partially
or fully insured mortgages, rent subsidized and/or collateralized mortgages,
and/or the net revenues from housing or other public projects. Some authorities
provide further security in the form of a state's ability (without obligation)
to make up deficiencies in the debt service reserve fund.
o Industrial Development Bonds. Industrial development bonds, which are
considered municipal bonds if the interest paid is exempt from Federal income
tax, are issued by or on behalf of public authorities to raise money to finance
various privately operated facilities for business and manufacturing, housing,
sports, and pollution control. These bonds are also used to finance public
facilities such as airports, mass transit systems, ports, and parking. The
payment of the principal and interest on such bonds is dependent solely on the
ability of the facility's user to meet its financial obligations and the pledge,
if any, of real and personal property so financed as security for such payment.
Municipal Notes. Municipal Securities having a maturity when issued of less than
one year are generally known as Municipal Notes. Municipal Notes generally are
used to provide for short-term working capital needs and include:
o Tax Anticipation Notes. Tax anticipation notes are issued to finance
working capital needs of municipalities. Generally, they are issued in
anticipation of seasonal tax revenue, such as income, sales, use or business
taxes, and are payable from these specific future taxes.
o Revenue Anticipation Notes. Revenue anticipation notes are issued in
expectation of receipt of other types of revenue, such as Federal revenues
available under Federal revenue sharing programs.
o Bond Anticipation Notes. Bond anticipation notes are issued to
provide interim financing until long-term financing can be arranged. In most
cases, the long-term bonds then provide the money for the repayment of the
notes.
o Construction Loan Notes. Construction loan notes are sold to
provide construction financing. After successful completion and acceptance,
many projects receive permanent financing through the Federal Housing
Administration.
o Tax-Exempt Commercial Paper. Tax-exempt commercial paper is a
short-term obligation issued by state and local governments or their agencies to
finance seasonal working capital needs or as short-term financing in
anticipation of longer-term financing.
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Municipal Lease Obligations. From time to time the Trust may invest more than 5%
of its net assets in municipal lease obligations, generally through the
acquisition of certificates of participation, that the Manager has determined to
be liquid under guidelines set by the Board of Directors. Those guidelines
require the Manager to evaluate: (1) the frequency of trades and price
quotations for such securities; (2) the number of dealers or other potential
buyers willing to purchase or sell such securities; (3) the availability of
market-makers; and (4) the nature of the trades for such securities. The Manager
will also evaluate the likelihood of a continuing market for such securities
throughout the time they are held by the Trust and the credit quality of the
instrument. Municipal leases may take the form of a lease or an installment
purchase contract issued by a state or local government authority to obtain
funds to acquire a wide variety of equipment and facilities. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation is ordinarily
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease or installment purchase payments in future years unless
money is appropriated for such purpose on a yearly basis. Projects financed with
certificates of participation generally are not subject to state constitutional
debt limitations or other statutory requirements that may be applicable to
Municipal Securities. Payments by the public entity on the obligation underlying
the certificates are derived from available revenue sources; such revenue may be
diverted to the funding of other municipal service projects. Payments of
interest and/or principal with respect to the certificates are not guaranteed
and do not constitute an obligation of the State of California or any of its
political subdivisions.
In addition to the risk of "non-appropriation," municipal lease
securities do not yet have a highly developed market to provide the degree of
liquidity of conventional municipal bonds. Municipal leases, like other
municipal debt obligations, are subject to the risk of non-payment. The ability
of issuers of municipal leases to make timely lease payments may be adversely
affected in general economic downturns and as relative governmental cost burdens
are reallocated among federal, state and local governmental units. Such
non-payment would result in a reduction of income to the Trust, and could result
in a reduction in the value of the municipal lease experiencing non-payment and
a potential decrease in the net asset value of the Trust. Municipal lease
obligations purchased by the Trust must meet the requirements of Rule 2a-7.
Floating Rate/Variable Rate Obligations. Floating rate and variable rate demand
notes are tax-exempt obligations which may have a stated maturity in excess of
one year, but may include features that permit the holder to recover the
principal amount of the underlying security on not more than thirty days' notice
at any time or at specified intervals not exceeding one year. The issuer of such
notes normally has a corresponding right, after a given period, to prepay in its
discretion the outstanding principal amount of the note plus accrued interest
upon a specified number of days notice to the holder. The interest rate on a
floating rate demand note is based on a stated prevailing market rate, such as
the PSA Municipal Swap Index or the J.J. Kenney Index, or some other standard,
and is adjusted automatically each time such rate is adjusted. The interest rate
on a variable rate demand note is also based on a stated prevailing market rate
but is adjusted automatically at specified intervals of no less than one year.
Generally, the changes in the interest rate on such securities reduce the
fluctuation in their market value. As interest rates decrease or
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increase, the potential for capital appreciation or depreciation is less than
that for fixed-rate obligations of the same maturity. 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 "Illiquid and Restricted Securities" in the
Prospectus.
Puts and Stand-by Commitments. When the Trust buys Municipal Securities, it may
obtain a stand-by commitment from the seller to repurchase the securities that
entitles the Trust to achieve same-day settlement from the repurchaser and to
receive an exercise price equal to the amortized cost of the underlying security
plus accrued interest, if any, at the time of exercise. A put purchased in
conjunction with a Municipal Security enables the Trust to sell the underlying
security within a specified period of time at a fixed exercise price. The Trust
may pay for a stand-by commitment or put either separately in cash or by paying
a higher price for the securities acquired subject to the stand-by commitment or
put. The Trust will enter into these transactions only with banks and dealers
which, in the Manager's opinion, present minimal credit risks. The Trust's
purchases of puts are subject to the provisions of Rule 2a-7 under the
Investment Company Act because the Trust uses the amortized cost method to value
its portfolio securities. For purposes of the Trust's compliance with Rule 2a-7
when investing in puts, a put will be considered to be issued by the party to
which the Trust will look for payment of the exercise price, and an
unconditional put will be considered to be a guarantee of the underlying
security. An unconditional put or guarantee with respect to a security will not
be deemed to be issued by the institution providing the guarantee or put
provided that the value of all securities held by the Trust and issued or
guaranteed by the issuer providing the guarantee or put shall not exceed 10% of
the Trust's total assets.
The Trust's ability to exercise a put or stand-by commitment will
depend on the ability of the bank or dealer to pay for the securities if the put
or stand-by commitment is exercised. If the bank or dealer should default on its
obligation, the Trust might not be able to recover all or a portion of any loss
sustained from having to sell the security elsewhere. Puts and stand-by
commitments are not transferable by the Trust, and therefore terminate if the
Trust sells the underlying security to a third party. The Trust intends to enter
into these arrangements to facilitate portfolio liquidity, although such
arrangements may enable the Trust to sell a security at a pre-arranged price
which may be higher than the prevailing market price at the time the put or
stand-by commitment is exercised. However, the Trust might refrain from
exercising a put or stand-by commitment if the exercise price is significantly
higher than the prevailing market price, to avoid imposing a loss on the seller
which could jeopardize the Trust's business relationship with the seller. Any
consideration paid by the Trust for the put or stand-by commitment (which
increases the cost of the security and reduces the yield otherwise available
from the security) will be reflected on the Trust's books as unrealized
depreciation while the put or stand-by commitment is held, and a realized gain
or loss when the put or commitment is exercised or expires. Interest income
received by the Trust from Municipal Securities subject to puts or stand-by
commitments may not qualify as tax exempt in its hands if the terms of the put
or stand-by commitment cause the Trust not to be treated as the tax owner of the
underlying Municipal Securities.
Private Activity Municipal Securities. The Tax Reform Act of 1986 (the "Tax
Reform Act")
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reorganized, as well as amended, the rules governing tax exemption for interest
on Municipal Securities. The Tax Reform Act generally did not change the tax
treatment of bonds issued in order to finance governmental operations. Thus,
interest on obligations issued by or on behalf of a state or local government,
the proceeds of which are used to finance the operations of such governments
(e.g., general obligation bonds) continues to be tax-exempt. However, the Tax
Reform Act further limited the use of tax-exempt bonds for non-governmental
(private) purposes. More stringent restrictions were placed on the use of
proceeds of such bonds. Interest on certain private activity bonds (other than
those specified as "qualified" tax-exempt private activity bonds, e.g., exempt
facility bonds, including certain industrial development bonds, qualified
mortgage bonds, qualified Section 501(c)(3) bonds, qualified student loan bonds,
etc.) is taxable under the revised rules.
Interest on certain private activity bonds issued after August 7, 1986,
which continues to be tax-exempt will be treated as a tax preference item
subject to the Federal alternative minimum tax (discussed below) to which
certain taxpayers are subject. Further, a private activity bond which would
otherwise be a qualified tax-exempt private activity bond will not, under
Internal Revenue Code Section 147(a), be a qualified bond for any period during
which it is held by a person who is a "substantial user" of the facilities or by
a "related person" of such a substantial user. This "substantial user" provision
is applicable primarily to exempt facility bonds, including industrial
development bonds. The Trust may not be an appropriate investment for entities
which are "substantial users" (or persons related thereto) of such exempt
facilities, and such persons should consult their own tax advisors before
purchasing shares. A "substantial user" of such facilities is defined generally
as a "non-exempt person who regularly uses part of a facility" financed from the
proceeds of exempt facility bonds. Generally, an individual will not be a
"related person" under the Internal Revenue Code unless such investor or the
investor's immediate family (spouse, brothers, sisters and immediate
descendants) own directly or indirectly in the aggregate more than 50% in value
of the equity of a corporation or partnership which is a "substantial user" of a
facility financed from the proceeds of exempt facility bonds. In addition,
limitations on the dollar amount of private activity bonds which each state may
issue were revised downward by the Tax Reform Act, which will reduce the supply
of such bonds. The value of the Trust's portfolio could be affected if there is
a reduction in the availability of such bonds. That value may also be affected
by a 1988 U.S. Supreme Court decision upholding the constitutionality of the
imposition of a Federal tax on the interest earned on Municipal Securities
issued in bearer form.
A Municipal Security is treated as a taxable private activity bond
under a test for (a) a trade or business use and security interest, or (b) a
private loan restriction. Under the trade or business use and security interest
test, an obligation is a private activity bond if (i) more than 10% of bond
proceeds are used for private business purposes and (ii) 10% or more of the
payment of principal or interest on the issue is directly or indirectly derived
from such private use or is secured by the privately used property or the
payments related to the use of the property. For certain types of uses, a 5%
threshold is substituted for this 10% threshold. (The term "private business
use" means any direct or indirect use in a trade or business carried on by an
individual or entity other than a state or municipal governmental unit.) Under
the private loan restriction, the amount of bond proceeds which may be used to
make private loans is limited to the lesser of 5% or $5.0 million of the
proceeds. Thus, certain issues of Municipal Securities could lose their
tax-exempt status retroactively if the issuer fails to meet certain requirements
as to the expenditure of the proceeds of
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that issue or use of the bond-financed facility. The Trust makes no independent
investigation of the users of such bonds or their use of proceeds. If the Trust
holds a bond that loses its tax-exempt status retroactively, an adjustment to
the tax-exempt income previously paid to shareholders may result.
The Federal alternative minimum tax is designed to ensure that all
taxpayers pay some tax, even if they have no other income tax obligation. This
is accomplished in part by including in taxable income certain tax preference
items in arriving at alternative minimum taxable income. The Tax Reform Act made
tax-exempt interest from certain private activity bonds a tax preference item
for purposes of the alternative minimum tax on individuals and corporations. Any
exempt-interest dividend paid by a regulated investment company will be treated
as interest on a specific private activity bond to the extent of its
proportionate share of the interest on such bonds received by the regulated
investment company. The U.S. Treasury is authorized to issue regulations
implementing this provision. In addition, corporate taxpayers subject to the
alternative minimum tax may, under some circumstances, have to include
exempt-interest dividends in calculating their alternative minimum taxable
income in situations where the "adjusted current earnings" of the corporation
exceeds its alternative minimum taxable income. The Trust may hold Municipal
Securities the interest on which (and thus a proportionate share of the
exempt-interest dividends paid by the Trust) will be subject to the Federal
alternative minimum tax. For calendar year 1994, approximately 9.2% of the Trust
dividends paid to shareholders were a tax preference item for shareholders
subject to the Federal alternative minimum tax. The Trust anticipates that under
normal circumstances it will not purchase any such securities in an amount
greater than 20% of the Trust's total assets.
Ratings of Securities. The prospectus describes "Eligible Securities" in which
the Trust may invest and indicates that if a security's rating is downgraded,
the Manager and/or the Board may have to reassess the security's credit risks.
If a security has ceased to be a First Tier Security, the Manager will promptly
reassess whether the security continues to present "minimal credit risks." If
the Manager becomes aware that any Rating Organization has downgraded its rating
of a Second Tier Security or rated an unrated security below its second highest
rating category, the Trust's Board of Trustees shall promptly reassess whether
the security presents minimal credit risks and whether it is in the best
interests of the Trust to dispose of it. If a security is in default, or ceases
to be an Eligible Security, or is determined no longer to present minimal credit
risks, the Board must determine whether it would be in the best interests of the
Trust to dispose of the security. In each of the foregoing instances, Board
action is not required if the Trust disposes of the security within five days of
the Manager learning of the downgrade, in which event the Manager will provide
the Board with subsequent notice of such downgrade. The Rating Organizations
currently designated as such by the Securities and Exchange Commission ("SEC")
are Standard & Poor's Corporation, Moody's Investors Service, Inc., Fitch
Investors Services, Inc., Duff and Phelps, Inc., IBCA Limited and its affiliate,
IBCA, Inc. and Thomson BankWatch, Inc. A description of the ratings categories
of those Rating Organizations is contained in Appendix A.
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
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between the time of commitment and settlement, no payment is made by the Trust
to the issuer and no interest accrues to the Trust from the investment. However,
the Trust intends to be as fully invested as possible and will not invest in
when-issued securities if its income or net asset value will be materially
adversely affected. At the time the Trust makes the commitment to purchase a
Municipal Security on a when-issued basis, it will record the transaction on its
books and reflect the value of the security in determining its net asset value.
It will also segregate cash or liquid high-grade Municipal Securities equal in
value to the commitment for the when-issued securities. While when-issued
securities may be sold prior to settlement date, the Trust intends to acquire
the securities upon settlement unless a prior sale appears desirable for
investment reasons. There is a risk that the yield available in the market when
delivery occurs may be higher than the yield on the security acquired.
Repurchase Agreements. In a repurchase transaction, the Trust acquires a
security, from, and simultaneously resells it to, an approved vendor which
satisfies the requirements of Rule 2a-7. The resale price exceeds the purchase
price by an amount that reflects an agreed-upon interest rate effective for the
period during which the repurchase agreement is in effect. The majority of these
transactions run from day to day, and delivery pursuant to the resale typically
will occur within one to five days of the purchase. Repurchase agreements are
considered loans under the Investment Company Act, collateralized by the
underlying security. The Trust's repurchase agreements require that at all times
while the repurchase agreement is in effect, the value of the collateral must
equal or exceed the repurchase price to fully collateralize the repayment
obligation. Additionally, the Manager will impose creditworthiness requirements
to confirm that the vendor is financially sound and will continuously monitor
the collateral's value.
Loans of Portfolio Securities. To attempt to increase its income, the Trust may
lend its portfolio securities to qualified borrowers (other than in repurchase
transactions) if the loan is collateralized in accordance with applicable
regulatory requirement and if, after any loan, the value of the securities
loaned do not exceed 25% of the value of its total assets. The Trust does not
intend to engage in securities loan transactions during the current fiscal year.
The income from such loans, when distributed by the Trust, will be taxable.
Under applicable regulatory requirements (which are subject to
change), the loan collateral must, on each business day, be at least equal to
the value of the loaned securities and must consist of cash, bank letters of
credit or securities of the U.S. Government (or its agencies or
instrumentalities) or other cash equivalents in which the Trust is permitted to
invest. To be acceptable as collateral, letters of credit must obligate a bank
to pay amounts demanded by the Trust if the demand meets the terms of the
letter. Such terms and the issuing bank must be satisfactory to the Trust. The
Trust receives an amount equal to the dividends or interest on loaned securities
and also receives one or more of: (a) negotiated loan fees, (b) interest on
securities used as collateral, or (c) interest on short-term debt securities
purchased with such loan collateral; either type of interest may be shared with
the borrower. The Trust may also pay reasonable finder's, custodian and
administrative fees and will not lend its portfolio securities to any officer,
trustee, employee or affiliate of the Trust or the Manager. The terms of the
Trust's loans must meet applicable 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. Income from securities loans is not
included in
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<PAGE>
the exempt-interest dividends paid by the Trust.
Special Investment Considerations - California Municipal Securities
As stated in the Prospectus, the values of the Trust's California Municipal
Securities are highly sensitive to the fiscal stability of California and its
subdivisions, agencies, instrumentalities or authorities, which issue the
Municipal Securities in which the Trust concentrates its investments. Certain
amendments to the California State constitution, legislative measures, executive
orders, civil actions and voter initiatives in recent years that could adversely
affect the ability of California issuers to pay interest and principal on
Municipal Securities are described below. The following constitutes only a brief
summary, and is based on information drawn from the relevant statutes and
certain other publicly available information. The Trust has not independently
verified such information.
Changes in California constitutional and other laws during the last
several years have caused concerns about the ability of California state and
municipal issuers to obtain sufficient revenue to pay their bond obligations. In
1978, California voters approved an amendment to the California Constitution
known as Proposition 13, which added Article XIIIA to the California
Constitution. Article XIIIA limits ad valorem taxes on real property and
restricts the ability of taxing entities to increase real property taxes.
However, legislation passed subsequent to Proposition 13 provided for the
redistribution of California's General Fund surplus to local agencies, the
reallocation of revenues to local agencies and the assumption of certain local
obligations by the state so as to help California municipal issuers raise
revenue to pay their bond obligations. It is unknown whether additional revenue
redistribution legislation will be enacted in the future and whether, if
enacted, such legislation will provide sufficient revenue for such California
issuers to pay their obligations.
The state is also subject to another constitutional amendment, Article
XIIIB, which may have an adverse impact on California state and municipal
issuers. Article XIIIB restricts the state from spending certain appropriations
in excess of an appropriations limit imposed for each state and local government
entity. If revenues exceed such appropriations limit, such revenues must be
returned either as revisions in the tax rates or fee schedules. In 1988,
California voters approved an initiative known as Proposition 98, which in
addition to amending Article XIIIB, amended Article XVI to require a minimum
level of funding for public schools and community colleges.
In 1986, California voters approved an initiative known as Proposition
62, which, among other things, requires that any tax for general governmental
purposes imposed by a local government be approved by two-thirds vote of the
governmental entity's legislative body and by a majority of its electorate and
that any special tax imposed by a local government be approved by a two-thirds
vote of the electorate. In September 1995 the California Supreme Court upheld
the constitutionality of Proposition 62, creating uncertainty as to the legality
of certain local taxes enacted by non-charter cities in California without voter
approval. It is not possible to predict the impact of the decision.
Because of the uncertain impact of the aforementioned legislation, the
possible inconsistencies in the respective terms of the statutes and the
impossibility of predicting the level of future appropriations and applicability
of related statutes to such questions, it is not currently possible to assess
the impact of such legislation and policies on the long term ability of the
State of
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<PAGE>
California and California municipal issuers to pay interest or repay principal
on their obligations.
California's economic recovery from the recent recession is continuing
at a strong pace, and recent economic reports indicate that California is on a
stronger economic upturn than the rest of the country. However, some sectors
continue to feel the effects of the recession. Unemployment, particularly in
Southern California, has remained above the national average since 1990,
although the State experienced strong job growth in 1995 and through the second
quarter of 1996. In addition, substantial contraction in California's defense
related industries, overbuilding in commercial real estate, and consolidation
and decline in the state's financial services industry will likely produce
slower overall growth in 1996.
On July 15, 1996, the Governor signed into law a new $63 billion budget
which, among other things, significantly increases education spending from the
previous fiscal year and reduces taxes for corporations and banks. Although the
State's budget projects an operating surplus, it continues to rely on federal
actions which are not certain of occurring. Accordingly, the surplus may not be
realized unless the economy outperforms expectations or spending falls below
planned levels.
Because of the State of California's continuing budget problems, the
state's General Obligation bonds were downgraded in July 1994 from Aa to A1 by
Moody's, from A+ to A by Standard & Poor's and from AA to A by Fitch. All three
rating agencies expressed uncertainty in the state's ability to balance its
budget by 1996. However, in 1996, citing California's improving economy and
budget situation, both Fitch and S&P raised their ratings from A to A+.
On December 6, 1994, Orange County (California) became the largest
municipality in the United States to file for protection under the Federal
bankruptcy laws. The filing stemmed from approximately $1.7 billion in losses
suffered by the county's investment pool due to investment in high risk
"derivative" securities. In September 1995 the state legislature approved
legislation permitting Orange County to use for bankruptcy recovery $820 million
over 20 years in sales taxes previously earmarked for highway, transit and
development. In June 1996 the County completed an $880 million bond offering
secured by real property owned by the County. On June 12, 1996, the County
emerged from bankruptcy.
Los Angeles County, the nation's largest county, is also experiencing
financial difficulty. In August 1995 the credit rating of the county's long-term
bonds was downgraded for the third time since 1992 as a result of, among other
things, severe operating deficits for the county's health care system. In
September 1995, federal and state aid to Los Angeles County totaling $514
million was pledged, providing a short-term solution to the county's budget
problems. Despite such efforts, the County is facing a potential budget gap of
$1.0 billion in the 1996-97 fiscal year.
Other Investment Restrictions
The Trust's most significant investment restrictions are set forth in the
Prospectus. The following investment restrictions are also fundamental
investment policies of the Trust and, together with the fundamental policies and
investment objective described in the Prospectus, cannot be changed without the
vote of a "majority" of the Trust's outstanding shares. Under the Investment
Company
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<PAGE>
Act, such a "majority" vote is defined as the vote of the holders of the lesser
of (i) 67% or more of the shares present or represented by proxy at a
shareholder's meeting, if the holders of more than 50% of the outstanding shares
are present or represented by proxy, or (ii) more than 50% of the outstanding
shares. Under these additional restrictions, the Trust cannot: (1) invest in
commodities or commodity contracts, or invest in interests in oil, gas, or other
mineral exploration or development programs; (2) invest in real estate; however,
the Trust may purchase Municipal Bonds or Notes secured by interests in real
estate; (3) make short sales of securities or purchase securities on margin,
except for short-term credits necessary for the clearance of purchases and sales
of portfolio securities; (4) invest in or hold securities of any issuer if those
officers and Trustees of the Trust or the Manager individually owning more than
0.5% of the securities of such issuer together own more than 5% of the
securities of such issuer; (5) underwrite securities of other companies; or (6)
invest in securities of other investment companies except as they may be
acquired as part of a merger, consolidation or acquisition of assets.
For purposes of investment restriction (4) above and the investment
restrictions in the Prospectus, the identification of the "issuer" of a
Municipal Security depends on the terms and conditions of the security. When the
assets and revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating the subdivision
and the security is backed only by the assets and revenues of the subdivision,
such subdivision would be deemed to be the sole issuer. Similarly, in the case
of an industrial development bond, if that bond is backed only by the assets and
revenues of the nongovernmental user, then such nongovernmental user would be
deemed to be the sole issuer. However, if in either case the creating government
or some other entity guarantees the security, such guarantee would be considered
a separate security and would be treated as an issue of such government or other
agency.
In applying the restrictions in the Prospectus as to the Trust's
investments, the Manager will consider a nongovernmental user of facilities
financed by industrial development bonds as being in a particular industry,
despite the fact that there is no industry concentration limitation as to
municipal securities the Trust may own. Although this application of the
restriction is not technically a fundamental policy of the Trust, it will not be
changed without shareholder approval. Should any such change be made, the
Prospectus and/or Statement of Additional Information will be supplemented to
reflect the change.
For purposes of the Trust's policy not to concentrate its assets,
described under restriction number (4) in the Prospectus, the Trust has adopted
the industry classifications set forth in Appendix B to this Statement of
Additional Information. This is not a fundamental policy.
Organization and History of the Trust
The Trust's Declaration of Trust contains an express disclaimer of shareholder
or Trustee liability for the Trust's obligations, and provides for
indemnification and reimbursement of expenses out of its property for any
shareholder held personally liable for its obligations. The Declaration of Trust
also provides that the Trust shall, upon request, assume a defense of any claim
made against any shareholder for any act or obligation of the Trust and satisfy
any judgment thereon. Thus, while Massachusetts law permits a shareholder of a
trust (such as the Trust) to be held personally liable
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<PAGE>
as a "partner" for the Trust's obligations under certain circumstances, the risk
of a Trust shareholder incurring any financial loss on account of such
shareholder liability is limited to the relatively remote circumstance in which
the Trust itself would be unable to meet its obligations. Any person doing
business with the Trust, and any shareholder of the Trust, agrees under the
Trust's Declaration of Trust to look solely to the assets of the Trust for
satisfaction of any claim or demand which may arise out of any dealings with the
Trust, and the Trustees shall have no personal liability to any such person, to
the extent permitted by law. It is not contemplated that regular annual meetings
of shareholders will be held. The Trust will hold meetings when required to do
so by the Investment Company Act or other applicable law, or when a shareholder
meeting is called by the Trustees. Shareholders have the right, upon the
declaration in writing or vote of two-thirds of the outstanding shares of the
Trust, to remove a Trustee. The Trustees will call a meeting of shareholders to
vote on the removal of a Trustee upon the written request of the record holders
of 10% of its outstanding shares. In addition, if the Trustees receive a request
from at least 10 shareholders (who have been shareholders for at least six
months) holding in the aggregate shares of the Trust valued at $25,000 or more
or holding 1% or more of the Trust's outstanding shares, whichever is less, that
they wish to communicate with other shareholders to request a meeting to remove
a Trustee, the Trustees will then either make the Trust's shareholder list
available to the applicants or mail their communication to all other
shareholders at the applicants' expense, or the Trustees may take such other
action as set forth in Section 16 of the Investment Company Act.
Trustees and Officers
The Trustees and officers of the Trust and their principal business affiliations
and occupations during the past five years are listed below. The Trustees are
also trustees, directors, or managing general partners of Centennial America
Fund, L.P., Centennial Government Trust, Centennial Money Market Trust,
Centennial New York Tax Exempt Trust, Centennial Tax Exempt Trust, Daily Cash
Accumulation Fund, Inc., Oppenheimer Cash Reserves, Oppenheimer Champion Income
Fund, Oppenheimer Equity Income Fund, Oppenheimer High Yield Fund, Oppenheimer
Integrity Funds, Oppenheimer International Bond Fund, Oppenheimer Limited-Term
Government Fund, Oppenheimer Main Street Funds, Inc., Oppenheimer Municipal
Fund, Oppenheimer Strategic Income Fund, Oppenheimer Strategic Income & Growth
Fund, Oppenheimer Total Return Fund, Inc., Oppenheimer Total Return Fund Inc.
Capital Accumulation Plan, Oppenheimer Variable Account Funds, The New York Tax
Exempt Income Fund, Inc. and Panorama Series Fund, Inc. (all of the foregoing
funds along with the Trust are collectively referred to as the "Denver
Oppenheimer funds") except for Mr. Fossel and Ms. Macaskill, who are Trustees,
Directors or Managing Partners of all the Denver Oppenheimer funds except
Oppenheimer Integrity Funds, Oppenheimer Strategic Income Fund, Oppenheimer
Variable Account Funds and Panorama Series Fund Inc. Mr. Fossel is also not a
trustee of Centennial New York Tax Exempt Trust and he is not a Managing General
Partner of Centennial America Fund, L.P. Ms. Macaskill is President and Mr.
Swain is Chairman of the Denver Oppenheimer funds. All of the officers except
Mr. Carbuto hold similar positions with each of the Denver Oppenheimer funds. As
of October 1, 1996, the Trustees and officers of the Trust in the aggregate
owned less than 1% of the outstanding shares of the Trust.
ROBERT G. AVIS, Trustee*; Age 65
One North Jefferson Avenue, St. Louis, Missouri 63103
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<PAGE>
Vice Chairman of A.G. Edwards & Sons, Inc. (a broker-dealer) and A.G.
Edwards, Inc. (its parent holding company); Chairman of A.G.E. Asset
Management and A.G. Edwards Trust Company (its affiliated investment
advisor and trust company, respectively).
WILLIAM A. BAKER, Trustee; Age 81
197 Desert Lakes Drive, Palm Springs, California 92264
Management Consultant.
CHARLES CONRAD, JR., Trustee; Age 66
1501 Quail Street, Newport Beach, California 92660
Chairman and Chief Executive Officer of Universal Space Lines, Inc. (A
space services management company); formerly, Vice President of
McDonnell Douglas Space Systems Co. and associated with National
Aeronautics and Space Administration.
JON S. FOSSEL, Trustee*; Age 54
Box 44 Mead Street, Waccabuc, New York 10597
Member of the Board of Governors of the Investment Company Institute (a
national trade association of investment companies), Chairman of the
Investment Company Institute Education Foundation; Formerly Chairman
and a director of OppenheimerFunds, Inc. ("OFI"), the immediate parent
of Centennial Asset Management Corporation ("Manager"); formerly
President and a director of Oppenheimer Acquisition Corp.("OAC"), OFI's
parent holding company; formerly a director of Shareholder Services,
Inc. ("SSI") and Shareholder Financial Services, Inc. ("SFSI"),
transfer agent subsidiaries of OFI.
SAM FREEDMAN, Trustee; Age 56
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly, Chairman and Chief Executive Officer of OppenheimerFunds
Services (a transfer agent); Chairman, Chief Executive Officer and a
director of SSI; Chairman, Chief Executive Officer and director of
Shareholder Financial Services, Inc. ("SFSI"); Vice President and a
director of OAC and a director of OFI.
RAYMOND J. KALINOWSKI, Trustee; Age 67
44 Portland Drive, St. Louis, Missouri 63131
Director of Wave Technologies International, Inc.(a computer products
training company), formerly Vice Chairman and a director of A.G.
Edwards, Inc., parent holding company of A.G. Edwards & Sons, Inc.
(a broker-dealer), of which he was a Senior Vice President.
C. HOWARD KAST, Trustee; Age 74
2552 E. Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting
firm).
ROBERT M. KIRCHNER, Trustee; Age 75
7500 East Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).
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<PAGE>
BRIDGET A. MACASKILL, President and Trustee*; Age 48
Two World Trade Center, New York, New York 10048-0203
President, Chief Executive Officer and a director of OFI and
HarbourView Asset Management Corporation ("HarbourView"), a subsidiary
of OFI; Chairman and a director of SSI and SFSI; President and a
director of OAC and Oppenheimer Partnership Holdings Inc., a holding
company subsidiary of OFI; a director of Oppenheimer Real Asset
Management, Inc. ("Real Asset"); formerly an Executive Vice President
of OFI.
NED M. STEEL, Trustee; Age 81
3416 South Race Street, Englewood, Colorado 80110
Chartered Property and Casualty Underwriter; Director of Visiting Nurse
Corporation of Colorado; formerly Senior Vice President and a director
of the Van Gilder Insurance Corp.
(insurance brokers).
JAMES C. SWAIN, Chairman, Chief Executive Officer and Trustee*; Age 62
3410 South Galena Street, Denver, Colorado 80231
Vice Chairman of OFI; formerly President and a director of the Manager,
and formerly Chairman of the Board of SSI.
MICHAEL A. CARBUTO, Vice President and Portfolio Manager; Age 41
Two World Trade Center, New York, New York 10048-0203
Vice President of the Manager and OFI; an officer of other Oppenheimer
funds.
ANDREW J. DONOHUE, Vice President and Secretary; Age 46
Two World Trade Center, New York, New York 10048-0203
Executive Vice President and General Counsel of OFI and
OppenheimerFunds Distributor, Inc. ("OFDI"); President and a director
of the Manager; Executive Vice President, General Counsel and a
director of HarbourView, SFSI, SSI and Oppenheimer Partnership Holdings
Inc.; President and a director of Real Asset; General Counsel of OAC;
Executive Vice President, Chief Legal Officer and a director of
MultiSource Services, Inc. (A broker-dealer); an officer of other
Oppenheimer funds; formerly Senior Vice President and Associate General
Counsel of OFI and OFDI; Partner in Kraft & McManimon (a law firm); an
officer of First Investors Corporation (a broker-dealer) and First
Investors Management Company, Inc. (broker-dealer and investment
advisor); director and an officer of First Investors Family of Funds
and First Investors Life Insurance Company.
GEORGE C. BOWEN, Vice President, Treasurer and Assistant Secretary; Age 60
3410 South Galena Street, Denver, Colorado 80231
Senior Vice President and Treasurer OFI; Vice President and Treasurer
of OFDI and HarbourView; Senior Vice President, Treasurer Assistant
Secretary and a director of the Manager; Vice President, Treasurer and
Secretary of SSI and SFSI; Treasurer of OAC; Vice President and
Treasurer of Real Asset; Chief Executive Officer, Treasurer and a
director of MultiSource Services, Inc.; an officer of other Oppenheimer
funds.
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<PAGE>
ROBERT J. BISHOP, Assistant Treasurer; Age 37
3410 South Galena Street, Denver, Colorado 80231
Vice President of the OFI/Mutual Fund Accounting; an officer of other
Oppenheimer funds; formerly a Fund Controller for OFI, prior to which
he was an Accountant for Yale & Seffinger, P.C., an accounting firm,
and previously an Accountant and Commissions Supervisor for Stuart
James Company, Inc., a broker-dealer.
SCOTT T. FARRAR, Assistant Treasurer; Age 31
3410 South Galena Street, Denver, Colorado 80231
Vice President of OFI/Mutual Fund Accounting; an officer of other
Oppenheimer funds; formerly a Fund Controller for OFI, prior to which
he was an International Mutual Fund Supervisor for Brown Brothers,
Harriman Co., a bank, and previously a Senior Fund Accountant for State
Street Bank & Trust Company.
ROBERT G. ZACK, Assistant Secretary; Age 48
Two World Trade Center, New York, New York 10048-0203
Senior Vice President and Associate General Counsel of OFI; Assistant
Secretary of SSI and SFSI; an officer of other Oppenheimer funds.
- ---------------------
* A Trustee who is an "interested person" of the Trusts as defined in the
Investment Company Act.
Remuneration of Trustees. The officers of the trust are affiliated with the
Manager. They and the Trustees of the Trust who are affiliated with the manager
(Ms. Macaskill and Mr. and Swain) receive no salary or fee from the Trust. The
remaining Trustees of the Trust (excluding Mr. Freedman, who did not become a
Trustee until June 27, 1996) received the compensation shown below from the
Trust, during its fiscal year ended June 30, 1996, and from all of the
Denver-based Oppenheimer funds (including the Trust) for which they served as
Trustee, Director or managing General Partner. Compensation is paid for services
n the positions listed beneath their names:
<TABLE>
<CAPTION>
Total Compensation
Aggregate From All
Compensation Denver-based
Name Position from Trust Oppenheimer funds1
- ---- --------- ------------ ------------------
<S> <C> <C> <C>
Robert G. Avis Trustee $226 $53,000
William A. Baker Audit and Review $312 $73,255
Committee Chairman
and Trustee
Charles Conrad, Jr. Audit and Review $273 $64,309
Committee
Member and Trustee
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<PAGE>
Raymond J. Kalinowski Risk Management Oversight $277 $65,000
Committee Member
and Trustee
C. Howard Kast Risk Management Oversight $277 $65,000
Committee Member
and Trustee
Robert M. Kirchner Audit and Review $291 $68,292
Committee Member
and Trustee
Ned M. Steel Trustee $226 $53,000
- ----------------------
<FN>
1For the 1995 calendar year during which the Denver-based Oppenheimer funds
listed in the first paragraph of this section included Oppenheimer Strategic
Investment Grade Bond Fund and Oppenheimer Strategic Short-Term Income Fund
(which ceased operations following the acquisition of their assets by other
Oppenheimer funds).
</FN>
</TABLE>
Major Shareholders. As of October 1, 1996 A.G. Edwards & Sons, Inc.
("Edwards"), 1 North Jefferson Avenue, St. Louis, MO 63103, was the record
owner of 117,713,481 shares of the Trust (approximately 99.66% of outstanding
shares). The Trust has been informed that the shares held of record by Edwards
were beneficially owned by its brokerage clients. As of that date, no other
person owned of record or was known by the Trust to own beneficially 5% or more
of the Trust's outstanding shares.
The Manager and Its Affiliates
The Manager is wholly-owned by OFI, which is a wholly-owned subsidiary of
Oppenheimer Acquisition Corp. ("OAC"), a holding company controlled by
Massachusetts Mutual Life Insurance Company. The remaining stock of OAC is owned
by (i) certain of OFI's directors and officers, some of whom may serve as
officers of the Trust, and two of whom (Mr. Swain and Ms. Macaskill) serve as
Trustees of the Trust and (ii) Edwards, which owns less than 5% of its equity.
The Investment Advisory Agreement. A management fee is payable monthly to the
Manager under the terms of the investment advisory agreement between the Manager
and the Trust (the "Agreement"), and is computed on the aggregate net assets of
the Trust as of the close of business each day. The Agreement requires the
Manager, at its expense, to provide the Trust with adequate office space,
facilities and equipment, and to provide and supervise the activities of all
administrative and clerical personnel required to provide effective
administration for the Trust, including the compilation and maintenance of
records with respect to its operations, the preparation and filing of specified
reports, and the composition of proxy materials and registration statements for
continuous public sale of shares of the Trust. Expenses not expressly assumed by
the Manager under the Agreement or by the Distributor of the shares of the
Trust, are paid by the Trust. A description of examples of such expenses is in
the Prospectus.
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<PAGE>
The Agreement contains no expense limitation. However, independently of
the Agreement, the Manager has undertaken that the total expenses of the Trust
in any fiscal year shall not exceed the most stringent applicable state
regulatory limitation. California's regulatory limitation is currently 2.5% of
the first $30 million of net assets, 2% on the next $70 million of net assets
and 1.5% of assets in excess of $100 million. In addition, 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 either limitation 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 vary the amount of expenses assumed or
eliminate the assumption of expenses altogether. For the fiscal years ended June
30, 1994, June 30, 1995 and June 30,1996, the management fees payable by the
Trust would have been $327,466, $356,181 and $565,052, respectively. Those
amounts do not reflect the effect of the expense assumptions of $48,265, $23,310
and $16,016, respectively, in those periods by the Manager.
The Agreement provides that in the absence of willful misfeasance, bad
faith, or gross negligence in the performance of its duties or reckless
disregard of its obligations and duties thereunder, the Manager is not liable
for any loss sustained by reason of any good faith errors or omissions in
connection with any matters covered by the Agreement. The Agreement permits the
Manager to act as investment advisor for any other person, firm or corporation
and to use the name "Centennial" in connection with one or more additional
companies for which it may act as investment advisor or general distributor. If
the Manager shall no longer act as investment advisor to the Trust, the right of
the Trust to use the name "Centennial" as part of its name may be withdrawn.
The Custodian. The Custodian's responsibilities include safeguarding and
controlling the Trust's portfolio securities and handling the delivery of
portfolio securities to and from the Trust. The Manager has represented to the
Trust that its banking relationship with the Custodian have been and will
continue to be unrelated to and unaffected by the relationships between the
Trust and the Custodian. It will be the practice of the Trust to deal with the
Custodian in a manner uninfluenced by any banking relationship the Custodian may
have with the Manager or its affiliates.
The Transfer Agent. The Transfer Agent (Shareholder Services, Inc.) is
responsible for maintaining the Trust's shareholder registry and shareholder
accounting records, and for shareholder servicing and administrative functions.
The Distributor. Under the General Distributor's Agreement between the Trust and
the Distributor, the Distributor acts as the Trust's principal underwriter in
the continuous public offering of its shares. The General Distributor is not
obligated to sell a specific number of shares. Expenses normally attributable to
sales (other than those paid under the Service Plan), including advertising and
the cost of printing and mailing prospectuses other than those furnished to
existing shareholders, are borne by the Distributor.
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<PAGE>
Independent Auditors and Financial Statements. The independent auditors of the
Trust audit the Trust's financial statements and perform other related audit
services. They also act as auditors for the Manager and OFI, the Manager's
immediate parent, as well as for certain other funds advised by the Manager and
OFI.
Portfolio Transactions. Portfolio decisions are based upon the recommendations
and judgment of the Manager subject to the overall authority of the Board of
Trustees. As most purchases made by the Trust are principal transactions at net
prices, the Trust incurs little or no brokerage costs. The Trust deals directly
with the selling or purchasing principal or market maker without incurring
charges for the services of a broker on its behalf unless it is determined that
a better price or execution may be obtained by using the services of a broker.
Purchases of portfolio securities from underwriters include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
include a spread between the bid and asked prices.
The Trust seeks to obtain prompt and reliable execution of orders at
the most favorable net price. If brokers are used for portfolio transactions,
transactions may be directed to brokers furnishing execution and research
services. The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Manager and its affiliates,
and investment research received for the commissions of those other accounts may
be useful both to the Trust and one or more of such other accounts. Such
research, which may be supplied by a third party at the instance of a broker,
includes information and analyses on particular companies and industries as well
as market or economic trends and portfolio strategy, receipt of market
quotations for portfolio evaluations, information systems, computer hardware and
similar products and services. If a research service also assists the Manager in
a non-research capacity (such as bookkeeping or other administrative functions),
then only the percentage or component that provides assistance to the Manager in
the investment decision-making process may be paid for in commission dollars.
The research services provided by brokers broaden the scope and supplement the
research activities of the Manager by making available additional views for
consideration and comparisons, and enabling the Manager to obtain market
information for the valuation of securities held in the Trust's portfolio or
being considered for purchase. In the rare instances where the Trust pays
commissions for research, the Board of Trustees, including the independent
Trustees of the Trust, will review information furnished by the Manager as to
the commissions paid to brokers furnishing such services in an effort to
ascertain that the amount of such commissions was reasonably related to the
value or the benefit of such services. The Trust does not direct the handling of
purchases or sales of portfolio securities, whether on a principal or agency
basis, to brokers for selling shares of the Trust. No portfolio transactions are
handled by brokers which are affiliated with the Trust or the Manager if that
broker is acting as principal. The Trust's policy of investing in short-term
debt securities with maturities of less than one year results in high portfolio
turnover. However, since brokerage commissions, if any, are small and securities
are usually held to maturity, high turnover does not have an appreciable adverse
effect upon the net asset value or income of the Trust.
Other funds advised by the Manager have investment objectives and
policies similar to that of the Trust. Such other funds may purchase or sell the
same securities at the same time as the Trust, which could affect the supply or
price of such securities. If two or more of such funds purchase the same
security on the same day from the same dealer, the Manager may average the price
of the
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<PAGE>
transactions and allocate the cost among such funds.
Service Plan
The Trust has adopted a service plan (the "Plan") under Rule 12b-1 of the
Investment Company Act, as described in the Prospectus. No payment will be made
by the Distributor to any Recipient if the aggregate net asset value of the
Trust shares held by it or its customers at the end of a calendar quarter is
less than the minimum level of qualified holdings, if any, established under the
Plan from time to time by the "Independent Trustees". Currently, no minimum
level of qualified holdings has been established by the Board of Trustees. The
Distributor will make monthly payments to a Recipient if the aggregate net asset
value of the Trust's shares held by it or its customers are in excess of $20
million. For the Trust's fiscal year ended June 30, 1996, payments under the
Plan totaled $221,344 all of which was paid by the Distributor to Recipients.
The Distributor has entered into Supplemental Distribution Assistance
Agreements ("Supplemental Agreements") under the Plan with selected dealers
distributing shares of Centennial America Fund, L.P., Centennial Government
Trust, Centennial New York Tax Exempt Trust, Oppenheimer Cash Reserves and the
Trust. Quarterly payments by the Distributor for distribution- related services
will range from 0.10% to 0.30%, annually, of the average net asset value of
shares of the above-mentioned funds owned during the quarter beneficially or of
record by the dealer or its customers. However, no payment shall be made to any
dealer for any quarter during which the average net asset value of shares of the
above-mentioned funds owned during that quarter by the dealer or its customers
is less than $5 million. Payments made pursuant to Supplemental Agreements are
not a Trust expense, but are made by the Distributor out of its own resources or
out of the resources of the Manager which may include profits derived from the
advisory fee it receives from the Trust. Payments to affiliates of the
Distributor are not permitted under the Supplemental Agreements.
The Plan shall, unless terminated as described below, continue in
effect from year to year but only so long as such continuance is specifically
approved at least annually by the Trust's Board of Trustees including its
Independent Trustees by a vote cast in person at a meeting called for that
purpose. The Supplemental Agreements are subject to the same renewal
requirement. The Plan and the Supplemental Agreements may be terminated at any
time by the vote of a majority of the Independent Trustees or by the vote of the
holders of a "majority" of the Trust's outstanding voting securities. The
Supplemental Agreements will automatically terminate in the event of their
"assignment" (as defined in the Investment Company Act), and each may be
terminated by the Distributor: (i) in the event the Trust amends the Plan, or
(ii) if the net asset value of shares of the above-mentioned funds covered by
Supplemental Agreements held by the dealer or its customers is less than $5
million for two or more consecutive quarters. A dealer may terminate a
Supplemental Agreement at any time upon giving 30 days' notice. The Plan may not
be amended without shareholder approval, as set forth above, to increase
materially the amount of payments to be made, and all material amendments must
be approved by the Board and the Independent Trustees.
While the Plan is in effect, the Treasurer of the Trust shall provide a
report to the Board of Trustees in writing at least quarterly on the amount of
all payments made pursuant to the Plan and
-19-
<PAGE>
the identity of each Recipient that received any such payment and the purposes
for which the payments were made. The Plan further provides that while it is in
effect, the selection and nomination of those Trustees of the Trust who are not
"interested persons" of the Trust is committed to the discretion of the
Independent Trustees. This does not prevent the involvement of others in such
selection and nomination if the final decision as to the selection or nomination
is approved by a majority of the Independent Trustees.
Performance of the Trust
Yield Information. The Trust's current yield is calculated for a seven-day
period of time in accordance with regulations adopted under the Investment
Company Act. First, a base period return is calculated for the seven-day period
by determining the net change in the value of a hypothetical pre-existing
account having one share at the beginning of the seven-day period. The change
includes dividends declared on the original share and dividends declared on any
shares purchased with dividends on that share, but such dividends are adjusted
to exclude any realized or unrealized capital gains or losses affecting the
dividends declared. Next, the base period return is multiplied by 365/7, to
obtain the current yield to the nearest hundredth of one percent. The compounded
effective yield for a seven-day period is calculated by (a) adding 1 to the base
period return (obtained as described above), (b) raising the sum to a power
equal to 365 divided by 7 and (c) subtracting 1 from the result. For the
seven-day period ended June 30, 1996, the Trust's current yield was 2.67% and
its compounded effective yield was 2.70%.
The yield as calculated above may vary for accounts less than
approximately $100 in value due to the effect of rounding off each daily
dividend to the nearest full cent. Since the calculation of yield under either
procedure described above does not take into consideration any realized or
unrealized gains or losses on the Trust's portfolio securities which may affect
dividends, the return on dividends declared during a period may not be the same
on an annualized basis as the yield for that period.
The Trust's "tax equivalent yield" adjusts the Trust's current yield,
as calculated above, by a stated combined Federal and California tax rate. The
tax equivalent yield is computed by dividing the tax-exempt portion of the
Trust's current yield by one minus a stated income tax rate and adding the
result to the portion (if any) of the Trust's current yield that is not
tax-exempt. The tax equivalent yield may be compounded as described above to
provide a compounded effective tax equivalent yield. The tax equivalent yield
may be used to compare the tax effects of income derived from the Trust with
income from taxable investments at the tax rates stated. Appendix C includes a
tax equivalent yield table, based on various effective tax brackets for
individual taxpayers. Such tax brackets are determined by a taxpayer's Federal
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, and that state
income tax payments are fully deductible for income tax purposes. For taxpayers
with income above certain levels, otherwise allowable itemized deductions are
limited. For the seven-day period ended June 30, 1996, the Trust's
tax-equivalent yield was 4.97% and its tax-equivalent compounded effective yield
was 5.02% for an investment subject to a 46.24% combined effective tax rate.
-20-
<PAGE>
Yield information may be useful to investors in reviewing the Trust's
performance. The Trust's yield may be compared to that of other investments, by
citing various indices 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 deposit by the 100 largest
banks and thrift institutions in the top ten metropolitan areas. However, a
number of factors should be considered before using yield information as a basis
for comparison with other investments. An investment in the Trust is not
insured. Its yield is not guaranteed and normally will fluctuate on a daily
basis. The yield for any given past period is not an indication or
representation by the Trust of future yields or rates of return on its shares.
The Trust's yield is affected by portfolio quality, portfolio maturity, type of
instruments held and operating expenses. The Trust's performance reflects the
voluntary assumption of expenses by the Manager, absent which such figures would
have been lower than those shown above. When comparing the Trust's yield and
investment risk with that of other investments, investors should understand that
certain other investment alternatives, such as certificates of deposit, U.S.
Government Securities, money market instruments or bank accounts may provide
fixed yields or yields that may vary above a stated minimum, and also that bank
accounts may be insured or guaranteed. Certain types of bank accounts may not
pay interest when the balance falls below a specified level and may limit the
number of withdrawals by check per month. In order to compare the Trust's
dividends to the rate of return on taxable investments, federal and state income
taxes on such investments should be considered.
ABOUT YOUR ACCOUNT
Purchase, Redemption and Pricing of Shares
Determination of Net Asset Value Per Share. The net asset value per share of the
Trust is determined twice each day, as of 12:00 Noon (all references to time
mean New York time) and the close of The New York Stock Exchange (the
"Exchange") which is normally 4:00 P.M., but may be earlier on some days, each
day the Exchange is open (a "regular business day") by dividing the Trust's net
assets (the total value of the Trust's portfolio securities, cash and other
assets less all liabilities) by the total number of shares outstanding. Shares
of the Trust are sold at their offering price (net asset value, without a sales
charge) as described in the Prospectus. The Exchange's most recent annual
holiday schedule states that it will close New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. The Exchange may also close on other days. Dealers other than
Exchange members may conduct trading in Municipal Securities on certain days on
which the Exchange is closed (e.g., Good Friday), so that securities of the same
type held by the Trust may be traded, and its net asset value per share may be
significantly affected, on such days when shareholders may not purchase or
redeem shares.
The Trust's Board of Trustees has established procedures for the
valuation of the Trust's securities, generally as follows: (i) long-term debt
securities having a remaining maturity in excess of 60 days are valued based on
the mean between the "bid" and "ask" prices determined by a portfolio pricing
service approved by the Trust's Board of Trustees or obtained by the Manager
from two active market makers in the security on the basis of reasonable
inquiry; (ii) debt instruments having a maturity of more than 397 days when
issued, and non-money market type instruments having a maturity of 397 days or
less when issued, which have a remaining maturity of 60 days or
-21-
<PAGE>
less are valued at the mean between the "bid" and "ask" prices determined by a
pricing service approved by the Trust's Board of Trustees or obtained by the
Manager from two active market makers in the security on the basis of reasonable
inquiry; (iii) money market debt securities that had a maturity of less than 397
days when issued that have a remaining maturity of 60 days or less are valued at
cost, adjusted for amortization of premiums and accretion of discounts; and (iv)
securities (including restricted securities) not having readily-available market
quotations are valued at fair value determined under the Board's procedures. If
the Manager is unable to locate two market makers willing to give quotes (see
(i) and (ii) above), the security may be priced at the mean between the "bid"
and "ask" prices provided by a single active market maker (which in certain
cases may be the "bid" price if no "ask" price is available).
In the case of Municipal Securities, when last sale information is not
generally available, such pricing procedures may include "matrix" comparisons to
the prices for comparable instruments on the basis of quality, yield, maturity,
and other special factors involved (such as the tax-exempt status of the
interest paid by Municipal Securities). The Manager may use pricing services
approved by the Board of Trustees to price any of the types of securities
described above. The Manager will monitor the accuracy of such pricing services,
which may include comparing prices used for portfolio evaluation to actual sales
prices of selected securities.
In the case of U.S. Government Securities and mortgage-backed
securities, where last sale information is not generally available, such pricing
procedures may include "matrix" comparisons to the prices for comparable
instruments on the basis of quality, yield, maturity and other special factors
involved. The Manager may use pricing services approved by the Board of Trustees
to price U.S. Government Securities for which last sale information is not
generally available. The Manager will monitor the accuracy of such pricing
services, which may include comparing prices used for portfolio evaluation to
actual sales prices of selected securities.
Redemption of Shares. Information on how to redeem shares of the Trust is stated
in the Prospectus. The Prospectus states that payment for shares tendered for
redemption is ordinarily made in cash. If, however, the Board of Trustees
determines that it would be detrimental to the best interests of the remaining
shareholders of the Trust to make payment wholly in cash, the redemption price
may be paid in whole or in part by a distribution in kind of securities from the
portfolio of the Trust in lieu of cash or in conformity with applicable
Securities and Exchange Commission rules. The Trust has elected to be governed
by Rule 18f-1 under the Investment Company Act, pursuant to which the Trust is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net assets of the Trust during any 90-day period for any one shareholder. If
shares are redeemed in kind, the redeeming shareholder might incur transaction
or other costs in converting the assets to cash. The method of valuing
securities used to make redemptions in kind will be the same as the method of
valuing securities described under "Determination of Net Asset Value" above, and
such valuation will be made as of the same time the redemption price is
determined.
The Trust's Board of Trustees has the right, in conformity with
applicable law, to cause the involuntary redemption of shares held in any
account if the aggregate net asset value of such shares is less than $200 or
such lesser amount as the Board may fix. Should the Board elect to exercise this
right, it may also fix, in accordance with the Investment Company Act or
Massachusetts law, the
-22-
<PAGE>
requirements for any notice to be given to the shareholder(s) in question (not
less than 30 days) or may set requirements for permission to allow the
shareholder to increase the investment so that the shares would not be
involuntarily redeemed.
Expedited Redemption Procedures. Under the Expedited Redemption Procedure
available to direct shareholders of the Trust, discussed in the Prospectus, the
wiring of redemption proceeds may be delayed if the Trust's Custodian bank is
not open for business on a day that the Trust would normally authorize the wire
to be made, which is usually the same day for redemptions prior to 12:00 Noon
and the Trust's next regular business day for redemptions between 12:00 Noon and
the close of the Exchange, which is normally 4:00 P.M., but may be earlier on
some days. In those circumstances, the wire will not be transmitted until the
next bank business day on which the Trust is open for business and no dividends
will be paid on the proceeds of redeemed shares awaiting transfer by wire.
Dividend Reinvestment in Another Fund. Direct shareholders of the Trust may
elect to reinvest all dividends and/or distributions in Class A shares of any of
the other funds listed in the Prospectus as "Eligible Funds" at net asset value
without sales charge. To elect this option, a shareholder must notify the
Transfer Agent in writing, and either must have an existing account in the fund
selected for reinvestment or must obtain a prospectus for that fund and
application from the Transfer Agent to establish an account. The investment will
be made at the net asset value per share next determined on the payable date of
the dividend or distribution.
Exchange of Shares
Eligible Funds. As stated in the Prospectus, shares of the Trust may, under
certain circumstances, be exchanged by direct shareholders for Class A shares of
the following Oppenheimer funds ("Eligible Funds"):
Bond Fund Series - Oppenheimer Bond Fund for Growth
Oppenheimer Asset Allocation Fund
Oppenheimer California Municipal Fund
Oppenheimer Champion Income Fund
Oppenheimer Discovery Fund
Oppenheimer Enterprise Fund
Oppenheimer Equity Income Fund
Oppenheimer Fund
Oppenheimer Global Emerging Growth Fund
Oppenheimer Global Fund
Oppenheimer Global Growth & Income Fund
Oppenheimer Gold & Special Minerals Fund
Oppenheimer Growth Fund
Oppenheimer High Yield Fund
Oppenheimer Integrity Funds
Oppenheimer International Bond Fund
Oppenheimer International Growth Fund
-23-
<PAGE>
Oppenheimer Limited-Term Government Fund
Oppenheimer Main Street Funds, Inc.
Oppenheimer Money Market Fund, Inc.
Oppenheimer Multi-Sector Income Trust
Oppenheimer Multi-State Municipal Trust
Oppenheimer Municipal Bond Fund
Oppenheimer Municipal Fund
Oppenheimer New York Municipal Fund
Oppenheimer Quest for Value Funds
Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Value Fund, Inc.
Oppenheimer Series Fund, Inc.
Oppenheimer Strategic Income Fund
Oppenheimer Strategic Income & Growth Fund
Oppenheimer Target Fund
Oppenheimer Total Return Fund, Inc.
Oppenheimer U.S. Government Trust
Oppenheimer World Bond Fund
Rochester Fund Municipals*
Rochester Portfolio Series - Limited Term New York Municipal Fund*
The New York Tax Exempt Income Fund, Inc.
the following "Money Market Funds":
Centennial America Fund, L.P.
Centennial California Tax Exempt Trust
Centennial Government Trust
Centennial Money Market Trust
Centennial New York Tax Exempt Trust
Centennial Tax Exempt Trust
Daily Cash Accumulation Fund, Inc.
Oppenheimer Cash Reserves
Oppenheimer Money Market Fund, Inc.
- ----------------------------------------------------
*Shares of the Trust are not presently exchangeable for shares of these funds.
Dividends, Distributions and Taxes
Tax Status of the Trust's Dividends and Distributions. The Federal and
California tax treatment of the Trust's dividends and distributions to
shareholders is explained in the Prospectus under the caption "Dividends and
Taxes." Under the Internal Revenue Code, by December 31 each year the Trust must
distribute 98% of its taxable investment income earned from January 1 through
December 31 of that year and 98% of its capital gains realized in the period
from November 1 of the prior year through October 31 of the current year or else
the Trust must pay an excise tax on the amounts not distributed. While it is
presently anticipated that the Trust's distributions will meet
-24-
<PAGE>
those requirements, the Trust's Board and Manager might determine in a
particular year that is in the best interests of the Trust not to distribute
income or capital gains at the mandated levels and to pay the excise tax on the
undistributed amounts.
FINANCIAL INFORMATION ABOUT THE TRUST
INDEPENDENT AUDITORS' REPORT
Centennial California Tax Exempt Trust
The Board of Trustees and Shareholders of
Centennial California Tax Exempt Trust:
We have audited the accompanying statement of assets and liabilities, including
the statement of investments, of Centennial California Tax Exempt Trust as of
June 30, 1996, the related statement of operations for the year then ended, the
statements of changes in net assets for the years ended June 30, 1996 and 1995,
and the financial highlights for the period July 1, 1991 to June 30, 1996. These
financial statements and financial highlights are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned at June 30,
1996 by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Centennial
California Tax Exempt Trust at June 30, 1996, the results of its operations, the
changes in its net assets, and the financial highlights for the respective
stated periods, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Denver, Colorado
July 22, 1996
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF INVESTMENTS June 30, 1996
Centennial California Tax Exempt Trust
FACE VALUE
AMOUNT SEE NOTE 1
<S> <C> <C> <C>
======================================================================================================================
SHORT-TERM TAX-EXEMPT OBLIGATIONS - 97.0%
- ----------------------------------------------------------------------------------------------------------------------
CALIFORNIA - 97.0%
-----------------------------------------------------------------------------------------------------------
Anaheim, California Housing Authority Multifamily
Housing Revenue Refunding Bonds, Park Vista Apts.,
Series A, 3.20%(1) $1,000,000 $ 1,000,000
-----------------------------------------------------------------------------------------------------------
Antioch, California Certificates of Participation, Antioch
Development Agency Water Treatment Project,
Prerefunded, MBIA Insured, 7.875%, 7/1/96 4,735,000 4,877,050
-----------------------------------------------------------------------------------------------------------
Brea, California Redevelopment Agency Sub-Tax
Allocation Bonds, Redevelopment Project-Area AB,
Prerefunded:
8.40%, 9/15/96 5,675,000 5,871,423
8.50%, 9/15/96 1,300,000 1,345,278
-----------------------------------------------------------------------------------------------------------
California Economic Development Financing Authority
Industrial Development Revenue Bonds, Inland Empire
Venture, LLC Project, 3.45%(1) 2,000,000 2,000,000
-----------------------------------------------------------------------------------------------------------
California Health Facilities Financing Authority Revenue:
Bonds, Catholic Healthcare Project, Series C, 3%(1) 5,200,000 5,200,000
Bonds, Catholic Healthcare Project, Series C, 3%(1) 2,300,000 2,300,000
Bonds, Huntington Memorial Hospital, 3.15%(1) 700,000 700,000
Bonds, Santa Barbara Cottage Project, Series C, 3%(1) 1,600,000 1,600,000
Refunding Bonds, Memorial Health Services Project, 3%(1) 1,300,000 1,300,000
-----------------------------------------------------------------------------------------------------------
California Housing Finance Agency Home Mtg. Revenue
Bonds, Series 1995-E, FGIC Insured, 3.50%, 2/1/97(2) 5,000,000 5,000,000
-----------------------------------------------------------------------------------------------------------
California Pollution Control Financing Authority:
Revenue Bonds, 3.55%, 10/1/96(2) 4,400,000 4,400,000
Revenue Bonds, Chevron USA, Inc. Project, 3.70%,
5/15/97(2) 2,500,000 2,500,000
Revenue Bonds, Pacific Gas & Electric Co. Project,
Series E, 3.40%, 7/15/96(2) 6,000,000 6,000,000
Revenue Bonds, Southern California Edison Co. Project,
Series A, 3.50%, 7/23/96(2) 1,200,000 1,200,000
Revenue Bonds, Southern California Edison Project,
Series C, 3.30%, 8/7/96(2) 1,050,000 1,050,000
Solid Waste Disposal Revenue Bonds, Western Waste
Industries, Series A, 3.10%(1) 3,100,000 3,100,000
-----------------------------------------------------------------------------------------------------------
California State General Obligation Bonds:
3.55%, 8/29/96(2) 2,000,000 2,000,000
Series A-3, MBIA Insured, 3.60%(1) 3,000,000 3,000,000
-----------------------------------------------------------------------------------------------------------
California Statewide Communities Development Corp.
Industrial Development Revenue Bonds:
Andercraft Project, Series A, 3.25%(1) 500,000 500,000
Propak California Corp., Series B, 3.25%(1) 900,000 900,000
-----------------------------------------------------------------------------------------------------------
Costa Mesa, California Certificates of Participation,
Orange County Performing Arts Center, 3.30%(1) 2,770,000 2,770,000
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
=====================================================================
STATEMENT OF INVESTMENTS (Continued)
Centennial California Tax Exempt Trust
FACE VALUE
AMOUNT SEE NOTE 1
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
CALIFORNIA (CONTINUED)
-----------------------------------------------------------------------------------------------------------
Covina, California Redevelopment Agency Multifamily
Housing Revenue Refunding Bonds, Shadowhills Apts.,
Inc., Series A, 3.70%(1) $3,000,000 $ 3,000,000
-----------------------------------------------------------------------------------------------------------
Fairfield, California Industrial Development Authority
Revenue Bonds, Herman G. Rowland, 3.40%(1) 1,250,000 1,250,000
-----------------------------------------------------------------------------------------------------------
Huntington Park, California Redevelopment Agency
Multifamily Housing Revenue Bonds, Casa Rita Apts.,
Series A, 3.45%(1) 1,500,000 1,500,000
-----------------------------------------------------------------------------------------------------------
Metropolitan Water District of Southern California
Waterworks Revenue Refunding Bonds, Series A,
AMBAC Insured, 2.95%(1) 5,500,000 5,500,000
-----------------------------------------------------------------------------------------------------------
Northern California Power Agency Public Power Revenue
Refunding Bonds, Geothermal Project 3-A, 3.15%(1) 5,700,000 5,700,000
-----------------------------------------------------------------------------------------------------------
Oceanside, California Multifamily Revenue Refunding
Bonds, Lakeridge Apts. Project, 3.50%(1) 5,000,000 5,000,000
-----------------------------------------------------------------------------------------------------------
Ontario, California Multifamily Residential Mtg. Revenue
Bonds, Park Centre Project, Series A, 2.90%(1) 2,400,000 2,400,000
-----------------------------------------------------------------------------------------------------------
Palm Springs, California Community Redevelopment
Agency Certificates of Participation, Headquarters Hotel,
Series 7, 3.30%(1) 400,000 400,000
-----------------------------------------------------------------------------------------------------------
Rancho Mirage, California Redevelopment Agency
Certificates of Participation, 3.25%(1) 5,000,000 5,000,000
-----------------------------------------------------------------------------------------------------------
Riverside County, California Housing Authority
Multifamily Housing Revenue Bonds, McKinley Project,
3.35%(1) 3,500,000 3,500,000
-----------------------------------------------------------------------------------------------------------
Sacramento, California Municipal Utility District Tax-
Exempt Commercial Paper, 3.50%, 10/1/96(2) 5,500,000 5,500,000
-----------------------------------------------------------------------------------------------------------
San Bernardino County, California Housing Authority
Multifamily Housing Revenue Refunding Bonds:
Arrowview Park Apts. Project, Series A, 3.25%(1) 2,380,000 2,380,000
Monterey Villas Apts. Project, Series A, 3.40%(1) 2,125,000 2,125,000
-----------------------------------------------------------------------------------------------------------
San Diego County, California Industrial Development Revenue Refunding
Bonds, San Diego Gas & Electric Co.
Project, 3.50%, 9/9/96(2) 1,500,000 1,500,000
-----------------------------------------------------------------------------------------------------------
San Diego, California Multifamily Housing Revenue
Refunding Bonds, Coral Point Apts. Project, Series A,
3.40%(1) 2,500,000 2,500,000
-----------------------------------------------------------------------------------------------------------
San Marcos, California Redevelopment Agency
Multifamily Housing Bonds, San Marcos Retirement
Village Project, 3.96%(1) 2,500,000 2,500,000
-----------------------------------------------------------------------------------------------------------
Southern California Public Power Authority Revenue
Refunding Bonds, Palo Verde Project, Series B, AMBAC
Insured, 3.10%(1) 1,100,000 1,100,000
-----------------------------------------------------------------------------------------------------------
Visalia, California Industrial Development Revenue Bonds,
Akers West Assn., 3.30%(1) 1,150,000 1,150,000
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
=====================================================================
STATEMENT OF INVESTMENTS (Continued)
Centennial California Tax Exempt Trust
FACE VALUE
AMOUNT SEE NOTE 1
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
CALIFORNIA (CONTINUED)
-----------------------------------------------------------------------------------------------------------
West & Central Basin California Finance Authority Tax
& Revenue Anticipation Nts., 3.55%, 8/22/96(2) $2,500,000 $ 2,500,000
-----------------------------------------------------------------------------------------------------------
West Covina, California Redevelopment Agency
Certificates of Participation, Barranca Project, 3%(1) 2,200,000 2,200,000
-----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE 97.0% 115,318,751
-----------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 3.0 3,519,411
----------- -------------
NET ASSETS 100.0% $118,838,162
=========== =============
</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, 1996. This instrument may also have a
demand feature which allows the recovery of principal at any time, or
at specified intervals not exceeding one year, on up to 30 days'
notice. 2. Put obligation redeemable at full face value on the date
reported.
See accompanying Notes to Financial Statements.
6
<PAGE>
<TABLE>
<CAPTION>
======================================================
STATEMENT OF ASSETS AND LIABILITIES June 30, 1996
Centennial California Tax Exempt Trust
====================================================================================================================
<S> <C> <C>
ASSETS Investments, at value - see accompanying statement $115,318,751
------------------------------------------------------------------------------------------
Cash 220,987
------------------------------------------------------------------------------------------
Receivables:
Shares of beneficial interest sold 7,471,206
Interest 860,137
------------------------------------------------------------------------------------------
Other 6,927
-------------
Total assets 123,878,008
====================================================================================================================
LIABILITIES Payables and other liabilities:
Shares of beneficial interest redeemed 4,857,325
Dividends 84,721
Service plan fees 57,600
Transfer and shareholder servicing agent fees 2,094
Other 38,106
-------------
Total liabilities 5,039,846
====================================================================================================================
NET ASSETS $118,838,162
=============
====================================================================================================================
COMPOSITION OF Paid-in capital $118,836,535
NET ASSETS ------------------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions 1,627
------------------------------------------------------------------------------------------
Net assets - applicable to 118,836,535 shares of beneficial
interest outstanding $118,838,162
=============
====================================================================================================================
NET ASSET VALUE, REDEMPTION PRICE AND OFFERING PRICE PER SHARE $1.00
======
</TABLE>
See accompanying Notes to Financial Statements.
7
<PAGE>
<TABLE>
<CAPTION>
========================================================
STATEMENT OF OPERATIONS For the Year Ended June 30, 1996
Centennial California Tax Exempt Trust
====================================================================================================================
<S> <C> <C>
INVESTMENT INCOME Interest $ 4,203,370
====================================================================================================================
EXPENSES Management fees - Note 3 565,052
------------------------------------------------------------------------------------------
Service plan fees - Note 3 221,344
------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees - Note 3 41,752
------------------------------------------------------------------------------------------
Shareholder reports 24,347
------------------------------------------------------------------------------------------
Registration and filing fees 19,916
------------------------------------------------------------------------------------------
Custodian fees and expenses 15,873
------------------------------------------------------------------------------------------
Legal and auditing fees 10,989
------------------------------------------------------------------------------------------
Insurance expenses 3,571
------------------------------------------------------------------------------------------
Trustees' fees and expenses 1,882
------------------------------------------------------------------------------------------
Other 502
-------------
Total expenses 905,228
-------------
Less assumption of expenses by Centennial Asset
Management Corp. - Note 3 (16,016)
-------------
Net expenses 889,212
<PAGE>
====================================================================================================================
NET INVESTMENT INCOME 3,314,158
====================================================================================================================
NET REALIZED GAIN ON INVESTMENTS 13,191
====================================================================================================================
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,327,349
=============
</TABLE>
<TABLE>
<CAPTION>
===================================
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED JUNE 30,
1996 1995
<S> <C> <C> <C>
====================================================================================================================
OPERATIONS Net investment income $ 3,314,158 $ 2,133,906
------------------------------------------------------------------------------------------
Net realized gain (loss) 13,191 (11,564)
----------------------------------
Net increase in net assets resulting
from operations 3,327,349 2,122,342
====================================================================================================================
DIVIDENDS AND
DISTRIBUTIONS
TO SHAREHOLDERS (3,314,158) (2,133,965)
====================================================================================================================
BENEFICIAL INTEREST Net increase in net assets resulting from
TRANSACTIONS beneficial interest transactions - Note 2 26,507,136 31,953,795
====================================================================================================================
NET ASSETS Total increase 26,520,327 31,942,172
------------------------------------------------------------------------------------------
Beginning of period 92,317,835 60,375,663
----------------------------------
End of period $118,838,162 $ 92,317,835
==================================
</TABLE>
See accompanying Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
================================================================================
FINANCIAL HIGHLIGHTS
Centennial California Tax Exempt Trust
Year Ended June 30,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
==========================================================================================================================
PER SHARE OPERATING DATA:
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations -
net investment income and
net realized gain on investments .03 .03 .02 .02 .03
Dividends and distributions to shareholders (.03) (.03) (.02) (.02) (.03)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00
======================================================================
==========================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(1) 2.97% 3.00% 1.82% 2.00% 3.29%
==========================================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) $118,838 $92,318 $60,376 $58,079 $48,483
- --------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $112,911 $71,278 $65,520 $56,082 $40,684
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
Net investment income 2.94% 2.99% 1.79% 1.90% 3.13%
Expenses, before voluntary assumption
by the Manager 0.80% 0.83% 0.87% 0.86% 0.91%
Expenses, net of voluntary assumption
by the Manager 0.79% 0.80% 0.80% 0.80% 0.80%
</TABLE>
1. Assumes a hypothetical initial investment on the business day before the
first day of the fiscal period, with all dividends reinvested in additional
shares on the reinvestment date, and redemption at the net asset value
calculated on the last business day of the fiscal period. Total returns reflect
changes in net investment income only.
See accompanying Notes to Financial Statements.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Centennial California Tax Exempt Trust
1. SIGNIFICANT ACCOUNTING POLICIES
Centennial California Tax Exempt Trust (the Trust) is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company. The Trust's investment objective is to seek the
maximum current interest income exempt from Federal and California personal
income taxes for individual investors as is consistent with 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.
INVESTMENT VALUATION. Portfolio securities are valued on the basis of amortized
cost, which approximates market value.
FEDERAL TAXES. The Trust intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to shareholders. Therefore, no federal
income or excise tax provision is required.
DISTRIBUTIONS TO SHAREHOLDERS. The Trust intends to declare dividends from net
investment income each day the New York Stock Exchange is open for business and
pay such dividends monthly. To effect its policy of maintaining a net asset
value of $1.00 per share, the Trust may withhold dividends or make distributions
of net realized gains.
OTHER. Investment transactions are accounted for on the date the investments are
purchased or sold (trade date). Realized gains and losses on investments are
determined on an identified cost basis, which is the same basis used for federal
income tax purposes. The Trust concentrates its investments in California and,
therefore, may have more credit risks related to the economic conditions of
California than a portfolio with a broader geographical diversification.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
<PAGE>
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, 1996 YEAR ENDED JUNE 30, 1995
------------------------ ------------------------
SHARES Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 397,706,144 $397,706,144 279,468,671 $279,468,671
Dividends and distributions reinvested 3,281,812 3,281,812 2,013,397 2,013,397
Redeemed (374,480,820) (374,480,820) (249,528,273) (249,528,273)
------------- ------------- ------------- -------------
Net increase 26,507,136 $ 26,507,136 31,953,795 $ 31,953,795
============= ============= ============= =============
</TABLE>
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
Centennial California Tax Exempt Trust
3. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Management fees paid
to the Manager were in accordance with the investment advisory agreement with
the Trust which provides for a fee of 0.50% on the first $250 million of average
annual net assets with a reduction of 0.025% on each $250 million thereafter, to
0.40% on net assets in excess of $1 billion. The Manager has agreed to assume
Trust expenses (with specified exceptions) in excess of the regulatory
limitation of the State of California. In addition, the Manager has voluntarily
undertaken to assume Trust expenses in excess of 0.80% of average annual net
assets.
Shareholder Services, Inc. (SSI), a subsidiary of OFI, is the transfer and
shareholder servicing agent for the Trust, and for other registered investment
companies. SSI's total costs of providing such services are allocated ratably to
these companies.
Under an approved plan of distribution, the Trust may expend up to 0.20% of its
net assets annually to reimburse Centennial Asset Management Corporation, as
distributor, for costs incurred in connection with the personal service and
maintenance of accounts that hold shares of the Trust, including amounts paid to
brokers, dealers, banks and other institutions.
<PAGE>
APPENDICES
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
Below is a description of the two highest rating categories for Short Term Debt
and Long Term Debt by the "Nationally-Recognized Statistical Rating
Organizations" which the Manager evaluates in purchasing securities on behalf of
the Trust. The ratings descriptions are based on information supplied by the
ratings organizations to subscribers.
Short Term Debt Ratings.
Moody's Investors Service, Inc. ("Moody's"): The following rating designations
for commercial paper (defined by Moody's as promissory obligations not having
original maturity in excess of nine months), are judged by Moody's to be
investment grade, and indicate the relative repayment capacity of rated issuers:
Prime-1: Superior capacity for repayment. Capacity will normally be
evidenced by the following characteristics: (a) leveling market
positions in well-established industries; (b) high rates of return
on funds employed; (c) conservative capitalization structures with
moderate reliance on debt and ample asset protection; (d) broad
margins in earning coverage of fixed financial charges and high
internal cash generation; and (e) well established access to a
range of financial markets and assured sources of alternate
liquidity.
Prime-2: Strong capacity for repayment. This will normally be evidenced by
many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Moody's ratings for state and municipal short-term obligations are designated
"Moody's Investment Grade" ("MIG"). Short-term notes which have demand features
may also be designated as "VMIG".
These rating categories are as follows:
MIG1/VMIG1: Best quality. There is present strong protection by
established cash flows, superior liquidity support or
demonstrated broadbased access to the market for
refinancing.
MIG2/VMIG2: High quality. Margins of protection are ample although
not so large as in the preceding group.
Standard & Poor's Corporation ("S&P"): The following ratings by S&P for
commercial paper (defined by S&P as debt having an original maturity of no more
than 365 days) assess the likelihood
A-1
<PAGE>
of payment:
A-1: Strong capacity for timely payment. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2: Satisfactory capacity for timely payment. However, the relative degree
of safety is not as high as for issues designated "A-1".
S&P's ratings for Municipal Notes due in three years or less are:
SP-1: Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics will
be given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
S&P assigns "dual ratings" to all municipal debt issues that have a demand or
double feature as part of their provisions. The first rating addresses the
likelihood of repayment of principal and interest as due, and the second rating
addresses only the demand feature. With short-term demand debt, S&P's note
rating symbols are used with the commercial paper symbols (for example,
"SP-1+/A- 1+").
Fitch Investors Service, Inc. ("Fitch"): Fitch assigns the following short-
term ratings to debt obligations that are payable on demand or have original
maturities of generally up to three years, including commercial paper,
certificates of deposit, medium-term notes, and municipal and investment notes:
F-1+: Exceptionally strong credit quality; the strongest degree of assurance for
timely payment.
F-1: Very strong credit quality; assurance of timely payment is only
slightly less in degree than issues rated "F-1+".
F-2: Good credit quality; satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues
assigned "F-1+" or "F-1" ratings.
Duff & Phelps, Inc. ("Duff & Phelps"): The following ratings are for commercial
paper (defined by Duff & Phelps as obligations with maturities, when issued, of
under one year), asset-backed commercial paper, and certificates of deposit (the
ratings cover all obligations of the institution with maturities, when issued,
of under one year, including bankers' acceptance and letters of credit):
Duff 1+: Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
Duff 1: Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
A-2
<PAGE>
Duff 1-: High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
Duff 2: Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good.
Risk factors are small.
IBCA Limited or its affiliate IBCA Inc. ("IBCA"): Short-term ratings, i
ncluding commercial paper (with maturities up to 12 months), are as follows:
A1+: Obligations supported by the highest capacity for timely repayment.
A1: Obligations supported by a very strong capacity for timely repayment.
A2: Obligations supported by a strong capacity for timely repayment,
although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
Thomson BankWatch, Inc. ("TBW"): The following short-term ratings apply to
commercial paper, certificates of deposit, unsecured notes, and other
securities having a maturity of one year or less.
TBW-1: The highest category; indicates the degree of safety regarding
timely repayment of principal and interest is very strong.
TBW-2: The second highest rating category; while the degree of safety
regarding timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated
"TBW-1".
Long Term Debt Ratings. These ratings are relevant for securities purchased by
the Trust with a remaining maturity of 397 days or less, or for rating issuers
of short-term obligations.
Moody's: Bonds (including municipal bonds) are rated as follows:
Aaa: Judged to be the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally stable margin,
and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely
to impair the fundamentally strong positions of such issues.
Aa: Judged to be of high quality by all standards. Together with the "Aaa"
group they comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may
not be as large as in "Aaa" securities or fluctuations of protective
elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in
"Aaa" securities.
A-3
<PAGE>
Moody's applies numerical modifiers "1", "2" and "3" in its "Aa" rating
classification. The modifier "1" indicates that the security ranks in the higher
end of its generic rating category; the modifier "2" indicates a mid-range
ranking; and the modifier "3" indicates that the issue ranks in the lower end of
its generic rating category.
Standard & Poor's: Bonds (including municipal bonds) are rated as follows:
AAA: The highest rating assigned by S&P. Capacity to pay interest and
repay principal is extremely strong.
AA: A strong capacity to pay interest and repay principal and differ
from "AAA" rated issues only in small degree.
Fitch:
AAA: Considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA: Considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA". Plus (+)
and minus (-) signs are used in the "AA" category to indicate the
relative position of a credit within that category.
Because bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these issuers
is generally rated "F-1+".
Duff & Phelps:
AAA: The highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA: High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic
conditions. Plus (+) and minus (-) signs are used in the "AA"
category to indicate the relative position of a credit within that
category.
IBCA: Long-term obligations (with maturities of more than 12 months) are rated
as follows:
AAA: The lowest expectation of investment risk. Capacity for timely
repayment of principal and interest is substantial such that adverse
changes in business, economic, or financial conditions are unlikely
to increase investment risk significantly.
AA: A very low expectation for investment risk. Capacity for timely
repayment of principal and interest is substantial. Adverse changes
in business, economic, or financial conditions may increase
investment risk albeit not very significantly.
A-4
<PAGE>
A plus (+) or minus (-) sign may be appended to a long term rating to denote
relative status within a rating category.
TBW: TBW issues the following ratings for companies. These ratings assess the
likelihood of receiving payment of principal and interest on a timely basis and
incorporate TBW's opinion as to the vulnerability of the company to adverse
developments, which may impact the market's perception of the company, thereby
affecting the marketability of its securities.
A: Possesses an exceptionally strong balance sheet and earnings record,
translating into an excellent reputation and unquestioned access to its
natural money markets. If weakness or vulnerability exists in any
aspect of the company's business, it is entirely mitigated by the
strengths of the organization.
A/B: The company is financially very solid with a favorable track record and
no readily apparent weakness. Its overall risk profile, while low, is
not quite as favorable as for companies in the highest rating category.
A-5
<PAGE>
APPENDIX B
INDUSTRY CLASSIFICATIONS
Adult Living Facilities
Education
Electric
Gas
General Obligation
Higher Education
Highways
Hospital
Lease Rental
Manufacturing, Durables
Manufacturing, Non Durables
Marine/Aviation Facilities
Multi Family Housing
Non Profit Organization
Pollution Control
Resource Recovery
Sales Tax
Sewer
Single Family Housing
Special Assessment
Telephone
Water
B-6
<PAGE>
APPENDIX C
TAX-EQUIVALENT YIELDS
The equivalent yield tables below compare tax-free income with taxable income
under Federal individual income tax rates, and California state individual
income tax rates effective January 1, 1995. "Combined Taxable Income" refers to
the net amount subject to Federal and California income taxes after deductions
and exemptions. The tables assume that an investor's highest tax bracket applies
to the change in taxable income resulting from a switch between taxable and
non-taxable investments, and that state tax payments are currently deductible
for Federal tax purposes and that the investor is not subject to Federal or
state alternative minimum tax. The income tax brackets are subject to indexing
in future years to reflect changes in the Consumer Price Index. The brackets do
not reflect the phaseout of itemized deductions and personal exemptions at
higher income levels, resulting in higher effective tax rates (and tax
equivalent yields). For the years beginning after January 1, 1996, the top
marginal California personal tax rate will be reduced to 9.3% and the top
combined marginal tax rate will be 45.22%.
<TABLE>
<CAPTION>
Combined Taxable Income
Centennial California Tax-Exempt Trust Yield of:
Joint Return Effective Tax Bracket 2.0% 2.5% 3.0% 3.5% 4.0% 4.5%
-----------------------
But Cali-
Over Not Over Federal fornia Combined Is Approximately Equivalent to a Taxable Yield of:
- ---- -------- ------- ------ -------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 22,384 $ 35,324 15.00% 4.00% 18.40% 2.45% 3.06% 3.68% 4.29% 4.90% 5.51%
$ 35,324 $ 39,000 15.00% 6.00% 20.10% 2.50% 3.13% 3.75% 4.38% 5.01% 5.63%
$ 39,000 $ 49,038 28.00% 6.00% 32.32% 2.96% 3.69% 4.43% 5.17% 5.91% 6.65%
$ 49,038 $ 61,974 28.00% 8.00% 33.76% 3.02% 3.77% 4.53% 5.28% 6.04% 6.79%
$ 61,974 $ 94,250 28.00% 9.30% 34.70% 3.06% 3.83% 4.59% 5.36% 6.13% 6.89%
$ 94,250 $143,600 31.00% 9.30% 37.42% 3.20% 3.99% 4.79% 5.59% 6.39% 7.19%
$143,600 $214,928 36.00% 9.30% 41.95% 3.45% 4.31% 5.17% 6.03% 6.89% 7.75%
$214,928 $256,500 36.00% 10.00% 42.40% 3.47% 4.34% 5.21% 6.08% 6.94% 7.81%
$256,500 $429,858 39.60% 10.00% 45.64% 3.68% 4.60% 5.52% 6.44% 7.36% 8.28%
$429,858 39.60% 11.00% 46.24% 3.72% 4.65% 5.58% 6.51% 7.44% 8.37%
Single Return:
But
Over Not Over
$ 17,662 $ 23,350 15.00% 6.00% 20.10% 2.50% 3.13% 3.75% 4.38% 5.01% 5.63%
$ 23,350 $ 24,519 28.00% 6.00% 32.32% 2.96% 3.69% 4.43% 5.17% 5.91% 6.65%
$ 24,519 $ 30,987 28.00% 8.00% 33.76% 3.02% 3.77% 4.53% 5.28% 6.04% 6.79%
$ 30,987 $ 56,550 28.00% 9.30% 34.70% 3.06% 3.83% 4.59% 5.36% 6.13% 6.89%
$ 56,550 $107,464 31.00% 9.30% 37.42% 3.20% 3.99% 4.79% 5.59% 6.39% 7.19%
$107,464 $117,950 31.00% 10.00% 37.90% 3.22% 4.03% 4.83% 5.64% 6.44% 7.25%
$117,950 $214,929 36.00% 10.00% 42.40% 3.47% 4.34% 5.21% 6.08% 6.94% 7.81%
$214,929 $256,500 36.00% 11.00% 43.04% 3.51% 4.39% 5.27% 6.14% 7.02% 7.90%
$256,500 39.60% 11.00% 46.24% 3.72% 4.65% 5.58% 6.51% 7.44% 8.37%
</TABLE>
C-1
<PAGE>
APPENDIX D
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the shareholder agrees to the terms
and conditions applicable to such plans, as stated below and elsewhere in the
Application for such Plans, the Prospectus and this Statement of Additional
Information as they may be amended from time to time by the Trust and/or the
Distributor. When adopted, such amendments will automatically apply to existing
Plans.
Trust shares will be redeemed as necessary to meet withdrawal payments.
Shares acquired without a sales charge will be redeemed first and thereafter
shares acquired with reinvested dividends and distributions followed by shares
acquired with a sales charge will be redeemed to the extent necessary to make
withdrawal payments. Depending upon the amount withdrawn, the investor's
principal may be depleted. Payments made to shareholders under such plans should
not be considered as a yield or income on an investment. Purchases of additional
shares concurrently with withdrawals are undesirable because of sales charges on
purchases when made. Accordingly, a shareholder may not maintain an Automatic
Withdrawal Plan while simultaneously making regular purchases.
1. Shareholder Services, Inc., the Transfer Agent of the Trust, will
administer the Automatic Withdrawal Plan (the "Plan") as agent for the person
(the "Planholder") who executed the Plan authorization and application submitted
to the Transfer Agent.
2. Certificates will not be issued for shares of the Trust purchased for
and held under the Plan, but the Transfer Agent will credit all such shares to
the account of the Planholder on the records of the Trust. Any share
certificates now held by the Planholder may be surrendered unendorsed to the
Transfer Agent with the Plan application so that the shares represented by the
certificate may be held under the Plan. Those shares will be carried on the
Planholder's Plan Statement.
3. Distributions of capital gains must be reinvested in shares of the
Trust, which will be done at net asset value without a sales charge. Dividends
may be paid in cash or reinvested.
4. Redemptions of shares in connection with disbursement payments will be
made at the net asset value per share determined on the redemption date.
5. Checks or ACH payments will be transmitted approximately three business
days prior to the date selected for receipt of the monthly or quarterly payment
(the date of receipt is approximate), according to the choice specified in
writing by the Planholder.
6. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed at any time by the Planholder on
written notification to the Transfer Agent. The Planholder should allow at least
two weeks' time in mailing such notification before the requested change can be
put in effect.
D-2
<PAGE>
7. The Planholder may, at any time, instruct the Transfer Agent by written
notice (in proper form in accordance with the requirements of the then-current
prospectus of the Trust) to redeem all, or any part of, the shares held under
the Plan. In such case, the Transfer Agent will redeem the number of shares
requested at the net asset value per share in effect in accordance with the
Trust's usual redemption procedures and will mail a check for the proceeds of
such redemption to the Planholder.
8. The Plan may, at any time, be terminated by the Planholder on written
notice to the Transfer Agent, or by the Transfer Agent upon receiving directions
to that effect from the Trust. The Transfer Agent will also terminate the Plan
upon receipt of evidence satisfactory to it of the death or legal incapacity of
the Planholder. Upon termination of the Plan by the Transfer Agent or the Trust,
shares remaining unredeemed will be held in an uncertificated account in the
name of the Planholder, and the account will continue as a
dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder, his executor or guardian, or as
otherwise appropriate.
9. For purposes of using shares held under the Plan as collateral, the
Planholder may request issuance of a portion of his shares in certificated form.
Upon written request from the Planholder, the Transfer Agent will determine the
number of shares as to which a certificate may be issued, so as not to cause the
withdrawal checks to stop because of exhaustion of uncertificated shares needed
to continue payments. Should such uncertificated shares become exhausted, Plan
withdrawals will terminate.
10. The Transfer Agent shall incur no liability to the Planholder for any
action taken or omitted by the Transfer Agent in good faith.
11. In the event that the Transfer Agent shall cease to act as transfer
agent for the Trust, the Planholder will be deemed to have appointed any
successor transfer agent to act as his agent in administering the Plan.
D-3
<PAGE>
Investment Advisor and Distributor
Centennial Asset Management Corporation
3410 South Galena Street
Denver, Colorado 80231
Transfer And Shareholder Servicing Agent
Shareholder Services, Inc.
P.O. Box 5143
Denver, Colorado 80217-5143
1-800-525-9310
Custodian of Portfolio Securities
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Independent Auditors
Deloitte & Touche LLP
555 Seventeenth Street, Suite 3600
Denver, Colorado 80202-3942
Legal Counsel
Myer, Swanson, Adams & Wolf P.C.
Colorado State Bank Building
1600 Broadway, Suite 1480
Denver, Colorado 80202
PXO180.001 1196
D-4
