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Xxxxxxxxxxx Quest Opportunity Value Fund
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0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
0.000.000.0000
Statement of Additional Information dated February 28, 2002
This Statement of Additional Information is not a Prospectus. This document contains additional
information about the Fund and supplements information in the Prospectus dated February 28, 2002. It should be
read together with the Prospectus, which may be obtained by writing to the Fund's Transfer Agent,
OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217, or by calling the Transfer Agent at the
toll-free number shown above, or by downloading it from the OppenheimerFunds Internet web site at
xxx.xxxxxxxxxxxxxxxx.xxx.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks..................................2
The Fund's Investment Policies....................................................................2
Other Investment Techniques and Strategies.......................................................11
Investment Restrictions..........................................................................14
How the Fund is Managed ..............................................................................17
Organization and History.........................................................................17
Trustees and Officers of the Fund................................................................18
The Manager......................................................................................24
Brokerage Policies of the Fund........................................................................27
Distribution and Service Plans........................................................................30
Performance of the Fund...............................................................................33
About Your Account
How To Buy Shares.....................................................................................38
How To Sell Shares....................................................................................47
How To Exchange Shares................................................................................52
Dividends, Capital Gains and Taxes....................................................................55
Additional Information About the Fund.................................................................59
Financial Information About the Fund
Independent Auditors' Report..........................................................................60
Financial Statements..................................................................................61
Appendix A: Ratings Definitions......................................................................A-1
Appendix B: Corporate Industry Classifications.......................................................B-1
Appendix C: Special Sales Charge Arrangements and Waivers............................................C-1
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ABOUT THE FUND
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Additional Information About the Fund's Investment Policies and Risks
The investment objective, the principal investment policies and the main risks of the Fund are described
in the Prospectus. This Statement of Additional Information contains supplemental information about those
policies and risks and the types of securities that the Fund's investment Manager, OppenheimerFunds, Inc., can
select for the fund. Additional information is also provided about the strategies that the Fund may use to try to
achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the techniques and strategies that
the Fund's Sub-Advisor, OpCap Advisors, may use in selecting portfolio securities will vary over time. The Fund
is not required to use all of the investment techniques and strategies described below at all times in seeking
its goal. It may use some of the special investment techniques and strategies at some times or not at all.
In selecting securities for the Fund's portfolio, the Sub-Advisor evaluates the merits of particular
securities primarily through the exercise of its own investment analysis. In the case of corporate issuers, that
process may include, among other things, evaluation of the issuer's historical operations, prospects for the
industry of which the issuer is part, the issuer's financial condition, its pending product developments and
business (and those of competitors), the effect of general market and economic conditions on the issuer's
business, and legislative proposals that might affect the issuer. In the case of foreign securities, the
Sub-Advisor may also consider the conditions of a particular country's economy in relation to the U.S. economy or
other foreign economies, general political conditions in a country or region, the effect of taxes, the
efficiencies and costs of particular markets and other factors when evaluating the securities of issuers in a
particular country.
|X| Investments in Equity Securities. The Fund does not limit its investments in equity securities to
issuers having a market capitalization of a specified size or range, and therefore the Fund can invest in
securities of small-, mid- and large-capitalization issuers. At times, the Fund may increase the relative
emphasis of its equity investments in securities of one or more capitalization ranges, based upon the
Sub-Advisor's judgment of where the best market opportunities are to seek the Fund's objective. At times, the
market may favor or disfavor securities of issuers of a particular capitalization range, and securities of
small-capitalization issuers may be subject to greater price volatility in general than securities of larger
companies. Therefore, if the Fund has substantial investments in smaller-capitalization companies at times of
market volatility, the Fund's share price could fluctuate more than that of funds focusing on
larger-capitalization issuers.
|_| Value Investing. In selecting equity investments for the Fund's portfolio, the portfolio
manager currently uses a value investing style. In using a value approach, the portfolio manager seeks stock and
other equity securities that appear to be temporarily undervalued, by various measures, such as price/earnings
ratios. This approach is subject to change and may not necessarily be used in all cases. Value investing seeks
stocks having prices that are low in relation to their real worth or future prospects, in the hope that the Fund
will realize appreciation in the value of its holdings when other investors realize the intrinsic value of the
stock.
Using value investing requires research as to the issuer's underlying financial condition and prospects.
While there are a variety of measures that can be used to identify these securities, the portfolio manager looks
primarily at the issuer's price/earnings ratio, which is the stock's price divided by its earnings per share. A
stock having a price/earnings ratio lower than its historical range, or the market as a whole or that of similar
companies may offer attractive investment opportunities.
|_| Preferred Stocks. Preferred stock, unlike common stock, has a stated dividend rate payable
from the corporation's earnings. Preferred stock dividends may be cumulative or non-cumulative, participating,
or auction rate. "Cumulative" dividend provisions require all or a portion of prior unpaid dividends to be paid
before dividends can be paid to the issuer's common stock.
If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price
of preferred stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as
provisions allowing calls or redemptions prior to maturity, which can also have a negative impact on prices when
interest rates decline. Preferred stock generally has a preference over common stock on the distribution of a
corporation's assets in the event of liquidation of the corporation. The rights of preferred stock on
distribution of a corporation's assets in the event of a liquidation are generally subordinate to the rights
associated with a corporation's debt securities. Preferred stock may be "participating" stock, which means that
it may be entitled to a dividend exceeding the stated dividend in certain cases.
|_| Rights and Warrants. The Fund can invest up to 5% of its total assets in warrants but no more
than 2% of its total assets may be invested in warrants that are not listed on The New York Stock Exchange or The
American Stock Exchange. Those percentage limitations are fundamental policies. Warrants basically are options to
purchase equity securities at specific prices valid for a specific period of time. Their prices do not
necessarily move parallel to the prices of the underlying securities. Rights are similar to warrants, but
normally have a short duration and are distributed directly by the issuer to its shareholders. Rights and
warrants have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer.
|_| Convertible Securities. Convertible securities are debt securities that are convertible into
an issuer's common stock. Convertible securities rank senior to common stock in a corporation's capital structure
and therefore are subject to less risk than common stock in case of the issuer's bankruptcy or liquidation.
The value of a convertible security is a function of its "investment value" and its "conversion value."
If the investment value exceeds the conversion value, the security will behave more like a debt security, and the
security's price will likely increase when interest rates fall and decrease when interest rates rise. If the
conversion value exceeds the investment value, the security will behave more like an equity security: it will
likely sell at a premium over its conversion value, and its price will tend to fluctuate directly with the price
of the underlying security.
While some convertible securities are a form of debt security in many cases, their conversion feature
(allowing conversion into equity securities) causes them to be regarded by the Sub-Advisor more as "equity
equivalents." As a result, the rating assigned to the security has less impact on the Sub-Advisor's investment
decision with respect to convertible securities than in the case of non-convertible debt fixed income
securities. To determine whether convertible securities should be regarded as "equity equivalents," the
Sub-Advisor may consider the following factors:
(1) whether, at the option of the investor, the convertible security can be exchanged for a fixed number of
shares of common stock of the issuer,
(2) whether the issuer of the convertible securities has restated its earnings per share of common stock on
a fully diluted basis (considering the effect of conversion of the convertible securities), and
(3) the extent to which the convertible security may be a defensive "equity substitute," providing the
ability to participate in any appreciation in the price of the issuer's common stock.
|X| Investments in Debt Securities. The Fund can invest in a variety of domestic and foreign debt
securities, including mortgage-backed securities, investment-grade corporate debt securities and U.S. Government
securities. It might do so to seek its objective if and at times when the portfolio manager believes that debt
securities are preferable to equity investments. The Fund can invest in those debt securities and other
high-quality short-term debt securities including money market instruments for liquidity or defensive purposes.
Because the Fund currently emphasizes investments in equity securities, such as stocks, it is not anticipated
that under normal market conditions more than 50% of the Fund's assets will be invested in debt securities.
Foreign debt securities are subject to the risks of foreign investing described below. In general, domestic and
foreign debt securities are also subject to two additional types of risks: credit risk and interest rate risk.
|_| Credit Risk. Credit risk relates to the ability of the issuer to meet interest or principal
payment obligations as they become due. In making investments in debt securities, the Sub-Advisor may rely to
some extent on the ratings of ratings organizations or it may use its own research to evaluate a security's
creditworthiness. Investment-grade bonds are bonds rated at least "Baa" by Xxxxx'x Investors Service, Inc., at
least "BBB" by Standard & Poor's Rating Service or Fitch Inc., or that have comparable ratings by another
nationally recognized rating organization. If securities the Fund buys are unrated, to be considered part of
the Fund's holdings of investment-grade securities, they must be judged by the Sub-Advisor to be of comparable
quality to bonds rated as investment grade by a rating organization. The debt security ratings definitions of
the principal ratings organizations are included in Appendix A of this Statement of Additional Information.
|_| Interest Rate Risk. Interest rate risk refers to the fluctuations in value of debt securities
resulting from the inverse relationship between price and yield. For example, an increase in general interest
rates will tend to reduce the market value of already-issued fixed-income investments, and a decline in general
interest rates will tend to increase their value. In addition, debt securities with longer maturities, which tend
to have higher yields, are subject to potentially greater fluctuations in value from changes in interest rates
than obligations with shorter maturities.
Fluctuations in the market value of fixed-income securities after the Fund buys them will not affect the
interest income payable on those securities (unless the security pays interest at a variable rate pegged to
interest rate changes). However, those price fluctuations will be reflected in the valuations of the securities,
and therefore the Fund's net asset values will be affected by those fluctuations.
|_| Mortgage-Related Securities. Mortgage-related securities are a form of derivative investment
collateralized by pools of commercial or residential mortgages. Pools of mortgage loans are assembled as
securities for sale to investors by government agencies or entities or by private issuers. These securities
include collateralized mortgage obligations ("CMOs"), mortgage pass-through securities, stripped mortgage
pass-through securities, interests in real estate mortgage investment conduits ("REMICs") and other real
estate-related securities.
Mortgage-related securities that are issued or guaranteed by agencies or instrumentalities of the U.S.
Government have relatively little credit risk (depending on the nature of the issuer) but are subject to interest
rate risks and prepayment risks, as described in the Prospectus.
As with other debt securities, the prices of mortgage-related securities tend to move inversely to
changes in interest rates. The Fund can buy mortgage-related securities that have interest rates that move
inversely to changes in general interest rates, based on a multiple of a specific index. Although the value of a
mortgage-related security may decline when interest rates rise, the converse is not always the case.
In periods of declining interest rates, mortgages are more likely to be prepaid. Therefore, a
mortgage-related security's maturity can be shortened by unscheduled prepayments on the underlying mortgages.
Therefore, it is not possible to predict accurately the security's yield. The principal that is returned earlier
than expected may have to be reinvested in other investments having a lower yield than the prepaid security.
Therefore, these securities may be less effective as a means of "locking in" attractive long-term interest rates,
and they may have less potential for appreciation during periods of declining interest rates, than conventional
bonds with comparable stated maturities.
Prepayment risks can lead to substantial fluctuations in the value of a mortgage-related security. In
turn, this can affect the value of the Fund's shares. If a mortgage-related security has been purchased at a
premium, all or part of the premium the Fund paid may be lost if there is a decline in the market value of the
security, whether that results from interest rate changes or prepayments on the underlying mortgages. In the case
of stripped mortgage-related securities, if they experience greater rates of prepayment than were anticipated,
the Fund may fail to recoup its initial investment on the security.
If interest rates rise rapidly, prepayments may occur at a slower rate than expected and the expected
maturity of long-term or medium-term securities could lengthen as a result. That would cause their value and the
prices of the Fund's share to fluctuate more widely in response to changes in interest rates.
As with other debt securities, the values of mortgage-related securities may be affected by changes in
the market's perception of the creditworthiness of the entity issuing the securities or guaranteeing them. Their
values may also be affected by changes in government regulations and tax policies.
|_| Collateralized Mortgage Obligations. CMOs are multi-class bonds that are backed by pools of
mortgage loans or mortgage pass-through certificates. They may be collateralized by:
(1) pass-through certificates issued or guaranteed by Xxxxxx Xxx, Xxxxxx Xxx, or Freddie Mac,
(2) unsecuritized mortgage loans insured by the Federal Housing Administration or guaranteed by the
Department of Veterans' Affairs,
(3) unsecuritized conventional mortgages,
(4) other mortgage-related securities, or
(5) any combination of these.
Each class of CMO, referred to as a "tranche," is issued at a specific coupon rate and has a stated
maturity or final distribution date. Principal prepayments on the underlying mortgages may cause the CMO to be
retired much earlier than the stated maturity or final distribution date. The principal and interest on the
underlying mortgages may be allocated among the several classes of a series of a CMO in different ways. One or
more tranches may have coupon rates that reset periodically at a specified increase over an index. These are
floating rate CMOs, and typically have a cap on the coupon rate. Inverse floating rate CMOs have a coupon rate
that moves in the reverse direction to an applicable index. The coupon rate on these CMOs will increase as
general interest rates decrease. These are usually much more volatile than fixed rate CMOs or floating rate CMOs.
|X| U.S. Government Securities. These are securities issued or guaranteed by the U.S. Treasury or
other U.S. Government agencies or federally-chartered entities referred to as "instrumentalities." The
obligations of U.S. Government agencies or instrumentalities in which the Fund can invest may or may not be
guaranteed or supported by the "full faith and credit" of the United States. "Full faith and credit" means
generally that the taxing power of the U.S. Government is pledged to the payment of interest and repayment of
principal on a security. If a security is not backed by the full faith and credit of the United States, the owner
of the security must look principally to the agency issuing the obligation for repayment. The owner might not be
able to assert a claim against the United States if the issuing agency or instrumentality does not meet its
commitment. The Fund will invest in securities of U.S. Government agencies and instrumentalities only if the
Sub-Advisor is satisfied that the credit risk with respect to the agency or instrumentality is minimal.
|_| U.S. Treasury Obligations. These include Treasury bills (which have maturities of one year or
less when issued), Treasury notes (which have maturities of from one to ten years when issued), and Treasury
bonds (which have maturities of more than ten years when issued). Treasury securities are backed by the full
faith and credit of the United States as to timely payments of interest and repayments of principal. They also
can include U. S. Treasury securities that have been "stripped" by a Federal Reserve Bank, zero-coupon U.S.
Treasury securities described below, and Treasury Inflation-Protection Securities ("TIPS").
|_| Treasury Inflation-Protection Securities. The Fund can buy these U.S. Treasury securities,
called "TIPS," that are designed to provide an investment vehicle that is not vulnerable to inflation. The
interest rate paid by TIPS is fixed. The principal value rises or falls semi-annually based on changes in the
published Consumer Price Index. If inflation occurs, the principal and interest payments on TIPS are adjusted to
protect investors from inflationary loss. If deflation occurs, the principal and interest payments will be
adjusted downward, although the principal will not fall below its face amount at maturity.
|_| Obligations Issued or Guaranteed by U.S. Government Agencies or Instrumentalities. These
include direct obligations and mortgage-related securities that have different levels of credit support from the
government. Some are supported by the full faith and credit of the U.S. Government, such as Government National
Mortgage Association pass-through mortgage certificates (called "Xxxxxx Xxxx"). Some are supported by the right
of the issuer to borrow from the U.S. Treasury under certain circumstances, such as Federal National Mortgage
Association bonds ("Xxxxxx Xxxx"). Others are supported only by the credit of the entity that issued them, such
as Federal Home Loan Mortgage Corporation obligations ("Freddie Macs").
|_| U.S. Government Mortgage-Related Securities. The Fund can invest in a variety of
mortgage-related securities that are issued by U.S. Government agencies or instrumentalities, some of which are
described below.
|_| GNMA Certificates. The Government National Mortgage Association ("GNMA") is a wholly-owned
corporate instrumentality of the United States within the U.S. Department of Housing and Urban Development.
GNMA's principal programs involve its guarantees of privately-issued securities backed by pools of mortgages.
Xxxxxx Xxxx are debt securities representing an interest in one or a pool of mortgages that are insured by the
Federal Housing Administration or the Farmers Home Administration or guaranteed by the Veterans Administration.
The Xxxxxx Xxxx in which the Fund can invest are of the "fully modified pass-through" type. They provide
that the registered holders of the Certificates will receive timely monthly payments of the pro-rata share of the
scheduled principal payments on the underlying mortgages, whether or not those amounts are collected by the
issuers. Amounts paid include, on a pro-rata basis, any prepayment of principal of such mortgages and interest
(net of servicing and other charges) on the aggregate unpaid principal balance of the Xxxxxx Xxx, whether or not
the interest on the underlying mortgages has been collected by the issuers.
The Xxxxxx Xxxx purchased by the Fund are guaranteed as to timely payment of principal and interest by
GNMA. In giving that guaranty, GNMA expects that payments received by the issuers of Xxxxxx Xxxx on account of
the mortgages backing the Xxxxxx Xxxx will be sufficient to make the required payments of principal of and
interest on those Xxxxxx Xxxx. However, if those payments are insufficient, the guaranty agreements between the
issuers of the Certificates and GNMA require the issuers to make advances sufficient for the payments. If the
issuers fail to make those payments, GNMA will do so.
Under Federal law, the full faith and credit of the United States is pledged to the payment of all
amounts that may be required to be paid under any guaranty issued by GNMA as to such mortgage pools. An opinion
of an Assistant Attorney General of the United States, dated December 9, 1969, states that such guaranties
"constitute general obligations of the United States backed by its full faith and credit." GNMA is empowered to
borrow from the United States Treasury to the extent necessary to make any payments of principal and interest
required under those guaranties.
Xxxxxx Xxxx are backed by the aggregate indebtedness secured by the underlying FHA-insured,
FMHA-insured or VA-guaranteed mortgages. Except to the extent of payments received by the issuers on account of
such mortgages, Xxxxxx Xxxx do not constitute a liability of those issuer, nor do they evidence any recourse
against those issuers. Recourse is solely against GNMA. Holders of Xxxxxx Xxxx (such as the Fund) have no
security interest in or lien on the underlying mortgages.
Monthly payments of principal will be made, and additional prepayments of principal may be made, to the
Fund with respect to the mortgages underlying the Xxxxxx Xxxx held by the Fund. All of the mortgages in the
pools relating to the Xxxxxx Xxxx in the Fund are subject to prepayment without any significant premium or
penalty, at the option of the mortgagors. While the mortgages on 1-to-4-family dwellings underlying certain
Xxxxxx Xxxx have a stated maturity of up to 30 years, it has been the experience of the mortgage industry that
the average life of comparable mortgages, as a result of prepayments, refinancing and payments from foreclosures,
is considerably less.
|_| Federal Home Loan Mortgage Corporation Certificates. FHLMC, a corporate instrumentality of
the United States, issues FHLMC Certificates representing interests in mortgage loans. FHLMC guarantees to each
registered holder of a FHLMC Certificate timely payment of the amounts representing a holder's proportionate
share in:
(i) interest payments less servicing and guarantee fees,
(ii) principal prepayments and
(iii) the ultimate collection of amounts representing the holder's proportionate interest in principal
payments on the mortgage loans in the pool represented by the FHLMC Certificate, in each case
whether or not such amounts are actually received.
The obligations of FHLMC under its guarantees are obligations solely of FHLMC and are not backed by the
full faith and credit of the United States.
|_| Federal National Mortgage Association (Xxxxxx Xxx) Certificates. Xxxxxx Xxx, a
federally-chartered and privately-owned corporation, issues Xxxxxx Xxx Certificates which are backed by a pool of
mortgage loans. Xxxxxx Xxx guarantees to each registered holder of a Xxxxxx Xxx Certificate that the holder will
receive amounts representing the holder's proportionate interest in scheduled principal and interest payments,
and any principal prepayments, on the mortgage loans in the pool represented by such Certificate, less servicing
and guarantee fees, and the holder's proportionate interest in the full principal amount of any foreclosed or
other liquidated mortgage loan. In each case the guarantee applies whether or not those amounts are actually
received. The obligations of Xxxxxx Xxx under its guarantees are obligations solely of Xxxxxx Xxx and are not
backed by the full faith and credit of the United States or any of its agencies or instrumentalities other than
Xxxxxx Xxx.
|X| Money Market Instruments. The following is a brief description of the types of money market
securities the Fund can invest in. Those money market securities are high-quality, short-term debt instruments
that are issued by the U.S. Government, corporations, banks or other entities. They may have fixed, variable or
floating interest rates.
|_| U.S. Government Securities. These include obligations issued or guaranteed by the U.S.
Government or any of its agencies or instrumentalities.
|_| Bank Obligations. The Fund can buy time deposits, certificates of deposit and bankers'
acceptances. Time deposits, other than overnight deposits, may be subject to withdrawal penalties, and if so,
they are deemed to be "illiquid" investments.
The Fund can purchase bank obligations that are fully insured by the Federal Deposit Insurance
Corporation. The FDIC insures the deposits of member banks up to $100,000 per account. Insured bank obligations
may have a limited market and a particular investment of this type may be deemed "illiquid" unless the Board of
Trustees of the Fund determines that a readily-available market exists for that particular obligation, or unless
the obligation is payable at principal amount plus accrued interest on demand or within seven days after demand.
|_| Commercial Paper. The Fund can invest in commercial paper if it is rated within the top two
rating categories of Standard & Poor's and Xxxxx'x. If the paper is not rated, it may be purchased if issued by a
company having a credit rating of at least "AA" by Standard & Poor's or "Aa" by Xxxxx'x.
The Fund can buy commercial paper, including U.S. dollar-denominated securities of foreign branches of
U.S. banks, issued by other entities if the commercial paper is guaranteed as to principal and interest by a
bank, government or corporation whose certificates of deposit or commercial paper may otherwise be purchased by
the Fund.
|_| Variable Amount Master Demand Notes. Master demand notes are corporate obligations that
permit the investment of fluctuating amounts by the Fund at varying rates of interest under direct arrangements
between the Fund, as lender, and the borrower. They permit daily changes in the amounts borrowed. The Fund has
the right to increase the amount under the note at any time up to the full amount provided by the note agreement,
or to decrease the amount. The borrower may prepay up to the full amount of the note without penalty. These
notes may or may not be backed by bank letters of credit.
Because these notes are direct lending arrangements between the lender and borrower, it is not expected
that there will be a trading market for them. There is no secondary market for these notes, although they are
redeemable (and thus are immediately repayable by the borrower) at principal amount, plus accrued interest, at
any time. Accordingly, the Fund's right to redeem such notes is dependent upon the ability of the borrower to
pay principal and interest on demand.
The Fund has no limitations on the type of issuer from whom these notes will be purchased. However, in
connection with such purchases and on an ongoing basis, the Sub-Advisor will consider the earning power, cash
flow and other liquidity ratios of the issuer, and its ability to pay principal and interest on demand, including
a situation in which all holders of such notes made demand simultaneously. Investments in master demand notes
are subject to the limitation on investments by the Fund in illiquid securities, described in the Prospectus. The
Fund does not intend that its investments in variable amount master demand notes will exceed 5% of its total
assets.
|X| Foreign Securities. The Fund can purchase equity and debt securities issued by foreign companies or
foreign governments or their agencies. "Foreign securities" include equity and debt securities of companies
organized under the laws of countries other than the United States and debt securities of foreign governments and
their agencies and instrumentalities. Those securities may be traded on foreign securities exchanges or in the
foreign over-the-counter markets.
Securities of foreign issuers that are represented by American Depository Receipts or that are listed on
a U.S. securities exchange or traded in the U.S. over-the-counter markets are considered "foreign securities" for
the purpose of the Fund's investment allocations. That is because they are subject to many of the special
considerations and risks, discussed below, that apply to foreign securities traded and held abroad.
Because the Fund can purchase securities denominated in foreign currencies, a change in the value of a
foreign currency against the U.S. dollar could result in a change in the amount of income the Fund has available
for distribution. Because a portion of the Fund's investment income may be received in foreign currencies, the
Fund will be required to compute its income in U.S. dollars for distribution to shareholders, and therefore the
Fund will absorb the cost of currency fluctuations. After the Fund has distributed income, subsequent foreign
currency losses may result in the Fund's having distributed more income in a particular fiscal period than was
available from investment income, which could result in a return of capital to shareholders.
Investing in foreign securities offers potential benefits not available from investing solely in
securities of domestic issuers. They include the opportunity to invest in foreign issuers that appear to offer
growth potential, or in foreign countries with economic policies or business cycles different from those of the
U.S., or to reduce fluctuations in portfolio value by taking advantage of foreign stock markets that do not move
in a manner parallel to U.S. markets. The Fund will hold foreign currency only in connection with the purchase or
sale of foreign securities.
|_| Foreign Debt Obligations. The debt obligations of foreign governments and their agencies and
instrumentalities may or may not be supported by the full faith and credit of the foreign government. The Fund
can buy securities issued by certain "supra-national" entities, which include entities designated or supported by
governments to promote economic reconstruction or development, international banking organizations and related
government agencies. Examples are the International Bank for Reconstruction and Development (commonly called the
"World Bank"), the Asian Development bank and the Inter-American Development Bank.
The governmental members of these supra-national entities are "stockholders" that typically make capital
contributions and may be committed to make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a percentage of its total capital,
reserves and net income. There can be no assurance that the constituent foreign governments will continue to be
able or willing to honor their capitalization commitments for those entities.
|_| Risks of Foreign Investing. Investments in foreign securities may offer special opportunities
for investing but also present special additional risks and considerations not typically associated with
investments in domestic securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency rates or currency control
regulations (for example, currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards in foreign countries comparable
to those applicable to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the U.S.;
o less governmental regulation of foreign issuers, stock exchanges and brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or loss of certificates for portfolio
securities;
o possibilities in some countries of expropriation, confiscatory taxation, political, financial or social
instability or adverse diplomatic developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. Government policies have discouraged certain investments abroad by U.S. investors,
through taxation or other restrictions, and it is possible that such restrictions could be re-imposed.
|_| Special Risks of Emerging Markets. Emerging and developing markets abroad may also offer
special opportunities for growth investing but have greater risks than more developed foreign markets, such as
those in Europe, Canada, Australia, New Zealand and Japan. There may be even less liquidity in their securities
markets, and settlements of purchases and sales of securities may be subject to additional delays. They are
subject to greater risks of limitations on the repatriation of income and profits because of currency
restrictions imposed by local governments. Those countries may also be subject to the risk of greater political
and economic instability, which can greatly affect the volatility of prices of securities in those countries. The
Sub-Advisor will consider these factors when evaluating securities in these markets, because the selection of
those securities must be consistent with the Fund's goal of growth of capital.
|X| Portfolio Turnover. "Portfolio turnover" describes the rate at which the Fund traded its portfolio
securities during its last fiscal year. For example, if a fund sold all of its securities during the year, its
portfolio turnover rate would have been 100% annually. The Fund's portfolio turnover rate will fluctuate from
year to year, but the Fund expects to have a portfolio turnover rate less than 100% or more annually.
Increased portfolio turnover creates higher brokerage and transaction costs for the Fund, which may
reduce its overall performance. Additionally, the realization of capital gains from selling portfolio securities
may result in distributions of taxable long-term capital gains to shareholders, since the Fund will normally
distribute all of its capital gains realized each year, to avoid excise taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund may from time to time use the
types of investment strategies and investments described below. It is not required to use all of these strategies
at all times, and at times may not use them.
|_| Investing in Small, Unseasoned Companies. The Fund can invest in securities of small,
unseasoned companies. These are companies that have been in operation for less than three years, including the
operations of any predecessors. Securities of these companies may be subject to volatility in their prices. They
may have a limited trading market, which may adversely affect the Fund's ability to dispose of them and can
reduce the price the Fund might be able to obtain for them. Other investors that own a security issued by a
small, unseasoned issuer for which there is limited liquidity might trade the security when the Fund is
attempting to dispose of its holdings of that security. In that case the Fund might receive a lower price for its
holdings than might otherwise be obtained.
|_| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can invest in securities on a
"when-issued" basis and can purchase or sell securities on a "delayed-delivery" or "forward commitment" basis.
When-issued and delayed-delivery are terms that refer to securities whose terms and indenture are available and
for which a market exists, but which are not available for immediate delivery.
When such transactions are negotiated, the price (which is generally expressed in yield terms) is fixed
at the time the commitment is made. Delivery and payment for the securities take place at a later date
(generally within 45 days of the date the offer is accepted). The securities are subject to change in value from
market fluctuations during the period until settlement. The value at delivery may be less than the purchase
price. For example, changes in interest rates in a direction other than that expected by the Sub-Advisor before
settlement will affect the value of such securities and may cause a loss to the Fund. During the period between
purchase and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund from
the investment. No income begins to accrue to the Fund on a when-issued security until the Fund receives the
security at settlement of the trade.
The Fund can engage in when-issued transactions to secure what the Sub-Advisor considers to be an
advantageous price and yield at the time of entering into the obligation. When the Fund enters into a when-issued
or delayed-delivery transaction, it relies on the other party to complete the transaction. Its failure to do so
may cause the Fund to lose the opportunity to obtain the security at a price and yield the Sub-Advisor considers
to be advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it does so for the purpose of
acquiring or selling securities consistent with its investment objective and policies for its portfolio or for
delivery pursuant to options contracts it has entered into, and not for the purpose of investment leverage.
Although the Fund will enter into delayed-delivery or when-issued purchase transactions to acquire securities, it
may dispose of a commitment prior to settlement. If the Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition or to dispose of its right to delivery or receive against a forward
commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security on a when-issued or
delayed-delivery basis, it records the transaction on its books and reflects the value of the security purchased
in determining the Fund's net asset value. In a sale transaction, it records the proceeds to be received. The
Fund will identify on its books liquid assets at least equal in value to the value of the Fund's purchase
commitments until the Fund pays for the investment. The Fund will not enter into when-issued commitments if more
than 15% of the Fund's net assets would be committed under these transactions.
When-issued and delayed-delivery transactions can be used by the Fund as a defensive technique to hedge
against anticipated changes in interest rates and prices. For instance, in periods of rising interest rates and
falling prices, the Fund might sell securities in its portfolio on a forward commitment basis to attempt to limit
its exposure to anticipated falling prices. In periods of falling interest rates and rising prices, the Fund
might sell portfolio securities and purchase the same or similar securities on a when-issued or delayed-delivery
basis to obtain the benefit of currently higher cash yields.
|X| Repurchase Agreements. The Fund can acquire securities subject to repurchase agreements. It might do
so for liquidity purposes to meet anticipated redemptions of Fund shares, or pending the investment of the
proceeds from sales of Fund shares, or pending the settlement of portfolio securities transactions, or for
temporary defensive purposes.
In a repurchase transaction, the Fund buys a security from, and simultaneously resells it to, an
approved vendor for delivery on an agreed-upon future date. The resale price exceeds the purchase price by an
amount that reflects an agreed-upon interest rate effective for the period during which the repurchase agreement
is in effect. Approved vendors include U.S. commercial banks, U.S. branches of foreign banks, or broker-dealers
that have been designated as primary dealers in government securities. They must meet credit requirements set by
the Manager from time to time.
The majority of these transactions run from day to day, and delivery pursuant to the resale typically
occurs within one to five days of the purchase. Repurchase agreements having a maturity beyond seven days are
subject to the Fund's limits on holding illiquid investments. There is no limit on the amount of the Fund's net
assets that may be subject to repurchase agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company Act, are collateralized by the
underlying security. The Fund's repurchase agreements require that at all times while the repurchase agreement
is in effect, the value of the collateral must equal or exceed the repurchase price to fully collateralize the
repayment obligation. However, if the vendor fails to pay the resale price on the delivery date, the Fund may
incur costs in disposing of the collateral and may experience losses if there is any delay in its ability to do
so. The Sub-Advisor will monitor the vendor's creditworthiness to confirm that the vendor is financially sound
and will continuously monitor the collateral's value.
|X| Illiquid and Restricted Securities. To enable the Fund to sell its holdings of a restricted
security not registered under the Securities Act of 1933, the Fund may have to cause those securities to be
registered. The expenses of registering restricted securities may be negotiated by the Fund with the issuer at
the time the Fund buys the securities. When the Fund must arrange registration because the Fund wishes to sell
the security, a considerable period may elapse between the time the decision is made to sell the security and the
time the security is registered so that the Fund could sell it. The Fund would bear the risks of any downward
price fluctuation during that period.
The Fund may also acquire restricted securities through private placements. Those securities have
contractual restrictions on their public resale. Those restrictions might limit the Fund's ability to dispose of
the securities and might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities, as stated in the Prospectus.
Those percentage restrictions do not limit purchases of restricted securities that are eligible for sale to
qualified institutional purchasers under Rule 144A of the Securities Act of 1933, if those securities have been
determined to be liquid by the Manager and the Sub-Advisor under Board-approved guidelines. Those guidelines take
into account the trading activity for such securities and the availability of reliable pricing information, among
other factors. If there is a lack of trading interest in a particular Rule 144A security, the Fund's holdings of
that security may be considered to be illiquid.
|X| Loans of Portfolio Securities. The Fund can lend its portfolio securities to certain types of
eligible borrowers approved by the Board of Trustees. It may do so to try to provide income or to raise cash or
income for liquidity purposes. These loans are limited to not more than 10% of the value of the Fund's total
assets. There are some risks in connection with securities lending. The Fund might experience a delay in
receiving additional collateral to secure a loan, or a delay in recovery of the loaned securities. The Fund
presently does not intend to engage in loans of securities.
The Fund must receive collateral for a loan. Under current applicable regulatory requirements (which are
subject to change), on each business day the loan collateral must be at least equal to the value of the loaned
securities. It must consist of cash, bank letters of credit, securities of the U.S. Government or its agencies or
instrumentalities, or other cash equivalents in which the Fund is permitted to invest. To be acceptable as
collateral, letters of credit must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank must both be satisfactory to the
Fund.
When it lends securities, the Fund receives amounts equal to the dividends or interest on loaned
securities. It also receives one or more of (a) negotiated loan fees, (b) interest on securities used as
collateral, and (c) interest on any short-term debt securities purchased with such loan collateral. Either type
of interest may be shared with the borrower. The Fund may also pay reasonable finder's, custodian and
administrative fees in connection with these loans. The terms of the Fund's loans must meet applicable tests
under the Internal Revenue Code and must permit the Fund to reacquire loaned securities on five days' notice or
in time to vote on any important matter.
Investment Restrictions
|X| What Are "Fundamental Policies"? Fundamental policies are those policies that the Fund has adopted
to govern its investments that can be changed only by the vote of a "majority" of the Fund's outstanding voting
securities. Under the Investment Company Act, a "majority" vote is defined as the vote of the holders of the
lesser of:
|_| 67% or more of the shares present or represented by proxy at a shareholder meeting, if the
holders of more than 50% of the outstanding shares are present or represented by proxy, or
|_| more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies described in the Prospectus or
this Statement of Additional Information are "fundamental" only if they are identified as such. The Fund's Board
of Trustees can change non-fundamental policies without shareholder approval. However, significant changes to
investment policies will be described in supplements or updates to the Prospectus or this Statement of Additional
Information, as appropriate. The Fund's most significant investment policies are described in the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following investment restrictions are
fundamental policies of the Fund.
|_| The Fund cannot buy securities issued or guaranteed by any one issuer if more than 5% of its total
assets would be invested in securities of that issuer. This limitation applies to 75% of the Fund's total assets.
|_| The Fund cannot purchase more than 10% of any class of security of any issuer. All outstanding debt
securities and all preferred stock of an issuer is considered as one class. This restriction does not apply to
securities issued by the U.S. Government or any of its agencies or instrumentalities.
|_| The Fund cannot concentrate its investments. That means it cannot invest 25% or more of its total
assets in any industry. However, there is no limitation on investments in U.S. Government securities. Moreover,
if deemed appropriate for seeking its investment objective, the Fund may invest less than 25% of its total assets
(valued at the time of investment) in any one industry classification used by the Fund for investment purposes.
Under this restriction, a foreign government is considered an "industry."
|_| The Fund cannot borrow money in excess of one third of the value of its total assets. The Fund can
borrow only from banks and only as a temporary measure for extraordinary or emergency purposes. The Fund will
make no additional investments while borrowings exceed 5% of the Fund's total assets. The Fund can borrow only if
it maintains a 300% ratio of assets to borrowings at all times in the manner set forth in the Investment Company
Act of 1940.
|_| The Fund cannot make loans to any person or individual. However, portfolio securities may be loaned
by the Fund within the limits set forth in the Prospectus and Statement of Additional Information.
|_| The Fund cannot invest in real estate or real estate limited partnerships (direct participation
programs). However, the Fund can purchase securities of issuers that engage in real estate operations and
securities that are secured by real estate or interests in real estate.
|_| The Fund cannot invest for the purpose of exercising control or management of another company.
|_| The Fund cannot underwrite securities of other companies. A permitted exception is in case it is
deemed to be an underwriter under the Securities Act of 1933 when reselling any securities held in its own
portfolio.
|_| The Fund cannot invest in or hold securities of any issuer if officers and Trustees of the Fund or
officers and directors of its Manager or Sub-Advisor individually beneficially own more than 1/2 of 1% of the
securities of that issuer and together own more than 5% of the securities of that issuer.
|_| The Fund cannot invest in physical commodities or physical commodity contracts. However, the Fund
may buy and sell hedging instruments to the extent specified in its Prospectus and Statement of Additional
Information from time to time. The Fund can also buy and sell options, futures, and securities or other
instruments backed by physical commodities or whose investment return is linked to changes in the price of
physical commodities.
|_| The Fund cannot purchase warrants that would cause more than 5% of the Fund's total assets to be
invested in warrants, or more than 2% of its total assets to be invested in warrants that are not listed on The
New York Stock Exchange or The American Stock Exchange.
|_| The Fund cannot pledge its assets, or assign or otherwise encumber its assets in an amount in
excess of 10% of the value of its net assets. It can pledge, assign or encumber its assets only to secure
borrowings that comply with the limits set forth in the Fund's Prospectus and Statement of Additional
Information.
|_| The Fund cannot issue senior securities (as defined in the Investment Company Act of 1940).
However, the Fund can enter into repurchase agreements, borrow money in accordance with the restrictions set
forth in its other fundamental policies and lend its portfolio securities.
|X| Does the Fund Have Any Restrictions That Are Not Fundamental? The Fund has a number of other
investment restrictions that are not fundamental policies, which means that they can be changed by the Board of
Trustees without shareholder approval.
|_| The Fund cannot invest in interests in oil, gas or other mineral exploration or development programs
or leases.
|_| The Fund cannot make short sales or purchase securities on margin. However, the Fund can make
short-term borrowings when necessary for the clearance of purchases of portfolio securities. Collateral
arrangements in connection with futures and options transactions are not deemed to be margin transactions under
this restriction.
Unless the Prospectus or this Statement of Additional Information states that a percentage restriction
applies on an ongoing basis, it applies only at the time the Fund makes an investment. The Fund need not sell
securities to meet the percentage limits if the value of the investment increases in proportion to the size of
the Fund.
For purposes of the Fund's policy not to concentrate its investments as described above, the Fund has
adopted the industry classifications set forth in Appendix B to this Statement of Additional Information. This
is not a fundamental policy.
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management investment company. The Fund is one of
three series of Xxxxxxxxxxx Quest For Value Funds (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust in April 1987.
|X| Classes of Shares. The Trustees are authorized, without shareholder approval, to create new series
and classes of shares. The Trustees may reclassify unissued shares of the Fund into additional series or classes
of shares. The Trustees also may divide or combine the shares of a class into a greater or lesser number of
shares without changing the proportionate beneficial interest of a shareholder in the Fund. Shares do not have
cumulative voting rights or preemptive or subscription rights. Shares may be voted in person or by proxy at
shareholder meetings.
The Fund currently has five classes of shares: Class A, Class B, Class C, Class N and Class Y. All
classes invest in the same investment portfolio. Only retirement plans may purchase Class N shares. Only certain
institutional investors may elect to purchase Class Y shares. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes,
o may have a different net asset value,
o may have separate voting rights on matters in which interests of one class are different from interests
of another class, and
o votes as a class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote at shareholder meetings, with
fractional shares voting proportionally on matters submitted to the vote of shareholders. Each share of the Fund
represents an interest in the Fund proportionately equal to the interest of each other share of the same class.
|X| Meetings of Shareholders. As a Massachusetts business trust, the Fund is not required to hold, and
does not plan to hold, regular annual meetings of shareholders. The Fund will hold meetings when required to do
so by the Investment Company Act or other applicable law. It will also do so when a shareholder meeting is called
by the Trustees or upon proper request of the shareholders.
Shareholders have the right, upon the declaration in writing or vote of two-thirds of the outstanding
shares of the Fund, to remove a Trustee. The Trustees will call a meeting of shareholders to vote on the removal
of a Trustee upon the written request of the record holders of 10% of its outstanding shares. If the Trustees
receive a request from at least 10 shareholders stating that they wish to communicate with other shareholders to
request a meeting to remove a Trustee, the Trustees will then either make the Fund's shareholder list available
to the applicants or mail their communication to all other shareholders at the applicants' expense. The
shareholders making the request must have been shareholders for at least six months and must hold shares of the
Fund valued at $25,000 or more or constituting at least 1% of the Fund's outstanding shares, whichever is less.
The Trustees may also take other action as permitted by the Investment Company Act.
|X| Shareholder and Trustee Liability. The Trust's Declaration of Trust contains an express
disclaimer of shareholder or Trustee liability for the Fund's obligations. It also provides for indemnification
and reimbursement of expenses out of the Fund's property for any shareholder held personally liable for its
obligations. The Declaration of Trust also states that upon request, the Fund shall assume the defense of any
claim made against a shareholder for any act or obligation of the Fund and shall satisfy any judgment on that
claim. Massachusetts law permits a shareholder of a business trust (such as the Fund) to be held personally
liable as a "partner" under certain circumstances. However, the risk that a Fund shareholder will incur financial
loss from being held liable as a "partner" of the Fund is limited to the relatively remote circumstances in which
the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing business with the Fund (and each
shareholder of the Fund) agrees under its Declaration of Trust to look solely to the assets of the Fund for
satisfaction of any claim or demand that may arise out of any dealings with the Fund. Additionally, the Trustees
shall have no personal liability to any such person, to the extent permitted by law.
Board of Trustees. The Fund is governed by a Board of Trustees, which is responsible for protecting the
interests of shareholders under Massachusetts law. The Trustees meet periodically throughout the year to oversee
the Fund's activities, review its performance, and review the actions of the Manager. Although the Fund will not
normally hold annual meetings of its shareholders, it may hold shareholder meetings from time to time on
important matters, and shareholders have the right to call a meeting to remove a Trustee or to take other action
described in the Funds' Declaration of Trust.
The Board of Trustees has an Audit Committee. The Audit Committee provides the Board with
recommendations regarding the selection of the Fund's independent auditor. The Audit Committee also reviews the
scope and results of audits and the audit fees charged, reviews reports from the Fund's independent auditors
concerning the Fund's internal accounting procedures and controls, and reviews reports of the Manager's internal
auditor. The members of the Audit Committee are Xxxx Xxxxxxx (Chairman), Xxxxxx Xxxxxxxx, Xxxxxx Xxxxx, Xxxx
Xxxxxxxx and Xxxxx Xxxxxx. The Audit Committee met three times during the Fund's fiscal year ended October 31,
2001.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their positions held with the Fund and
length of service in such position(s) and the principal occupations and business affiliations during the past
five years are listed below. Each of the Trustees are independent trustees, which means that they have no
affiliation with the Manager as defined in the Investment Company Act. The information for the Trustees also
includes the dollar range of shares of the Fund as well as the aggregate dollar range of shares of the Board III
Funds beneficially owned by the Trustee. All information is as of December 31, 2001. All of the Trustees are
also trustees or directors of the following Xxxxxxxxxxx funds (referred to as "Board III Funds"):
Xxxxxxxxxxx Quest For Value Funds, a series Rochester Portfolio Series, a series fund
fund having the following series: having one series:
Xxxxxxxxxxx Small Cap Value Fund, Limited-Term New York Municipal Fund
Xxxxxxxxxxx Quest Balanced Value Fund, and Bond Fund Series, a series fund
Xxxxxxxxxxx Quest Opportunity Value Fund, having one series:
Xxxxxxxxxxx Quest Global Value Fund, Inc., Oppenhiemer Convertible Securities Fund
Xxxxxxxxxxx Quest Capital Value Fund, Inc., Rochester Fund Municipals
Xxxxxxxxxxx Quest Value Fund, Inc. Xxxxxxxxxxx Xxxxxx Fund
In addition to being a director or trustee of the Board III Funds, Xx. Xxxxx is also a director or
trustee of 33 other portfolios in the Xxxxxxxxxxx Funds complex.
Messrs. Xxxxxx, Xxxxxx, Xxxxxx, Xxxxxxx, Wixted and Xxxx, and Mses. Xxxx and Xxxx who are officers of the
Fund, respectively hold the same offices of the other Board III Funds. As of January 15, 2002, the Trustees and
officers of the Fund as a group owned of record or beneficially less than 1% of each class of shares of the Fund.
The foregoing statement does not reflect ownership of shares of the Fund held of record by an employee benefit
plan for employees of the Manager, other than the shares beneficially owned under the plan by officers of the
Fund listed above. In addition, each Independent Trustee, and his or her family members, do not own securities of
either the Manager or Distributor of the Board III funds or any person directly or indirectly controlling,
controlled by or under common control with the Manager or Distributor.
Independent Trustees
-------------------------- ------------------------------------------------------ ----------------- -------------------
Aggregate Dollar
Name, Address,1 Age, Range of Shares
Position(s) Held with Principal Occupation(s) During Past 5 Years / Other Dollar Range of Owned in any of
Fund and Length of Time Trusteeships Held by Trustee / Number of Portfolios Shares Owned in the Board III
Served2 in Fund Complex Overseen by Trustee the Fund Funds
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxxxx X. Xxxxxxxx, Principal of Xxxxxxxx Associates, Inc. (venture $0 $10,001 - $50,000
Chairman of the Board of capital firm); former General Partner of Trivest
Trustees, Trustee since Venture Fund (private venture capital fund); former
April, 1987 President of Investment Counseling Federated
Age: 68 Investors, Inc.; Trustee of Cash Assets Trust, a
money market fund; Director of OCC Cash Reserves,
Inc., and Trustee of OCC Accumulation Trust, both of
which are open-end investment companies; Trustee of
Hawaiian Tax-Free Trust and Tax Free Trust of
Arizona, tax-exempt bond funds; former Director of
Financial Analysts Federation. Director/trustee of
10 investment companies in the OppenheimerFunds
complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxx X. Xxxxxxx, Principal of Clinton Management Associates, a
Trustee, since April, financial and venture capital consulting firm;
1987 Trustee of Capital Cash Management Trust, a
Age: 70. money-market fund and Narragansett Tax-Free Fund, a
tax-exempt bond fund; Director of OCC Cash Reserves,
Inc. and Trustee of OCC Accumulation Trust, both of
which are open-end investment companies. Formerly:
Director, External Affairs, Kravco Corporation, a
national real estate owner and property management
corporation; President of Essex Management $10,000 -$50,000 Over $100,000
Corporation, a management consulting company; a
general partner of Capital Growth Fund, a venture
capital partnership; a general partner of Essex
Limited Partnership, an investment partnership;
President of Geneve Corp., a venture capital fund;
Chairman of Woodland Capital Corp., a small business
investment company; and Vice President of X.X. Xxxxx
& Co. Director/trustee of 10 investment companies in
the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxxxx X. Xxxxx, A Trustee or Director of other Xxxxxxxxxxx funds. $0 Over $100,0003
Trustee since June, 1998 Formerly Vice Chairman of the Manager (October 1995
Age: 68 - December 1997). Director/trustee of 41 investment
companies in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxx X. Xxxxxxxx, Chairman and Chief Executive Officer of Aquila $0 $10,001 - $50,000
Trustee since April, 1987 Management Corporation, the sponsoring organization
Age: 72 and manager, administrator and/or sub-Adviser to the
following open-end investment companies, and
Chairman of the Board of Trustees and President of
each: Xxxxxxxxx Cash Reserves Trust, Aquila -
Cascadia Equity Fund, Pacific Capital Cash Assets
Trust, Pacific Capital U.S. Treasuries Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets Trust,
Prime Cash Fund, Narragansett Insured Tax-Free
Income Fund, Tax-Free Fund For Utah, Xxxxxxxxx
Tax-Free Fund of Kentucky, Tax-Free Fund of
Colorado, Tax-Free Trust of Oregon, Tax-Free Trust
of Arizona, Hawaiian Tax-Free Trust, and Aquila
Rocky Mountain Equity Fund; Vice President,
Director, Secretary, and formerly Treasurer of
Aquila Distributors, Inc., distributor of the above
funds; President and Chairman of the Board of
Trustees of Capital Cash Management Trust ("CCMT"),
and an Officer and Trustee/Director of its
predecessors; President and Director of STCM
Management Company, Inc., sponsor and adviser to
CCMT; Chairman, President and a Director of InCap
Management Corporation, formerly sub-adviser and
administrator of Prime Cash Fund and Short Term
Asset Reserves; Director of OCC Cash Reserves, Inc.,
and Trustee of OCC Accumulation Trust, both of which
are open-end investment companies; Trustee Emeritus
of Brown University. Director/trustee of 10
investment companies in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxxx Xxxxxx, Trustee Special Limited Partner (since January 1999) of $1 - $10,000 $50,001 - $100,000
since April, 2001 Odyssey Investment Partners, LLC (private equity
Age: 58 investment); General Partner (since September 1996)
of Odyssey Partners, L.P. (hedge fund in
distribution since 1/1/97); Director (since May
2000) of Xxx & Berendston, Inc. (executive search);
Board of Incorporators (since August 1990) The
Xxxxxxx Laboratory; Trustee (since May 1992) of
Institute for Advanced Study (educational
institute); Trustee (since May 2000) of Research
Foundation of AIMR (investment research); Governor,
Xxxxxx Xxxx Economics Institute of Bard College
(August 1990 - September 2001) (economics research).
Director/trustee of 10 investment companies in the
OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
Officers of the Fund
----------------------------------------------- ----------------------------------------------------------------------
Name, Address,4 Age, Position(s) Held with Principal Occupation(s) During Past 5 Years
Fund and Length of Time Served
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxx X. Xxxxxx, Chairman, Chief Executive Officer and director (since June 30, 2001)
President (since October 2001) and President (since September 2000) of the Manager; President and a
Age: 52 trustee of other Xxxxxxxxxxx funds; President and a director (since
July 2001) of Xxxxxxxxxxx Acquisition Corp., the Manager's parent
holding company, and of Xxxxxxxxxxx Partnership Holdings, Inc.
(since July 2001), a holding company subsidiary of the Manager;
Chairman and a director (since July 2001) of Shareholder Services,
Inc. and of Shareholder Financial Services, Inc., transfer agent
subsidiaries of the Manager; President (since November 1, 2001) and
a director (since July 2001) of Xxxxxxxxxxx Real Asset Management,
Inc., an investment advisor subsidiary of the Manager; President and
a director (since July 2001) of OppenheimerFunds Legacy Program, a
charitable trust program established by the Manager; a director
(since November 2001) of Trinity Investment Management Corp. and
Tremont Advisers, Inc., investment advisory affiliates of the
Manager, and of OAM Institutional, Inc. (since November 2001), an
investment advisory subsidiary of the Manager, and of HarbourView
Asset Management Corporation and OFI Private Investments, Inc.
(since July 2001), investment advisor subsidiaries of the Manager;
formerly President and trustee (from November 1999 to November 2001)
of MML Series Investment Fund and MassMutual Institutional Funds,
open-end investment companies; Chief Operating Officer (from
September 2000 to July 2001) of the Manager; Executive Vice
President of Massachusetts Mutual Life Insurance Company (from
February 1997 to August 2000); a director (from 1999 to 2000) of
C.M. Life Insurance Company; President, Chief Executive Officer and
a director (from 1999 to 2000) of MML Bay State Life Insurance
Company; Executive Vice President, director and Chief Operating
Officer (from 1995 to 1997) of Xxxxx X. Xxxxxx & Company, Inc., an
investment advisor; Senior Vice President and director (from 1995 to
1997) of Potomac Babson Inc., an investment advisor subsidiary of
Xxxxx X. Xxxxxx & Company, Inc.; Senior Vice President (from 1995 to
1997) and director (from 1995 to 1999) of DBL Acquisition
Corporation, a holding company for investment advisers; a director
(from 1989 to 1998) of Emerald Isle Bancorp and Hibernia Savings
Bank, wholly-owned subsidiary of Emerald Isle Bancorp; and Chief
Operating Officer (from 1993 to 1996) of Concert Capital Management,
Inc., an investment advisor.
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxx, Treasurer, Principal Senior Vice President and Treasurer (since March 1999) of the
Financial and Accounting Officer (since March Manager; Treasurer (since March 1999) of HarbourView Asset
1999) Management Corporation, Shareholder Services, Inc., Oppenheimer Real
Age: 42 Asset Management Corporation, Shareholder Financial Services, Inc.
and Oppenheimer Partnership Holdings, Inc., of OFI Private
Investments, Inc. (since March 2000) and of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since May
2000); Treasurer and Chief Financial Officer (since May 2000) of
Xxxxxxxxxxx Trust Company; Assistant Treasurer (since March 1999) of
Oppenheimer Acquisition Corp.; an officer of other Oppenheimer
funds; formerly Principal and Chief Operating Officer, Bankers Trust
Company - Mutual Fund Services Division (March 1995 - March 1999);
Vice President and Chief Financial Officer of CS First Boston
Investment Management Corp. (September 1991 - March 1995).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxxx X. Xxxxxx, Assistant Treasurer Vice President of the Manager/Mutual Fund Accounting (since May
(since May 1996) 1996); an officer of other
Age: 42 Xxxxxxxxxxx funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996) and a Fund
Controller of the Manager.
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxx, Assistant Treasurer Vice President of the Manager/Mutual Fund Accounting (since May
(since May 1996) 1996); Assistant Treasurer of Xxxxxxxxxxx Millennium Funds plc
Age: 36 (since October 1997); an officer of other Xxxxxxxxxxx Funds;
formerly an Assistant Vice President of the Manager/Mutual Fund
Accounting (April 1994 - May 1996), and a Fund Controller of the
Manager.
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxxx X. Xxxx, Secretary (since October 2001) Senior Vice President (since May 1985) and Acting General Counsel
Age: 53 (since November 2001) of the Manager; Assistant Secretary of
Shareholder Services, Inc. (since May 1985), Shareholder Financial
Services, Inc. (since November 1989); OppenheimerFunds International
Ltd. and Oppenheimer Millennium Funds plc (since October 1997); an
officer of other Xxxxxxxxxxx funds.
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxxx, Assistant Secretary Vice President and Senior Counsel of the Manager (since July 1999);
(since October 2001) an officer of other Xxxxxxxxxxx funds; formerly a Vice President and
Age: 44 Associate Counsel of the Manager (September 1995 - July 1999).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxxxxxx X. Xxxx, Assistant Secretary Vice President and Senior Counsel of the Manager (since July 1999);
(since October 2001) an officer of other Xxxxxxxxxxx funds; formerly a Vice President and
Age: 43 Associate Counsel of the Manager (June 1990 - July 1999).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxxxxx X. Xxxx, Assistant Secretary Vice President and Assistant Counsel of the Manager (since June
(since October 2001) 1998); an officer of other Xxxxxxxxxxx funds; formerly an Assistant
Age: 36 Vice President and Assistant Counsel of the Manager (August 1997 -
June 1998); and Assistant Counsel of the Manager (August 1994-August
1997).
----------------------------------------------- ----------------------------------------------------------------------
|X| Remuneration of Trustees. The officers of the Fund are affiliated with the Manager and receive no
salary or fee from the Fund. The Trustees received the compensation shown below. The compensation from the Fund
was paid during its fiscal year ended October 31, 2001. The table below also shows the total compensation from
all of the Xxxxxxxxxxx funds listed above, including the compensation from the Fund, and from two other funds
that are not Xxxxxxxxxxx funds but for which the Sub-Advisor acts as investment adviser. That amount represents
compensation received as a director, trustee, or member of a committee of the Board during the calendar year 2001.
--------------------------- ----------------------------- ---------------------------- -----------------------------
Trustee's Name Aggregate Compensation Retirement Benefits Total Compensation
From the Fund1 Accrued as Part of Fund From all Board III Funds
Expenses (10 Funds)2
--------------------------- ----------------------------- ---------------------------- -----------------------------
--------------------------- ----------------------------- ---------------------------- -----------------------------
Xxxx X. Clinton4 $16,792 $0 $157,326
--------------------------- ----------------------------- ---------------------------- -----------------------------
--------------------------- ----------------------------- ---------------------------- -----------------------------
Xxxxxx X. Xxxxxxxx0 $16,792 $0 $157,326
--------------------------- ----------------------------- ---------------------------- -----------------------------
--------------------------- ----------------------------- ---------------------------- -----------------------------
Xxxxxx X. Xxxxx0 $16,792 $0 $202,886
--------------------------- ----------------------------- ---------------------------- -----------------------------
--------------------------- ----------------------------- ---------------------------- -----------------------------
Xxxx X. Xxxxxxxx0 $16,792 $0 $157,326
--------------------------- ----------------------------- ---------------------------- -----------------------------
--------------------------- ----------------------------- ---------------------------- -----------------------------
Xxxxx Xxxxxx0 $9,725 $0 $59,250
--------------------------- ----------------------------- ---------------------------- -----------------------------
1. Aggregate compensation includes fees and retirement plan benefits accrued for a Trustee. For the fiscal
year-ended 10/31/01
2. For the 2001 calendar year.
3. Total compensation for the 2001 calendar year includes $105,760 compensation received for serving as a
Trustee or Director of 33 other Xxxxxxxxxxx funds.
4. Total compensation for the 2001 calendar year also includes $60,200 compensation paid by two funds (OCC
Cash Reserves Inc. and OCC Accumulation Trust) for which the Sub-Advisor acts as the investment advisor.
5. Elected to the Board on 4/01/01
|X| Retirement Plan for Trustees. The Fund has adopted a retirement plan that provides for payments to
retired Trustees. Payments are up to 80% of the average compensation paid during a Trustee's five years of
service in which the highest compensation was received. A Trustee must serve as Trustee for any of the Board III
Funds listed above for at least 15 years to be eligible for the maximum payment. Each Trustee's retirement
benefits will depend on the amount of the Trustee's future compensation and length of service. Therefore the
amount of those benefits cannot be determined at this time, nor can we estimate the number of years of credited
service that will be used to determine those benefits.
|X| Major Shareholders. As of February 1, 2002, the only persons who owned of record or were known by
the Fund to own beneficially 5% or more of any class of the Fund's outstanding shares were:
Xxxxxxx Xxxxx Xxxxxx Xxxxxx & Xxxxx, Attn: Fund Admin./#97HX7, 0000 Xxxx Xxxx Xxxxx Xxxx, Xxxxx 0,
Xxxxxxxxxxxx Xxxxxxx 00000-0000, which owned 694,835.576 Class C shares (representing 8.19% of the Class C shares
then outstanding), for the benefit of its customers;
PECO Foods Inc., Attn: M Xxxxxxx & X. Xxxxxx, P.O. Box # 1760, Tuscaloosa, AL 35403-1760, which owned
60,987.517 Class N shares (representing 25.42% of the Class N shares then outstanding);
Xxxxxxx Xxxxxx Inc, Attn: Xxxxx Xxxxxxx, 000 Xxxxxxx Xxxx Xxxx, X.Xxxxxxxxx, XX 00000-0000, which owned
20,769.700 Class N shares (representing 8.66% of the Class N shares then outstanding);
Kaz, Inc., Attn: Xxxxxx Xxxxxxx, 0000 Xxxxxxxx, Xxxxx 0000 Xxx Xxxx, XX 00000-1903, which owned 15.066.735
Class N shares (representing 6.28% of the Class N shares then outstanding);
Capital Communications Federal, 00 Xxxxxxxx Xxxxx, Xxxxxx, XX 00000-1111, which owned 12,378.805 Class N
shares (representing 5.16% of the Class N shares than outstanding);
Mass Mutual Life Insurance Co, Attn: Xxxxxx Xxxxxxxx, 0000 Xxxxx Xxxxxx, Xxxxxxxxxxx Xxxxxxxxxxxxx
0000-0000, which owned 743,662.625 Class Y shares (representing 83.42% of the Class Y shares then outstanding);
and
Persumma Financial Services, 0000 Xxxxx Xxxxxx, # X000, Xxxxxxxxxxx, XX 00000-0000, which owned 112,113.303
Class Y shares (representing 12.57% of the Class Y shares then outstanding).
The Manager. The Manager is wholly-owned by Xxxxxxxxxxx Acquisition Corp., a holding company controlled by
Massachusetts Mutual Life Insurance Company.
|X| Code of Ethics. The Fund, the Manager and the Distributor have a Code of Ethics. It is designed
to detect and prevent improper personal trading by certain employees, including portfolio managers, that would
compete with or take advantage of the Fund's portfolio transactions. Covered persons include persons with
knowledge of the investments and investment intentions of the Fund and other funds advised by the Manager. The
Code of Ethics does permit personnel subject to the Code to invest in securities, including securities that may
be purchased or held by the Fund, subject to a number of restrictions and controls. Compliance with the Code of
Ethics is carefully monitored and enforced by the Manager.
The Code of Ethics is an exhibit to the Fund's registration statement filed with the Securities and
Exchange Commission and can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. You can
obtain information about the hours of operation of the Public Reference Room by calling the SEC at
0.000.000.0000. The Code of Ethics can also be viewed as part of the Fund's registration statement on the SEC's
XXXXX database at the SEC's Internet website at XXXX://XXX.XXX.XXX. Copies may be obtained, after paying a
------------------
duplication fee, by electronic request at the following E-mail address: XXXXXXXXXX@XXX.XXX., or by writing to the
-------------------
SEC's Public Reference Section, Washington, D.C. 20549-0102.
|X| The Investment Advisory Agreement. The Manager provides investment advisory and management
services to the Fund under an investment advisory agreement between the Manager and Fund's parent Trust. The
Manager handles the Fund's day-to-day business, and the agreement permits the Manager to enter into Sub-Advisory
agreements with other registered investment advisers to obtain specialized services for the Fund, as long as the
Fund is not obligated to pay any additional fees for those services. The Manager has retained the Sub-Advisor
pursuant to a separate Sub-Advisory Agreement, described below, under which the Sub-Advisor buys and sells
portfolio securities for the Fund. The portfolio manager of the Fund is employed by the Sub-Advisor and is the
person who is principally responsible for the day-to-day management of the Fund's portfolio, as described below.
The investment advisory agreement between the Fund and the Manager requires the Manager, at its expense,
to provide the Fund with adequate office space, facilities and equipment. It also requires the Manager to provide
and supervise the activities of all administrative and clerical personnel required to provide effective
administration for the Fund. Those responsibilities include the compilation and maintenance of records with
respect to its operations, the preparation and filing of specified reports, and composition of proxy materials
and registration statements for continuous public sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the advisory agreement. Expenses for
the Trust's three series are allocated to the series in proportion to their net assets, unless allocations of
expenses can be made directly to a series. The advisory agreement lists examples of expenses paid by the Fund.
The major categories relate to calculation of the Fund's net asset values per share, interest, taxes, brokerage
commissions, fees to certain Trustees, legal and audit expenses, custodian and transfer agent expenses, share
issuance costs, certain printing and registration costs and non-recurring expenses, including litigation costs.
The management fees paid by the Fund to the Manager are calculated at the rates described in the Prospectus,
which are applied to the assets of the Fund as a whole. The fees are allocated to each class of shares based upon
the relative proportion of the Fund's net assets represented by that class.
------------------------------------------------------ -----------------------------------------------
Fiscal Year ended 10/31: Management Fees Paid to OppenheimerFunds,
Inc. 1
------------------------------------------------------ -----------------------------------------------
------------------------------------------------------ -----------------------------------------------
1999 $37,766,685
------------------------------------------------------ -----------------------------------------------
------------------------------------------------------ -----------------------------------------------
2000 $30,169,099
------------------------------------------------------ -----------------------------------------------
------------------------------------------------------ -----------------------------------------------
2001 $26,309,036
------------------------------------------------------ -----------------------------------------------
1. The Manager, not the Fund, pays the Sub-Advisor an annual sub-advisory fee. For fiscal 2001, this sub-advisory
fee was $8,576,663.
The investment advisory agreement states that in the absence of willful misfeasance, bad faith, gross
negligence in the performance of its duties or reckless disregard of its obligations and duties under the
investment advisory agreement, the Manager is not liable for any loss resulting from a good faith error or
omission on its part with respect to any of its duties under the agreement.
The agreement permits the Manager to act as investment adviser for any other person, firm or corporation
and to use the names "Xxxxxxxxxxx" and "Quest for Value" in connection with other investment companies for which
it may act as investment adviser or general distributor. If the Manager shall no longer act as investment adviser
to the Fund, the Manager may withdraw the right of the Fund to use the names "Xxxxxxxxxxx" or "Quest for Value"
as part of its name.
|X| Annual Approval of Investment Advisory Agreement and Sub-Advisory Agreement. Each year, the
Board of Trustees, including a majority of the Independent Trustees, is required to approve the renewal of the
Investment Advisory Agreement and the Sub-Advisory Agreement. The Investment Company Act requires that the Board
request and evaluate and the Manager provide such information as may be reasonably necessary to evaluate the
terms of the investment advisory agreement. The board employs an independent consultant to prepare a report that
provides such information as the Board requests for this purpose.
The Board also receives information about the 12b-1 distribution fees the Fund pays. These distribution
fees are reviewed and approved at a different time of the year.
The Board reviewed the foregoing information in arriving at its decision to renew the investment
advisory agreements. Among other factors, the Board considered:
o The nature, cost, and quality of the services provided to the Fund and its shareholders;
o The profitability of the Fund to the Manager and the Sub-Advisor;
o The investment performance of the Fund in comparison to regular market indices
o Economies of scale that may be available to the Fund from the Manager;
o Fees paid by other mutual funds for similar services;
o The value and quality of any other benefits or services received by the Fund from its relationship with
the Manager, and
o The direct and indirect benefits the Manager received from its relationship with the Fund. These
include services provided by the General Distributor and the Transfer Agent, and brokerage and
soft dollar arrangements permissible under Section 28(e) of the Securities Exchange Act.
The Board considered that the Manager and the Sub-Advisor must be able to pay and retain high quality
personnel at competitive rates to provide services to the Fund. The Board also considered that maintaining the
financial viability of the Manager and the Sub-Advisor is important so that they will be able to continue to
provide quality services to the Fund and its shareholders in adverse times. The Board also considered the
investment performance of other mutual funds advised by the Manager. The Board is aware that there are
alternatives to the use of the Manager.
These matters were also considered by the Independent Trustees meeting separately from the full Board
with experienced Counsel to the Fund who assisted the Board in its deliberations. The Fund's Counsel is
independent of the Manager within the meaning and intent of the SEC Rules regarding the independence of counsel.
After deliberating, the Board determined that the addition of breakpoints to the management fee schedule was
warranted.
In arriving at a decision, the Board did not single out any one factor or group of factors as being more
important than other factors, but considered all factors together. The Board judged the terms and conditions of
the Agreement, including the investment advisory fee, in light of all of the surrounding circumstances.
The Sub-Advisor. The Sub-Advisor is a wholly-owned subsidiary of Xxxxxxxxxxx Capital, a registered investment
adviser. From the Fund's inception on April 30, 1980, until November 22, 1995, the Sub-Advisor (which was then
named Quest for Value Advisors) or the Sub-Advisor's parent served as the Fund's investment advisor. The
Sub-Advisor acts as investment adviser to other investment companies and for individual investors.
The Sub-Advisor is a Delaware limited liability company which is wholly-owned by Xxxxxxxxxxx Capital LLC a
wholly-owned subsidiary of Allianz Dresdner Asset Management U.S. Equities LLC, which is wholly-owned by Allianz
Dresdner Asset Management of America L.P. (formerly PIMCO Advisors L.P.). Allianz Dresdner Asset Management of
America L.P. ("XXXX") is a Delaware limited partnership whose sole general partner is Allianz-PacLife Partners
LLC. Allianz PacLife Partners LLC is a Delaware limited liability company with two members, Allianz Dresdner
Asset Management of America LLC, a Delaware limited liability company, and Pacific Asset Management LLC, a
Delaware limited liability company. Allianz Dresdner Asset Management of America LLC is a wholly-owned subsidiary
of Allianz of America, Inc., which is wholly-owned subsidiary of Pacific Life Insurance Company which is a
wholly-owned subsidiary of Pacific Mutual Holding Company. Allianz A.G. indirectly holds a controlling interest
in XXXX. Allianz AG is a European-based, multinational insurance and financial services holding company. Pacific
Life Insurance Company owns an indirect minority equity interest in XXXX and is a California-based insurance
company.
Allianz Dresdner Asset Management of America L.P. is a direct or indirect parent company of the
following SEC-registered investment advisors, all of which are affiliated: Cadence Capital Management; NFJ
Investment Group; Pacific Investment Management Company LLC; the Sub-Advisor, Xxxxxxxxxxx Capital LLC, PIMCO
Allianz Advisors LLC and PIMCO Funds Advisors LLC.
|X| The Sub-Advisory Agreement. Under the Sub-Advisory Agreement between the Manager and the
Sub-Advisor, the Sub-Advisor shall regularly provide investment advice with respect to the Fund and invest and
reinvest cash, securities and the property comprising the assets of the Fund. Under the Sub-Advisory Agreement,
the Sub-Advisor agrees not to change the portfolio manager of the Fund without the written approval of the
Manager. The Sub-Advisor also agrees to provide assistance in the distribution and marketing of the Fund.
Under the Sub-Advisory Agreement, the Manager pays the Sub-Advisor an annual fee in monthly
installments, based on the average daily net assets of the Fund. The fee paid to the Sub-Advisor under the
Sub-Advisory agreement is paid by the Manager, not by the Fund. The fee is equal to 40% of the investment
advisory fee collected by the Manager from the Fund based on the total net assets of the Fund as of November 22,
1995 (the "Base Amount") plus 30% of the investment advisory fee collected by the Manager based on the total net
assets of the Fund that exceed the Base Amount.
The Sub-Advisory Agreement states that in the absence of willful misfeasance, bad faith, negligence or
reckless disregard of its duties or obligations, the Sub-Advisor shall not be liable to the Manager for any act
or omission in the course of or connected with rendering services under the Sub-Advisory Agreement or for any
losses that may be sustained in the purchase, holding or sale of any security.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement and the Sub-Advisory Agreement. One of the duties of
the Sub-Advisor under the Sub-Advisory Agreement is to arrange the portfolio transactions for the Fund. The
Fund's investment advisory agreement with the Manager and the Sub-Advisory Agreement contain provisions relating
to the employment of broker-dealers to effect the Fund's portfolio transactions. The Manager and the Sub-Advisor
are authorized to employ broker-dealers, including "affiliated" brokers, as that term is defined in the
Investment Company Act. They may employ broker-dealers that the Manager thinks, in its best judgment based on all
relevant factors, will implement the policy of the Fund to obtain, at reasonable expense, the "best execution" of
the Fund's portfolio transactions. "Best execution" means prompt and reliable execution at the most favorable
price obtainable.
The Manager and the Sub-Advisor need not seek competitive commission bidding. However, they are expected
to be aware of the current rates of eligible brokers and to minimize the commissions paid to the extent
consistent with the interests and policies of the Fund as established by its Board of Trustees.
The Manager and the Sub-Advisor may select brokers (other than affiliates) that provide brokerage and/or
research services for the Fund and/or the other accounts over which the Manager, the Sub-Advisor or their
respective affiliates have investment discretion. The concessions paid to such brokers may be higher than
another qualified broker would charge, if the Manager or Sub-Advisor, as applicable, makes a good faith
determination that the concession is fair and reasonable in relation to the services provided. Subject to those
considerations, as a factor in selecting brokers for the Fund's portfolio transactions, the Manager and the
Sub-Advisor may also consider sales of shares of the Fund and other investment companies for which the Manager or
an affiliate serves as investment adviser.
The Sub-Advisory Agreement permits the Sub-Advisor to enter into "soft-dollar" arrangements through the
agency of third parties to obtain services for the Fund. Pursuant to these arrangements, the Sub-Advisor will
undertake to place brokerage business with broker-dealers who pay third parties that provide services. Any such
"soft-dollar" arrangements will be made in accordance with policies adopted by the Board of the Trust and in
compliance with applicable law.
Brokerage Practices. Brokerage for the Fund is allocated subject to the provisions of the investment advisory
agreement and the Sub-Advisory agreement and the procedures and rules described above. Generally, the
Sub-Advisor's portfolio traders allocate brokerage based upon recommendations from the Fund's portfolio manager.
In certain instances, portfolio managers may directly place trades and allocate brokerage. In either case, the
Sub-Advisor's executive officers supervise the allocation of brokerage.
Transactions in securities other than those for which an exchange is the primary market are generally
done with principals or market makers. In transactions on foreign exchanges, the Fund may be required to pay
fixed brokerage commissions and therefore would not have the benefit of negotiated commissions available in U.S.
markets. Brokerage commissions are paid primarily for transactions in listed securities or for certain
fixed-income agency transactions in the secondary market. Otherwise brokerage commissions are paid only if it
appears likely that a better price or execution can be obtained by doing so.
The Sub-Advisor serves as investment manager to a number of clients, including other investment
companies, and may in the future act as investment manager or advisor to others. It is the practice of the
Sub-Advisor to allocate purchase or sale transactions among the Fund and other clients whose assets it manages in
a manner it deems equitable. In making those allocations, the Sub-Advisor considers several main factors,
including the respective investment objectives, the relative size of portfolio holdings of the same or comparable
securities, the availability of cash for investment, the size of investment commitments generally held and the
opinions of the persons responsible for managing the portfolios of the Fund and each other client's accounts.
When orders to purchase or sell the same security on identical terms are placed by more than one of the
funds and/or other advisory accounts managed by the Sub-Advisor or its affiliates, the transactions are generally
executed as received, although a fund or advisory account that does not direct trades to a specific broker (these
are called "free trades") usually will have its order executed first. Orders placed by accounts that direct
trades to a specific broker will generally be executed after the free trades. All orders placed on behalf of the
Fund are considered free trades. However, having an order placed first in the market does not necessarily
guarantee the most favorable price. Purchases are combined where possible for the purpose of negotiating
brokerage commissions. In some cases that practice might have a detrimental effect on the price or volume of the
security in a particular transaction for the Fund.
Most purchases of debt obligations are principal transactions at net prices. Instead of using a broker
for those transactions, the Fund normally deals directly with the selling or purchasing principal or market maker
unless the Sub-Advisor determines that a better price or execution can 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. Purchases from dealers include a spread between the bid and asked prices. The Fund
seeks to obtain prompt execution of these orders at the most favorable net price.
The investment advisory agreement and the Sub-Advisory agreement permit the Manager and the Sub-Advisor
to allocate brokerage for research services. The research services provided by a particular broker may be useful
only to one or more of the advisory accounts of the Sub-Advisor and its affiliates. The investment research
received for the commissions of those other accounts may be useful both to the Fund and one or more of the
Sub-Advisor's other accounts. Investment research may be supplied to the Sub-Advisor by a third party at the
instance of a broker through which trades are placed.
Investment research services include information and analysis on particular companies and industries as
well as market or economic trends and portfolio strategy, market quotations for portfolio evaluations,
information systems, computer hardware and similar products and services. If a research service also assists the
Sub-Advisor in a non-research capacity (such as bookkeeping or other administrative functions), then only the
percentage or component that provides assistance to the Sub-Advisor in the investment decision-making process may
be paid in commission dollars.
The research services provided by brokers broadens the scope and supplements the research activities of
the Sub-Advisor. That research provides additional views and comparisons for consideration, and helps the
Sub-Advisor to obtain market information for the valuation of securities that are either held in the Fund's
portfolio or are being considered for purchase. The Sub-Advisor provides information to the Manager and the
Board about the concessions paid to brokers furnishing such services, together with the Sub-Advisor's
representation that the amount of such concessions was reasonably related to the value or benefit of such
services.
-------------------------------------------------- -------------------------------------------------------
Fiscal Year Ended: Total Brokerage Commissions Paid by the Fund1
-------------------------------------------------- -------------------------------------------------------
-------------------------------------------------- -------------------------------------------------------
-------------------------------------------------- -------------------------------------------------------
-------------------------------------------------- -------------------------------------------------------
10/31/99 $4,693,424
-------------------------------------------------- -------------------------------------------------------
-------------------------------------------------- -------------------------------------------------------
10/31/00 $4,555,503
-------------------------------------------------- -------------------------------------------------------
-------------------------------------------------- -------------------------------------------------------
10/31/01 $2,530,9062
-------------------------------------------------- -------------------------------------------------------
1. Amounts do not include spreads or commissions on principal transactions on a net trade basis.
2. In the fiscal year ended 10/31/01, the amount of transactions directed to brokers for research services
was $612,351,105 and the amount of the commissions paid to broker-dealers for those services was $829,948.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Trust, the Distributor acts as the Fund's
principal underwriter in the continuous public offering of shares of the Fund's classes of shares. The
Distributor bears the expenses normally attributable to sales, including advertising and the cost of printing and
mailing prospectuses, other then those furnished to existing shareholders. The Distributor is not obligated to
sell a specific number of shares. Expenses normally attributable to sales are borne by the Distributor.
The sales charges and concessions paid to, or retained by, the Distributor from the sale of shares
during the Fund's three most recent fiscal years, and the contingent deferred sales charges retained by the
Distributor on the redemption of shares for the most recent fiscal year are shown in the tables below.
------------- ------------------ ------------------
Aggregate Class A
Fiscal Year Front-End Sales Front-End Sales
Ended 10/31: Charges on Class Charges Retained
A Shares by Distributor
------------- ------------------ ------------------
------------- ------------------ ------------------
1999 $3,799,316 $967,264
------------- ------------------ ------------------
------------- ------------------ ------------------
2000 $2,360,212 $598,916
------------- ------------------ ------------------
------------- ------------------ ------------------
2001 $2,118,916 $525,862
------------- ------------------ ------------------
--------------- ----------------------- ------------------- ----------------- ------------------
Fiscal Year Concessions on Class Concessions on Concessions on Concessions on
Ended 10/31: A Shares Advanced by Class B Shares Class C Shares Class N Shares
Distributor1 Advanced by Advanced by Advanced by
Distributor1 Distributor1 Distributor1
--------------- ----------------------- ------------------- ----------------- ------------------
--------------- ----------------------- ------------------- ----------------- ------------------
1999 $904,221 $5,691,828 $1,141,010 N/A
--------------- ----------------------- ------------------- ----------------- ------------------
--------------- ----------------------- ------------------- ----------------- ------------------
2000 $796,337 $2,961,258 $266,906 N/A
--------------- ----------------------- ------------------- ----------------- ------------------
--------------- ----------------------- ------------------- ----------------- ------------------
2001 $580,857 $2,741,448 $245,023 $21,769
--------------- ----------------------- ------------------- ----------------- ------------------
1. The Distributor advances concession payments to dealers for certain sales of Class A shares and for
sales of Class B and Class C shares from its own resources at the time of sale.
----------------- ------------------------- -------------------------- ------------------------- ---------------------------
Class A Contingent Class B Contingent Class C Contingent Class N Contingent
Deferred Sales Charges Deferred Sales Charges Deferred Sales Charges Deferred Sales Charges
Fiscal Year Retained by Distributor Retained by Distributor Retained by Distributor Retained by Distributor
Ended 10/31
----------------- ------------------------- -------------------------- ------------------------- ---------------------------
----------------- ------------------------- -------------------------- ------------------------- ---------------------------
2001 $52,176 $2,010,158 $22,499 $0
----------------- ------------------------- -------------------------- ------------------------- ---------------------------
Distribution and Service Plans. The Fund has adopted Distribution and Service Plans for Class A, Class B, Class
C and Class N shares under Rule 12b-1 of the Investment Company Act. Under those plans the Fund compensates the
Distributor for all or a portion of its costs incurred in connection with the distribution and/or servicing of
the shares of the particular class.
Under the plans, the Manager and the Distributor may make payments to affiliates and in their sole
discretion, from time to time, may use their own resources (at no direct cost to the Fund) to make payments to
brokers, dealers or other financial institutions for distribution and administrative services they perform. The
Manager may use its profits from the advisory fee it receives from the Fund. In their sole discretion, the
Distributor and the Manager may increase or decrease the amount of payments they make from their own resources to
plan recipients.
Unless a plan is terminated as described below, the plan continues in effect from year to year but only
if the Fund's Board of Trustees and its Independent Trustees specifically vote annually to approve its
continuance. Approval must be by a vote cast in person at a meeting called for the purpose of voting on
continuing the plan. A plan may be terminated at any time by the vote of a majority of the Independent Trustees
or by the vote of the holders of a "majority" (as defined in the Investment Company Act) of the outstanding
shares of that class.
The Board of Trustees and the Independent Trustees must approve all material amendments to a plan. An
amendment to increase materially the amount of payments to be made under a plan must be approved by shareholders
of the class affected by the amendment. Because Class B shares of the Fund automatically convert into Class A
shares after six years, the Fund must obtain the approval of both Class A and Class B shareholders for a proposed
material amendment to the Class A plan that would materially increase payments under the plan. That approval
must be by a "majority" (as defined in the Investment Company Act) of the shares of each class, voting separately
by class.
While the plans are in effect, the Treasurer of the Fund shall provide separate written reports on the
plans to the Board of Trustees at least quarterly for its review. The reports shall detail the amount of all
payments made under a plan, and the purpose for which the payments were made. Those reports are subject to the
review and approval of the Independent Trustees.
Each plan states that while it is in effect, the selection and nomination of those Trustees of the Fund
who are not "interested persons" of the Fund is committed to the discretion of the Independent Trustees. This
does not prevent the involvement of others in the selection and nomination process as long as the final decision
as to selection or nomination is approved by a majority of the Independent Trustees.
Under the plan for a class, no payment will be made to any recipient in any quarter in which the
aggregate net asset value of all Fund shares of that class held by the recipient for itself and its customers
does not exceed a minimum amount, if any, that may be set from time to time by a majority of the Independent
Trustees. The Board of Trustees has set no minimum amount of assets to qualify for payments under the plans.
|X| Service Plans. Under the service plans, the Distributor currently uses the fees it receives from
the Fund to pay brokers, dealers and other financial institutions (they are referred to as "recipients") for
personal services and account maintenance services they provide for their customers who hold shares of a
particular Class, A, B, C or N. The services include, among others, answering customer inquiries about the Fund,
assisting in establishing and maintaining accounts in the Fund, making the Fund's investment plans available and
providing other services at the request of the Fund or the Distributor. The service plans permit compensation to
the Distributor at a rate of up to 0.25% of average annual net assets of the applicable class. The Board has set
the rate at that level. While the plans permit the Board to authorize payments to the Distributor to reimburse
itself for services under the plan, the Board has not yet done so. The Distributor makes payments to plan
recipients quarterly at an annual rate not to exceed 0.25% of the average annual net assets consisting of shares
of the applicable class held in the accounts of the recipients or their customers.
|X| Service and Distribution Plan Fees. Under each plan, service fees and distribution fees are
computed on the average of the net asset value of shares in the respective class, determined as of the close of
each regular business day during the period. The plans compensate the Distributor at a flat rate for its services
and costs in distributing shares and servicing accounts, whether the Distributor's expenses are more or less than
the amounts paid by the Fund under the plans during the period for which the fee is paid. The types of services
that recipients provide are similar to the services provided under the service plan described above.
The plans permit the Distributor to retain both the asset-based sales charges and the service fees or to
pay recipients the service fee on a quarterly basis, without payment in advance. However, the Distributor
currently intends to pay the service fee to recipients in advance for the first year after the shares are
purchased. After the first year shares are outstanding, the Distributor makes service fee payments quarterly on
those shares. The advance payment is based on the net asset value of shares sold. Shares purchased by exchange do
not qualify for the advance service fee payment. If shares are redeemed during the first year after their
purchase, the recipient of the service fees on those shares will be obligated to repay the Distributor a pro rata
portion of the advance payment of the service fee made on those shares.
Under the Class A plan, the Distributor pays the asset-based sales charge to brokers, dealers and
financial institutions. The Distributor retains the asset-based sales charge on Class B and Class N shares. The
Distributor retains the asset-based sales charge on Class C shares during the first year the shares are
outstanding. It pays the asset-based sales charge it receives on Class C shares as an ongoing commission to the
recipient on Class C shares outstanding for a year or more. If a dealer has a special agreement with the
Distributor, the Distributor will pay the Class B, Class C and/or Class N service fee and the asset-based sales
charge to the dealer quarterly in lieu of paying the sales commissions and service fee in advance at the time of
purchase.
The asset-based sales charges on Class B, Class C and Class N shares allow investors to buy shares
without a front-end sales charge while allowing the Distributor to compensate dealers that sell those shares. The
Fund pays the asset-based sales charges to the Distributor for its services rendered in distributing Class A,
Class B, Class C and Class N shares. The payments are made to the Distributor in recognition that the Distributor:
o pays sales commissions to authorized brokers and dealers at the time of sale and pays service fees as
described above,
o may finance payment of sales commissions and/or the advance of the service fee payment to recipients
under the plans, or may provide such financing from its own resources or from the resources of an
affiliate,
o employs personnel to support distribution of shares, and
o bears the costs of sales literature, advertising and prospectuses (other than those furnished to current
shareholders) and state "blue sky" registration fees and certain other distribution expenses.
o may not be able to adequately compensate dealers that sell Class B, Class C and Class N shares without
receiving payment under the plans and therefore may not be able to offer such Classes for sale
absent the plans,
o receives payments under the plans consistent with the service fees and asset-based sales charges paid by
other non-proprietary funds that change 12b-1 fees,
o may use the payment under the plan to include the Fund in various third-party distribution programs that
may increase sales of Fund shares,
o may experience increased difficulty selling the Fund's shares if payments under the plan are
discontinued because most competitor funds have plans that pay dealers for rendering distribution
services as much or more than the amounts currently being paid by the Fund, and
o may not be able to continue providing, at the same or at lesser cost, the same quality distribution
sales efforts and services, or to obtain such services from brokers and dealers, if the plan
payments were to be discontinued.
When Class B, Class C or Class N shares are sold without the designation of a broker-dealer, the Distributor is
automatically designated as the broker-dealer of record. In those cases, the Distributor retains the service fee
and asset-based sales charge paid on Class B, Class C and Class N shares.
--------------------------------------------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor in the Fiscal Year Ended 10/31/01
--------------------------------------------------------------------------------------------------------------------
-------------------- --------------------- ------------------------ ------------------------ -----------------------
Class: Total Payments Amount Retained by Distributor's Distributor's
Unreimbursed Expenses
Aggregate Unreimbursed as % of Net Assets of
Under Plan1 Distributor Expenses Under Plan Class
-------------------- --------------------- ------------------------ ------------------------ -----------------------
-------------------- --------------------- ------------------------ ------------------------ -----------------------
Class A Plan $5,505,159 $623,935 N/A N/A
-------------------- --------------------- ------------------------ ------------------------ -----------------------
-------------------- --------------------- ------------------------ ------------------------ -----------------------
Class B Plan $13,262,363 $10,121,335 $11,222,717 0.97%
-------------------- --------------------- ------------------------ ------------------------ -----------------------
-------------------- --------------------- ------------------------ ------------------------ -----------------------
Class C Plan $2,802,785 $217,460 $4,231,717 1.64%
-------------------- --------------------- ------------------------ ------------------------ -----------------------
-------------------- --------------------- ------------------------ ------------------------ -----------------------
Class N Plan $2,136 $1,934 $32,224 1.41%
-------------------- --------------------- ------------------------ ------------------------ -----------------------
1. Includes amount paid to an affiliate of the Distributor's parent company: $288,454 (Class A), $130,546
(Class B) and $55,821 (Class C), $0 (Class N).
All payments under the plans are subject to the limitations imposed by the Conduct Rules of the National
Association of Securities Dealers, Inc. on payments of asset-based sales charges and service fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to illustrate its investment
performance. Those terms include "cumulative total return," "average annual total return," "average annual total
return at net asset value" and "total return at net asset value." An explanation of how total returns are
calculated is set forth below. The charts below show the Fund's performance as of the Fund's most recent fiscal
year end. You can obtain current performance information by calling the Fund's Transfer Agent at 0.000.000.0000
or by visiting the OppenheimerFunds Internet web site at xxxx://xxx.xxxxxxxxxxxxxxxx.xxx.
The Fund's illustrations of its performance data in advertisements must comply with rules of the
Securities and Exchange Commission. Those rules describe the types of performance data that may be used and how
it is to be calculated. In general, any advertisement by the Fund of its performance data must include the
average annual total returns for the advertised class of shares of the Fund. Those returns must be shown for the
1-, 5- and 10-year periods (or the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for publication).
Use of standardized performance calculations enables an investor to compare the Fund's performance to
the performance of other funds for the same periods. However, a number of factors should be considered before
using the Fund's performance information as a basis for comparison with other investments:
|_| Total returns measure the performance of a hypothetical account in the Fund over various periods
and do not show the performance of each shareholder's account. Your account's performance will vary from the
model performance data if your dividends are received in cash, or you buy or sell shares during the period, or
you bought your shares at a different time and price than the shares used in the model.
|_| The Fund's performance returns do not reflect the effect of taxes on dividends and capital gains
distributions.
|_| An investment in the Fund is not insured by the FDIC or any other government agency.
|_| The principal value of the Fund's shares and total returns are not guaranteed and normally will
fluctuate on a daily basis.
|_| When an investor's shares are redeemed, they may be worth more or less than their original cost.
|_| Total returns for any given past period represent historical performance information and are not,
and should not be considered, a prediction of future returns.
The performance of each class of shares is shown separately, because the performance of each class of
shares will usually be different. That is because of the different kinds of expenses each class bears. The total
returns of each class of shares of the Fund are affected by market conditions, the quality of the Fund's
investments, the maturity of debt investments, the types of investments the Fund holds, and its operating
expenses that are allocated to the particular class.
|X| Total Return Information. There are different types of "total returns" to measure the Fund's
performance. Total return is the change in value of a hypothetical investment in the Fund over a given period,
assuming that all dividends and capital gains distributions are reinvested in additional shares and that the
investment is redeemed at the end of the period. Because of differences in expenses for each class of shares, the
total returns for each class are separately measured. The cumulative total return measures the change in value
over the entire period (for example, ten years). An average annual total return shows the average rate of return
for each year in a period that would produce the cumulative total return over the entire period. However, average
annual total returns do not show actual year-by-year performance. The Fund uses standardized calculations for its
total returns as prescribed by the SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales charge of 5.75% (as a
percentage of the offering price) is deducted from the initial investment ("P") (unless the return is shown
without sales charge, as described below). For Class B shares, payment of the applicable contingent deferred
sales charge is applied, depending on the period for which the return is shown: 5.0% in the first year, 4.0% in
the second year, 3.0% in the third and fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none
thereafter. For Class C shares, the 1% contingent deferred sales charge is deducted for returns for the 1-year
period. For Class N shares, the 1% contingent deferred sales charge is deducted for returns for the
life-of-class periods a applicable. There is no sales charge on Class Y shares.
|_| Average Annual Total Return. The "average annual total return" of each class is an average
annual compounded rate of return for each year in a specified number of years. It is the rate of return based on
the change in value of a hypothetical initial investment of $1,000 ("P" in the formula below) held for a number
of years ("n" in the formula) to achieve an Ending Redeemable Value ("ERV" in the formula) of that investment,
according to the following formula:
ERV - 1 = AVERAGE ANNUAL TOTAL RETURN
------
P
|_| Cumulative Total Return. The "cumulative total return" calculation measures the change in
value of a hypothetical investment of $1,000 over an entire period of years. Its calculation uses some of the
same factors as average annual total return, but it does not average the rate of return on an annual basis.
Cumulative total return is determined as follows:
ERV - P = TOTAL RETURN
--------
P
|_| Total Returns at Net Asset Value. From time to time the Fund may also quote a cumulative or an
average annual total return "at net asset value" (without deducting sales charges) for Class A, Class B, Class C
or Class N shares. There is no sales charge on Class Y shares. Each is based on the difference in net asset
value per share at the beginning and the end of the period for a hypothetical investment in that class of shares
(without considering front-end or contingent deferred sales charges) and takes into consideration the
reinvestment of dividends and capital gains distributions.
----------------------------------------------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 10/31/01
----------------------------------------------------------------------------------------------------------------------
-------------- ------------------------- -----------------------------------------------------------------------------
Cumulative Total Average Annual Total Returns
Class of Returns (10 years or
Shares Life of Class)
-------------- ------------------------- -----------------------------------------------------------------------------
-------------- ------------------------- ------------------------- ------------------------- -------------------------
5-Year 10-Year
1-Year (or life-of-class) (or life-of-class)
-------------- ------------------------- ------------------------- ------------------------- -------------------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class A1 244.97% 266.03% -8.38% -2.79% 7.30% 8.58% 13.18% 13.85%
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class B2 154.37% 154.37% -7.74% -3.40% 7.69% 7.99% 12.11% 12.11%
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class C3 150.99% 150.99% -4.24% -3.37% 8.00% 8.00% 11.93% 11.93%
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class N4 -7.56% -6.63% N/A N/A N/A N/A N/A N/A
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class Y5 49.51% 49.51% N/A -2.48% N/A 8.60% N/A N/A
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1. Inception of Class A: 1/3/89
2. Inception of Class B: 9/1/93
3. Inception of Class C: 9/1/93
4. Inception of Class N: 3/01/01
5. Inception of Class Y: 12/16/96
Other Performance Comparisons. The Fund compares its performance annually to that of an appropriate
broadly-based market index in its Annual Report to shareholders. You can obtain that information by contacting
the Transfer Agent at the addresses or telephone numbers shown on the cover of this Statement of Additional
Information. The Fund may also compare its performance to that of other investments, including other mutual
funds, or use rankings of its performance by independent ranking entities. Examples of these performance
comparisons are set forth below.
|X| Lipper Rankings. From time to time the Fund may publish the ranking of the performance of its
classes of shares by Lipper, Inc. Lipper is a widely-recognized independent mutual fund monitoring service.
Lipper monitors the performance of regulated investment companies, including the Fund, and ranks their
performance for various periods based on stated fund classifications. Xxxxxx currently ranks the Fund's
performance against all other flexible portfolio funds. The Lipper performance rankings are based on total
returns that include the reinvestment of capital gain distributions and income dividends but do not take sales
charges or taxes into consideration.
|X| Morningstar Rankings. From time to time the Fund may publish the ranking and/or star rating of
the performance of its classes of shares by Morningstar, Inc., an independent mutual fund monitoring service.
Morningstar rates and ranks mutual funds in broad investment categories: domestic stock funds, international
stock funds, taxable bond funds and municipal bond funds. The Fund is included among domestic stock funds.
Morningstar proprietary star rankings reflect historical risk-adjusted total investment return. For
each fund with at least a three-year history, Morningstar calculates a Morningstar RatingTM metric each month by
subtracting the return on a 90-day U.S. Treasury Bill from the fund's load-adjusted return for the same period,
and then adjusting this excess return for risk. The top 10% of funds in each broad asset class receive 5 stars,
the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10%
receive 1 star. The Overall Morningstar Rating for a fund is derived from a weighted average of the performance
figures associated with its three-, five- and ten-year (if applicable) Morningstar Ratings metrics.
The Fund may also compare its total return ranking to that of other funds in its Morningstar category,
in addition to its star ratings. Those total return rankings are percentages from one percent to one hundred
percent and are not risk adjusted. For example, if a fund is in the 94th percentile, that means that 94% of the
funds in the same category performed better than it did.
|X| Performance Rankings and Comparisons by Other Entities and Publications. From time to time the
Fund may include in its advertisements and sales literature performance information about the Fund cited in
newspapers and other periodicals such as The New York Times, The Wall Street Journal, Xxxxxx'x, or similar
publications. That information may include performance quotations from other sources, including Lipper and
Morningstar. The performance of the Fund's classes of shares may be compared in publications to the performance
of various market indices or other investments, and averages, performance rankings or other benchmarks prepared
by recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share classes to the return on fixed-income
investments available from banks and thrift institutions. Those include certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or variable time deposits, and various
other instruments such as Treasury bills. However, the Fund's returns and share price are not guaranteed or
insured by the FDIC or any other agency and will fluctuate daily, while bank depository obligations may be
insured by the FDIC and may provide fixed rates of return. Repayment of principal and payment of interest on
Treasury securities is backed by the full faith and credit of the U.S. Government.
From time to time, the Fund may publish rankings or ratings of the Manager or Transfer Agent, and of the
investor services provided by them to shareholders of the Xxxxxxxxxxx funds, other than performance rankings of
the Xxxxxxxxxxx funds themselves. Those ratings or rankings of shareholder and investor services by third
parties may include comparisons of their services to those provided by other mutual fund families selected by the
rating or ranking services. They may be based upon the opinions of the rating or ranking service itself, using
its research or judgment, or based upon surveys of investors, brokers, shareholders or others.
From time to time the Fund may include in its advertisements and sales literature the total return
performance of a hypothetical investment account that includes shares of the fund and other Xxxxxxxxxxx funds.
The combined account may be part of an illustration of an asset allocation model or similar presentation. The
account performance may combine total return performance of the fund and the total return performance of other
Xxxxxxxxxxx funds included in the account. Additionally, from time to time, the Fund's advertisements and sales
literature may include, for illustrative or comparative purposes, statistical data or other information about
general or specific market and economic conditions. That may include, for example,
o information about the performance of certain securities or commodities markets or segments of those
markets,
o information about the performance of the economies of particular countries or regions,
o the earnings of companies included in segments of particular industries, sectors, securities markets,
countries or regions,
o the availability of different types of securities or offerings of securities,
o information relating to the gross national or gross domestic product of the United States or other
countries or regions,
o comparisons of various market sectors or indices to demonstrate performance, risk, or other
characteristics of the Fund.
ABOUT YOUR ACCOUNT
How to Buy Shares
Additional information is presented below about the methods that can be used to buy shares of the Fund.
Appendix C contains more information about the special sales charge arrangements offered by the Fund, and the
circumstances in which sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must be at least $25. Shares will be
purchased on the regular business day the Distributor is instructed to initiate the Automated Clearing House
("ACH") transfer to buy the shares. That instruction must be received prior to the close of The New York Stock
Exchange that day. Dividends will begin to accrue on shares purchased with the proceeds of ACH transfers on the
business day after the shares are purchased. The Exchange normally closes at 4:00 P.M., but may close earlier on
certain days. The proceeds of ACH transfers are normally received by the Fund 3 days after the transfers are
initiated. If the proceeds of the ACH transfer are not received on a timely basis, the Distributor reserves the
right to cancel the purchase order. The Distributor and the Fund are not responsible for any delays in
purchasing shares resulting from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge rate may be obtained for Class A
shares under Right of Accumulation and Letters of Intent because of the economies of sales efforts and reduction
in expenses realized by the Distributor, dealers and brokers making such sales. No sales charge is imposed in
certain other circumstances described in Appendix C to this Statement of Additional Information because the
Distributor or dealer or broker incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates that apply to larger purchases
of Class A shares, you and your spouse can add together:
o Class A and Class B shares you purchase for your individual accounts (including IRAs and 403(b) plans),
-
or for your joint accounts, or for trust or custodial accounts on behalf of your children who
are minors, and
o Current purchases of Class A and Class B shares of the Fund and other Xxxxxxxxxxx funds to reduce the
sales charge rate that applies to current purchases of Class A shares, and
o Class A and Class B shares of Xxxxxxxxxxx funds you previously purchased subject to an initial or
contingent deferred sales charge to reduce the sales charge rate for current purchases of Class
A shares, provided that you still hold your investment in one of the Xxxxxxxxxxx funds.
A fiduciary can count all shares purchased for a trust, estate or other fiduciary account (including one
or more employee benefit plans of the same employer) that has multiple accounts. The Distributor will add the
value, at current offering price, of the shares you previously purchased and currently own to the value of
current purchases to determine the sales charge rate that applies. The reduced sales charge will apply only to
current purchases. You must request it when you buy shares.
|X| The Xxxxxxxxxxx Funds. The Xxxxxxxxxxx funds are those mutual funds for which the Distributor acts as
the distributor or the sub-distributor and currently include the following:
Xxxxxxxxxxx Bond Fund Xxxxxxxxxxx Municipal Bond Fund
Xxxxxxxxxxx California Municipal Fund Xxxxxxxxxxx New York Municipal Fund
Xxxxxxxxxxx Capital Appreciation Fund Xxxxxxxxxxx New Jersey Municipal Fund
Xxxxxxxxxxx Capital Preservation Fund Xxxxxxxxxxx Pennsylvania Municipal Fund
Xxxxxxxxxxx Capital Income Fund Xxxxxxxxxxx Quest Balanced Value Fund
Xxxxxxxxxxx Champion Income Fund Xxxxxxxxxxx Quest Capital Value Fund, Inc.
Xxxxxxxxxxx Concentrated Growth Fund Xxxxxxxxxxx Quest Global Value Fund, Inc.
Xxxxxxxxxxx Convertible Securities Fund Xxxxxxxxxxx Quest Opportunity Value Fund
Xxxxxxxxxxx Developing Markets Fund Xxxxxxxxxxx Quest Value Fund, Inc.
Xxxxxxxxxxx Disciplined Allocation Fund Xxxxxxxxxxx Real Asset Fund
Xxxxxxxxxxx Discovery Fund Xxxxxxxxxxx Rochester National Municipals
Xxxxxxxxxxx Emerging Growth Fund Xxxxxxxxxxx Senior Floating Rate Fund
Xxxxxxxxxxx Emerging Technologies Fund Xxxxxxxxxxx Small Cap Value Fund
Xxxxxxxxxxx Enterprise Fund Xxxxxxxxxxx Special Value Fund
Xxxxxxxxxxx Europe Fund Xxxxxxxxxxx Strategic Income Fund
Xxxxxxxxxxx Global Fund Xxxxxxxxxxx Total Return Fund, Inc.
Xxxxxxxxxxx Global Growth & Income Fund Xxxxxxxxxxx Trinity Core Fund
Xxxxxxxxxxx Gold & Special Minerals Fund Xxxxxxxxxxx Trinity Large Cap Growth Fund
Xxxxxxxxxxx Growth Fund Xxxxxxxxxxx Trinity Value Fund
Xxxxxxxxxxx High Yield Fund Xxxxxxxxxxx U.S. Government Trust
Xxxxxxxxxxx Intermediate Municipal Fund Xxxxxxxxxxx Value Fund
Xxxxxxxxxxx International Bond Fund Limited-Term New York Municipal Fund
Xxxxxxxxxxx International Growth Fund Rochester Fund Municipals
Xxxxxxxxxxx International Small Company Fund OSM1- Gartmore Millennium Growth Fund
Xxxxxxxxxxx Limited Term Government Fund OSM1 - Xxxxxxxx Growth Fund
Xxxxxxxxxxx Main Street Growth & Income Fund OSM1 - Mercury Advisors S&P 500 Index
Xxxxxxxxxxx Main Street Opportunity Fund OSM1 - Mercury Advisors Focus Growth Fund
Xxxxxxxxxxx Main Street Small Cap Fund OSM1 - QM Active Balanced Fund
Xxxxxxxxxxx XxxXxx Fund OSM1 - Salomon Brothers Capital Fund
Xxxxxxxxxxx Multiple Strategies Fund
and the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Xxxxxxxxxxx Cash Reserves
Centennial Money Market Trust Xxxxxxxxxxx Money Market Fund, Inc.
1 - "OSM" stands for Xxxxxxxxxxx Select Managers
There is an initial sales charge on the purchase of Class A shares of each of the Xxxxxxxxxxx funds
except the money market funds. Under certain circumstances described in this Statement of Additional Information,
redemption proceeds of certain money market fund shares may be subject to a contingent deferred sales charge.
|X| Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or Class A and Class B
shares of the Fund and other Xxxxxxxxxxx funds during a 13-month period, you can reduce the sales charge rate
that applies to your purchases of Class A shares. The total amount of your intended purchases of both Class A
and Class B shares will determine the reduced sales charge rate for the Class A shares purchased during that
period. You can include purchases made up to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the Distributor of the intention to purchase
Class A shares or Class A and Class B shares of the Fund (and other Xxxxxxxxxxx funds) during a 13-month period
(the "Letter of Intent period"). At the investor's request, this may include purchases made up to 90 days prior
to the date of the Letter. The Letter states the investor's intention to make the aggregate amount of purchases
of shares which, when added to the investor's holdings of shares of those funds, will equal or exceed the amount
specified in the Letter. Purchases made by reinvestment of dividends or distributions of capital gains and
purchases made at net asset value without sales charge do not count toward satisfying the amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares purchased under the Letter to
obtain the reduced sales charge rate on purchases of Class A shares of the Fund (and other Xxxxxxxxxxx funds)
that applies under the Right of Accumulation to current purchases of Class A shares. Each purchase of Class A
shares under the Letter will be made at the offering price (including the sales charge) that applies to a single
lump-sum purchase of shares in the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase shares. However, if the investor's
purchases of shares within the Letter of Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal or exceed the intended purchase
amount, the investor agrees to pay the additional amount of sales charge applicable to such purchases. That
amount is described in "Terms of Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended purchase amount will be held in
escrow by the Transfer Agent subject to the Terms of Escrow. Also, the investor agrees to be bound by the terms
of the Prospectus, this Statement of Additional Information and the Application used for a Letter of Intent. If
those terms are amended, as they may be from time to time by the Fund, the investor agrees to be bound by the
amended terms and that those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do not equal or exceed the
intended purchase amount, the commissions previously paid to the dealer of record for the account and the amount
of sales charge retained by the Distributor will be adjusted to the rates applicable to actual total purchases.
If total eligible purchases during the Letter of Intent period exceed the intended purchase amount and exceed the
amount needed to qualify for the next sales charge rate reduction set forth in the Prospectus, the sales charges
paid will be adjusted to the lower rate. That adjustment will be made only if and when the dealer returns to the
Distributor the excess of the amount of commissions allowed or paid to the dealer over the amount of commissions
that apply to the actual amount of purchases. The excess commissions returned to the Distributor will be used to
purchase additional shares for the investor's account at the net asset value per share in effect on the date of
such purchase, promptly after the Distributor's receipt thereof.
The Transfer Agent will not hold shares in escrow for purchases of shares of the Fund and other
Xxxxxxxxxxx funds by XxxxxxxxxxxXxxxx prototype 401(k) plans under a Letter of Intent. If the intended purchase
amount under a Letter of Intent entered into by an XxxxxxxxxxxXxxxx prototype 401(k) plan is not purchased by the
plan by the end of the Letter of Intent period, there will be no adjustment of commissions paid to the
broker-dealer or financial institution of record for accounts held in the name of that plan.
In determining the total amount of purchases made under a Letter, shares redeemed by the investor prior
to the termination of the Letter of Intent period will be deducted. It is the responsibility of the dealer of
record and/or the investor to advise the Distributor about the Letter in placing any purchase orders for the
investor during the Letter of Intent period. All of such purchases must be made through the Distributor.
|X| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made pursuant to a Letter, shares of
the Fund equal in value up to 5% of the intended purchase amount specified in the Letter shall be
held in escrow by the Transfer Agent. For example, if the intended purchase amount is $50,000,
the escrow shall be shares valued in the amount of $2,500 (computed at the offering price adjusted
for a $50,000 purchase). Any dividends and capital gains distributions on the escrowed shares
will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed within the thirteen-month Letter
of Intent period, the escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total purchases pursuant to the
Letter are less than the intended purchase amount specified in the Letter, the investor must remit
to the Distributor an amount equal to the difference between the dollar amount of sales charges
actually paid and the amount of sales charges which would have been paid if the total amount
purchased had been made at a single time. That sales charge adjustment will apply to any shares
redeemed prior to the completion of the Letter. If the difference in sales charges is not paid
within twenty days after a request from the Distributor or the dealer, the Distributor will,
within sixty days of the expiration of the Letter, redeem the number of escrowed shares necessary
to realize such difference in sales charges. Full and fractional shares remaining after such
redemption will be released from escrow. If a request is received to redeem escrowed shares prior
to the payment of such additional sales charge, the sales charge will be withheld from the
redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and appoints the Transfer Agent as
attorney-in-fact to surrender for redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of which may be counted toward
completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a Class A contingent deferred sales
charge,
(b) Class B shares of other Xxxxxxxxxxx funds acquired subject to a contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class A shares of one of the other
Xxxxxxxxxxx funds that were acquired subject to a Class A initial or contingent deferred sales
charge or (2) Class B shares of one of the other Xxxxxxxxxxx funds that were acquired subject
to a contingent deferred sales charge.
6. Xxxxxx held in escrow hereunder will automatically be exchanged for shares of another fund to
which an exchange is requested, as described in the section of the Prospectus entitled "How to Exchange Shares"
and the escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly from a bank account, you must
enclose a check (the minimum is $25) for the initial purchase with your application. Shares purchased by Asset
Builder Plan payments from bank accounts are subject to the redemption restrictions for recent purchases
described in the Prospectus. Asset Builder Plans are available only if your bank is an ACH member. Asset
Builder Plans may not be used to buy shares for OppenheimerFunds-sponsored qualified retirement accounts. Asset
Builder Plans also enable shareholders of Xxxxxxxxxxx Cash Reserves to use their account in that fund to make
monthly automatic purchases of shares of up to four other Xxxxxxxxxxx funds.
If you make payments from your bank account to purchase shares of the Fund, your bank account will be
debited automatically. Normally the debit will be made two business days prior to the investment dates you
selected on your application. Neither the Distributor, the Transfer Agent nor the Fund shall be responsible for
any delays in purchasing shares that result from delays in ACH transmissions.
Before you establish Asset Builder payments, you should obtain a prospectus of the selected fund(s) from
your financial advisor (or the Distributor) and request an application from the Distributor. Complete the
application and return it. You may change the amount of your Asset Builder payment or your can terminate these
automatic investments at any time by writing to the Transfer Agent. The Transfer Agent requires a reasonable
period (approximately 10 days) after receipt of your instructions to implement them. The Fund reserves the right
to amend, suspend, or discontinue offering Asset Builder plans at any time without prior notice.
Retirement Plans. Certain types of retirement plans are entitled to purchase shares of the Fund without sales
charge or at reduced sales charge rates, as described in Appendix C to this Statement of Additional Information.
Certain special sales charge arrangements described in that Appendix apply to retirement plans whose records are
maintained on a daily valuation basis by Xxxxxxx Xxxxx Xxxxxx Xxxxxx & Xxxxx, Inc. ("Xxxxxxx Xxxxx") or an
independent record keeper that has a contract or special arrangement with Xxxxxxx Xxxxx. If on the date the plan
sponsor signed the Xxxxxxx Xxxxx record keeping service agreement the plan has less than $3 million in assets
(other than assets invested in money market funds) invested in applicable investments, then the retirement plan
may purchase only Class B shares of the Xxxxxxxxxxx funds. Any retirement plans in that category that currently
invest in Class B shares of the Fund will have their Class B shares converted to Class A shares of the Fund when
the plan's applicable investments reach $5 million.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's shares (for example, when a
purchase check is returned to the Fund unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date. That loss is equal to the amount of the
decline in the net asset value per share multiplied by the number of shares in the purchase order. The investor
is responsible for that loss. If the investor fails to compensate the Fund for the loss, the Distributor will do
so. The Fund may reimburse the Distributor for that amount by redeeming shares from any account registered in
that investor's name, or the Fund or the Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in the same portfolio of investments
of the Fund. However, each class has different shareholder privileges and features. The net income attributable
to a class of shares and the dividends payable on a class of shares will be reduced by incremental expenses borne
solely by that class. Those expenses include the asset-based sales charges to which Class A, Class B, Class C and
Class N are subject.
The availability of different classes of shares permits an investor to choose the method of purchasing
shares that is more appropriate for the investor. That may depend on the amount of the purchase, the length of
time the investor expects to hold shares, and other relevant circumstances. Class A shares normally are sold
subject to an initial sales charge. While Class B, Class C and Class N shares have no initial sales charge, the
purpose of the deferred sales charge and asset-based sales charge on Class B, Class C and Class N shares is the
same as that of the initial sales charge on Class A shares - to compensate the Distributor and brokers, dealers
and financial institutions that sell shares of the Fund. A salesperson who is entitled to receive compensation
from his or her firm for selling Fund shares may receive different levels of compensation for selling one class
of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or more for Class B shares or $1
million or more for Class C shares on behalf of a single investor (not including dealer "street name" or omnibus
accounts). That is because generally it will be more advantageous for that investor to purchase Class A shares of
the Fund.
|X| Class A Shares Subject to a Contingent Deferred Sales Charge. For purchases of
Class A shares subject to a contingent deferred sales charge as described in the Prospectus, no sales concessions
will be paid to the broker-dealer of record, as described in the Prospectus, on sales of Class A shares with the
redemption proceeds of shares of another mutual fund offered as an investment option in a retirement plan in
which Xxxxxxxxxxx funds are also offered as investment options under a special arrangement with the Distributor,
if the purchase occurs more than 30 days after the Xxxxxxxxxxx funds are added as an investment option under that
plan. Additionally, that concession will not be paid on purchases of shares by a retirement plan made with the
redemption proceeds of Class N shares of one or more Xxxxxxxxxxx funds held by the plan for more than 18 months.
|X| Class B Conversion. Under current interpretations of applicable federal income tax law by the
Internal Revenue Service, the conversion of Class B shares to Class A shares after six years is not treated as a
taxable event for the shareholder. If those laws or the IRS interpretation of those laws should change, the
automatic conversion feature may be suspended. In that event, no further conversions of Class B shares would
occur while that suspension remained in effect. Although Class B shares could then be exchanged for Class A
shares on the basis of relative net asset value of the two classes, without the imposition of a sales charge or
fee, such exchange could constitute a taxable event for the shareholder, and absent such exchange, Class B shares
might continue to be subject to the asset-based sales charge for longer than six years.
|X| Allocation of Expenses. The Fund pays expenses related to its daily operations, such as custodian
fees, Trustees' fees, transfer agency fees, legal fees and auditing costs. Those expenses are paid out of the
Fund's assets and are not paid directly by shareholders. However, those expenses reduce the net asset value of
shares, and therefore are indirectly borne by shareholders through their investment.
|X| Availability of Class N Shares. to certain customers of broker-dealers and financial advisors that
are identified in a special agreement between the broker-dealer or financial advisor and the Distributor for that
purpose.
The sales concession and the advance of the service fee, as described in the Prospectus, will not
be paid to dealers of record on sales of Class N shares on:
o purchases of Class N shares in amounts of $500,000 or more by a retirement plan that pays for the
purchase with the redemption proceeds of Class A shares of one or more Xxxxxxxxxxx funds (other
than rollovers from an OppenheimerFunds-sponsored Pinnacle or Ascender 401(k) plan to any IRA
invested in the Xxxxxxxxxxx funds),
o purchases of Class N shares in amounts of $500,000 or more by a retirement plan that pays for the
purchase with the redemption proceeds of Class C shares of one or more Xxxxxxxxxxx funds held
by the plan for more than one year (other than rollovers from an OppenheimerFunds-sponsored
Pinnacle or Ascender 401(k) plan to any IRA invested in the Xxxxxxxxxxx funds), and
o on purchases of Class N shares by an OppenheimerFunds-sponsored Pinnacle or Ascender 401(k) plan made
with the redemption proceeds of Class A shares of one or more Xxxxxxxxxxx funds.
The methodology for calculating the net asset value, dividends and distributions of the Fund's share
classes recognizes two types of expenses. General expenses that do not pertain specifically to any one class are
allocated pro rata to the shares of all classes. The allocation is based on the percentage of the Fund's total
assets that is represented by the assets of each class, and then equally to each outstanding share within a given
class. Such general expenses include management fees, legal, bookkeeping and audit fees, printing and mailing
costs of shareholder reports, Prospectuses, Statements of Additional Information and other materials for current
shareholders, fees to unaffiliated Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses, such as litigation costs.
Other expenses that are directly attributable to a particular class are allocated equally to each
outstanding share within that class. Examples of such expenses include distribution and service plan (12b-1)
fees, transfer and shareholder servicing agent fees and expenses, and shareholder meeting expenses (to the extent
that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of each class of shares of the Fund
are determined as of the close of business of The New York Stock Exchange on each day that the Exchange is open.
The calculation is done by dividing the value of the Fund's net assets attributable to a class by the number of
shares of that class that are outstanding. The Exchange normally closes at 4:00 P.M., New York time, but may
close earlier on some other days (for example, in case of weather emergencies or on days falling before a U.S.
holiday). The Exchange's most recent annual announcement (which is subject to change) states that it will close
on New Year's Day, Presidents' Day, Xxxxxx Xxxxxx Xxxx, Xx. Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain securities on days on which the
Exchange is closed (including weekends and U.S. holidays) or after 4:00 P.M. on a regular business day. Because
the Fund's net asset values will not be calculated on those days, the Fund's net asset values per share may be
significantly affected on such days when shareholders may not purchase or redeem shares. Additionally, trading on
European and Asian stock exchanges and over-the-counter markets normally is completed before the close of The New
York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets as a result of events that
occur after the prices of those securities are determined, but before the close of The New York Stock Exchange,
will not be reflected in the Fund's calculation of its net asset values that day unless the Manager determines
that the event is likely to effect a material change in the value of the security. If such determination is made,
the Manager, acting through an internal valuation committee, will establish a valuation for such security subject
to approval, ratification and confirmation by the Board at its next ensuing meeting.
|X| Securities Valuation. The Fund's Board of Trustees has established procedures for the valuation of
the Fund's securities. In general those procedures are as follows:
|_| Equity securities traded on a U.S. securities exchange or on NASDAQ are valued as follows:
(1) if last sale information is regularly reported, they are valued at the last reported sale price on the
principal exchange on which they are traded or on NASDAQ, as applicable, on that day, or
(2) if last sale information is not available on a valuation date, they are valued at the last reported sale
price preceding the valuation date if it is within the spread of the closing "bid" and
"asked" prices on the valuation date or, if not, at the closing "bid" price on the
valuation date.
|_| Equity securities traded on a foreign securities exchange generally are valued in one of
the following ways:
(1) at the last sale price available to the pricing service approved by the Board of Trustees, or
(2) at the last sale price obtained by the Manager from the report of the principal exchange on which the
security is traded at its last trading session on or immediately before the valuation date,
or
(3) at the mean between the "bid" and "asked" prices obtained from the principal exchange on which the
security is traded or, on the basis of reasonable inquiry, from two market makers in the
security.
|_| Long-term debt securities having a remaining maturity in excess of 60 days are valued based on
the mean between the "bid" and "asked" prices determined by a portfolio pricing service approved by the Fund's
Board of Trustees or obtained by the Manager from two active market makers in the security on the basis of
reasonable inquiry.
|_| The following securities are valued at the mean between the "bid" and "asked" prices
determined by a pricing service approved by the Fund's Board of Trustees or obtained by the Manager from two
active market makers in the security on the basis of reasonable inquiry:
(1) debt instruments that have a maturity of more than 397 days when issued,
(2) debt instruments that had a maturity of 397 days or less when issued and have a remaining maturity of
more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or less when issued and which have a
remaining maturity of 60 days or less.
|_| The following securities are valued at cost, adjusted for amortization of premiums and accretion of
discounts:
(1) money market debt securities held by a non-money market fund that had a maturity of less than 397 days
when issued that have a remaining maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining maturity of 397 days or less.
|_| 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, a security may be priced at the mean between the "bid" and "asked"
prices provided by a single active market maker (which in certain cases may be the "bid" price if no
"asked" price is available).
In the case of U.S. Government securities, mortgage-backed securities, corporate bonds and foreign
government securities, when last sale information is not generally available, the Manager may use pricing
services approved by the Board of Trustees. The pricing service may use "matrix" comparisons to the prices for
comparable instruments on the basis of quality, yield, and maturity. Other special factors may be involved (such
as the tax-exempt status of the interest paid by municipal securities). The Manager will monitor the accuracy of
the pricing services. That monitoring may include comparing prices used for portfolio valuation to actual sales
prices of selected securities.
The closing prices in the London foreign exchange market on a particular business day that are provided
to the Manager by a bank, dealer or pricing service that the Manager has determined to be reliable are used to
value foreign currency, including forward contracts, and to convert to U.S. dollars securities that are
denominated in foreign currency.
Puts, calls, and futures are valued at the last sale price on the principal exchange on which they are
traded or on NASDAQ, as applicable, as determined by a pricing service approved by the Board of Trustees or by
the Manager. If there were no sales that day, they shall be valued at the last sale price on the preceding
trading day if it is within the spread of the closing "bid" and "asked" prices on the principal exchange or on
NASDAQ on the valuation date. If not, the value shall be the closing bid price on the principal exchange or on
NASDAQ on the valuation date. If the put, call or future is not traded on an exchange or on NASDAQ, it shall be
valued by the mean between "bid" and "asked" prices obtained by the Manager from two active market makers. In
certain cases that may be at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium received is included in the Fund's
Statement of Assets and Liabilities as an asset. An equivalent credit is included in the liability section. The
credit is adjusted ("marked-to-market") to reflect the current market value of the option. In determining the
Fund's gain on investments, if a call or put written by the Fund is exercised, the proceeds are increased by the
premium received. If a call or put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a gain or loss, depending on
whether the premium received was more or less than the cost of the closing transaction. If the Fund exercises a
put it holds, the amount the Fund receives on its sale of the underlying investment is reduced by the amount of
premium paid by the Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming shares set forth in the prospectus.
Reinvestment Privilege. Within six months of a redemption, a shareholder may reinvest all or part of the
redemption proceeds of:
|_| Class A shares purchased subject to an initial sales charge or Class A shares on which a contingent
deferred sales charge was paid, or
|_| Class B shares that were subject to the Class B contingent deferred sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares of the Fund or any of the other
Xxxxxxxxxxx funds into which shares of the Fund are exchangeable as described in "How to Exchange Shares" below.
Reinvestment will be at the net asset value next computed after the Transfer Agent receives the reinvestment
order. The shareholder must ask the Transfer Agent for that privilege at the time of reinvestment. This
privilege does not apply to Class C or Class Y shares. The Fund may amend, suspend or cease offering this
reinvestment privilege at any time as to shares redeemed after the date of such amendment, suspension or
cessation.
Any capital gain that was realized when the shares were redeemed is taxable, and reinvestment will not
alter any capital gains tax payable on that gain. If there has been a capital loss on the redemption, some or
all of the loss may not be tax deductible, depending on the timing and amount of the reinvestment. Under the
Internal Revenue Code, if the redemption proceeds of Fund shares on which a sales charge was paid are reinvested
in shares of the Fund or another of the Xxxxxxxxxxx funds within 90 days of payment of the sales charge, the
shareholder's basis in the shares of the Fund that were redeemed may not include the amount of the sales charge
paid. That would reduce the loss or increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for redemption is ordinarily made in
cash. However, under certain circumstances the Board of Trustees of the Fund may determine that it would be
detrimental to the best interests of the remaining shareholders of the Fund to make payment of a redemption order
wholly or partly in cash. In that case, the Fund may pay the redemption proceeds in whole or in part by a
distribution "in kind" of liquid securities from the portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the
Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net assets of the
Fund during any 90-day period for any one shareholder. If shares are redeemed in kind, the redeeming shareholder
might incur brokerage or other costs in selling the securities for cash. The Fund will value securities used to
pay redemptions in kind using the same method the Fund uses to value its portfolio securities described above
under "Determination of Net Asset Values Per Share." That valuation will be made as of the time the redemption
price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the involuntary redemption of the
shares held in any account if the aggregate net asset value of those shares is less than $500 or such lesser
amount as the Board may fix. The Board will not cause the involuntary redemption of shares in an account if the
aggregate net asset value of such shares has fallen below the stated minimum solely as a result of market
fluctuations. If the Board exercises this right, it may also fix the requirements for any notice to be given to
the shareholders in question (not less than 30 days). The Board may alternatively set requirements for the
shareholder to increase the investment, or set other terms and conditions so that the shares would not be
involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an event that triggers the payment
of sales charges. Therefore, shares are not subject to the payment of a contingent deferred sales charge of any
class at the time of transfer to the name of another person or entity. It does not matter whether the transfer
occurs by absolute assignment, gift or bequest, as long as it does not involve, directly or indirectly, a public
sale of the shares. When shares subject to a contingent deferred sales charge are transferred, the transferred
shares will remain subject to the contingent deferred sales charge. It will be calculated as if the transferee
shareholder had acquired the transferred shares in the same manner and at the same time as the transferring
shareholder.
If less than all shares held in an account are transferred, and some but not all shares in the account
would be subject to a contingent deferred sales charge if redeemed at the time of transfer, the priorities
described in the Prospectus under "How to Buy Shares" for the imposition of the Class B or Class C contingent
deferred sales charge will be followed in determining the order in which shares are transferred.
Selling Shares by Wire. The wire of redemptions proceeds may be delayed if the Fund's custodian bank is not open
for business on a day when the Fund would normally authorize the wire to be made, which is usually the Fund's
next regular business day following the redemption. In those circumstances, the wire will not be transmitted
until the next bank business day on which the Fund is open for business. No dividends will be paid on the
proceeds of redeemed shares awaiting transfer by wire.
Distributions From Retirement Plans. Requests for distributions from OppenheimerFunds-sponsored IRAs, 403(b)(7)
custodial plans, 401(k) plans or pension or profit-sharing plans should be addressed to "Trustee,
OppenheimerFunds Retirement Plans," c/o the Transfer Agent at its address listed in "How To Sell Shares" in the
Prospectus or on the back cover of this Statement of Additional Information. The request must:
(1) state the reason for the distribution;
(2) state the owner's awareness of tax penalties if the distribution is premature; and
(3) conform to the requirements of the plan and the Fund's other redemption requirements.
Participants (other than self-employed persons) in OppenheimerFunds-sponsored pension or profit-sharing
plans with shares of the Fund held in the name of the plan or its fiduciary may not directly request redemption
of their accounts. The plan administrator or fiduciary must sign the request.
Distributions from pension and profit sharing plans are subject to special requirements under the
Internal Revenue Code and certain documents (available from the Transfer Agent) must be completed and submitted
to the Transfer Agent before the distribution may be made. Distributions from retirement plans are subject to
withholding requirements under the Internal Revenue Code, and IRS Form W-4P (available from the Transfer Agent)
must be submitted to the Transfer Agent with the distribution request, or the distribution may be delayed.
Unless the shareholder has provided the Transfer Agent with a certified tax identification number, the Internal
Revenue Code requires that tax be withheld from any distribution even if the shareholder elects not to have tax
withheld. The Fund, the Manager, the Distributor, and the Transfer Agent assume no responsibility to determine
whether a distribution satisfies the conditions of applicable tax laws and will not be responsible for any tax
penalties assessed in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The Distributor is the Fund's agent to
repurchase its shares from authorized dealers or brokers on behalf of their customers. Shareholders should
contact their broker or dealer to arrange this type of redemption. The repurchase price per share will be the net
asset value next computed after the Distributor receives an order placed by the dealer or broker. However, if the
Distributor receives a repurchase order from a dealer or broker after the close of The New York Stock Exchange on
a regular business day, it will be processed at that day's net asset value if the order was received by the
dealer or broker from its customers prior to the time the Exchange closes. Normally, the Exchange closes at 4:00
P.M., but may do so earlier on some days. Additionally, the order must have been transmitted to and received by
the Distributor prior to its close of business that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure, payment will be made within
three business days after the shares have been redeemed upon the Distributor's receipt of the required redemption
documents in proper form. The signature(s) of the registered owners on the redemption documents must be
guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund valued at $5,000 or more can
authorize the Transfer Agent to redeem shares (having a value of at least $50) automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be redeemed three
business days prior to the date requested by the shareholder for receipt of the payment. Automatic withdrawals
of up to $1,500 per month may be requested by telephone if payments are to be made by check payable to all
shareholders of record. Payments must also be sent to the address of record for the account and the address must
not have been changed within the prior 30 days. Required minimum distributions from OppenheimerFunds-sponsored
retirement plans may not be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink privileges (see "How To Buy
Shares") may arrange to have Automatic Withdrawal Plan payments transferred to the bank account designated on the
Account Application or by signature-guaranteed instructions sent to the Transfer Agent. Shares are normally
redeemed pursuant to an Automatic Withdrawal Plan three business days before the payment transmittal date you
select in the Account Application. If a contingent deferred sales charge applies to the redemption, the amount
of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The Fund reserves the right to
amend, suspend or discontinue offering these plans at any time without prior notice. Because of the sales charge
assessed on Class A share purchases, shareholders should not make regular additional Class A share purchases
while participating in an Automatic Withdrawal Plan. Class B, Class C and Class N shareholders should not
establish withdrawal plans, because of the imposition of the contingent deferred sales charge on such withdrawals
(except where the contingent deferred sales charge is waived as described in Appendix C below).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder agrees to the terms and
conditions that apply to such plans, as stated below. These provisions may be amended from time to time by the
Fund and/or the Distributor. When adopted, any amendments will automatically apply to existing Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer Agent to exchange a
pre-determined amount of shares of the Fund for shares (of the same class) of other Xxxxxxxxxxx funds
automatically on a monthly, quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The minimum
amount that may be exchanged to each other fund account is $25. Instructions should be provided on the
OppenheimerFunds Application or signature-guaranteed instructions. Exchanges made under these plans are subject
to the restrictions that apply to exchanges as set forth in "How to Exchange Shares" in the Prospectus and below
in this Statement of Additional Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to meet withdrawal
payments. Shares acquired without a sales charge will be redeemed first. Shares acquired with reinvested
dividends and capital gains distributions will be redeemed next, followed by shares acquired with a sales charge,
to the extent necessary to make withdrawal payments. Depending upon the amount withdrawn, the investor's
principal may be depleted. Payments made under these plans should not be considered as a yield or income on your
investment.
The Transfer Agent will administer the investor's Automatic Withdrawal Plan as agent for the
shareholder(s) (the "Planholder") who executed the Plan authorization and application submitted to the Transfer
Agent. Neither the Fund nor the Transfer Agent shall incur any liability to the Planholder for any action taken
or not taken by the Transfer Agent in good faith to administer the Plan. Share certificates will not be issued
for shares of the Fund purchased for and held under the Plan, but the Transfer Agent will credit all such shares
to the account of the Planholder on the records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so that the shares represented by the
certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of capital gains must be reinvested in
shares of the Fund, which will be done at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value per share determined on the
redemption date. Checks or AccountLink payments representing the proceeds of Plan withdrawals will normally be
transmitted three business days prior to the date selected for receipt of the payment, according to the choice
specified in writing by the Planholder. Receipt of payment on the date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to which checks are to be mailed or
AccountLink payments are to be sent may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time after mailing such notification for the requested
change to be put in effect. The Planholder may, at any time, instruct the Transfer Agent by written notice to
redeem all, or any part of, the shares held under the Plan. That notice must be in proper form in accordance with
the requirements of the then-current Prospectus of the Fund. In that case, the Transfer Agent will redeem the
number of shares requested at the net asset value per share in effect and will mail a check for the proceeds to
the Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer Agent. The Fund may also
give directions to the Transfer Agent to terminate a Plan. The Transfer Agent will also terminate a Plan upon its
receipt of evidence satisfactory to it that the Planholder has died or is legally incapacitated. Upon termination
of a Plan by the Transfer Agent or the Fund, shares that have not been redeemed will be held in uncertificated
form in the name of the Planholder. The account will continue as a dividend-reinvestment, uncertificated account
unless and until proper instructions are received from the Planholder, his or her executor or guardian, or
another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder may request issuance of a
portion of the shares in certificated form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued without causing the withdrawal checks to
stop. However, should such uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the Planholder will be deemed to
have appointed any successor transfer agent to act as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Xxxxxxxxxxx funds having more than one
class of shares may be exchanged only for shares of the same class of other Xxxxxxxxxxx funds. Shares of
Xxxxxxxxxxx funds that have a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes by calling the Distributor at
0.000.000.0000.
o All of the Xxxxxxxxxxx funds currently offer Class A, B and C shares except Xxxxxxxxxxx Money Market
Fund, Inc., Centennial Money Market Trust, Centennial Tax Exempt Trust, Centennial Government Trust,
Centennial New York Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America Fund,
L.P., which only offer Class A shares.
o Class B, Class C and Class N shares of Xxxxxxxxxxx Cash Reserves are generally available only by
exchange from the same class of shares of other Xxxxxxxxxxx funds or through OppenheimerFunds-sponsored
401(k) plans.
o Only certain Xxxxxxxxxxx funds currently offer Class Y shares. Class Y shares of Xxxxxxxxxxx Real Asset
Fund may not be exchanged for shares of any other fund.
o Only certain Xxxxxxxxxxx funds currently offer Class N shares, which are only offered to retirement
plans as described in the Prospectus. Class N shares can be exchanged only for Class N shares of other
Xxxxxxxxxxx funds.
o Class M shares of Xxxxxxxxxxx Convertible Securities Fund may be exchanged only for Class A shares of
other Xxxxxxxxxxx funds. They may not be acquired by exchange of shares of any class of any other
Xxxxxxxxxxx funds except Class A shares of Xxxxxxxxxxx Money Market Fund or Xxxxxxxxxxx Cash Reserves
acquired by exchange of Class M shares.
o Class X shares of Limited Term New York Municipal Fund can be exchanged only for Class B shares of other
Xxxxxxxxxxx funds and no exchanges may be made to Class X shares.
o Shares of Xxxxxxxxxxx Capital Preservation Fund may not be exchanged for shares of Xxxxxxxxxxx Money
Market Fund, Inc., Xxxxxxxxxxx Cash Reserves or Xxxxxxxxxxx Limited-Term Government Fund. Only participants
in certain retirement plans may purchase shares of Xxxxxxxxxxx Capital Preservation Fund, and only those
participants may exchange shares of other Xxxxxxxxxxx funds for shares of Xxxxxxxxxxx Capital Preservation
Fund.
o Class A shares of Xxxxxxxxxxx Senior Floating Rate Fund are not available by exchange of shares of
Xxxxxxxxxxx Money Market Fund or Class A shares of Xxxxxxxxxxx Cash Reserves. If any Class A shares of
another Xxxxxxxxxxx fund that are exchanged for Class A shares of Xxxxxxxxxxx Senior Floating Rate Fund are
subject to the Class A contingent deferred sales charge of the other Xxxxxxxxxxx fund at the time of
exchange, the holding period for that Class A contingent deferred sales charge will carry over to the Class
A shares of Xxxxxxxxxxx Senior Floating Rate Fund acquired in the exchange. The Class A shares of
Xxxxxxxxxxx Senior Floating Rate Fund acquired in that exchange will be subject to the Class A Early
Withdrawal Charge of Xxxxxxxxxxx Senior Floating Rate Fund if they are repurchased before the expiration of
the holding period.
o Class A, Class B, Class C and Class Y Shares of Xxxxxxxxxxx Select Managers Mercury Advisors S&P Index
Fund and Xxxxxxxxxxx Select Managers QM Active Balanced Fund are only available to retirement plans and are
available only by exchange from the same class of shares of other Xxxxxxxxxxx funds held by retirement plans.
Class A shares of Xxxxxxxxxxx funds may be exchanged at net asset value for shares of any money market fund
offered by the Distributor. Shares of any money market fund purchased without a sales charge may be
exchanged for shares of Xxxxxxxxxxx funds offered with a sales charge upon payment of the sales charge. They
may also be used to purchase shares of Xxxxxxxxxxx funds subject to an early withdrawal charge or contingent
deferred sales charge.
Shares of Xxxxxxxxxxx Money Market Fund, Inc. purchased with the redemption proceeds of shares of other
mutual funds (other than funds managed by the Manager or its subsidiaries) redeemed within the 30 days prior to
that purchase may subsequently be exchanged for shares of other Xxxxxxxxxxx funds without being subject to an
initial sales charge or contingent deferred sales charge. To qualify for that privilege, the investor or the
investor's dealer must notify the Distributor of eligibility for this privilege at the time the shares of
Xxxxxxxxxxx Money Market Fund, Inc. are purchased. If requested, they must supply proof of entitlement to this
privilege.
Shares of the Fund acquired by reinvestment of dividends or distributions from any of the other
Xxxxxxxxxxx funds or from any unit investment trust for which reinvestment arrangements have been made with the
Distributor may be exchanged at net asset value for shares of any of the Xxxxxxxxxxx funds.
The Fund may amend, suspend or terminate the exchange privilege at any time. Although the Fund may
impose these changes at any time, it will provide you with notice of those changes whenever it is required to do
so by applicable law. It may be required to provide 60 days notice prior to materially amending or terminating
the exchange privilege. That 60 day notice is not required in extraordinary circumstances.
|X| How Exchanges Affect Contingent Deferred Sales Charges. No contingent deferred sales charge is
imposed on exchanges of shares of any class purchased subject to a contingent deferred sales charge. However,
when Class A shares acquired by exchange of Class A shares of other Xxxxxxxxxxx funds purchased subject to a
Class A contingent deferred sales charge are redeemed within 18 months of the end of the calendar month of the
initial purchase of the exchanged Class A shares, the Class A contingent deferred sales charge is imposed on the
redeemed shares. The Class B contingent deferred sales charge is imposed on Class B shares acquired by exchange
if they are redeemed within 6 years of the initial purchase of the exchanged Class B shares. The Class C
contingent deferred sales charge is imposed on Class C shares acquired by exchange if they are redeemed within 12
months of the initial purchase of the exchanged Class C shares. With respect to Class N shares, a 1% contingent
deferred sales charge will be imposed if the retirement plan (not including IRAs and 403(b) plans) is terminated
or Class N shares of all Xxxxxxxxxxx funds are terminated as an investment option of the plan and Class N shares
are redeemed within 18 months after the plan's first purchase of Class N shares of any Xxxxxxxxxxx fund or with
respect to an individual retirement plan or 403(b) plan, Class N shares are redeemed within 18 months of the
plan's first purchase of Class N shares of any Xxxxxxxxxxx fund.
When Class B or Class C shares are redeemed to effect an exchange, the priorities described in "How To
Buy Shares" in the Prospectus for the imposition of the Class B or the Class C contingent deferred sales charge
will be followed in determining the order in which the shares are exchanged. Before exchanging shares,
shareholders should take into account how the exchange may affect any contingent deferred sales charge that might
be imposed in the subsequent redemption of remaining shares. If Class B shares of an Xxxxxxxxxxx fund are
exchanged for Class B shares of Xxxxxxxxxxx Limited-Term Government Fund or Limited-Term New York Municipal Fund
and those shares acquired by exchange are subsequently redeemed, they will be subject to the contingent deferred
sales charge of the Xxxxxxxxxxx fund from which they were exchanged. The contingent deferred sales charge rates
of Class B shares of other Xxxxxxxxxxx funds are typically higher for the same holding period than for Class B
shares of Xxxxxxxxxxx Limited-Term Government Fund and Limited-Term New York Municipal Fund. They will not be
subject to the contingent deferred sales charge of Xxxxxxxxxxx Limited-Term Government Fund or Limited-Term New
York Municipal Fund.
Shareholders owning shares of more than one class must specify which class of shares they wish to
exchange.
|X| Limits on Multiple Exchange Orders. The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of more than one account. The Fund may accept requests
for exchanges of up to 50 accounts per day from representatives of authorized dealers that qualify for this
privilege.
|X| Telephone Exchange Requests. When exchanging shares by telephone, a shareholder must have an
existing account in the fund to which the exchange is to be made. Otherwise, the investors must obtain a
Prospectus of that fund before the exchange request may be submitted. When you exchange some or all of your
shares from one Fund to another, any special account feature such as an Asset Builder Plan or Automatic
Withdrawal Plan, will be switched to the new fund account unless you tell the Transfer Agent not to do so.
However, special redemption and exchange features such as Automatic Exchange Plans and Automatic Withdrawal Plans
cannot be switched to an account in Xxxxxxxxxxx Senior Floating Rate Fund. If all telephone lines are busy (which
might occur, for example, during periods of substantial market fluctuations), shareholders might not be able to
request exchanges by telephone and would have to submit written exchange requests.
|X| Processing Exchange Requests. Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the "Redemption Date"). Normally, shares of the fund
to be acquired are purchased on the Redemption Date, but such purchases may be delayed by either fund up to five
business days if it determines that it would be disadvantaged by an immediate transfer of the redemption
proceeds. The Fund reserves the right, in its discretion, to refuse any exchange request that may disadvantage
it. For example, if the receipt of multiple exchange requests from a dealer might require the disposition of
portfolio securities at a time or at a price that might be disadvantageous to the Fund, the Fund may refuse the
request. For full or partial exchanges of an account made by telephone, any special account features such as
Asset Builder Plans and Automatic Withdrawal Plans will be switched to the new account unless the Transfer Agent
is instructed otherwise.
In connection with any exchange request, the number of shares exchanged may be less than the number
requested if the exchange or the number requested would include shares subject to a restriction cited in the
Prospectus or this Statement of Additional Information, or would include shares covered by a share certificate
that is not tendered with the request. In those cases, only the shares available for exchange without
restriction will be exchanged.
The different Xxxxxxxxxxx funds available for exchange have different investment objectives, policies
and risks. A shareholder should assure that the fund selected is appropriate for his or her investment and should
be aware of the tax consequences of an exchange. For federal income tax purposes, an exchange transaction is
treated as a redemption of shares of one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of redemption proceeds in such cases. The Fund,
the Distributor, and the Transfer Agent are unable to provide investment, tax or legal advice to a shareholder in
connection with an exchange request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. The Fund has no fixed dividend rate and there can be no assurance as to the payment
of any dividends or the realization of any capital gains. The dividends and distributions paid by a class of
shares will vary from time to time depending on market conditions, the composition of the Fund's portfolio, and
expenses borne by the Fund or borne separately by a class. Dividends are calculated in the same manner, at the
same time, and on the same day for each class of shares. However, dividends on Class B, Class C and Class N
shares are expected to be lower than dividends on Class A and Class Y shares. That is because of the effect of
the higher asset-based sales charge on Class B, Class C and Class N shares. Those dividends will also differ in
amount as a consequence of any difference in the net asset values of each class of shares.
Dividends, distributions and proceeds of the redemption of Fund shares represented by checks returned to
the Transfer Agent by the Postal Service as undeliverable will be invested in shares of Xxxxxxxxxxx Money Market
Fund, Inc. Reinvestment will be made 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. Unclaimed accounts may be subject to
state escheatment laws, and the Fund and the Transfer Agent will not be liable to shareholders or their
representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends, Distributions and Redemptions of Shares. The federal tax treatment of the
Fund's dividends and capital gains distributions is briefly highlighted in the Prospectus. The following is only
a summary of certain additional tax considerations generally affecting the Fund and its shareholders.
The tax discussion in the Prospectus and this Statement of Additional Information is based on tax law in
effect on the date of the Prospectus and this Statement of Additional Information. Those laws and regulations may
be changed by legislative, judicial, or administrative action, sometimes with retroactive effect. State and local
tax treatment of ordinary income dividends and capital gain dividends from regulated investment companies may
differ from the treatment under the Internal Revenue Code described below. Potential purchasers of shares of the
Fund are urged to consult their tax advisers with specific reference to their own tax circumstances as well as
the consequences of federal, state and local tax rules affecting an investment in the Fund.
|X| Qualification as a Regulated Investment Company. The Fund has elected to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. As a regulated
investment company, the Fund is not subject to federal income tax on the portion of its investment company
taxable income (that is, taxable interest, dividends, other taxable ordinary income net of expenses, and net
short-term capital gain in excess of long term capital loss) and capital gain net income (that is, the excess of
net long-term capital gains over net short-term capital losses) that it distributes to shareholders. That
qualification enables the Fund to "pass through" its income and realized capital gains to shareholders without
having to pay tax on them. This avoids a "double tax" on that income and capital gains, since shareholders
normally will be taxed on the dividends and capital gains they receive from the Fund (unless their Fund shares
are held in a retirement account or the shareholder is otherwise exempt from tax). The Internal Revenue Code
contains a number of complex tests relating to qualification that the Fund might not meet in a particular year.
If it did not qualify as a regulated investment company, the Fund would be treated for tax purposes as an
ordinary corporation and would receive no tax deduction for payments made to shareholders.
To qualify as a regulated investment company, the Fund must distribute at least 90% of its investment
company taxable income (in brief, net investment income and the excess of net short-term capital gain over net
long-term capital loss) for the taxable year. The Fund must also satisfy certain other requirements of the
Internal Revenue Code, some of which are described below. Distributions by the Fund made during the taxable year
or, under specified circumstances, within twelve months after the close of the taxable year, will be considered
distributions of income and gains for the taxable year and will therefore count toward satisfaction of the
above-mentioned requirement.
To qualify as a regulated investment company, the Fund must derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition
of stock or securities or foreign currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or securities) and certain other income.
In addition to satisfying the requirements described above, the Fund must satisfy an asset
diversification test in order to qualify as a regulated investment company. Under that test, at the close of
each quarter of the Fund's taxable year, at least 50% of the value of the Fund's assets must consist of cash and
cash items, U.S. government securities, securities of other regulated investment companies, and securities of
other issuers. As to each of those issuers, the Fund must not have invested more than 5% of the value of the
Fund's total assets in securities of each such issuer and the Fund must not hold more than 10% of the outstanding
voting securities of each such issuer. No more than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades
or businesses. For purposes of this test, obligations issued or guaranteed by certain agencies or
instrumentalities of the U.S. government are treated as U.S. government securities.
|X| Excise Tax on Regulated Investment Companies. Under the Internal Revenue Code, by December 31
each year, the Fund must distribute 98% of its taxable investment income earned from January 1 through December
31 of that year and 98% of its capital gains realized in the period from November 1 of the prior year through
October 31 of the current year. If it does not, the Fund must pay an excise tax on the amounts not distributed.
It is presently anticipated that the Fund will meet those requirements. To meet this requirement, in certain
circumstances the Fund might be required to liquidate portfolio investments to make sufficient distributions to
avoid excise tax liability. However, the Board of Trustees and the Manager might determine in a particular year
that it would be in the best interests of shareholders for the Fund not to make such distributions at the
required levels and to pay the excise tax on the undistributed amounts. That would reduce the amount of income or
capital gains available for distribution to shareholders.
|X| Taxation of Fund Distributions. The Fund anticipates distributing substantially all of its
investment company taxable income for each taxable year. Those distributions will be taxable to shareholders as
ordinary income and treated as dividends for federal income tax purposes.
Special provisions of the Internal Revenue Code govern the eligibility of the Fund's dividends for the
dividends-received deduction for corporate shareholders. Long-term capital gains distributions are not eligible
for the deduction. The amount of dividends paid by the Fund that may qualify for the deduction is limited to the
aggregate amount of qualifying dividends that the Fund derives from portfolio investments that the Fund has held
for a minimum period, usually 46 days. A corporate shareholder will not be eligible for the deduction on
dividends paid on Fund shares held for 45 days or less. To the extent the Fund's dividends are derived from
gross income from option premiums, interest income or short-term gains from the sale of securities or dividends
from foreign corporations, those dividends will not qualify for the deduction. Since it is anticipated that most
of the Fund's income will be derived from interest it receives on its investments, the Fund does not anticipate
that its distributions will qualify for this deduction.
The Fund may either retain or distribute to shareholders its net capital gain for each taxable year.
The Fund currently intends to distribute any such amounts. If net long term capital gains are distributed and
designated as a capital gain distribution, it will be taxable to shareholders as long-term capital gain. It does
not matter how long the shareholder has held his or her shares or whether that gain was recognized by the Fund
before the shareholder acquired his or her shares.
If the Fund elects to retain its net capital gain, the Fund will be subject to tax on it at the 35%
corporate tax rate. If the Fund elects to retain its net capital gain, it is expected that the Fund also will
elect to have shareholders of record on the last day of its taxable year treated as if each received a
distribution of their pro rata share of such gain. As a result, each shareholder will be required to report his
or her pro rata share of such gain on their tax return as long-term capital gain, will receive a refundable tax
credit for his/her pro rata share of tax paid by the Fund on the gain, and will increase the tax basis for
his/her shares by an amount equal to the deemed distribution less the tax credit.
Investment income that may be received by the Fund from sources within foreign countries may be subject
to foreign taxes withheld at the source. The United States has entered into tax treaties with many foreign
countries which entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
Distributions by the Fund that do not constitute ordinary income dividends or capital gain distributions
will be treated as a return of capital to the extent of the shareholder's tax basis in their shares. Any excess
will be treated as gain from the sale of those shares, as discussed below. Shareholders will be advised annually
as to the U.S. federal income tax consequences of distributions made (or deemed made) during the year. If prior
distributions made by the Fund must be re-characterized as a non-taxable return of capital at the end of the
fiscal year as a result of the effect of the Fund's investment policies, they will be identified as such in
notices sent to shareholders.
Distributions by the Fund will be treated in the manner described above regardless of whether the
distributions are paid in cash or reinvested in additional shares of the Fund (or of another fund). Shareholders
receiving a distribution in the form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of the reinvestment date.
The Fund will be required in certain cases to withhold and remit to the U.S. Treasury 31% of ordinary
income dividends and capital gains distributions and the proceeds of the redemption of shares, paid to any
shareholder (1) who has failed to provide a correct, certified taxpayer identification number, (2) who is subject
to backup withholding for failure to report the receipt of interest or dividend income properly, or (3) who has
failed to certify to the Fund that the shareholder is not subject to backup withholding or is an "exempt
recipient" (such as a corporation).
|X| Tax Effects of Redemptions of Shares. If a shareholder redeems all or a portion of his/her shares,
-
the shareholder will recognize a gain or loss on the redeemed shares in an amount equal to the difference between
the proceeds of the redeemed shares and the shareholder's adjusted tax basis in the shares. All or a portion of
any loss recognized in that manner may be disallowed if the shareholder purchases other shares of the Fund within
30 days before or after the redemption.
In general, any gain or loss arising from the redemption of shares of the Fund will be considered
capital gain or loss, if the shares were held as a capital asset. It will be long-term capital gain or loss if
the shares were held for more than one year. However, any capital loss arising from the redemption of shares
held for six months or less will be treated as a long-term capital loss to the extent of the amount of capital
gain dividends received on those shares. Special holding period rules under the Internal Revenue Code apply in
this case to determine the holding period of shares and there are limits on the deductibility of capital losses
in any year.
|X| Foreign Shareholders. Taxation of a shareholder who under United States law is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership depends on whether the
shareholder's income from the Fund is effectively connected with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or business carried on by a
foreign shareholder, ordinary income dividends paid to such foreign shareholder will be subject to U.S.
withholding tax. The rate of the tax depends on a number of factors. If the income from the Fund is effectively
connected with a U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the Fund will be subject to U.S.
federal income tax at the rates applicable to U.S. citizens or domestic corporations.
In the case of a foreign non-corporate shareholder, the Fund may be required to withhold U.S. federal
income tax at a rate of 31% on distributions that are otherwise exempt from withholding tax (or taxable at a
reduced treaty rate) unless the shareholder furnishes the Fund with proper notification of their foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty
may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers
with respect to the particular tax consequences to them of an investment in the Fund, including the applicability
of foreign taxes.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to reinvest all dividends and/or
capital gains distributions in shares of the same class of any of the other Xxxxxxxxxxx funds listed above.
Reinvestment will be made without sales charge at the net asset value per share in effect at the close of
business on the payable date of the dividend or distribution. To elect this option, the shareholder must notify
the Transfer Agent in writing and must have an existing account in the fund selected for reinvestment. Otherwise
the shareholder first must obtain a prospectus for that fund and an application from the Distributor to establish
an account. Dividends and/or distributions from shares of certain other Xxxxxxxxxxx funds (other than Xxxxxxxxxxx
Cash Reserves) may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other financial institutions that have
a sales agreement with OppenheimerFunds Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Xxxxxxxxxxx funds and is sub-distributor for
funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a division of the Manager. It is
responsible for maintaining the Fund's shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder servicing and administrative functions.
The Fund pays the Transfer Agent a fixed annual maintenance fee for each shareholder account and reimburses the
Transfer Agent for its out-of-pocket expenses. It also acts as shareholder servicing agent for the other
Xxxxxxxxxxx funds. Shareholders should direct inquiries about their accounts to the Transfer Agent at the
address and toll-free numbers shown on the back cover.
|X| Shareholder Servicing Agent for Certain Shareholders. Unified Management Corporation
(0.000.000.0000) is the shareholder servicing agent for shareholders of the Fund who were former shareholders of
the AMA Family of Funds and clients of AMA Investment Advisers, Inc. (which had been the investment adviser of
AMA Family of Funds). It is also the servicing agent for Fund shareholders who are:
(i) former shareholders of the Unified Funds and Liquid Green Trusts,
(ii) accounts that participated or participate in a retirement plan for which Unified Investment Advisers,
Inc. or an affiliate acts as custodian or trustee,
(iii) accounts that have a Money Manager brokerage account, and
(iv) other accounts for which Unified Management Corporation is the dealer of record.
The Custodian. Citibank, N.A. is the custodian bank of the Fund's assets. The custodian's responsibilities
include safeguarding and controlling the Fund's portfolio securities and handling the delivery of such securities
to and from the Fund. It will be the practice of the Fund to deal with the custodian in a manner uninfluenced by
any banking relationship the custodian may have with the Manager and its affiliates. The Fund's cash balances
with the custodian in excess of $100,000 are not protected by Federal Deposit Insurance. Those uninsured
balances at times may be substantial.
Independent Auditors. KMPG LLP are the independent auditors of the Fund. They audit the Fund's financial
statements and perform other related audit services. They also act as independent auditors for certain other
funds advised by the Manager.
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Trustees and Shareholders of
Xxxxxxxxxxx Quest Opportunity Value Fund:
We have audited the accompanying statement of assets and liabilities of
Xxxxxxxxxxx Quest Opportunity Value Fund, including the statement of
investments, as of October 31, 2001, and the related statement of operations for
the year then ended, the statements of changes in net assets and the financial
highlights for each of the two years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for each of the three years in the period ended October 31, 1999,
were audited by other auditors whose report dated November 19, 1999, expressed
an unqualified opinion on this information.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2001, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Xxxxxxxxxxx Quest Opportunity Value Fund as of October 31, 2001, the results of
its operations for the year then ended, the changes in its net assets and the
financial highlights for each of the two years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
--------------
KPMG LLP
Denver, Colorado
November 21, 2001
STATEMENT OF INVESTMENTS October 31, 2001
Market Value
Shares See Note 1
==================================================================================
Common Stocks--70.3%
----------------------------------------------------------------------------------
Basic Materials--4.9%
----------------------------------------------------------------------------------
Metals--3.5%
Alcan, Inc. 1,965,000 $ 60,030,750
----------------------------------------------------------------------------------
Alcoa, Inc. 1,143,700 36,907,199
------------
96,937,949
----------------------------------------------------------------------------------
Paper--1.4%
Willamette Industries, Inc. 820,000 38,417,000
----------------------------------------------------------------------------------
Capital Goods--3.2%
----------------------------------------------------------------------------------
Aerospace/Defense--1.4%
Boeing Co. 1,166,600 38,031,160
----------------------------------------------------------------------------------
Manufacturing--1.8%
ITT Industries, Inc. 1,047,300 50,364,657
----------------------------------------------------------------------------------
Communication Services--9.2%
----------------------------------------------------------------------------------
Telecommunications: Long Distance--6.7%
Sprint Corp. (Fon Group) 2,793,100 55,862,000
----------------------------------------------------------------------------------
Verizon Communications, Inc. 600,000 29,886,000
----------------------------------------------------------------------------------
WorldCom, Inc./MCI Group 164,000 1,943,400
----------------------------------------------------------------------------------
WorldCom, Inc./WorldCom Group(1) 7,250,000 97,512,500
------------
185,203,900
----------------------------------------------------------------------------------
Telephone Utilities--2.5%
SBC Communications, Inc. 1,800,000 68,598,000
----------------------------------------------------------------------------------
Consumer Cyclicals--0.3%
----------------------------------------------------------------------------------
Retail: General--0.3%
Dollar General Corp. 500,000 7,145,000
----------------------------------------------------------------------------------
Consumer Staples--7.7%
----------------------------------------------------------------------------------
Broadcasting--0.5%
Clear Channel Communications, Inc.(1) 384,100 14,641,892
----------------------------------------------------------------------------------
Entertainment--3.7%
XxXxxxxx'x Corp. 3,900,000 101,673,000
----------------------------------------------------------------------------------
Food & Drug Retailers--3.4%
CVS Corp. 1,167,900 27,912,810
----------------------------------------------------------------------------------
Kroger Co. (The)(1) 2,727,100 66,704,866
------------
94,617,676
----------------------------------------------------------------------------------
Household Goods--0.1%
Xxxxxxxx Xx. 50,000 1,554,500
----------------------------------------------------------------------------------
Energy--7.2%
----------------------------------------------------------------------------------
Energy Services--1.2%
Transocean Sedco Forex, Inc. 1,100,000 33,165,000
----------------------------------------------------------------------------------
Oil: Domestic--6.0%
Anadarko Petroleum Corp. 500,000 28,525,000
----------------------------------------------------------------------------------
ChevronTexaco Corp. 921,074 81,561,103
----------------------------------------------------------------------------------
Xxxxxxxx Petroleum Co. 980,000 53,321,800
------------
163,407,903
13 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
STATEMENT OF INVESTMENTS Continued
Market Value
Shares See Note 1
----------------------------------------------------------------------------------
Financial--26.8%
----------------------------------------------------------------------------------
Banks--9.1%
FleetBoston Financial Corp. 775,000 $ 25,466,500
----------------------------------------------------------------------------------
X.X. Xxxxxx Xxxxx & Co. 300,000 10,608,000
----------------------------------------------------------------------------------
M&T Bank Corp. 1,242,500 81,383,750
----------------------------------------------------------------------------------
PNC Financial Services Group 200,000 10,980,000
----------------------------------------------------------------------------------
Xxxxx Fargo Co. 3,073,600 121,407,200
------------
249,845,450
----------------------------------------------------------------------------------
Diversified Financial--14.3%
Citigroup, Inc. 1,683,333 76,625,318
----------------------------------------------------------------------------------
Xxxxxx Xxx 350,000 28,336,000
----------------------------------------------------------------------------------
Freddie Mac 3,469,000 235,267,580
----------------------------------------------------------------------------------
Household International, Inc. 1,005,000 52,561,500
------------
392,790,398
----------------------------------------------------------------------------------
Insurance--3.4%
American International Group, Inc. 356,600 28,028,760
----------------------------------------------------------------------------------
Aon Corp. 300,000 11,412,000
----------------------------------------------------------------------------------
Xxxx Xxxxxxx Financial Services, Inc. 580,000 19,766,400
----------------------------------------------------------------------------------
XL Capital Ltd., Cl. A 383,800 33,336,868
------------
92,544,028
----------------------------------------------------------------------------------
Healthcare--3.6%
----------------------------------------------------------------------------------
Healthcare/Drugs--3.6%
American Home Products Corp. 900,000 50,247,000
----------------------------------------------------------------------------------
Xxxxx (Xxx) & Co. 360,000 27,540,000
----------------------------------------------------------------------------------
Schering-Plough Corp. 600,000 22,308,000
------------
100,095,000
----------------------------------------------------------------------------------
Technology--6.5%
----------------------------------------------------------------------------------
Computer Hardware--2.8%
Dell Computer Corp.(1) 1,580,000 37,888,400
----------------------------------------------------------------------------------
EMC Corp.(1) 1,700,000 20,944,000
----------------------------------------------------------------------------------
Sun Microsystems, Inc.(1) 1,800,000 18,270,000
------------
77,102,400
----------------------------------------------------------------------------------
Computer Software--0.9%
Microsoft Corp.(1) 200,000 11,630,000
----------------------------------------------------------------------------------
Sabre Holdings Corp.(1) 450,900 11,858,670
------------
23,488,670
----------------------------------------------------------------------------------
Communications Equipment--1.4%
Agere Systems, Inc.(1) 3,392,000 15,603,200
----------------------------------------------------------------------------------
Cisco Systems, Inc.(1) 1,400,000 23,688,000
------------
39,291,200
14 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------
Electronics--1.4%
Analog Devices, Inc.(1) 650,000 $ 24,700,000
-----------------------------------------------------------------------------------
Texas Instruments, Inc. 449,000 12,567,510
--------------
37,267,510
-----------------------------------------------------------------------------------
Utilities--0.9%
-----------------------------------------------------------------------------------
Electric Utilities--0.9%
Exelon Corp. 603,000 25,368,210
--------------
Total Common Stocks (Cost $1,648,477,323) 1,931,550,503
Principal
Amount
===================================================================================
U.S. Government Obligations--0.1%
U.S. Treasury Nts.:
7.50%, 11/15/01 $ 1,000,000 1,002,149
7.50%, 5/15/02 1,000,000 1,029,805
--------------
Total U.S. Government Obligations (Cost $2,000,792) 2,031,954
===================================================================================
Non-Convertible Corporate Bonds and Notes--15.8%
Federal National Mortgage Assn.,
6.50% Unsec. Nts., 8/15/04
(Cost $396,042,686) 400,000,000 435,398,400
===================================================================================
Short-Term Notes--13.8%
American Express Credit Corp., 2.20%, 11/15/01 64,614,000 64,558,719
-----------------------------------------------------------------------------------
Federal Home Loan Bank, 2.46%, 11/1/01 50,000,000 50,000,000
-----------------------------------------------------------------------------------
Federal National Mortgage Assn.:
2.20%, 12/3/01 104,041,000 103,838,023
2.29%, 11/26/01 75,000,000 74,880,729
-----------------------------------------------------------------------------------
General Electric Capital Corp.:
2.43%, 11/9/01 25,988,000 25,973,967
2.25%, 11/19/01 25,000,000 24,971,875
-----------------------------------------------------------------------------------
Prudential Funding LLC, 2.44%, 11/13/01 35,929,000 35,900,915
--------------
Total Short-Term Notes (Cost $380,124,228) 380,124,228
-----------------------------------------------------------------------------------
Total Investments, at Value (Cost $2,426,645,029) 100.0% 2,749,105,085
-----------------------------------------------------------------------------------
Other Assets Net of Liabilities 0.0 1,308,709
----------------------------
Net Assets 100.0% $2,750,413,794
============================
Footnote to Statement of Investments
1. Non-income-producing security.
See accompanying Notes to Financial Statements.
15 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES October 31, 2001
==================================================================================
Assets
Investments, at value (cost $2,426,645,029) --
see accompanying statement $2,749,105,085
----------------------------------------------------------------------------------
Cash 12,259
----------------------------------------------------------------------------------
Receivables and other assets:
Interest and dividends 7,150,089
Shares of beneficial interest sold 1,626,094
Other 73,033
--------------
Total assets 2,757,966,560
==================================================================================
Liabilities
Payables and other liabilities:
Shares of beneficial interest redeemed 5,945,406
Distribution and service plan fees 587,737
Shareholder reports 534,547
Trustees' compensation 300,640
Transfer and shareholder servicing agent fees 1,532
Other 182,904
--------------
Total liabilities 7,552,766
==================================================================================
Net Assets $2,750,413,794
==============
==================================================================================
Composition of Net Assets
Par value of shares of beneficial interest $ 889,736
----------------------------------------------------------------------------------
Additional paid-in capital 2,433,284,319
----------------------------------------------------------------------------------
Undistributed (overdistributed) net investment income 20,997,123
----------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investment transactions (27,217,440)
----------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments 322,460,056
--------------
Net Assets $2,750,413,794
==============
16 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
==================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on net
assets of $1,285,952,732 and 41,088,450 shares of beneficial
interest outstanding) $31.30
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $33.21
----------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per share
(based on net assets of $1,157,670,920 and 37,885,017 shares of
beneficial interest outstanding) $30.56
----------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per share
(based on net assets of $257,556,106 and 8,431,669 shares of
beneficial interest outstanding) $30.55
----------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per share
(based on net assets of $2,292,247 and 73,335 shares of
beneficial interest outstanding) $31.26
----------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $46,941,789 and 1,495,111 shares of
beneficial interest outstanding) $31.40
See accompanying Notes to Financial Statements.
17 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
STATEMENT OF OPERATIONS For the Year Ended October 31, 2001
==================================================================================
Investment Income
Interest $ 43,496,748
----------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $63,759) 32,344,477
------------
Total income 75,841,225
==================================================================================
Expenses
Management fees 26,309,036
----------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 5,505,159
Class B 13,262,363
Class C 2,802,785
Class N 2,136
----------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 2,282,620
Class B 2,384,404
Class C 509,467
Class N 930
Class Y 110,687
----------------------------------------------------------------------------------
Shareholder reports 902,498
----------------------------------------------------------------------------------
Custodian fees and expenses 79,427
----------------------------------------------------------------------------------
Trustees' compensation 71,655
----------------------------------------------------------------------------------
Other 699,587
------------
Total expenses 54,922,754
Less reduction to custodian expenses (14,741)
------------
Net expenses 54,908,013
==================================================================================
Net Investment Income 20,933,212
==================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on investments (5,569,382)
----------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (100,105,976)
------------
Net realized and unrealized gain (loss) (105,675,358)
==================================================================================
Net Decrease in Net Assets Resulting from Operations $(84,742,146)
============
See accompanying Notes to Financial Statements.
18 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended October 31, 2001 2000
=============================================================================================================
Operations
Net investment income (loss) $ 20,933,212 $ 37,809,786
-------------------------------------------------------------------------------------------------------------
Net realized gain (loss) (5,569,382) 342,221,019
-------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (100,105,976) (363,469,820)
---------------------------------
Net increase (decrease) in net assets resulting from operations (84,742,146) 16,560,985
=============================================================================================================
Dividends and/or Distributions to Shareholders
Dividends from net investment income:
Class A (20,887,533) (8,890,623)
Class B (13,318,325) --
Class C (2,835,364) --
Class N -- --
Class Y (834,807) (549,645)
-------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (119,859,705) (209,173,343)
Class B (128,333,379) (230,006,058)
Class C (26,426,237) (49,963,441)
Class N -- --
Class Y (3,674,627) (6,261,854)
=============================================================================================================
Beneficial Interest Transactions
Net increase (decrease) in net assets resulting from beneficial interest
transactions:
Class A 140,063,389 (291,217,948)
Class B (58,607,213) (348,902,559)
Class C 8,428,712 (90,356,233)
Class N 2,416,386 --
Class Y 13,330,360 (8,444,749)
=============================================================================================================
Net Assets
Total decrease (295,280,489) (1,227,205,468)
-------------------------------------------------------------------------------------------------------------
Beginning of period 3,045,694,283 4,272,899,751
---------------------------------
End of period [including undistributed (overdistributed)
net investment income of $20,997,123 and $37,468,278, respectively] $2,750,413,794 $ 3,045,694,283
=================================
See accompanying Notes to Financial Statements.
19 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
FINANCIAL HIGHLIGHTS
Class A Year Ended October 31, 2001 2000 1999
1998 1997
=========================================================================================================================
Per Share Operating Data
Net asset value, beginning of period $36.04 $39.96 $36.44
$35.62 $29.89
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .33(1) .59 .22
..31 .16
Net realized and unrealized gain (loss) (1.19)(1) .34 5.46
1.72 6.46
-------------------------------------------------------------------
Total income (loss) from
investment operations (.86) .93 5.68
2.03 6.62
-------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.58) (.20) (.31)
(.18) (.11)
Distributions from net realized gain (3.30) (4.65) (1.85)
(1.03) (.78)
-------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (3.88) (4.85) (2.16)
(1.21) (.89)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $31.30 $36.04 $39.96
$36.44 $35.62
===================================================================
=========================================================================================================================
Total Return, at Net Asset Value(2) (2.79)% 2.82% 16.31%
5.83% 22.66%
=========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $1,285,953 $1,325,552 $1,820,497 $2,026,959
$1,839,482
-------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,348,895 $1,486,116 $1,894,250 $2,070,927
$1,399,186
-------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income 1.01%(1) 1.42% 0.50%
0.85% 0.67%
Expenses 1.51% 1.53% 1.57%
1.54%(4) 1.54%(4)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 42% 63% 47%
45% 30%
1. Without the adoption of the change in amortization method as discussed in
Note 1 in the Notes to Financial Statements, these amounts would have been:
Net investment income Change less than $0.005%
Net realized and unrealized gain (loss) Change less than $0.005%
Net investment income ratio Change less than 0.005%
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Sales
charges are not reflected in the total returns. Total returns are not annualized
for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
20 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
Class B Year Ended October 31, 2001 2000 1999
1998 1997
=========================================================================================================================
Per Share Operating Data
Net asset value, beginning of period $35.25 $39.19 $35.79
$35.05 $29.49
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .15(1) .32 (.02)
..13 .06
Net realized and unrealized gain (loss) (1.20)(1) .39 5.41
1.68 6.31
-------------------------------------------------------------------
Total income (loss) from
investment operations (1.05) .71 5.39
1.81 6.37
-------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.34) -- (.14)
(.04) (.03)
Distributions from net realized gain (3.30) (4.65) (1.85)
(1.03) (.78)
-------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (3.64) (4.65) (1.99)
(1.07) (.81)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $30.56 $35.25 $39.19
$35.79 $35.05
===================================================================
=========================================================================================================================
Total Return, at Net Asset Value(2) (3.40)% 2.23% 15.72%
5.29% 22.05%
=========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $1,157,671 $1,393,095 $1,969,529 $1,996,142
$1,706,258
-------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,326,222 $1,585,561 $1,986,358 $1,976,134
$1,238,673
-------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income (loss) 0.42%(1) 0.82% (0.03)%
0.35% 0.17%
Expenses 2.11% 2.13% 2.10%
2.04%(4) 2.03%(4)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 42% 63% 47%
45% 30%
1. Without the adoption of the change in amortization method as discussed in
Note 1 in the Notes to Financial Statements, these amounts would have been:
Net investment income Change less than $0.005%
Net realized and unrealized gain (loss) Change less than $0.005%
Net investment income ratio Change less than 0.005%
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Sales
charges are not reflected in the total returns. Total returns are not annualized
for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
21 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
FINANCIAL HIGHLIGHTS Continued
Class C Year Ended October 31, 2001 2000 1999
1998 1997
=========================================================================================================================
Per Share Operating Data
Net asset value, beginning of period $35.24 $39.17 $35.75
$35.01 $29.45
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .14(1) .35 (.01)
..13 .06
Net realized and unrealized gain (loss) (1.18)(1) .37 5.40
1.68 6.30
-------------------------------------------------------------------
Total income (loss) from
investment operations (1.04) .72 5.39
1.81 6.36
-------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.35) -- (.12)
(.04) (.02)
Distributions from net realized gain (3.30) (4.65) (1.85)
(1.03) (.78)
-------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (3.65) (4.65) (1.97)
(1.07) (.80)
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $30.55 $35.24 $39.17
$35.75 $35.01
===================================================================
=========================================================================================================================
Total Return, at Net Asset Value(2) (3.37)% 2.26% 15.74%
5.29% 22.05%
=========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $257,556 $287,103 $428,182 $475,510
$433,785
-------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $280,327 $336,213 $448,383 $487,222
$316,280
-------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income (loss) 0.41%(1) 0.86% (0.02)%
0.35% 0.17%
Expenses 2.11% 2.08% 2.08%
2.04%(4) 2.04%(4)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 42% 63% 47%
45% 30%
1. Without the adoption of the change in amortization method as discussed in
Note 1 in the Notes to Financial Statements, these amounts would have been:
Net investment income Change less than $0.005%
Net realized and unrealized gain (loss) Change less than $0.005%
Net investment income ratio Change less than 0.005%
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Sales
charges are not reflected in the total returns. Total returns are not annualized
for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
22 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
Period Ended
Class N October 31, 2001(1)
===========================================================
Per Share Operating Data
Net asset value, beginning of period $33.48
-----------------------------------------------------------
Income (loss) from investment operations:
Net investment income .03(2)
Net realized and unrealized gain (loss) (2.25)(2)
------
Total income (loss) from
investment operations (2.22)
-----------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income --
Distributions from net realized gain --
------
Total dividends and/or distributions
to shareholders --
-----------------------------------------------------------
Net asset value, end of period $31.26
======
===========================================================
Total Return at Net Asset Value(3) (6.63)%
===========================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $2,292
-----------------------------------------------------------
Average net assets (in thousands) $ 646
-----------------------------------------------------------
Ratios to average net assets:4
Net investment income 0.47%(2)
Expenses 1.63%
-----------------------------------------------------------
Portfolio turnover rate 42%
1. For the period from March 1, 2001 (inception of offering) to October 31,
2001.
2. Without the adoption of the change in amortization method as discussed in
Note 1 in the Notes to Financial Statements, these amounts would have been:
Net investment income Change less than $0.005%
Net realized and unrealized gain (loss) Change less than $0.005%
Net investment income ratio Change less than 0.005%
3. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
4. Annualized for periods of less than one full year.
See accompanying Notes to Financial Statements.
23 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
FINANCIAL HIGHLIGHTS Continued
Class Y Year Ended October 31, 2001 2000 1999
1998 1997(1)
=========================================================================================================================
Per Share Operating Data
Net asset value, beginning of period $36.21 $40.17 $36.64
$35.77 $29.93
-------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .45(2) .71 .35
..48 .17
Net realized and unrealized gain (loss) (1.21)(2) .39 5.48
1.74 5.67
-------------------------------------------------------------------
Total income (loss) from
investment operations (.76) 1.10 5.83
2.22 5.84
-------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.75) (.41) (.45)
(.32) --
Distributions from net realized gain (3.30) (4.65) (1.85)
(1.03) --
-------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (4.05) (5.06) (2.30)
(1.35) --
-------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $31.40 $36.21 $40.17
$36.64 $35.77
===================================================================
=========================================================================================================================
Total Return, at Net Asset Value(3) (2.48)% 3.30% 16.74%
6.38% 19.51%
=========================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $46,942 $39,945 $54,692 $22,843
$15,341
-------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $45,797 $43,926 $41,178 $20,347
$ 6,108
-------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(4)
Net investment income 1.32%(2) 1.87% 0.98%
1.39% 1.30%
Expenses 1.17% 1.07% 1.14%
1.00%(5) 0.91%(5)
-------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 42% 63% 47%
45% 30%
1. For the period from December 16, 1996 (inception of offering) to October 31,
1997.
2. Without the adoption of the change in amortization method as discussed in
Note 1 in the Notes to Financial Statements, these amounts would have been:
Net investment income Change less than $0.005%
Net realized and unrealized gain (loss) Change less than $0.005%
Net investment income ratio Change less than 0.005%
3. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
4. Annualized for periods of less than one full year.
5. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
24 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. Significant Accounting Policies
Xxxxxxxxxxx Quest Opportunity Value Fund (the Fund), a series of Xxxxxxxxxxx
Quest For Value Funds, is an open-end management investment company registered
under the Investment Company Act of 1940, as amended. The Fund's investment
objective is to seek growth of capital. The Fund's investment advisor is
XxxxxxxxxxxXxxxx, Inc. (the Manager). The Manager has entered into a
sub-advisory agreement with OpCap Advisors.
The Fund offers Class A, Class B, Class C, Class N and Class Y shares. Class
A shares are sold at their offering price, which is normally net asset value
plus a front-end sales charge. Class B, Class C and Class N shares are sold
without a front-end sales charge but may be subject to a contingent deferred
sales charge (CDSC). Class N shares are sold only through retirement plans.
Retirement plans that offer Class N shares may impose charges on those accounts.
Class Y shares are sold to certain institutional investors without either a
front-end sales charge or a CDSC. All classes of shares have identical rights to
earnings, assets and voting privileges, except that each class has its own
expenses directly attributable to that class and exclusive voting rights with
respect to matters affecting that class. Classes A, B, C and N have separate
distribution and/or service plans. No such plan has been adopted for Class Y
shares. Class B shares will automatically convert to Class A shares six years
after the date of purchase. The following is a summary of significant accounting
policies consistently followed by the Fund.
--------------------------------------------------------------------------------
Securities Valuation. Securities listed or traded on National Stock Exchanges
or other domestic or foreign exchanges are valued based on the last sale price
of the security traded on that exchange prior to the time when the Fund's assets
are valued. In the absence of a sale, the security is valued at the last sale
price on the prior trading day, if it is within the spread of the closing bid
and asked prices, and if not, at the closing bid price. Securities (including
restricted securities) for which quotations are not readily available are valued
primarily using dealer-supplied valuations, a portfolio pricing service
authorized by the Board of Trustees, or at their fair value. Fair value is
determined in good faith under consistently applied procedures under the
supervision of the Board of Trustees. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
25 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
1. Significant Accounting Policies Continued
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other
than those attributable to a specific class), gains and losses are allocated
daily to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
--------------------------------------------------------------------------------
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
As of October 31, 2001, the Fund had available for federal income tax purposes
an unused capital loss carryover as follows:
Expiring
--------------------------------------
2009 $11,666,725
--------------------------------------------------------------------------------
Trustees' Compensation. The Fund has adopted an unfunded retirement plan for the
Fund's independent Board of Trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
October 31, 2001, the Fund's projected benefit obligations were decreased by
$12,305 and payments of $6,715 were made to retired trustees, resulting in an
accumulated liability of $299,392 as of October 31, 2001.
The Board of Trustees has adopted a deferred compensation plan for independent
trustees that enables trustees to elect to defer receipt of all or a portion of
annual compensation they are entitled to receive from the Fund. Under the plan,
the compensation deferred is periodically adjusted as though an equivalent
amount had been invested for the Board of Trustees in shares of one or more
Xxxxxxxxxxx funds selected by the trustee. The amount paid to the Board of
Trustees under the plan will be determined based upon the performance of the
selected funds. Deferral of trustees' fees under the plan will not affect the
net assets of the Fund, and will not materially affect the Fund's assets,
liabilities or net investment income per share.
--------------------------------------------------------------------------------
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
26 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
--------------------------------------------------------------------------------
Classification of Dividends and Distributions to Shareholders. Net investment
income (loss) and net realized gain (loss) may differ for financial statement
and tax purposes. The character of dividends and distributions made during the
fiscal year from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes. Also, due to
timing of dividends and distributions, the fiscal year in which amounts are
distributed may differ from the fiscal year in which the income or realized gain
was recorded by the Fund.
The Fund adjusts the classification of distributions to shareholders to
reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended October 31, 2001, amounts have been reclassified to reflect an
increase in undistributed net investment income of $471,662. Accumulated net
realized loss on investments was increased by the same amount. Net assets of the
Fund were unaffected by the reclassifications.
--------------------------------------------------------------------------------
Investment Income. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the
ex-dividend date may have passed. Non-cash dividends included in dividend
income, if any, are recorded at the fair market value of the securities
received. Interest income, which includes accretion of discount and amortization
of premium, is accrued as earned.
--------------------------------------------------------------------------------
Security Transactions. Security transactions are accounted for as of trade date.
Gains and losses on securities sold are determined on the basis of identified
cost.
--------------------------------------------------------------------------------
Other. The Fund adopted the provisions of the AICPA Audit and Accounting Guide
for Investment Companies, as revised, effective for fiscal years beginning after
December 15, 2000. The Fund elected to begin amortizing premiums on debt
securities effective January 1, 2001. Prior to this date, the Fund did not
amortize premiums on debt securities. The cumulative effect of this accounting
change had no impact on the total net assets of the Fund, but resulted in a
$49,734 decrease to cost of securities and a correspond- ing $49,734 increase in
net unrealized appreciation, based on securities held as of December 31, 2000.
For the year ended October 31, 2001, interest income decreased by $4,879, net
realized loss on investments increased by $10,688, and the change in net
unrealized depreciation on investments decreased by $15,567.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.
27 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of $.01 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:
Year Ended October 31, 2001(1) Year Ended October 31, 2000
Shares Amount Shares Amount
------------------------------------------------------------------------------------
Class A
Sold 9,112,778 $ 306,084,416 7,510,230 $ 258,452,757
Dividends and/or
distributions reinvested 4,060,629 132,011,185 6,049,732 209,562,575
Redeemed (8,859,978) (298,032,212) (22,340,569) (759,233,280)
-------------------------------------------------------
Net increase (decrease) 4,313,429 $ 140,063,389 (8,780,607) $(291,217,948)
=======================================================
-----------------------------------------------------------------------------------
Class B
Sold 3,130,052 $ 102,546,742 3,198,691 $ 108,472,452
Dividends and/or
distributions reinvested 4,061,616 129,646,793 6,410,646 218,351,091
Redeemed (8,832,524) (290,800,748) (20,337,357) (675,726,102)
-------------------------------------------------------
Net increase (decrease) (1,640,856) $ (58,607,213) (10,728,020) $(348,902,559)
=======================================================
-----------------------------------------------------------------------------------
Class C
Sold 1,015,523 $ 33,157,102 1,009,406 $ 34,298,800
Dividends and/or
distributions reinvested 805,511 25,703,865 1,400,221 47,663,530
Redeemed (1,535,333) (50,432,255) (5,193,944) (172,318,563)
-------------------------------------------------------
Net increase (decrease) 285,701 $ 8,428,712 (2,784,317) $ (90,356,233)
=======================================================
-----------------------------------------------------------------------------------
Class N
Sold 75,082 $ 2,472,335 -- $ --
Dividends and/or
distributions reinvested -- -- -- --
Redeemed (1,747) (55,949) -- --
-------------------------------------------------------
Net increase (decrease) 73,335 $ 2,416,386 -- $ --
=======================================================
-----------------------------------------------------------------------------------
Class Y
Sold 663,752 $ 22,478,978 351,312 $ 12,049,286
Dividends and/or
distributions reinvested 138,666 4,509,433 196,523 6,811,498
Redeemed (410,435) (13,658,051) (806,246) (27,305,533)
-------------------------------------------------------
Net increase (decrease) 391,983 $ 13,330,360 (258,411) $ (8,444,749)
=======================================================
1. For the year ended October 31, 2001, for Class A, B, C and Y shares and for
the period from March 1, 2001 (inception of offering) to October 31, 2001, for
Class N shares.
28 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
================================================================================
3. Purchases and Sales of Securities
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended October 31, 2001, were
$1,095,932,301 and $1,135,784,092, respectively.
As of October 31, 2001, unrealized appreciation (depreciation) based on cost of
securities for federal income tax purposes of $2,442,195,740 was:
Gross unrealized appreciation $ 432,009,323
Gross unrealized depreciation (125,099,978)
-------------
Net unrealized appreciation (depreciation) $ 306,909,345
=============
================================================================================
4. Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee of 1.00% of
the first $400 million of average annual net assets of the Fund, 0.90% of the
next $400 million, 0.85% of the next $3.2 billion, 0.80% of the next $4 billion
and 0.75% of average annual net assets in excess of $8 billion. The Fund's
management fee for the year ended October 31, 2001, was an annualized rate of
0.88%.
--------------------------------------------------------------------------------
Sub-Advisor Fees. The Manager pays OpCap Advisors (the Sub-Advisor) monthly an
annual fee based on the fee schedule set forth in the Prospectus. For the year
ended October 31, 2001, the Manager paid $8,576,663 to the Sub-Advisor.
--------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. OFS is paid
at an agreed-upon per account fee. OFS has voluntarily undertaken to waive a
portion of its transfer agent fee for Classes A, B, C, N and Y shares. This
voluntary waiver of expenses limits transfer agent fees to 0.35% of average net
assets for Classes A, B, C and N shares effective October 1, 2001, and 0.25% of
average net assets for Class Y shares effective January 1, 2001.
29 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
4. Fees and Other Transactions with Affiliates Continued
Distribution and Service Plan Fees. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the period
indicated.
Aggregate Class A Commissions Commissions Commissions Commissions
Front-End Front-End on Class A on Class B on Class C on Class N
Sales Charges Sales Charges Shares Shares Shares Shares
on Class A Retained by Advanced by Advanced by Advanced by Advanced by
Year Ended Shares Distributor Distributor(1) Distributor(1) Distributor(1) Distributor(1)
---------------------------------------------------------------------------------------------------------------
October 31, 2001 $2,118,916 $525,862 $580,857 $2,741,448 $245,023 $21,769
1. The Distributor advances commission payments to dealers for certain sales of
Class A shares and for sales of Class B, Class C and Class N shares from its own
resources at the time of sale.
Class A Class B Class C Class N
Contingent Contingent Contingent Contingent
Deferred Deferred Deferred Deferred
Sales Charges Sales Charges Sales Charges Sales Charges
Retained by Retained by Retained by Retained by
Year Ended Distributor Distributor Distributor Distributor
--------------------------------------------------------------------------------------
October 31, 2001 $52,176 $2,010,158 $22,499 $--
The Fund has adopted Distribution and Service Plans for Class A, Class B,
Class C and Class N shares under Rule 12b-1 of the Investment Company Act. Under
those plans the Fund pays the Distributor for all or a portion of its costs
incurred in connection with the distribution and/or servicing of the shares of
the particular class.
--------------------------------------------------------------------------------
Class A Distribution and Service Plan Fees. Under the plan the Fund pays an
asset-based sales charge to the Distributor at an annual rate of 0.15% of
average annual net assets of Class A shares of the Fund. (The Board of Trustees
can set this rate up to 0.25%.) Effective January 1, 2001, the asset-based sales
charge rate for Class A shares was reduced from 0.20% to 0.15% of average annual
net assets representing Class A shares. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions. The Class A service plan permits
compensation to the Distributor at a rate up to a specified percent of average
annual net assets of Class A shares purchased. The Distributor makes payments to
plan recipients quarterly at an annual rate not to exceed a specified percent of
the average annual net assets consisting of Class A shares of the Fund. For the
year ended October 31, 2001, payments under the Class A Plan totaled $5,505,159,
all of which was paid by the Distributor to recipients. That included $288,454
paid to an affiliate of the Manager. Any unreimbursed expenses the Distributor
incurs with respect to Class A shares in any fiscal year cannot be recovered in
subsequent years.
30 | XXXXXXXXXXX QUEST OPPORTUNITY VALUE FUND
--------------------------------------------------------------------------------
Class B, Class C and Class N Distribution and Service Plan Fees. Under each
plan, service fees and distribution fees are computed on the average of the net
asset value of shares in the respective class, determined as of the close of
each regular business day during the period. The Class B, Class C and Class N
plans provide for the Distributor to be compensated at a flat rate, whether the
Distributor's distribution expenses are more or less than the amounts paid by
the Fund under the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares. The
Distributor retains the asset-based sales charge on Class C shares during the
first year the shares are outstanding. The Distributor retains the asset-based
sales charge on Class N shares. The asset-based sales charges on Class B, Class
C and Class N shares allow investors to buy shares without a front-end sales
charge while allowing the Distributor to compensate dealers that sell those
shares.
The Distributor's actual expenses in selling Class B, Class C and Class N
shares may be more than the payments it receives from the contingent deferred
sales charges collected on redeemed shares and asset-based sales charges from
the Fund under the plans. If any plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales charge
to the Distributor for distributing shares before the plan was terminated. The
plans allow for the carryforward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended October 31, 2001,
were as follows:
Distributor's
Distributor's Aggregate
Aggregate Unreimbursed
Unreimbursed Expenses as %
Total Payments Amount Retained Expenses of Net Assets
Under Plan by Distributor Under Plan of Class
-----------------------------------------------------------------------------------
Class B Plan $13,262,363 $10,121,335 $11,222,717 0.97%
Class C Plan 2,802,785 217,460 4,231,717 1.64
Class N Plan 2,136 1,934 32,224 1.41
================================================================================
5. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Xxxxxxxxxxx funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of 0.08%
per annum.
The Fund had no borrowings outstanding during the year ended or at October
31, 2001.
Appendix A
RATINGS DEFINITIONS
Below are summaries of the rating definitions used by the nationally-recognized rating agencies listed below.
Those ratings represent the opinion of the agency as to the credit quality of issues that they rate. The
summaries below are based upon publicly-available information provided by the rating organizations.
Xxxxx'x Investors Service, Inc.
-------------------------------------------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated "Aaa" are judged to be the best quality. They carry the smallest degree of investment risk.
Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, the changes that can be expected are most unlikely to
impair the fundamentally strong position of such issues.
Aa: Bonds rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group, they
comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as with "Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long-term risk appear somewhat larger
than that of "Aaa" securities.
A: Bonds rated "A" possess many favorable investment attributes and are to be considered as upper-medium grade
obligations. Factors giving security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa: Bonds rated "Baa" are considered medium-grade obligations; that is, they are neither highly protected nor
poorly secured. Interest payments and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and have speculative characteristics as well.
Ba: Bonds rated "Ba" are judged to have speculative elements. Their future cannot be considered well-assured.
Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B: Bonds rated "B" generally lack characteristics of the desirable investment. Assurance of interest and
principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa: Bonds rated "Caa" are of poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca: Bonds rated "Ca" represent obligations which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C: Bonds rated "C" are the lowest class of rated bonds and can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Con. (...): Bonds for which the security depends on the completion of some act or the fulfillment of some condition
are rated conditionally. These bonds are secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals that begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. The parenthetical rating denotes probable credit
stature upon completion of construction or elimination of the basis of the condition.
Xxxxx'x applies numerical modifiers 1, 2, and 3 in each generic rating classification from "Aa" through "Caa."
The modifier "1" indicates that the obligation ranks in the higher end of its generic rating category; the
modifier "2" indicates a mid-range ranking; and the modifier "3" indicates a ranking in the lower end of that
generic rating category. Advanced refunded issues that are secured by certain assets are identified with a #
symbol.
Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to honor senior debt obligations having an original maturity not
exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt obligations. Earnings trends and
coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while
appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in earnings and profitability may
result in changes in the level of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
-------------------------------------------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small degree. The obligor's capacity to
meet its financial commitment on the obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: Bonds rated "BBB" exhibit adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on
the obligation.
BB, B, CCC, CC, and C
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having significant speculative characteristics. "BB"
indicates the least degree of speculation, and "C" the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to
adverse conditions.
BB: Bonds rated "BB" are less vulnerable to nonpayment than other speculative issues. However, these face major
ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the obligation.
B: Bonds rated "B" are more vulnerable to nonpayment than obligations rated "BB", but the obligor currently has
the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the
obligation.
CCC: Bonds rated "CCC" are currently vulnerable to nonpayment, and are dependent upon favorable business,
financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the
event of adverse business, financial or economic conditions, the obligor is not likely to have the capacity to
meet its financial commitment on the obligation.
CC: Bonds rated "CC" are currently highly vulnerable to nonpayment.
C: A subordinated debt or preferred stock obligation rated "C" is currently highly vulnerable to nonpayment. The
"C" rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been
taken, but payments on this obligation are being continued. A "C" also will be assigned to a preferred stock
issue in arrears on dividends or sinking fund payments, but that is currently paying.
D: Bonds rated "D" are in default. Payments on the obligation are not being made on the date due even if the
applicable grace period has not expired, unless Standard and Poor's believes that such payments will be made
during such grace period. The "D" rating will also be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories. The "r" symbol is attached to the ratings of instruments with
significant noncredit risks.
Short-Term Issue Credit Ratings
A-1: Obligation is rated in the highest category. The obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, a plus (+) sign designation indicates the obligor's capacity to meet
its financial obligation is extremely strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
A-3: Obligation exhibits adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on
the obligation.
B: Obligation is regarded as having significant speculative characteristics. The obligor currently has the
capacity to meet its financial commitment on the obligation. However, it faces major ongoing uncertainties which
could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
C: Obligation is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and
economic conditions for the obligor to meet its financial commitment on the obligation.
D: Obligation is in payment default. Payments on the obligation have not been made on the due date even if the
applicable grace period has not expired, unless Standard and Poor's believes that such payments will be made
during such grace period. The "D" rating will also be used upon the filing of a bankruptcy petition or the taking
of a similar action if payments on an obligation are jeopardized.
Fitch, Inc.
-------------------------------------------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of credit risk. They are assigned only
in the case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of credit risk. They indicate a very
strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk. The capacity for timely payment of
financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances
and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit risk developing, particularly as the
result of adverse economic change over time. However, business or financial alternatives may be available to
allow financial commitments to be met. Securities rated in this category are not investment grade.
B: Highly Speculative. "B" ratings indicate that significant credit risk is present, but a limited margin of
safety remains. Financial commitments are currently being met. However, capacity for continued payment is
contingent upon a sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for meeting financial commitments is
solely reliant upon sustained, favorable business or economic developments. A "CC" rating indicates that default
of some kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. The ratings of obligations in this category are based on their prospects for achieving
partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are
highly speculative and cannot be estimated with any precision, the following serve as general guidelines. "DDD"
obligations have the highest potential for recovery, around 90%-100% of outstanding amounts and accrued interest.
"DD" indicates potential recoveries in the range of 50%-90%, and "D" the lowest recovery potential, i.e., below
50%.
Entities rated in this category have defaulted on some or all of their obligations. Entities rated "DDD" have the
highest prospect for resumption of performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal reorganization or liquidation process;
those rated "DD" are likely to satisfy a higher portion of their outstanding obligations, while entities rated
"D" have a poor prospect for repaying all obligations.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote relative status within the major rating
categories. Plus and minus signs are not added to the "AAA" category or to categories below "CCC," nor to
short-term ratings other than "F1" (see below).
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment of financial commitments. May have an added
"+" to denote any exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of
safety is not as great as in the case of higher ratings.
F3: Fair credit quality. Capacity for timely payment of financial commitments is adequate. However, near-term
adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term
adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely
reliant upon a sustained, favorable business and economic environment.
D: Default. Denotes actual or imminent payment default.
Appendix B
-------------------------------------------------------------------------------------------------------------------
Industry Classifications
-------------------------------------------------------------------------------------------------------------------
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads & Truckers
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Long Distance
Electrical Equipment Telephone - Utility
Electronics Textile, Apparel & Home Furnishings
Energy Services Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of Class A shares5 of the Xxxxxxxxxxx funds
or the contingent deferred sales charge that may apply to Class A, Class B or Class C shares may be waived.6
That is because of the economies of sales efforts realized by XxxxxxxxxxxXxxxx Distributor, Inc., (referred to in
this document as the "Distributor"), or by dealers or other financial institutions that offer those shares to
certain classes of investors.
Not all waivers apply to all funds. For example, waivers relating to Retirement Plans do not apply to Xxxxxxxxxxx
municipal funds, because shares of those funds are not available for purchase by or on behalf of retirement
plans. Other waivers apply only to shareholders of certain funds.
For the purposes of some of the waivers described below and in the Prospectus and Statement of Additional
Information of the applicable Xxxxxxxxxxx funds, the term "Retirement Plan" refers to the following types of
plans:
(1) plans qualified under Sections 401(a) or 401(k) of the Internal Revenue Code,
(2) non-qualified deferred compensation plans,
(3) employee benefit plans7
(4) Group Retirement Plans8
(5) 403(b)(7) custodial plan accounts
(6) Individual Retirement Accounts ("IRAs"), including traditional IRAs, Xxxx IRAs, SEP-IRAs, SARSEPs or
SIMPLE plans
The interpretation of these provisions as to the applicability of a special arrangement or waiver in a particular
case is in the sole discretion of the Distributor or the transfer agent (referred to in this document as the
"Transfer Agent") of the particular Xxxxxxxxxxx fund. These waivers and special arrangements may be amended or
terminated at any time by a particular fund, the Distributor, and/or OppenheimerFunds, Inc. (referred to in this
document as the "Manager").
Waivers that apply at the time shares are redeemed must be requested by the shareholder and/or dealer in the
redemption request.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Xxxxxxxxxxx Funds That Are Not Subject to Initial Sales Charge but May Be Subject
to the Class A Contingent Deferred Sales Charge (unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of the Xxxxxxxxxxx funds in the
cases listed below. However, these purchases may be subject to the Class A contingent deferred sales charge if
redeemed within 18 months of the end of the calendar month of their purchase, as described in the Prospectus
(unless a waiver described elsewhere in this Appendix applies to the redemption). Additionally, on shares
purchased under these waivers that are subject to the Class A contingent deferred sales charge, the Distributor
will pay the applicable concession described in the Prospectus under "Class A Contingent Deferred Sales Charge."9
This waiver provision applies to:
- Purchases of Class A shares aggregating $1 million or more.
- Purchases of Class A shares by a Retirement Plan that was permitted to purchase such shares at net asset
value but subject to a contingent deferred sales charge prior to March 1, 2001.
- Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the purchases are made:
(1) through a broker, dealer, bank or registered investment adviser that has made special arrangements with
the Distributor for those purchases, or
(2) by a direct rollover of a distribution from a qualified Retirement Plan if the administrator of that
Plan has made special arrangements with the Distributor for those purchases.
- Purchases of Class A shares by Retirement Plans that have any of the following record-keeping
arrangements:
(1) The record keeping is performed by Xxxxxxx Xxxxx Xxxxxx Xxxxxx & Xxxxx, Inc. ("Xxxxxxx Xxxxx") on a
daily valuation basis for the Retirement Plan. On the date the plan sponsor signs the
record-keeping service agreement with Xxxxxxx Xxxxx, the Plan must have $3 million or more of its
assets invested in (a) mutual funds, other than those advised or managed by Xxxxxxx Xxxxx
Investment Management, L.P. ("MLIM"), that are made available under a Service Agreement between
Xxxxxxx Xxxxx and the mutual fund's principal underwriter or distributor, and (b) funds advised
or managed by MLIM (the funds described in (a) and (b) are referred to as "Applicable
Investments").
(2) The record keeping for the Retirement Plan is performed on a daily valuation basis by a record keeper
whose services are provided under a contract or arrangement between the Retirement Plan and Xxxxxxx
Xxxxx. On the date the plan sponsor signs the record keeping service agreement with Xxxxxxx Xxxxx,
the Plan must have $3 million or more of its assets (excluding assets invested in money market
funds) invested in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a service agreement with Xxxxxxx Xxxxx and on
the date the plan sponsor signs that agreement, the Plan has 500 or more eligible employees (as
determined by the Xxxxxxx Xxxxx plan conversion manager).
- Purchases by a Retirement Plan whose record keeper had a cost-allocation agreement with the
Transfer Agent on or before March 1, 2001.
II. Waivers of Class A Sales Charges of Xxxxxxxxxxx Funds
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain Purchasers.
Class A shares purchased by the following investors are not subject to any Class A sales charges (and no
concessions are paid by the Distributor on such purchases):
- The Manager or its affiliates.
- Present or former officers, directors, trustees and employees (and their "immediate families") of the
Fund, the Manager and its affiliates, and retirement plans established by them for their employees. The
term "immediate family" refers to one's spouse, children, grandchildren, grandparents, parents,
parents-in-law, brothers and sisters, sons- and daughters-in-law, a xxxxxxx's spouse, a spouse's
siblings, aunts, uncles, nieces and nephews; relatives by virtue of a remarriage (step-children,
step-parents, etc.) are included.
- Registered management investment companies, or separate accounts of insurance companies having an
agreement with the Manager or the Distributor for that purpose.
- Dealers or brokers that have a sales agreement with the Distributor, if they purchase shares for their
own accounts or for retirement plans for their employees.
- Employees and registered representatives (and their spouses) of dealers or brokers described above or
financial institutions that have entered into sales arrangements with such dealers or brokers (and which
are identified as such to the Distributor) or with the Distributor. The purchaser must certify to the
Distributor at the time of purchase that the purchase is for the purchaser's own account (or for the
benefit of such employee's spouse or minor children).
- Dealers, brokers, banks or registered investment advisors that have entered into an agreement with the
Distributor providing specifically for the use of shares of the Fund in particular investment products
made available to their clients. Those clients may be charged a transaction fee by their dealer, broker,
bank or advisor for the purchase or sale of Fund shares.
- Investment advisors and financial planners who have entered into an agreement for this purpose with the
Distributor and who charge an advisory, consulting or other fee for their services and buy shares for
their own accounts or the accounts of their clients.
- "Rabbi trusts" that buy shares for their own accounts, if the purchases are made through a broker or
agent or other financial intermediary that has made special arrangements with the Distributor for those
purchases.
- Clients of investment advisors or financial planners (that have entered into an agreement for this
purpose with the Distributor) who buy shares for their own accounts may also purchase shares without
sales charge but only if their accounts are linked to a master account of their investment advisor or
financial planner on the books and records of the broker, agent or financial intermediary with which the
Distributor has made such special arrangements . Each of these investors may be charged a fee by the
broker, agent or financial intermediary for purchasing shares.
- Directors, trustees, officers or full-time employees of OpCap Advisors or its affiliates, their
relatives or any trust, pension, profit sharing or other benefit plan which beneficially owns shares for
those persons.
- Accounts for which Xxxxxxxxxxx Capital (or its successor) is the investment advisor (the Distributor
must be advised of this arrangement) and persons who are directors or trustees of the company or trust
which is the beneficial owner of such accounts.
- A unit investment trust that has entered into an appropriate agreement with the Distributor.
- Dealers, brokers, banks, or registered investment advisers that have entered into an agreement with the
Distributor to sell shares to defined contribution employee retirement plans for which the dealer,
broker or investment adviser provides administration services.
- Retirement Plans and deferred compensation plans and trusts used to fund those plans (including, for
example, plans qualified or created under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue
Code), in each case if those purchases are made through a broker, agent or other financial intermediary
that has made special arrangements with the Distributor for those purchases.
- A TRAC-2000 401(k) plan (sponsored by the former Quest for Value Advisors) whose Class B or Class C
shares of a Former Quest for Value Fund were exchanged for Class A shares of that Fund due to the
termination of the Class B and Class C TRAC-2000 program on November 24, 1995.
- A qualified Retirement Plan that had agreed with the former Quest for Value Advisors to purchase shares
of any of the Former Quest for Value Funds at net asset value, with such shares to be held through
DCXchange, a sub-transfer agency mutual fund clearinghouse, if that arrangement was consummated and
share purchases commenced by December 31, 1996.
X. Xxxxxxx of Initial and Contingent Deferred Sales Charges in Certain Transactions.
Class A shares issued or purchased in the following transactions are not subject to sales charges (and no
concessions are paid by the Distributor on such purchases):
- Shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange
offers, to which the Fund is a party.
- Shares purchased by the reinvestment of dividends or other distributions reinvested from the Fund or
other Xxxxxxxxxxx funds (other than Xxxxxxxxxxx Cash Reserves) or unit investment trusts for which
reinvestment arrangements have been made with the Distributor.
- Shares purchased through a broker-dealer that has entered into a special agreement with the Distributor
to allow the broker's customers to purchase and pay for shares of Xxxxxxxxxxx funds using the proceeds
of shares redeemed in the prior 30 days from a mutual fund (other than a fund managed by the Manager or
any of its subsidiaries) on which an initial sales charge or contingent deferred sales charge was paid.
This waiver also applies to shares purchased by exchange of shares of Xxxxxxxxxxx Money Market Fund,
Inc. that were purchased and paid for in this manner. This waiver must be requested when the purchase
order is placed for shares of the Fund, and the Distributor may require evidence of qualification for
this waiver.
- Shares purchased with the proceeds of maturing principal units of any Qualified Unit Investment Liquid
Trust Series.
- Shares purchased by the reinvestment of loan repayments by a participant in a Retirement Plan for which
the Manager or an affiliate acts as sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would otherwise be subject to the
contingent deferred sales charge are redeemed in the following cases:
- To make Automatic Withdrawal Plan payments that are limited annually to no more than 12% of the
account value adjusted annually.
- Involuntary redemptions of shares by operation of law or involuntary redemptions of small accounts
(please refer to "Shareholder Account Rules and Policies," in the applicable fund Prospectus).
- For distributions from Retirement Plans, deferred compensation plans or other employee benefit plans for
any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue Code) of the participant or
beneficiary. The death or disability must occur after the participant's account was established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact.
(4) Hardship withdrawals, as defined in the plan.10
(5) Under a Qualified Domestic Relations Order, as defined in the Internal Revenue Code, or, in the case of
an IRA, a divorce or separation agreement described in Section 71(b) of the Internal Revenue
Code.
(6) To meet the minimum distribution requirements of the Internal Revenue Code.
(7) To make "substantially equal periodic payments" as described in Section 72(t) of the Internal Revenue
Code.
(8) For loans to participants or beneficiaries.
(9) Separation from service.11
(10) Participant-directed redemptions to purchase shares of a mutual fund (other than a fund managed by the
Manager or a subsidiary of the Manager) if the plan has made special arrangements with the
Distributor.
(11) Plan termination or "in-service distributions," if the redemption proceeds are rolled over directly to
an OppenheimerFunds-sponsored IRA.
- For distributions from Retirement Plans having 500 or more eligible employees, except distributions due
to termination of all of the Xxxxxxxxxxx funds as an investment option under the Plan.
- For distributions from 401(k) plans sponsored by broker-dealers that have entered into a
special agreement with the Distributor allowing this waiver.
III. Waivers of Class B, Class C and Class N Sales Charges of Xxxxxxxxxxx Funds
The Class B, Class C and Class N contingent deferred sales charges will not be applied to shares purchased in
certain types of transactions or redeemed in certain circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B, Class C and Class N contingent deferred sales charges will be waived for redemptions of shares in
the following cases:
- Shares redeemed involuntarily, as described in "Shareholder Account Rules and Policies," in the
applicable Prospectus.
- Redemptions from accounts other than Retirement Plans following the death or disability of the last
surviving shareholder, including a trustee of a grantor trust or revocable living trust for which the
trustee is also the sole beneficiary. The death or disability must have occurred after the account was
established, and for disability you must provide evidence of a determination of disability by the Social
Security Administration.
- Distributions from accounts for which the broker-dealer of record has entered into a special agreement
with the Distributor allowing this waiver.
- Redemptions of Class B shares held by Retirement Plans whose records are maintained on a daily valuation
basis by Xxxxxxx Xxxxx or an independent record keeper under a contract with Xxxxxxx Xxxxx.
- Redemptions of Class C shares of Xxxxxxxxxxx U.S. Government Trust from accounts of clients of financial
institutions that have entered into a special arrangement with the Distributor for this purpose.
- Redemptions requested in writing by a Retirement Plan sponsor of Class C shares of an Xxxxxxxxxxx fund
in amounts of $1 million or more held by the Retirement Plan for more than one year, if the redemption
proceeds are invested in Class A shares of one or more Xxxxxxxxxxx funds.
- Distributions12 from Retirement Plans or other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue Code) of the participant or
beneficiary. The death or disability must occur after the participant's account was established
in an Xxxxxxxxxxx fund.
(2) To return excess contributions made to a participant's account.
(3) To return contributions made due to a mistake of fact.
(4) To make hardship withdrawals, as defined in the plan.13
(5) To make distributions required under a Qualified Domestic Relations Order or, in the case of an IRA, a
divorce or separation agreement described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue Code.
(7)
To make "substantially equal periodic payments" as described in Section 72(t) of the Internal Revenue
Code.
(8) For loans to participants or beneficiaries.14
(9) On account of the participant's separation from service.15
(10) Participant-directed redemptions to purchase shares of a mutual fund (other than a fund managed by the
Manager or a subsidiary of the Manager) offered as an investment option in a Retirement Plan if the
plan has made special arrangements with the Distributor.
(11) Distributions made on account of a plan termination or "in-service" distributions, if the redemption
proceeds are rolled over directly to an OppenheimerFunds-sponsored IRA.
(12) Distributions from Retirement Plans having 500 or more eligible employees, except distributions made
because of the elimination of all of the Xxxxxxxxxxx funds as an investment option under the Plan.
(13) For distributions from a participant's account under an Automatic Withdrawal Plan after the participant
reaches age 59 1/2, as long as the aggregate value of the distributions does not exceed 10% of the
account's value, adjusted annually.
(14) Redemptions of Class B shares under an Automatic Withdrawal Plan for an account other than a
Retirement Plan, if the aggregate value of the redeemed shares does not exceed 10% of the
account's value, adjusted annually.
(15) For distributions from 401(k) plans sponsored by broker-dealers that have entered into a special
arrangement with the Distributor allowing this waiver.
- Redemptions of Class B shares or Class C shares under an Automatic Withdrawal Plan from an account
other than a Retirement Plan if the aggregate value of the redeemed shares does not exceed 10% of the account's
value annually.
X. Xxxxxxx for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C shares sold or issued in the following
cases:
- Shares sold to the Manager or its affiliates.
- Shares sold to registered management investment companies or separate accounts of insurance companies
having an agreement with the Manager or the Distributor for that purpose.
- Shares issued in plans of reorganization to which the Fund is a party.
- Shares sold to present or former officers, directors, trustees or employees (and their "immediate
families" as defined above in Section I.A.) of the Fund, the Manager and its affiliates and
retirement plans established by them for their employees.
IV. Special Sales Charge Arrangements for Shareholders of Xxxxxxx Xxxxxxxxxxx Funds Who Were Shareholders of
Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A, Class B and Class C shares
described in the Prospectus or Statement of Additional Information of the Xxxxxxxxxxx funds are modified as
described below for certain persons who were shareholders of the former Quest for Value Funds. To be eligible,
those persons must have been shareholders on November 24, 1995, when OppenheimerFunds, Inc. became the investment
advisor to those former Quest for Value Funds. Those funds include:
Xxxxxxxxxxx Quest Value Fund, Inc. Xxxxxxxxxxx Small Cap Value Fund
Xxxxxxxxxxx Quest Balanced Value Fund Xxxxxxxxxxx Quest Global Value Fund, Inc.
Xxxxxxxxxxx Quest Opportunity Value Fund
These arrangements also apply to shareholders of the following funds when they merged (were reorganized)
into various Xxxxxxxxxxx funds on November 24, 1995:
Quest for Value U.S. Government Income Fund Quest for Value New York Tax-Exempt Fund
Quest for Value Investment Quality Income Fund Quest for Value National Tax-Exempt Fund
Quest for Value Global Income Fund Quest for Value California Tax-Exempt Fund
All of the funds listed above are referred to in this Appendix as the "Former Quest for Value Funds."
The waivers of initial and contingent deferred sales charges described in this Appendix apply to shares of an
Xxxxxxxxxxx fund that are either:
- acquired by such shareholder pursuant to an exchange of shares of an Xxxxxxxxxxx fund that was
one of the Former Quest for Value Funds, or
- purchased by such shareholder by exchange of shares of another Xxxxxxxxxxx fund that were
acquired pursuant to the merger of any of the Former Quest for Value Funds into that other Xxxxxxxxxxx fund on
November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
- - Reduced Class A Initial Sales Charge Rates for Certain Former Quest for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial sales charge rates for Class A
shares purchased by members of "Associations" formed for any purpose other than the purchase of securities. The
rates in the table apply if that Association purchased shares of any of the Former Quest for Value Funds or
received a proposal to purchase such shares from OCC Distributors prior to November 24, 1995.
------------------------------ ---------------------------- ---------------------------- ----------------------------
Number of Eligible Employees Initial Sales Charge as a Initial Sales Charge as a Concession as % of
or Members % of Offering Price % of Net Amount Invested Offering Price
------------------------------ ---------------------------- ---------------------------- ----------------------------
------------------------------ ---------------------------- ---------------------------- ----------------------------
9 or Fewer 2.50% 2.56% 2.00%
------------------------------ ---------------------------- ---------------------------- ----------------------------
------------------------------ ---------------------------- ---------------------------- ----------------------------
At least 10 but not more 2.00% 2.04% 1.60%
than 49
------------------------------ ---------------------------- ---------------------------- ----------------------------
For purchases by Associations having 50 or more eligible employees or members, there is no initial sales
charge on purchases of Class A shares, but those shares are subject to the Class A contingent deferred sales
charge described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the sales charge rate in the table
based on the number of members of an Association, or the sales charge rate that applies under the Right of
Accumulation described in the applicable fund's Prospectus and Statement of Additional Information. Individuals
who qualify under this arrangement for reduced sales charge rates as members of Associations also may purchase
shares for their individual or custodial accounts at these reduced sales charge rates, upon request to the
Distributor.
- - Waiver of Class A Sales Charges for Certain Shareholders. Class A shares purchased by the
following investors are not subject to any Class A initial or contingent deferred sales charges:
- Shareholders who were shareholders of the AMA Family of Funds on February 28, 1991 and who
acquired shares of any of the Former Quest for Value Funds by merger of a portfolio of the AMA
Family of Funds.
- Shareholders who acquired shares of any Former Quest for Value Fund by merger of any of the
portfolios of the Unified Funds.
- - Waiver of Class A Contingent Deferred Sales Charge in Certain Transactions. The Class A contingent
deferred sales charge will not apply to redemptions of Class A shares purchased by the following investors who
were shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not permitted to receive a sales
load or redemption fee imposed on a shareholder with whom that dealer has a fiduciary relationship, under the
Employee Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
- - Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In the following cases, the
contingent deferred sales charge will be waived for redemptions of Class A, Class B or Class C shares of an
Xxxxxxxxxxx fund. The shares must have been acquired by the merger of a Former Quest for Value Fund into the fund
or by exchange from an Xxxxxxxxxxx fund that was a Former Quest for Value Fund or into which such fund merged.
Those shares must have been purchased prior to March 6, 1995 in connection with:
- withdrawals under an automatic withdrawal plan holding only either Class B or Class C
shares if the annual withdrawal does not exceed 10% of the initial value of the account value,
adjusted annually, and
- liquidation of a shareholder's account if the aggregate net asset value of shares held
in the account is less than the required minimum value of such accounts.
- - Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but Prior to November 24,
1995. In the following cases, the contingent deferred sales charge will be waived for redemptions of Class A,
Class B or Class C shares of an Xxxxxxxxxxx fund. The shares must have been acquired by the merger of a Former
Quest for Value Fund into the fund or by exchange from an Xxxxxxxxxxx fund that was a Former Quest For Value Fund
or into which such Former Quest for Value Fund merged. Those shares must have been purchased on or after March 6,
1995, but prior to November 24, 1995:
- redemptions following the death or disability of the shareholder(s) (as evidenced by a determination of
total disability by the U.S. Social Security Administration);
- withdrawals under an automatic withdrawal plan (but only for Class B or Class C shares) where the annual
withdrawals do not exceed 10% of the initial value of the account value; adjusted annually, and
- liquidation of a shareholder's account if the aggregate net asset value of shares held
in the account is less than the required minimum account value.
A shareholder's account will be credited with the amount of any contingent deferred sales charge paid on
the redemption of any Class A, Class B or Class C shares of the Xxxxxxxxxxx fund described in this section if the
proceeds are invested in the same Class of shares in that fund or another Xxxxxxxxxxx fund within 90 days after
redemption.
V. Special Sales Charge Arrangements for Shareholders of Xxxxxxx Xxxxxxxxxxx Funds Who Were Shareholders of
Connecticut Mutual Investment Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A and Class B shares described in the
respective Prospectus (or this Appendix) of the following Xxxxxxxxxxx funds (each is referred to as a "Fund" in
this section):
Xxxxxxxxxxx U. S. Government Trust,
Xxxxxxxxxxx Bond Fund,
Xxxxxxxxxxx Value Fund and
Xxxxxxxxxxx Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were shareholders of the following funds
(referred to as the "Former Connecticut Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the
investment adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return Account
Connecticut Mutual Government Securities Account CMIA LifeSpan Capital Appreciation Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
- Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund and the other Former
Connecticut Mutual Funds are entitled to continue to make additional purchases of Class A shares at net asset
value without a Class A initial sales charge, but subject to the Class A contingent deferred sales charge that
was in effect prior to March 18, 1996 (the "prior Class A CDSC"). Under the prior Class A CDSC, if any of those
shares are redeemed within one year of purchase, they will be assessed a 1% contingent deferred sales charge on
an amount equal to the current market value or the original purchase price of the shares sold, whichever is
smaller (in such redemptions, any shares not subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are:
(1) persons whose purchases of Class A shares of a Fund and other Former Connecticut Mutual Funds were
$500,000 prior to March 18, 1996, as a result of direct purchases or purchases pursuant to the
Fund's policies on Combined Purchases or Rights of Accumulation, who still hold those shares in
that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered into prior to March 18, 1996,
with the former general distributor of the Former Connecticut Mutual Funds to purchase shares
valued at $500,000 or more over a 13-month period entitled those persons to purchase shares at
net asset value without being subject to the Class A initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut Mutual Funds that were purchased at
net asset value prior to March 18, 1996, remain subject to the prior Class A CDSC, or if any additional shares
are purchased by those shareholders at net asset value pursuant to this arrangement they will be subject to the
prior Class A CDSC.
- Class A Sales Charge Waivers. Additional Class A shares of a Fund may be purchased without a sales
charge, by a person who was in one (or more) of the categories below and acquired Class A shares prior to March
18, 1996, and still holds Class A shares:
(1) any purchaser, provided the total initial amount invested in the Fund or any one or more of the Former
Connecticut Mutual Funds totaled $500,000 or more, including investments made pursuant to the
Combined Purchases, Statement of Intention and Rights of Accumulation features available at the
time of the initial purchase and such investment is still held in one or more of the Former
Connecticut Mutual Funds or a Fund into which such Fund merged;
(2) any participant in a qualified plan, provided that the total initial amount invested by the plan in the
Fund or any one or more of the Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut Mutual Funds and members of their
immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial Services, L.L.C. ("CMFS"), the prior
distributor of the Former Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons who are retirees from such group)
engaged in a common business, profession, civic or charitable endeavor or other activity, and the
spouses and minor dependent children of such persons, pursuant to a marketing program between
CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or individuals, if such institution was
directly compensated by the individual(s) for recommending the purchase of the shares of the Fund
or any one or more of the Former Connecticut Mutual Funds, provided the institution had an
agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be subject to the Class A CDSC of the
Former Connecticut Mutual Funds described above.
Additionally, Class A shares of a Fund may be purchased without a sales charge by any holder of a
variable annuity contract issued in New York State by Connecticut Mutual Life Insurance Company through the
Panorama Separate Account which is beyond the applicable surrender charge period and which was used to fund a
qualified plan, if that holder exchanges the variable annuity contract proceeds to buy Class A shares of the
Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix, above, the contingent deferred sales
charge will be waived for redemptions of Class A and Class B shares of a Fund and exchanges of Class A or Class B
shares of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund provided that the Class A or
Class B shares of the Fund to be redeemed or exchanged were (i) acquired prior to March 18, 1996 or (ii) were
acquired by exchange from an Xxxxxxxxxxx fund that was a Former Connecticut Mutual Fund. Additionally, the shares
of such Former Connecticut Mutual Fund must have been purchased prior to March 18, 1996:
(1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or beneficiaries from retirement plans qualified
under Sections 401(a) or 403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state, county, or city, or any
instrumentality, department, authority, or agency thereof, that is prohibited by applicable
investment laws from paying a sales charge or concession in connection with the purchase of
shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a combination with another investment
company by virtue of a merger, acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or liquidate the Fund;
(8) in connection with automatic redemptions of Class A shares and Class B shares in certain retirement plan
accounts pursuant to an Automatic Withdrawal Plan but limited to no more than 12% of the original
value annually; or
(9) as involuntary redemptions of shares by operation of law, or under procedures set forth in the Fund's
Articles of Incorporation, or as adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of Advance America Funds, Inc.
Shareholders of Xxxxxxxxxxx Municipal Bond Fund, Xxxxxxxxxxx U.S. Government Trust, Xxxxxxxxxxx Strategic Income
Fund and Xxxxxxxxxxx Capital Income Fund who acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those Xxxxxxxxxxx funds on October 18, 1991, and who
held shares of Advance America Funds, Inc. on March 30, 1990, may purchase Class A shares of those four
Xxxxxxxxxxx funds at a maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of Xxxxxxxxxxx Convertible Securities
Fund
Xxxxxxxxxxx Convertible Securities Fund (referred to as the "Fund" in this section) may sell Class M shares at
net asset value without any initial sales charge to the classes of investors listed below who, prior to March 11,
1996, owned shares of the Fund's then-existing Class A and were permitted to purchase those shares at net asset
value without sales charge:
- the Manager and its affiliates,
- present or former officers, directors, trustees and employees (and their "immediate families" as defined
in the Fund's Statement of Additional Information) of the Fund, the Manager and its affiliates, and
retirement plans established by them or the prior investment advisor of the Fund for their employees,
- registered management investment companies or separate accounts of insurance companies that had an
agreement with the Fund's prior investment advisor or distributor for that purpose,
- dealers or brokers that have a sales agreement with the Distributor, if they purchase shares for their
own accounts or for retirement plans for their employees,
- employees and registered representatives (and their spouses) of dealers or brokers described in the
preceding section or financial institutions that have entered into sales arrangements with those dealers
or brokers (and whose identity is made known to the Distributor) or with the Distributor, but only if
the purchaser certifies to the Distributor at the time of purchase that the purchaser meets these
qualifications,
- dealers, brokers, or registered investment advisors that had entered into an agreement with the
Distributor or the prior distributor of the Fund specifically providing for the use of Class M shares of
the Fund in specific investment products made available to their clients, and
- dealers, brokers or registered investment advisors that had entered into an agreement with the
Distributor or prior distributor of the Fund's shares to sell shares to defined contribution employee
retirement plans for which the dealer, broker, or investment advisor provides administrative services.
-------------------------------------------------------------------------------------------------------------------
Xxxxxxxxxxx Quest Opportunity Value Fund
-------------------------------------------------------------------------------------------------------------------
Internet Web Site:
XXX.XXXXXXXXXXXXXXXX.XXX
------------------------
Investment Adviser
OppenheimerFunds, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Sub-Advisor
OpCap Advisors
0000 Xxxxxx xx xxx Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Distributor
OppenheimerFunds Distributor, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Transfer Agent
XxxxxxxxxxxXxxxx Services
P.O. Box 5270
Denver, Colorado 80217
0.000.000.0000
Custodian Bank
Citibank, N.A.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Independent Accountants
KPMG LLP
000 Xxxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Legal Counsel
Xxxxx, Xxxxx, Xxxx & Maw
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx
00000-5820
236SAI_0202.