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Xxxxxxxxxxx XxxXxx 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. You can obtain the Prospectus by writing to the Fund's Transfer Agent,
OppenheimerFunds Services, at X.X. Xxx 0000, Xxxxxx, Xxxxxxxx 00000, or by calling the Transfer Agent at the
toll-free number shown above, or by downloading it from the OppenheimerFunds Internet website 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......................................................... 5
Investment Restrictions............................................................................ 19
How the Fund is Managed ................................................................................ 21
Organization and History........................................................................... 21
Trustees and Officers of the Fund.................................................................. 22
The Manager........................................................................................ 27
Brokerage Policies of the Fund.......................................................................... 29
Distribution and Service Plans.......................................................................... 31
Performance of the Fund................................................................................. 34
About Your Account
How To Buy Shares....................................................................................... 38
How To Sell Shares...................................................................................... 46
How To Exchange Shares.................................................................................. 50
Dividends, Capital Gains and Taxes...................................................................... 53
Additional Information About the Fund................................................................... 54
Financial Information About the Fund
Independent Auditor's Report............................................................................ 56
Financial Statements.................................................................................... 57
Appendix A: Industry Classifications.................................................................... A-1
Appendix B: Special Sales Charge Arrangements and Waivers............................................... B-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 Manager 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.
|X| Cyclical Opportunities. The Fund might also seek to take advantage of changes in the business cycle
by investing in companies that are sensitive to those changes if the Manager believes they have growth potential.
For example, when the economy is expanding, companies in the consumer durables and technology sectors might
benefit and offer long-term growth opportunities. Other cyclical industries include insurance, for example. The
fund focuses on seeking growth over the long term, but could seek to take tactical advantage of short-term market
movements or events affecting particular issuers or industries.
|X| Investments in Equity Securities. The Fund focuses its investments in equity securities of mid-cap
growth companies. Equity securities include common stocks, preferred stocks, rights and warrants, and securities
convertible into common stock. The Fund's investments will primarily include stocks of companies having a market
capitalization between $2 billion and $11.5 billion, generally measured at the time of the Fund's investment.
However, the Fund is not required to sell securities of an issuer it holds if the issuer's capitalization exceeds
$11.5 billion.
At times, in the Manager's view, the market may favor or disfavor securities of issuers of a particular
capitalization range. Therefore although the Fund normally invests at least 65% of its assets in equity
securities of mid-cap issuers, the Fund may change the proportion of its equity investments in securities of
different capitalization ranges, based upon the Manager's judgment of where the best market opportunities are to
seek the Fund's objective.
Growth companies might be providing new products or services that could enable them to capture a
dominant or important market position. They may have a special area of expertise or the capability to take
advantage of changes in demographic factors in a more profitable way than larger, more established companies.
Growth companies tend to retain a large part of their earnings for research, development or investment
in capital assets. Therefore, they do not tend to emphasize paying dividends, and may not pay any dividends for
some time. They are selected for the Fund's portfolio because the Manager believes the price of the stock will
increase over the long term.
Current income is not a criterion used to select portfolio securities. However, certain debt securities
may be selected for the Fund's portfolio for defensive purposes (including debt securities that the Manager
believes may offer some opportunities for capital appreciation when stocks are disfavored).
In general, securities of mid-cap issuers may be subject to greater price volatility in general than
securities of large-cap companies. Therefore, to the degree that the Fund has investments in medium
capitalization companies at times of market volatility, the Fund's share price may fluctuate more than funds
holding large cap securities.
|_| Over-the-Counter Securities. Mid-cap growth companies that are growth companies may offer
greater opportunities for capital appreciation than securities of large, more established companies. However,
securities of mid-cap companies also involve greater risks than securities of larger companies. Securities of
medium capitalization issuers may trade on securities exchanges or in the over-the-counter market. The
over-the-counter markets, both in the U.S. and abroad, may have less liquidity than securities exchanges. That
lack of liquidity can affect the price the Fund is able to obtain when it wants to sell a security, because if
there are fewer buyers and less demand for a particular security, the Fund might not be able to sell it at an
acceptable price or might have to reduce the price in order to dispose of the security.
In the U.S., the principal over-the-counter market is the NASDAQ Stock Market, Inc., which is regulated
by the National Association of Securities Dealers, Inc. It consists of an electronic quotation system for
certain securities, and a security must have at least two market makers to be
included in NASDAQ. Other over-the-counter markets exist in the U.S., as well as those abroad, wherever a dealer
is willing to make a market in a particular security.
|_| 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 convertible securities are a form of debt security, in many cases their conversion
feature (allowing conversion into equity securities) causes them to be regarded more as "equity equivalents." As
a result, the rating assigned to the security has less impact on the Manager's investment decision with respect
to convertible securities than in the case of non-convertible fixed-income securities. To determine whether
convertible securities should be regarded as "equity equivalents," the Manager examines 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.
|_| Preferred Stock. 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. "Cumulative"
dividend provisions require all or a portion of prior unpaid dividends to be paid before dividends can be paid on
the issuer's common stock. Preferred stock may be "participating" stock, which means that it may be entitled to
a dividend exceeding the stated dividend in certain cases.
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.
|_| Credit Risk. Convertible securities are subject to credit risk. Credit risk relates to the
ability of the issuer of a debt to make interest or principal payments on the security as they become due. If
the issuer fails to pay interest, the Fund's income may be reduced and if the issuer fails to repay principal,
the value of that bond and of the Fund's shares may be reduced. The Manager may rely to some extent on credit
ratings by nationally-recognized ratings agencies in evaluating the credit risk of securities selected for the
Fund's portfolio. It may also use its own research and analysis. Many factors affect an issuer's ability to
make timely payments, and the credit risks of a particular security may change over time. The Fund may invest in
higher-yielding lower-grade debt securities (that is, securities below investment grade), which have special
risks. Those are securities rated below the four highest rating categories of Standard & Poor's Rating Service
(Standard & Poor's") or Xxxxx'x Investors Service, Inc., ("Moody's") or equivalent ratings of other rating
agencies or ratings assigned to a security by the Manager.
|_| Special Risks of Lower-Grade Securities. "Lower-grade" debt securities are those rated below
"investment grade" which means they have a rating lower than "Baa" by Moody's or lower than "BBB" by Standard &
Poor's, or similar ratings by other rating organizations. If they are unrated, and are determined by the Manager
to be of comparable quality to debt securities rated below investment grade, they are included in limitation on
the percentage of the Fund's assets that can be invested in lower-grade securities.
Among the special credit risks of lower-grade securities is the greater risk that the issuer may default
on its obligation to pay interest or to repay principal than in the case of investment-grade securities. The
issuer's low creditworthiness may increase the potential for insolvency. An overall decline in values in the
high-yield bond market is also more likely during a period of general economic downturn. An economic downturn or
an increase in interest rates could severely disrupt the market for high-yield bonds, adversely affecting the
values of outstanding bonds as well as the ability of issuers to pay interest or repay principal. In the case of
foreign high-yield bonds, these risks are in addition to the special risk of foreign investing discussed in the
Prospectus and in this Statement of Additional Information. To the extent they can be converted into stock,
convertible securities may be less subject to some of these risks than non-convertible high-yield bonds, since
stock may be more liquid and less affected by some of these risk factors.
While securities rated "Baa" by Xxxxx'x or "BBB" by Standard and Poor's are investment-grade and are not
regarded as junk bonds, those securities may be subject to special risks, and have some speculative
characteristics.
|_| Interest Rate Risks. In addition to credit risks, convertible debt securities are subject to
changes in value when prevailing interest rates change. When interest rates fall, the values of outstanding debt
securities generally rise, and the bonds may sell for more than their face amount. When interest rates rise, the
values of outstanding debt securities generally decline, and the bonds may sell at a discount from their face
amount. The magnitude of these price changes is generally greater for bonds with longer maturities. Therefore,
when the average maturity of the Fund's debt securities is longer, its share price may fluctuate more when
interest rates change.
|_| Rights and Warrants. The Fund can invest up to 5% of its net assets in warrants or
rights. That 5% limitation does not apply to warrants and rights the Fund has acquired as part of units of
securities or that are attached to other securities that the Fund buys. 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.
|X| Portfolio Turnover. "Portfolio turnover" describes the rate at which the Fund traded its portfolio
securities during its last fiscal period. For example, if a fund sold all of its securities during the year, its
portfolio turnover rate would have been 100%. The Fund's portfolio turnover rate will fluctuate from year to
year. The Fund may have a portfolio turnover rate of more than 100% annually.
Increased portfolio turnover creates higher brokerage and transaction costs for the Fund, which can
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 from time to time can 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.
|X| Foreign Securities. "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 that are
traded on foreign securities exchanges or in foreign over-the-counter markets. The Fund can purchase equity and
debt securities (which may be denominated in U.S. dollars or non-U.S. currencies) issued by foreign corporations,
or that are issued or guaranteed by certain supranational entities (described below), or foreign governments or
their agencies or instrumentalities. These include securities issued by U.S. corporations denominated in
non-U.S. currencies. In normal market conditions the Fund does not expect to hold significant amounts of foreign
debt securities.
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 not considered "foreign securities"
for the purpose of the Fund's investment allocations. That is because they are not subject to some of the special
considerations and risks, discussed below, that apply to foreign securities traded and held abroad.
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.
|_| 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.
|X| 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 (3) 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. These are more speculative securities and can increase the Fund's
overall portfolio risks.
|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, as described below.
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 Fund's Board of Trustees 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. The Fund will not enter into a repurchase agreement
that causes more than 15% of its net assets to be subject to repurchase agreements having a maturity beyond seven
(7) days. 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 Manager 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. Under the policies and procedures established by the Fund's
Board of Trustees, the Manager determines the liquidity of certain of the Fund's investments. 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 can 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 are not fundamental policies and 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 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. Illiquid securities include repurchase
agreements maturing in more than seven days.
|X| Loans of Portfolio Securities. To raise cash for liquidity purposes, the Fund can lend its
portfolio securities to brokers, dealers and other types of financial institutions approved by the Fund's Board
of Trustees. These loans are limited to not more than 25% of the value of the Fund's total assets. The Fund
currently does not intend to engage in loans of securities, but if it does so, such loans will not likely exceed
5% 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 if the borrower
defaults. 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 both must 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 (5) days' notice
or in time to vote on any important matter.
|X| Borrowing for Leverage. The Fund has the ability to borrow up to 10% of the value of its net assets
from banks on an unsecured basis to invest the borrowed funds in portfolio securities. This speculative technique
is known as "leverage." The Fund may borrow only from banks. Under current regulatory requirements, borrowings
can be made only to the extent that the value of the Fund's assets, less its liabilities other than borrowings,
is equal to at least 300% of all borrowings (including the proposed borrowing). If the value of the Fund's
assets fails to meet this 300% asset
coverage requirement, the Fund will reduce its bank debt within three days to meet the requirement. To do so, the
Fund might have to sell a portion of its investments at a disadvantageous time.
The Fund will pay interest on these loans, and that interest expense will raise the overall expenses of
the Fund and reduce its returns. If it does borrow, its expenses will be greater than comparable funds that do
not borrow for leverage. Additionally, the Fund's net asset value per share might fluctuate more than that of
funds that do not borrow. Currently, the Fund does not contemplate using this technique, but if it does so, it
will not likely do so to a substantial degree.
|X| Derivatives. The Fund can invest in a variety of derivative investments to seek income for
liquidity needs or for hedging purposes. Some derivative investments the Fund can use are the hedging
instruments described below in this Statement of Additional Information. However, the Fund does not use, and does
not currently contemplate using, derivatives or hedging instruments to a significant degree and is not obligated
to use them in seeking its objective.
Some of the derivative investments the Fund can use include "debt exchangeable for common stock" of an
issuer or "equity-linked debt securities" of an issuer. At maturity, the debt security is exchanged for common
stock of the issuer or it is payable in an amount based on the price of the issuer's common stock at the time of
maturity. Both alternatives present a risk that the amount payable at maturity will be less than the principal
amount of the debt because the price of the issuer's common stock might not be as high as the Manager expected.
|X| Investment in Other Investment Companies. The Fund can invest up to 10% of its total assets in
shares of other investment companies. It can invest up to 5% of its total assets in any one investment company,
but cannot own more than 3% of the outstanding voting securities of that investment company. These limitations
do not apply to shares acquired in a merger, consolidation, reorganization or acquisition.
Investment in another investment company may involve the payment of substantial premiums above the value
of such investment company's portfolio securities and is subject to limitations under the Investment Company
Act. The Fund does not intend to invest in other investment companies unless the Manager believes that the
potential benefits of the investment justify the payment of any premiums or sales charges. As a shareholder in
an investment company, the Fund would be subject to its ratable share of that investment company's expenses,
including its advisory and administration fees. At the same time, the Fund would bear its own management fees
and other expenses.
|X| Hedging. Although the Fund does not anticipate the extensive use of hedging instruments, the Fund
can use hedging instruments. It is not required to do so in seeking its goal. To attempt to protect against
declines in the market value of the Fund's portfolio, to permit the Fund to retain unrealized gains in the value
of portfolio securities which have appreciated, or to facilitate selling securities for investment reasons, the
Fund could:
|_| sell futures contracts,
|_| buy puts on such futures or on securities, or
|_| write covered calls on securities or futures. Covered calls can also be used to seek income, but
the Manager does not expect to engage extensively in that practice.
The Fund can use hedging to establish a position in the securities market as a temporary substitute for
purchasing particular securities. In that case the Fund would normally seek to purchase the securities and then
terminate that hedging position. The Fund might also use this type of hedge to attempt to protect against the
possibility that its portfolio securities would not be fully included in a rise in value of the market. To do so
the Fund could:
|_| buy futures, or
|_| buy calls on such futures or on securities.
The Fund's strategy of hedging with futures and options on futures will be incidental to the Fund's
activities in the underlying cash market. The particular hedging instruments the Fund can use are described
below. The Fund may employ new hedging instruments and strategies when they are developed, if those investment
methods are consistent with the Fund's investment objective and are permissible under applicable regulations
governing the Fund.
|_| Futures. The Fund can buy and sell futures contracts that relate to (1) stock indices (these are
referred to as "stock index futures"), (2) foreign currencies (these are referred to as "forward contracts"), and
(3) commodities (these are referred to as "commodity futures").
A broadly-based stock index is used as the basis for trading stock index futures. In some cases stock
indices may be based on stocks of issuers in a particular industry or group of industries. A stock index assigns
relative values to the common stocks included in the index and its value fluctuates in response to the changes in
value of the underlying stocks. A stock index cannot be purchased or sold directly. These contracts obligate the
seller to deliver, and the purchaser to take cash to settle the futures obligation. There is no delivery of the
underlying securities to settle the obligation.
The Fund can invest a portion of its assets in commodity future contracts. Commodity futures may be
based upon commodities within five (5) main commodity groups: (1) energy, which includes crude oil, natural gas,
gasoline and heating oil; (2) livestock, which includes cattle and hogs; (3) agriculture, which includes wheat,
corn, soybeans, cotton, coffee, sugar and cocoa; (4) industrial metals, which includes aluminum, copper, lead,
nickel, tin and zinc; and (5) precious metals, which includes gold, platinum and silver. The Fund may purchase
and sell commodity futures contracts, options on futures contracts and options and futures on commodity indices
with respect to these five main commodity groups and the individual commodities within each group, as well as
other types of commodities.
No money is paid or received by the Fund on the purchase or sale of a future. Upon entering into a
futures transaction, the Fund will be required to deposit an initial margin payment with the futures commission
merchant (the "futures broker"). Initial margin payments will be deposited with the Fund's custodian bank in an
account registered in the futures broker's name. However, the futures broker can gain access to that account only
under specified conditions. As the future is marked to market (that is, its value on the Fund's books is
changed) to reflect changes in its market value, subsequent margin payments, called variation margin, will be
paid to or by the futures broker daily.
At any time prior to expiration of the future, the Fund may elect to close out its position by taking an
opposite position, at which time a final determination of variation margin is made and any additional cash must
be paid by or released to the Fund. Any loss or gain on the future is then realized by the Fund for tax
purposes. All futures transactions (except forward contracts) are effected through a clearinghouse associated
with the exchange on which the contracts are traded.
|_| Put and Call Options. The Fund can buy and sell certain kinds of put options ("puts") and
call options ("calls"). The fund can buy and sell exchange-traded and over-the-counter put and call options,
including options on indices, securities, currencies, commodities and futures.
|_| Writing Covered Call Options. The Fund can write (that is, sell) covered calls. If the
Fund sells a call option, it must be covered. That means the Fund must own the security subject to the call
while the call is outstanding, or, for certain types of calls, the call may be covered by segregating liquid
assets to enable the Fund to satisfy its obligations if the call is exercised. Not more than 25% of the Fund's
total assets may be subject to calls the Fund writes.
When the Fund writes a call, it receives cash (a premium). In the case of a call on a security, the
Fund agrees to sell the underlying security to a purchaser of a corresponding call on the same security during
the call period at a fixed exercise price regardless of market price changes during the call period. The call
period is usually not more than nine months. The exercise price may differ from the market price of the
underlying security. The Fund has the risk of loss that the price of the underlying security may decline during
the call period. That risk may be offset to some extent by the premium the Fund receives. If the value of the
investment does not rise above the call price, it is likely that the call will lapse without being exercised. In
that case the Fund would keep the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If the buyer of the call
exercises it, the Fund will pay an amount of cash equal to the difference between the closing price of the call
and the exercise price, multiplied by a specified multiple that determines the total value of the call for each
point of difference. If the value of the underlying investment does not rise above the call price it is likely
that the call will lapse without being exercised. In that case, the Fund would keep the cash premium.
The Fund's custodian, or a securities depository acting for the custodian, will act as the Fund's escrow
agent, through the facilities of the Options Clearing Corporation ("OCC"), as to the investments on which the
Fund has written calls traded on exchanges or as to other acceptable escrow securities. In that way, no margin
will be required for such transactions. OCC will release the securities on the expiration of the option or when
the Fund enters into a closing transaction.
To terminate its obligation on a call it has written, the Fund may purchase a corresponding call in a
"closing purchase transaction." The Fund will then realize a profit or loss, depending upon whether the net of
the amount of the option transaction costs and the premium received on the call the Fund wrote is more or less
than the price of the call the Fund purchases to close out the transaction. The Fund may realize a profit if the
call expires unexercised, because the Fund will retain the underlying security and the premium it received when
it wrote the call. Any such profits are considered short-term capital gains for federal income tax purposes, as
are the premiums on lapsed calls. When distributed by the Fund they are taxable as ordinary income. If the Fund
cannot effect a closing purchase transaction due to the lack of a market, it will have to hold the callable
securities until the call expires or is exercised.
|_| Writing Uncovered Call Options on Futures Contracts. The Fund may also write
calls on a futures contract without owning the futures contract or securities deliverable under the contract. To
do so, at the time the call is written, the Fund must cover the call by segregating an equivalent dollar amount
of liquid assets. The Fund will segregate additional liquid assets if the value of the segregated assets drops
below 100% of the current value of the future. Because of this segregation requirement, in no circumstances
would the Fund's receipt of an exercise notice as to that future require the Fund to deliver a futures contract.
It would simply put the Fund in a short futures position, which is permitted by the Fund's hedging policies.
|_| Writing Put Options. The Fund can sell put options. A put option on a security
gives the purchaser the right to sell, and the writer the obligation to buy, the underlying security at the
exercise price during the option period. The Fund will not write puts if, as a result, more than 50% of the
Fund's net assets would have to be segregated to cover put options.
If the Fund sells a put option, it must be covered by segregated liquid assets. The premium the Fund
receives from writing a put option represents a profit, as long as the price of the underlying investment remains
above the exercise price of the put. However, the Fund also assumes the obligation during the option period to
buy the underlying investment from the buyer of the put at the exercise price, even if the value of the
investment falls below the exercise price. If the Fund writes a put that expires unexercised, the Fund realizes
a gain in the amount of the premium less transaction costs. If the put is exercised, the Fund must fulfill its
obligation to purchase the underlying investment at the exercise price. That price will usually exceed the
market value of the investment at that time. In that case, the Fund may incur a loss if it sells the underlying
investment. That loss will be equal to the sum of the sale price of the underlying investment and the premium
received minus the sum of the exercise price and any transaction costs incurred.
When writing a put option on a security, to secure its obligation to pay for the underlying security the
Fund will deposit in escrow liquid assets with a value equal to or greater than the exercise price of the
underlying security. The Fund therefore forgoes the opportunity of investing the segregated assets or writing
calls against those assets.
As long as the Fund's obligation as the put writer continues, it may be assigned an exercise notice by
the exchange or broker-dealer through which the put was sold. That notice will require the Fund to exchange
currency (for a put written on a currency) at the specified rate of exchange or to take delivery of the
underlying security and pay the exercise price. The Fund has no control over when it may be required to purchase
the underlying security, since it may be assigned an exercise notice at any time prior to the termination of its
obligation as the writer of the put. That obligation terminates upon expiration of the put. It may also
terminate if, before the Fund receives an exercise notice, the Fund effects a closing purchase transaction by
purchasing a put of the same series as it sold. Once the Fund has been assigned an exercise notice, it cannot
effect a closing purchase transaction.
The Fund may decide to effect a closing purchase transaction to realize a profit on an outstanding put
option it has written or to prevent the underlying security from being put. Effecting a closing purchase
transaction will permit the Fund to write another put option on the security or to sell the security and use the
proceeds from the sale for other investments. The Fund will realize a profit or loss from a closing purchase
transaction depending on whether the cost of the transaction is less or more than the premium received from
writing the put option. Any profits from writing puts are considered short-term capital gains for federal tax
purposes, and when distributed by the Fund, are taxable as ordinary income.
|_| Purchasing Calls and Puts. The Fund can purchase calls to protect against the possibility
that the Fund's portfolio will not participate in an anticipated rise in the securities market. When the Fund
buys a call (other than in a closing purchase transaction), it pays a premium. The Fund then has the right to buy
the underlying investment from a seller of a corresponding call on the same investment during the call period at
a fixed exercise price. The Fund benefits only if it sells the call at a profit or if, during the call period,
the market price of the underlying investment is above the sum of the call price plus the transaction costs and
the premium paid for the call and the Fund exercises the call. If the Fund does not exercise the call or sell it
(whether or not at a profit), the call will become worthless at its expiration date. In that case the Fund will
have paid the premium but lost the right to purchase the underlying investment.
The Fund can buy puts whether or not it holds the underlying investment in its portfolio. When the Fund
purchases a put, it pays a premium and, except as to puts on indices, has the right to sell the underlying
investment to a seller of a put on a corresponding investment during the put period at a fixed exercise price.
Buying a put on securities or futures the Fund owns enables the Fund to attempt to protect itself during
the put period against a decline in the value of the underlying investment below the exercise price by selling
the underlying investment at the exercise price to a seller of a corresponding put. If the market price of the
underlying investment is equal to or above the exercise price and, as a result, the put is not exercised or
resold, the put will become worthless at its expiration date. In that case the Fund will have paid the premium
but lost the right to sell the underlying investment. However, the Fund may sell the put prior to its
expiration. That sale may or may not be at a profit.
Buying a put on an investment the Fund does not own permits the Fund either to resell the put or to buy
the underlying investment and sell it at the exercise price. The resale price will vary inversely to the price
of the underlying investment. If the market price of the underlying investment is above the exercise price and,
as a result, the put is not exercised, the put will become worthless on its expiration date.
When the Fund purchases a call or put on an index or Future, it pays a premium, but settlement is in
cash rather than by delivery of the underlying investment to the Fund. Gain or loss depends on changes in the
index in question (and thus on price movements in the securities market generally) rather than on price movements
in individual securities or futures contracts.
The Fund may buy a call or put only if, after the purchase, the value of all call and put options held
by the Fund will not exceed 5% of the Fund's total assets.
|_| Buying and Selling Options on Foreign Currencies. The Fund can buy and sell calls and
puts on foreign currencies. They include puts and calls that trade on a securities or commodities exchange or in
the over-the-counter markets or are quoted by major recognized dealers in such options. The Fund could use these
calls and puts to try to protect against declines in the dollar value of foreign securities and increases in the
dollar cost of foreign securities the Fund wants to acquire.
If the Manager anticipates a rise in the dollar value of a foreign currency in which securities to be
acquired are denominated, the increased cost of those securities may be partially offset by purchasing calls or
writing puts on that foreign currency. If the Manager anticipates a decline in the dollar value of a foreign
currency, the decline in the dollar value of portfolio securities denominated in that currency might be partially
offset by writing calls or purchasing puts on that foreign currency. However, the currency rates could fluctuate
in a direction adverse to the Fund's position. The Fund will then have incurred option premium payments and
transaction costs without a corresponding benefit.
A call the Fund writes on a foreign currency is "covered" if the Fund owns the underlying foreign
currency covered by the call or has an absolute and immediate right to acquire that foreign currency without
additional cash consideration (or it can do so for additional cash consideration held in a segregated account by
its custodian bank) upon conversion or exchange of other foreign currency held in its portfolio.
The Fund could write a call on a foreign currency to provide a hedge against a decline in the U.S.
dollar value of a security which the Fund owns or has the right to acquire and which is denominated in the
currency underlying the option. That decline might be one that occurs due to an expected adverse change in the
exchange rate. This is known as a "cross-hedging" strategy. In those circumstances, the Fund covers the option
by maintaining cash, U.S. government securities or other liquid, high grade debt securities in an amount equal to
the exercise price of the option, in a segregated account with the Fund's custodian bank.
|_| Risks of Hedging with Options and Futures. The use of hedging instruments requires special skills
and knowledge of investment techniques that are different than what is required for normal portfolio management.
If the Manager uses a hedging instrument at the wrong time or judges market conditions incorrectly, hedging
strategies may reduce the Fund's return. The Fund could also experience losses if the prices of its futures and
options positions were not correlated with its other investments.
The Fund's option activities could affect its portfolio turnover rate and brokerage commissions. The
exercise of calls written by the Fund might cause the Fund to sell related portfolio securities, thus increasing
its turnover rate. The exercise by the Fund of puts on securities will cause the sale of underlying investments,
increasing portfolio turnover. Although the decision whether to exercise a put it holds is within the Fund's
control, holding a put might cause the Fund to sell the related investments for reasons that would not exist in
the absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put, sells a call, or buys or
sells an underlying investment in connection with the exercise of a call or put. Those commissions could be
higher on a relative basis than the commissions for direct purchases or sales of the underlying investments.
Premiums paid for options are small in relation to the market value of the underlying investments. Consequently,
put and call options offer large amounts of leverage. The leverage offered by trading in options could result in
the Fund's net asset value being more sensitive to changes in the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that has increased in value, the
Fund will be required to sell the investment at the call price. It will not be able to realize any profit if the
investment has increased in value above the call price.
An option position may be closed out only on a market that provides secondary trading for options of the
same series, and there is no assurance that a liquid secondary market will exist for any particular option. The
Fund might experience losses if it could not close out a position because of an illiquid market for the future or
option.
There is a risk in using short hedging by selling futures or purchasing puts on broadly-based indices or
futures to attempt to protect against declines in the value of the Fund's portfolio securities. The risk is that
the prices of the futures or the applicable index will correlate imperfectly with the behavior of the cash prices
of the Fund's securities. For example, it is possible that while the Fund has used hedging instruments in a
short hedge, the market may advance and the value of the securities held in the Fund's portfolio might decline.
If that occurred, the Fund would lose money on the hedging instruments and also experience a decline in the value
of its portfolio securities. However, while this could occur for a very brief period or to a very small degree,
over time the value of a diversified portfolio of securities will tend to move in the same direction as the
indices upon which the hedging instruments are based.
The risk of imperfect correlation increases as the composition of the Fund's portfolio diverges from the
securities included in the applicable index. To compensate for the imperfect correlation of movements in the
price of the portfolio securities being hedged and movements in the price of the hedging instruments, the Fund
might use hedging instruments in a greater dollar amount than the dollar amount of portfolio securities being
hedged. It might do so if the historical volatility of the prices of the portfolio securities being hedged is
more than the historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are subject to distortions, due to
differences in the nature of those markets. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may
close futures contracts through offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, the liquidity of the futures market depends on participants entering into
offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of
view of speculators, the deposit requirements in the futures market are less onerous than margin requirements in
the securities markets. Therefore, increased participation by speculators in the futures market may cause
temporary price distortions.
The Fund can use hedging instruments to establish a position in the securities markets as a temporary
substitute for the purchase of individual securities (long hedging) by buying futures and/or calls on such
futures, broadly-based indices or on securities. It is possible that when the Fund does so the market might
decline. If the Fund then concludes not to invest in securities because of concerns that the market might
decline further or for other reasons, the Fund will realize a loss on the hedging instruments that is not offset
by a reduction in the price of the securities purchased.
|_| Forward Contracts. Forward contracts are foreign currency exchange contracts. They are used to buy
or sell foreign currency for future delivery at a fixed price. The Fund uses them to "lock in" the U.S. dollar
price of a security denominated in a foreign currency that the Fund has bought or sold, or to protect against
possible losses from changes in the relative values of the U.S. dollar and a foreign currency. The Fund limits
its exposure in foreign currency exchange contracts in a particular foreign currency to the amount of its assets
denominated in that currency or a closely-correlated currency. The Fund may also use "cross-hedging" where the
Fund xxxxxx against changes in currencies other than the currency in which a security it holds is denominated.
Under a forward contract, one party agrees to purchase, and another party agrees to sell, a specific
currency at a future date. That date may be any fixed number of days from the date of the contract agreed upon by
the parties. The transaction price is set at the time the contract is entered into. These contracts are traded
in the inter-bank market conducted directly among currency traders (usually large commercial banks) and their
customers.
The Fund may use forward contracts to protect against uncertainty in the level of future exchange
rates. The use of forward contracts does not eliminate the risk of fluctuations in the prices of the underlying
securities the Fund owns or intends to acquire, but it does fix a rate of exchange in advance. Although forward
contracts may reduce the risk of loss from a decline in the value of the hedged currency, at the same time they
limit any potential gain if the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a security denominated in a foreign
currency, or when it anticipates receiving dividend payments in a foreign currency, the Fund might desire to
"lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of the dividend payments. To do so,
the Fund could enter into a forward contract for the purchase or sale of the amount of foreign currency involved
in the underlying transaction, in a fixed amount of U.S. dollars per unit of the foreign currency. This is called
a "transaction hedge." The transaction hedge will protect the Fund against a loss from an adverse change in the
currency exchange rates during the period between the date on which the security is purchased or sold or on which
the payment is declared, and the date on which the payments are made or received.
The Fund could also use forward contracts to lock in the U.S. dollar value of portfolio positions. This
is called a "position hedge." When the Fund believes that foreign currency might suffer a substantial decline
against the U.S. dollar, it could enter into a forward contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's portfolio securities denominated in that foreign currency.
When the Fund believes that the U.S. dollar might suffer a substantial decline against a foreign currency, it
could enter into a forward contract to buy that foreign currency for a fixed dollar amount. Alternatively, the
Fund could enter into a forward contract to sell a different foreign currency for a fixed U.S. dollar amount if
the Fund believes that the U.S. dollar value of the foreign currency to be sold pursuant to its forward contract
will fall whenever there is a decline in the U.S. dollar value of the currency in which portfolio securities of
the Fund are denominated. That is referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying to its custodian bank assets
having a value equal to the aggregate amount of the Fund's commitment under forward contracts. The Fund will not
enter into forward contracts or maintain a net exposure to such contracts if the consummation of the contracts
would obligate the Fund to deliver an amount of foreign currency in excess of the value of the Fund's portfolio
securities or other assets denominated in that currency or another currency that is the subject of the hedge.
However, to avoid excess transactions and transaction costs, the Fund may maintain a net exposure to
forward contracts in excess of the value of the Fund's portfolio securities or other assets denominated in
foreign currencies if the excess amount is "covered" by liquid securities denominated in any currency. The cover
must be at least equal at all times to the amount of that excess. As one alternative, the Fund may purchase a
call option permitting the Fund to purchase the amount of foreign currency being hedged by a forward sale
contract at a price no higher than the forward contract price. As another alternative, the Fund may purchase a
put option permitting the Fund to sell the amount of foreign currency subject to a forward purchase contract at a
price as high or higher than the forward contact price.
The precise matching of the amounts under forward contracts and the value of the securities involved
generally will not be possible because the future value of securities denominated in foreign currencies will
change as a consequence of market movements between the date the forward contract is entered into and the date it
is sold. In some cases the Manager might decide to sell the security and deliver foreign currency to settle the
original purchase obligation. If the market value of the security is less than the amount of foreign currency
the Fund is obligated to deliver, the Fund might have to purchase additional foreign currency on the "spot" (that
is, cash) market to settle the security trade. If the market value of the security instead exceeds the amount of
foreign currency the Fund is obligated to deliver to settle the trade, the Fund might have to sell on the spot
market some of the foreign currency received upon the sale of the security. There will be additional transaction
costs on the spot market in those cases.
The projection of short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain. Forward contracts involve the risk that
anticipated currency movements will not be accurately predicted, causing the Fund to sustain losses on these
contracts and to pay additional transactions costs. The use of forward contracts in this manner might reduce the
Fund's performance if there are unanticipated changes in currency prices to a greater degree than if the Fund had
not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to sell a currency, the Fund might
sell a portfolio security and use the sale proceeds to make delivery of the currency. In the alternative the Fund
might retain the security and offset its contractual obligation to deliver the currency by purchasing a second
contract. Under that contract the Fund will obtain, on the same maturity date, the same amount of the currency
that it is obligated to deliver. Similarly, the Fund might close out a forward contract requiring it to purchase
a specified currency by entering into a second contract entitling it to sell the same amount of the same currency
on the maturity date of the first contract. The Fund would realize a gain or loss as a result of entering into
such an offsetting forward contract under either circumstance. The gain or loss will depend on the extent to
which the exchange rate or rates between the currencies involved moved between the execution dates of the first
contract and offsetting contract.
The costs to the Fund of engaging in forward contracts varies with factors such as the currencies
involved, the length of the contract period and the market conditions then prevailing. Because forward contracts
are usually entered into on a principal basis, no brokerage fees or commissions are involved. Because these
contracts are not traded on an exchange, the Fund must evaluate the credit and performance risk of the
counterparty under each forward contract.
Although the Fund values its assets daily in terms of U.S. dollars, it does not intend to convert its
holdings of foreign currencies into U.S. dollars on a daily basis. The Fund may convert foreign currency from
time to time, and will incur costs in doing so. Foreign exchange dealers do not charge a fee for conversion, but
they do seek to realize a profit based on the difference between the prices at which they buy and sell various
currencies. Thus, a dealer might offer to sell a foreign currency to the Fund at one rate, while offering a
lesser rate of exchange if the Fund desires to resell that currency to the dealer.
|_| Regulatory Aspects of Hedging Instruments. When using futures and options on futures, the Fund is
required to operate within certain guidelines and restrictions with respect to the use of futures as established
by the Commodities Futures Trading Commission (the "CFTC"). In particular, the Fund is exempted from
registration with the CFTC as a "commodity pool operator" if the Fund complies with the requirements of Rule 4.5
adopted by the CFTC. The Rule does not limit the percentage of the Fund's assets that may be used for futures
margin and related options premiums for a bona fide hedging position. However, under the Rule, the Fund must
limit its aggregate initial futures margin and related options premiums to not more than 5% of the Fund's net
assets for hedging strategies that are not considered bona fide hedging strategies under the Rule. Under the
Rule, the Fund must also use short futures and options on futures solely for bona fide hedging purposes within
the meaning and intent of the applicable provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established by the option exchanges. The
exchanges limit the maximum number of options that may be written or held by a single investor or group of
investors acting in concert. Those limits apply regardless of whether the options were written or purchased on
the same or different exchanges or are held in one or more accounts or through one or more different exchanges or
through one or more brokers. Thus, the number of options that the Fund may write or hold may be affected by
options written or held by other entities, including other investment companies having the same advisor as the
Fund (or an advisor that is an affiliate of the Fund's advisor). The exchanges also impose position limits on
futures transactions. An exchange may order the liquidation of positions found to be in violation of those
limits and may impose certain other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it must maintain cash or readily
marketable short-term debt instruments in an amount equal to the market value of the securities underlying the
future, less the margin deposit applicable to it.
|_| Tax Aspects of Certain Hedging Instruments. Certain foreign currency exchange contracts in which the
Fund may invest are treated as "Section 1256 contracts" under the Internal Revenue Code. In general, gains or
losses relating to Section 1256 contracts are characterized as 60% long-term and 40% short-term capital gains or
losses under the Code. However, foreign currency gains or losses arising from Section 1256 contracts that are
forward contracts generally are treated as ordinary income or loss. In addition, Section 1256 contracts held by
the Fund at the end of each taxable year are "marked-to-market," and unrealized gains or losses are treated as
though they were realized. These contracts also may be marked-to-market for purposes of determining the excise
tax applicable to investment company distributions and for other purposes under rules prescribed pursuant to the
Internal Revenue Code. An election can be made by the Fund to exempt those transactions from this
marked-to-market treatment.
Certain forward contracts the Fund enters into may result in "straddles" for federal income tax
purposes. The straddle rules may affect the character and timing of gains (or losses) recognized by the Fund on
straddle positions. Generally, a loss sustained on the disposition of a position making up a straddle is allowed
only to the extent that the loss exceeds any unrecognized gain in the offsetting positions making up the
straddle. Disallowed loss is generally allowed at the point where there is no unrecognized gain in the
offsetting positions making up the straddle, or the offsetting position is disposed of.
Under the Internal Revenue Code, the following gains or losses are treated as ordinary income or loss:
(1) gains or losses attributable to fluctuations in exchange rates that occur between the time the Fund
accrues interest or other receivables or accrues expenses or other liabilities denominated in a
foreign currency and the time the Fund actually collects such receivables or pays such liabilities,
and
(2) gains or losses attributable to fluctuations in the value of a foreign currency between the date of
acquisition of a debt security denominated in a foreign currency or foreign currency forward
contracts and the date of disposition.
Currency gains and losses are offset against market gains and losses on each trade before determining a
net "Section 988" gain or loss under the Internal Revenue Code for that trade, which may increase or decrease the
amount of the Fund's investment income available for distribution to its shareholders.
|X| Temporary Defensive Investments. When market conditions are unstable, or the Manager believes it is
otherwise appropriate to reduce holdings in stocks, the Fund can invest in a variety of debt securities for
defensive purposes. The Fund can also purchase these securities for liquidity purposes to meet cash needs due to
the redemption of Fund shares, or to hold while waiting to reinvest cash received from the sale of other
portfolio securities. The Fund can buy:
|_| high-quality, short-term money market instruments, including those issued by the U. S. Treasury or
other government agencies,
|_| commercial paper (short-term, unsecured, promissory notes of domestic or foreign companies),
|_| short-term debt obligations of corporate issuers,
|_| certificates of deposit and bankers' acceptances of domestic and foreign banks and savings and loan
associations, and
|_| repurchase agreements.
Short-term debt securities would normally be selected for defensive or cash management purposes because
they can normally be disposed of quickly, are not generally subject to significant fluctuations in principal
value and their value will be less subject to interest rate risk than longer-term debt securities.
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| What are the Fund's 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 or if it would then own more than 10% of that
issuer's voting securities. That restriction applies to 75% of the Fund's total assets. The limit
does not apply to securities issued by the U.S. government or any of its agencies or
instrumentalities.
|_| The Fund cannot invest in physical commodities or physical commodity contracts. However, the Fund
can buy and sell hedging instruments to the extent specified in its Prospectus and this Statement
of Additional Information from time to time. The Fund can also buy and sell options, futures,
securities or other instruments backed by, or the investment return from which, is linked to
changes in the price of, physical commodities.
|_| The Fund cannot lend money. However, it can invest in all or a portion of an issue of bonds,
debentures, commercial paper or other similar corporate obligations. The Fund may also lend its
portfolio securities subject to the restrictions stated in the Prospectus and this Statement of
Additional Information and can enter into repurchase transactions.
|_| The Fund cannot concentrate investments. That means it cannot invest 25% or more of its total
assets in companies in any one industry.
|_| 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 real estate or in interests in real estate. However, the Fund can purchase
readily-marketable securities of companies holding real estate or interests in real estate.
|_| The Fund cannot issue "senior securities." However, that restriction does not prohibit the Fund from
borrowing money subject to the provisions set forth in this Statement of Additional Information, or
from entering into margin, collateral or escrow arrangements permitted by its other investment
policies.
|X| Non-Fundamental Investment Restrictions. The Fund has a number of other investment restrictions
that are not fundamental policies, which means that they can be changed by vote of a majority of the Fund's Board
of Trustees without shareholder approval.
|_| The Fund cannot invest in companies for the purpose of acquiring control or management of them.
|_| The Fund cannot invest in or hold securities of any issuer if officers and Trustees or directors of the
Fund or the Manager individually or beneficially own more than1/2of 1% of the securities of that
issuer and together own more than 5% of the securities of that issuer.
|_| The Fund cannot purchase securities on margin. However, the Fund can make margin deposits in connection
with any of the hedging instruments permitted by any of its other investment policies.
|_| The Fund cannot pledge, mortgage or hypothecate any of its assets. However, this does not prohibit the
escrow arrangements contemplated by writing covered call options or other collateral or margin
arrangements in connection with any of the hedging instruments permitted by any of its other
investment policies.
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 A to this Statement of Additional Information. That
is not a fundamental policy.
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management investment company with an unlimited
number of authorized shares of beneficial interest. The Fund was organized as a Massachusetts business trust in
June 1997.
|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 Fund'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 Fund's 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 fund Rochester Portfolio Series, a series fund having one series:
having the following series: Limited-Term New York Municipal Fund
Xxxxxxxxxxx Small Cap Value Fund, Bond Fund Series, a series fund having one series:
Xxxxxxxxxxx Quest Balanced Value Fund and Xxxxxxxxxxx Convertible Securities Fund
Xxxxxxxxxxx Quest Opportunity Value Fund Rochester Fund Municipals
Xxxxxxxxxxx Quest Global Value Fund, Inc. Xxxxxxxxxxx XxxXxx Fund
Xxxxxxxxxxx Quest Capital Value Fund, Inc.
Xxxxxxxxxxx Quest Value Fund, Inc.
In addition to being a director or trustee of the Board III Funds, Xx. Xxxxx is also a director or
trustee of 31 other portfolios in the Xxxxxxxxxxx Funds complex.
Messrs. Murphy, Bishop, Farrar, Molleur, Xxxxxx, Xxxx, and Xxxxxxxx, and Mses. Xxxx and Ives who are
officers of the Fund, respectively hold the same offices of the other Board III Funds. As of February 8, 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, Dollar Range Range of Shares
Position(s) Held with Principal Occupation(s) During Past 5 Years / Other of Shares Owned in any of
Fund and Length of Time Trusteeships Held by Trustee / Number of Portfolios Owned in the the Board III
Served2 in Fund Complex Overseen by Trustee 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
2000) 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
four funds for Pacific Capital and Tax Free Trust of
Arizona. Director/trustee of 10 investment companies
in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------- ---------------- -------------------
-------------------------- ------------------------------------------------------- ---------------- -------------------
Xxxx X. Xxxxxxx, Principal of Clinton Management Associates, a $0 Over $100,000
Trustee, (since 2000) financial and venture capital consulting firm;
Age: 70. Trustee of Capital Cash Management Trust, a
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
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 2000) 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, Chai Chairman and Chief Executive Officer of Aquila $0 $10,001 - $50,000
Trustee (since 2000) 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 Xxxxx University.
Director/trustee of 10 investment companies in the
OppenheimerFunds complex.
-------------------------- ------------------------------------------------------- ---------------- -------------------
-------------------------- ------------------------------------------------------- ---------------- -------------------
Xxxxx Xxxxxx, Trustee Special Limited Partner (since January 1999) of $1-10,000 $10,001 - $50,000
(since 2000) 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 Ray &
Berendtson, Inc. (executive search firm); Board of
Governing Trustees (since August 1990) of The Xxxxxxx
Laboratory (non-profit); Trustee (since May 1992) of
Institute for Advanced Study (educational institute);
Trustee (since May 2000) of Research Foundation of
AIMR (investment research, non-profit); formerly
Governor, Xxxxxx Xxxx Economics Institute of Bard
College (economics research) (August 1990 - September
2001). 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 Served5
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxxxx, VP and Portfolio Manager, Senior Vice President (since January 1999) of the Manager; an
Age: 51
officer and portfolio manager of other Xxxxxxxxxxx funds. Prior to
joining the Manager in April, 1995, he was a Vice President and
Senior Portfolio Manager at First of America Investment Corp.
(September 1986 - April 1995).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxx X. Xxxxxx, Chairman, Chief Executive Officer and director (since June 2001) and
President (since October 2001) 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., a
holding company subsidiary of the Manager; Director (since November
2001) of OppenheimerFunds Distributor, Inc., a 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 and a director (since
July 2001) of OppenheimerFunds Legacy Program, a charitable trust
program established by the Manager; a director of the following
investment advisory subsidiaries of the Manager: OAM Institutional,
Inc. and Centennial Asset Management Corporation (since November
2001), HarbourView Asset Management Corporation and OFI Private
Investments, Inc. (since July 2002); President (since November 1,
2001) and a director (since July 2001) of Xxxxxxxxxxx Real Asset
Management, Inc., an investment advisor subsidiary of the Manager; a
director (since November 2001) of Trinity Investment Management
Corp. and Tremont Advisers, Inc., investment advisory affiliates of
the Manager; Executive Vice President (since February 1997) of
Massachusetts Mutual Life Insurance Company, the Manager's parent
company; a director (since June 1995) of DBL Acquisition
Corporation; formerly Chief Operating Officer (from September 2000
to June 2001) of the Manager; President and trustee (from November
1999 to November 2001) of MML Series Investment Fund and MassMutual
Institutional Funds, open-end investment companies; a director (from
September 1999 to August 2000) of C.M. Life Insurance Company;
President, Chief Executive Officer and director (from September 1999
to August 2000) of MML Bay State Life Insurance Company; a director
(from June 1989 to June 1998) of Emerald Isle Bancorp and Hibernia
Savings Bank, wholly-owned subsidiary of Emerald Isle Bancorp;
Executive Vice President Director and Chief Operating Officer (from
June 1995 to January 1997) of Xxxxx X. Xxxxxx & Co., Inc., an
investment advisor; Chief Operating Officer (from March 1993 to
December 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 2000) Manager; Treasurer (since March 1999) of HarbourView Asset
Age: 42 Management Corporation, Shareholder Services, Inc., Oppenheimer Real
Asset Management Corporation, Shareholder Financial Services, Inc.
and Oppenheimer Partnership Holdings, Inc., of OFI Private
Investments, Inc. (since March 2000) and of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since May
2000); Treasurer and Chief Financial Officer (since May 2000) of
Xxxxxxxxxxx Trust Company; Assistant Treasurer (since March 1999) of
Xxxxxxxxxxx Acquisition Corp.; an officer of other Xxxxxxxxxxx
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 2000) 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. Xxxxxxxx, Assistant Treasurer Assistant Vice President of the Manager (1996-Present); Formerly
(since 2000) Assistant Vice President of Rochester Fund Services, Inc. (1994 -
Age: 38 1996).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxx, Assistant Treasurer Vice President of the Manager/Mutual Fund Accounting (since May
(since 2000) 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 remaining 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 Board III 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 advisor.
That amount represents compensation received as a director, trustee, or member of a committee of the Board during
the calendar year 2001.
| Committees of the Board of Trustees. The Board of Trustees has an Audit Committee. The members of the
Audit Committee are Xxxx Xxxxxx (Rochester funds only), Xxxx Xxxxxxx, Xxxxxx Xxxxxxxx, Xxxx Xxxxxxxx and Xxxxxx
Xxxxx. The Audit Committee held meetings_______ during the Fund's fiscal year ended October 31, 2001. 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 auditor concerning the Fund's internal accounting procedures and controls and selects and
nominates for approval by the Board the independent Trustees.
--------------------------- ----------------------------- ---------------------------- -----------------------------
Aggregate Compensation Retirement Benefits Total Compensation
From the Fund1 Accrued as Part of Fund From all Board III
Trustee's Name Expenses Xxxxxxxxxxx Funds (10
Funds)2
--------------------------- ----------------------------- ---------------------------- -----------------------------
---------------------------- ---------------------------- ---------------------------- -----------------------------
Xxxx X. Clinton4 $9,313 $0 $157,326
---------------------------- ---------------------------- ---------------------------- -----------------------------
---------------------------- ---------------------------- ---------------------------- -----------------------------
Xxxxxx X. Courtney4 $9,313 $0 $157,326
---------------------------- ---------------------------- ---------------------------- -----------------------------
---------------------------- ---------------------------- ---------------------------- -----------------------------
Xxxxxx X. Galli3 $9,313 $0 $202,886
---------------------------- ---------------------------- ---------------------------- -----------------------------
---------------------------- ---------------------------- ---------------------------- -----------------------------
Xxxx X. Herrmann4 $9,313 $0 $157,326
---------------------------- ---------------------------- ---------------------------- -----------------------------
---------------------------- ---------------------------- ---------------------------- -----------------------------
Xxxxxx Loft5 $3,919 $0 $37,876
---------------------------- ---------------------------- ---------------------------- -----------------------------
---------------------------- ---------------------------- ---------------------------- -----------------------------
Xxxxx Ruble6 $5,393 $0 $59,250
---------------------------- ---------------------------- ---------------------------- -----------------------------
1. Aggregate Compensation includes fees, deferred compensation, if any, and retirement plan benefits
accrued for a Trustee/Director, if any. For the Fund's fiscal year ended 10/31/01.
2. For the 2001 calendar year.
1. 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 includes $60,200 compensation paid by two funds (OCC Cash
Reserve and OCC Accumulated Trust) for which the Sub-Advisor acts as the investment advisor.
5. Retired on 3/31/01.
6. Elected to the board on 4/1/01.
|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
Xxxxxxxxxxx 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| Deferred Compensation Plan for Trustees. The Board of Trustees has adopted a Deferred Compensation
Plan for disinterested Trustees that enables them to elect to defer receipt of all or a portion of the annual
fees they are entitled to receive from the Fund. Under the plan, the compensation deferred by a Trustee is
periodically adjusted as though an equivalent amount had been invested in shares of one or more Xxxxxxxxxxx funds
selected by the Trustee. The amount paid to the Trustee under the plan will be determined based upon the
performance of the selected funds.
Deferral of Trustees' fees under the plan will not materially affect the Fund's assets, liabilities and
net income per share. The plan will not obligate the Fund to retain the services of any Trustee or to pay any
particular level of compensation to any Trustee. Pursuant to an Order issued by the Securities and Exchange
Commission, the Fund may invest in the funds selected by the Trustee under the plan without shareholder approval
for the limited purpose of determining the value of the Trustee's deferred fee account.
|X| Major Shareholders. As of February 8, 2002, the only people who owned of record or was known by
the Fund to own beneficially 5% or more of any class of the Fund's outstanding Class A, Class B, Class C, Class N
or Class Y shares were:
Xxxxxxx Xxxxxx & Company Inc., Special Custody Account for the Exclusive Benefit of Customers, Attn
Mutual Funds, 000 Xxxxxxxxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx 00000-0000, which owned 3,178,919.492 Class A
shares (8.99% of the Class A shares then outstanding).
Xxxxxxx Di Xxxxx TR, TJH Medical Services PC 401k, 0000 000xx Xxxxxx, Xxxxx 0X, Xxxxxxx, Xxx Xxxx
00000-0000, which owned 52,656.698 Class N shares (15.87% of the Class N shares then outstanding).
RPSS TR, VML Inc 401k Plan, Attn Xxxxx Xxxxxxx, 000 XX Xxxxxxxx Xxxx, Xxxxxx Xxxx, Xxxxxxxx 00000-0000,
which owned 27,589.035 Class N shares (8.31% of the Class N shares then outstanding).
Mass Mutual Life Insurance Company, Attn Xxxxxx Xxxxxxxx N-328, Separate Investment Account, 0000 Xxxxx
Xxxxxx, Xxxxxxxxxxx, Xxxxxxxxxxxxx 00000-0000, which owned 223,468.034 Class Y shares (62.83% of the Class Y
shares then outstanding).
Persumma Financial Services, Mass Mutual Financial Group, 0000 Xxxxx Xxxxxx, #X000, Xxxxxxxxxxx,
Xxxxxxxxxxxxx 00000-0000, which owned 120,020.494 Class Y shares (33.74% 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
duplicating 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 the Fund. The Manager
selects securities for the Fund's portfolio and handles its day-to-day business. The portfolio manager of the
Fund is employed by the Manager and is the person who is principally responsible for the day-to-day management of
the Fund's portfolio. Other members of the Manager's Equity Portfolio Team provide the portfolio manager with
counsel and support in managing the Fund's portfolio.
The agreement 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. The advisory
agreement lists examples of expenses paid by the Fund. The major categories relate to 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.
--------------------------------------- ------------------------------------
Management Fees Paid to
Fiscal Year Ended: OppenheimerFunds, Inc.
--------------------------------------- ------------------------------------
--------------------------------------- -------------------------------------------
10/31/981 $81,953
--------------------------------------- -------------------------------------------
--------------------------------------- -------------------------------------------
10/31/99 $817,885
--------------------------------------- -------------------------------------------
--------------------------------------- -------------------------------------------
10/31/00 $9,665,786
--------------------------------------- -------------------------------------------
--------------------------------------- ------------------------------------
10/31/01 $9,759,526
--------------------------------------- ------------------------------------
1. For the period from 12/1/97 (commencement of operations) to October 31, 1998.
During 1998, the Fund's fiscal year was changed from 8/31 to 10/31.
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 the Fund sustains for any investment,
adoption of any investment policy, or the purchase, sale or retention of any security.
The agreement permits the Manager to act as investment advisor for any other person, firm or corporation
and to use the name "Xxxxxxxxxxx" in connection with other investment companies for which it may act as
investment advisor or general distributor. If the Manager shall no longer act as investment advisor to the Fund,
the Manager may withdraw the right of the Fund to use the name "Xxxxxxxxxxx" as part of its name.
For the most recent renewal of the Fund's investment advisory agreement in December 2001, the Board
considered, with its counsel: (i) the quality and extent of the services to be provided to the Fund by the
Manager; (ii) the depth of organization, expertise and experience of the Manager; (iii) the financial
resources of the Manager; (iv) the ability of the Manager to retain and attract qualified personnel; (v) the
performance of assets managed by the Manager in the Fund's investment style; (vi) benefits derived by the
Manager from its relationship with the Fund, including receipt of tangible and intangible research by allocating
the Fund's brokerage per section 28(e) of the Securities Exchange Act of 1934; and (vii) the overall experience
and reputation of the Manager in providing such services to investment companies. In addition, the Board
reviewed and discussed he terms and conditions of the investment advisory agreement. Based upon its review, the
Board of Trustees concluded that the terms of the Fund's investment advisory agreement are reasonable, fair and
in the best interests of the Fund and its shareholders, and that the fees provided therein are fair and
reasonable in light of the usual and customary charges made by others for services of the same nature and quality.
|X| Annual Approval of Investment 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.
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 agreement. 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;
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
included 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 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 is important so that the Manager 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.
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.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of the Manager under the investment
advisory agreement is to arrange the portfolio transactions for the Fund. The advisory agreement contains
provisions relating to the employment of broker-dealers to effect the Fund's portfolio transactions. The Manager
is authorized by the advisory agreement to employ broker-dealers, including "affiliated" brokers, as that term is
defined in the Investment Company Act. The Manager 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 need not seek competitive commission bidding. However, it is
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.
Under the investment advisory agreement, the Manager 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 or its
affiliates have investment discretion. The commissions paid to such brokers may be higher than another qualified
broker would charge, if the Manager makes a good faith determination that the commission 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 may also consider sales of shares of the Fund and other investment
companies for which the Manager or an affiliate serves as investment advisor.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for the Fund subject to the
provisions of the investment advisory agreement and the procedures and rules described above. Generally, the
Manager's portfolio traders allocate brokerage based upon recommendations from the Manager's portfolio managers.
In certain instances, portfolio managers may directly place trades and allocate brokerage. In either case, the
Manager'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. In an option transaction, the Fund
ordinarily uses the same broker for the purchase or sale of the option and any transaction in the securities to
which the option relates.
Other funds advised by the Manager have investment policies similar to those of the Fund. Those other
funds may purchase or sell the same securities as the Fund at the same time as the Fund, which could affect the
supply and price of the securities. If two or more funds advised by the Manager purchase the same security on
the same day from the same dealer, the transactions under those combined orders are averaged as to price and
allocated in accordance with the purchase or sale orders actually placed for each account.
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 Manager 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 permits the Manager to allocate brokerage for research services. The
investment research services provided by a particular broker may be useful only to one or more of the advisory
accounts of the Manager and its affiliates. The investment research received for the commissions of those other
accounts may be useful both to the Fund and one or more of the Manager's other accounts. Investment research may
be supplied to the Manager 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
Manager in a non-research capacity (such as bookkeeping or other administrative functions), then only the
percentage or component that provides assistance to the Manager in the investment decision-making process may be
paid in commission dollars.
The Board of Trustees permits the Manager to use stated commissions on secondary fixed-income agency
trades to obtain research if the broker represents to the Manager that: (i) the trade is not from or for the
broker's own inventory, (ii) the trade was executed by the broker on an agency basis at the stated commission,
and (iii) the trade is not a riskless principal transaction. The Board of Trustees permits the Manager to use
concessions on fixed-price offerings to obtain research, in the same manner as is permitted for agency
transactions.
The research services provided by brokers broadens the scope and supplements the research activities of
the Manager. That research provides additional views and comparisons for consideration, and helps the Manager 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 Manager provides information to the Board about the commissions paid to
brokers furnishing such services, together with the Manager's representation that the amount of such commissions
was reasonably related to the value or benefit of such services.
----------------------------------- ----------------------------------------------------------
Fiscal Year Ended 10/31: Total Brokerage Commissions Paid by the Fund2
----------------------------------- ----------------------------------------------------------
----------------------------------- ----------------------------------------------------------
19981 $37,298
----------------------------------- ----------------------------------------------------------
----------------------------------- ----------------------------------------------------------
1999 $178,141
----------------------------------- ----------------------------------------------------------
----------------------------------- ----------------------------------------------------------
2000 $580,0163
----------------------------------- ----------------------------------------------------------
----------------------------------- ----------------------------------------------------------
2001 $1,558,8914
----------------------------------- ----------------------------------------------------------
1. From inception of the Fund on 12/1/97 to October 31, 1998. During 1998, the Fund's fiscal year was
changed from 8/31 to 10/31.
2. Amounts do not include spreads or concessions on principal transactions on a net trade basis.
3. During the fiscal year ended 10/31/00, the amount of transactions directed to brokers for
research services
was $121,757,422 and the amount of the commissions paid to broker-dealers for those services
was $132,848.
4. During the fiscal year ended 10/31/01, the amount of transactions directed to brokers for
research services
was $500,061,457 and the amount of the commissions paid to broker-dealers for those services
was $657,022.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the Distributor acts as the Fund's
principal underwriter in the continuous public offering of the Fund's different classes of shares. The
Distributor bears the expenses normally attributable to sales, including advertising and the cost of printing and
mailing prospectuses, other than those furnished to existing shareholders. The Distributor is not obligated to
sell a specific number of shares.
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 Front-End Front-End
Year Sales Charges Sales Charges
Ended on Class A Retained by
10/31: Shares Distributor
--------------- --------------- ---------------------------------------------------------------------------------
--------------- --------------- ---------------------------------------------------------------------------------
1998 $ 176,556 $ 47,171
--------------- --------------- ---------------------------------------------------------------------------------
--------------- --------------- ---------------------------------------------------------------------------------
1999 $1,197,997 $346,132
--------------- --------------- ---------------------------------------------------------------------------------
--------------- --------------- ---------------------------------------------------------------------------------
2000 $8,001,647 $2,223,986
--------------- --------------- ---------------------------------------------------------------------------------
----------------------- --------------------------- ---------------------------------
2001 $4,350,671 $1,160,3391
----------------------- --------------------------- ---------------------------------
1. Includes amount retained by a broker-dealer that is an affiliate or a parent of the Distributor.
------------------------- ------------------- ------------------- ----------------- ------------------
Concessions Concessions Concessions Concessions
on Class A on Class B on Class C on Class N
Fiscal Shares Shares Shares Shares
Year Advanced by Advanced by Advanced by Advanced by
Ended Distributor1 Distributor1 Distributor1 Distributor1
10/31:
------------------------- ------------------- ------------------- ----------------- ------------------
------------------------- ------------------- ------------------- ----------------- ------------------
1998 $20,117 $ 248,554 $ 23,256 N/A
------------------------- ------------------- ------------------- ----------------- ------------------
------------------------- ------------------- ------------------- ----------------- ------------------
1999 $88,165 $2,031,676 $127,146 N/A
------------------------- ------------------- ------------------- ----------------- ------------------
------------------------- ------------------- ------------------- ----------------- ------------------
2000 $601,117 $15,049,373 $1,293,236 N/A
------------------------- ------------------- ------------------- ----------------- ------------------
------------------------- ------------------- ------------------- ----------------- ------------------
2001 $480,871 $6,744,263 $613,517 $24,1092
------------------------- ------------------- ------------------- ----------------- ------------------
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.
2. The inception date of Class N shares was March 1, 2001.
-------------------------------------------------------------------------------------------------------------------------
Fiscal Year Class A Contingent Class B Contingent Class C Contingent Class N Contingent
Ended 10/31 Deferred Sales Charges Deferred Sales Charges Deferred Sales Charges Deferred Sales Charges
Retained by Distributor Retained by Distributor Retained by Distributor Retained by Distributor
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
2000 $473 $762,760 $39,189 $0
-------------------------------------------------------------------------------------------------------------------------
------------- --------------------------- ---------------------------- ------------------------ ------------------------
2001 $3,441 $1,306,155 $69,810 $0
------------- --------------------------- ---------------------------- ------------------------ ------------------------
Distribution and Service Plans. The Fund has adopted a Service Plan for Class A shares and Distribution and
Service Plans for 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.
Each plan has been approved by a vote of the Board of Trustees, including a majority of the Independent
Trustees6, cast in person at a meeting called for the purpose of voting on that plan. The shareholder votes for
the plans were cast by the Manager as the sole initial holder of the shares of each class of shares of the Fund.
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.
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| Class A Service Plan Fees. 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 (they are referred to as
"recipients") for personal services and account maintenance services they provide for their customers who hold
Class A shares. 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. While the plan permits the Board to authorize
payments to the Distributor to reimburse itself for services under the plan, the Board has not yet done so. The
Distributor makes payments to plan recipients quarterly at an annual rate not to exceed 0.25% of the average
annual net assets consisting of Class A shares held in the accounts of the recipients or their customers.
For the fiscal year ended October 31, 2001, payments under the Class A Plan totaled $1,801,991, all of
which was paid by the Distributor to recipients. That included $122,885 paid to an affiliate of the
Distributor's parent company. Any unreimbursed expenses the Distributor incurs with respect to Class A shares in
any fiscal year cannot be recovered in subsequent years. The Distributor may not use payments received under the
Class A Plan to pay any of its interest expenses, carrying charges, or other financial costs, or allocation of
overhead.
|X| Class B, Class C and Class N Service and Distribution Plan Fees. Under the Class B and Class C
plans, service fees and distribution fees, and under the Class N plan, the 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 types of services that
recipients provide are similar to the services provided under the Class A service plan, described above.
The Class B, Class C and Class N 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 Class B, Class C or
Class N 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.
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 as an ongoing concession 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
or Class N service fee and the asset-based sales charge to the dealer quarterly in lieu of paying the sales
concessions 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 B,
Class C and Class N shares. The payments are made to the Distributor in recognition that the Distributor:
o pays sales concessions to authorized brokers and dealers at the time of sale and pays service fees as
described above,
o may finance payment of sales concessions 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 Class B, Class C and Class N 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. 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
from the Fund under the plans. If the Class B, Class C or Class N 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.
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 charge 12b-1 fees,
o may use the payments 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 a 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.
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 from the Fund
under the plans. If the Class B, Class C or Class N 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.
All payments under the Class B, Class C and Class N 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.
--------------------------------------------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor in the Fiscal Year Ended 10/31/01
--------------------------------------------------------------------------------------------------------------------
---------------- ---------------------------------------------------------------------------------------------------
Class: Total Payments Under Amount Retained by Distributor's Distributor's
Unreimbursed Expenses
Aggregate Unreimbursed as % of Net Assets of
Plan1 Distributor Expenses Under Plan Class
---------------- ---------------------------------------------------------------------------------------------------
---------------- ---------------------------------------------------------------------------------------------------
Class B Plan $5,929,361 $4,999,449 $19,030,675 4.34%
---------------- ---------------------------------------------------------------------------------------------------
------------ ---------------- ---------------------- ----------------------------- --------------------
Class C $1,703,539 $738,209 $2,376,697 1.85%
Plan
------------ ---------------- ---------------------- ----------------------------- --------------------
------------ ---------------- ---------------------- ----------------------------- --------------------
Class N $4,166 $3,871 $48,490 2.14%
Plan
------------ ---------------- ---------------------- ----------------------------- --------------------
1. Includes amounts paid to an affiliate of the Distributor's parent company: $50,317 (Class B), $28,993
(Class C) and $0 (Class N).
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 website 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 no 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 as 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-P
----- = 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:
1/n
ERV
--- - 1 = Average Annual 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)
-------------- ------------------------ ----------------------------------------------------------------------------
-------------- ------------------------ ------------------------- ------------------------- ------------------------
1-Year 5-Year or Life 10-Year or Life
-------------- ------------------------ ------------------------- ------------------------- ------------------------
-------------- ------------ ----------- ------------ ------------ ------------ ------------ ------------ -----------
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 A 36.08%1 44.38%1 -55.31% -52.58% 8.18%1 9.83%1 N/A N/A
-------------- ------------ ----------- ------------ ------------ ------------ ------------ ------------------------
-------------- ------------ ----------- ------------ ------------ ------------ ------------ ------------------------
Class B 37.37%1 40.37%1 -55.29% -52.94% 8.45%1 9.04%1 N/A N/A
-------------- ------------ ----------- ------------ ------------ ------------ ------------ ------------------------
-------------- ------------ ----------- ------------ ------------ ------------ ------------ ------------------------
Class C 40.37%1 40.37%1 -53.39% -52.92% 9.04%1 9.04%1 N/A N/A
-------------- ------------ ----------- ------------ ------------ ------------ ------------ ------------------------
-------------- ------------ ----------- ------------ ------------ ------------ ------------ ------------------------
Class N -27.04%2 -26.31%2 X/X X/X X/X X/X X/X X/X
-------------- ------------ ----------- ------------ ------------ ------------ ------------ ------------------------
-------------- ------------ ----------- ------------ ------------ ------------ ------------ ------------------------
Class Y 47.08%1 47.08%1 -52.40% -52.40% 10.35%1 10.35%1 N/A N/A
-------------- ------------ ----------- ------------ ------------ ------------ ------------ ------------------------
Inception of Class A, Class B, Class C and Class Y: 12/1/97.
2. Inception of Class N: 3/1/01.
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 in categories based on investment styles. Lipper ranks the performance of the
Fund against all other mid-cap 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. Lipper also publishes "peer-group" indices of the performance of all mutual funds in a category
that it monitors and averages of the performance of the funds in particular categories.
|X| Morningstar Rankings. From time to time the Fund may publish the star ranking of the performance
of its classes of shares by Morningstar Inc. ("Morningstar"), an independent mutual fund monitoring service.
Morningstar ranks mutual funds in broad investment categories: domestic stock funds, international stock funds,
taxable bond funds and municipal bond funds. The Fund is ranked 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 Xxxx 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 performance to that of other funds in its Morningstar category. In
addition to its star rankings, Morningstar also categorizes and compares a fund's 3-year performance based on
Morningstar's classification of the fund's investments and investment style, rather than how a fund defines its
investment objective. Morningstar's four broad categories (domestic equity, international equity, municipal bond
and taxable bond) are each further subdivided into categories based on types of investments and investment
styles. Those comparisons by Morningstar are based on the same risk and return measurements as its star rankings
but do not consider the effect of sales charges.
|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.
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. Dividends will begin to accrue on shares purchased with the proceeds of ACH
transfers on the business day the Fund receives Federal Funds for the purchase through the ACH system before the
close of The New York Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier on certain
days. If Federal Funds are received on a business day after the close of the Exchange, the shares will be
purchased and dividends will begin to accrue on the next regular business day. The proceeds of ACH transfers are
normally received by the Fund three (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:
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 areo
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 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 MidCap 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" stand 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 ninety (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 OppenheimerFunds prototype 401(k) plans under a Letter of Intent. If the intended purchase
amount under a Letter of Intent entered into by an OppenheimerFunds 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.
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.
7. Shares 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 employer-sponsored qualified retirement
accounts. Asset Builder Plans also enable shareholders of Xxxxxxxxxxx Cash Reserves to use their fund account 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 selected
in the Application. Neither the Distributor, the Transfer Agent nor the Fund shall be responsible for any delays
in purchasing shares resulting 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 and return
it. You may change the amount of your Asset Builder payment or you can terminate these automatic investments at
any time by writing to the Transfer Agent. The Transfer Agent requires a reasonable period (approximately ten
(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 B 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 Class B, Class C or Class N shares and the dividends payable on Class B, Class C or Class N shares will be
reduced by incremental expenses borne solely by that class. Those expenses include the asset-based sales charges
to which 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 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.
| 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 purchased 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 (6) 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 holder, and absent such exchange, Class B shares
might continue to be subject to the asset-based sales charge for longer than six (6) years.
|X| Availability of Class N Shares. In addition to the description of the types of retirement plans
which may purchase Class N shares contained in the prospectus, Class N shares also are offered to the following:
o to all rollover IRAs,
o to all direct rollovers from OppenheimerFunds-sponsored Pinnacle and Ascender retirement plans,
o to all trustee-to-trustee XXX transfers,
o to all 90-24 type 403(b) transfers,
o to Group Retirement Plans (as defined in Appendix _ to this Statement of Additional Information) which
have entered into a special agreement with the Distributor for that purpose,
o to Retirement Plans qualified under Sections 401(a) or 401(k) of the Internal Revenue Code, the
recordkeeper or the plan sponsor for which has entered into a special agreement with the Distributor,
o to Retirement Plans of a plan sponsor where the aggregate assets of all such plans invested in the
Xxxxxxxxxxx funds is $500,000 or more,
o to OppenheimerFunds-sponsored Ascender 401(k) plans that pay for the purchase with the redemption
proceeds of Class A shares of one or more Xxxxxxxxxxx funds, and
o 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 XXX 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 XXX 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.
|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.
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
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. The Manager, or an internal valuation
committee established by the Manager, as applicable, may establish a valuation, under procedures established by
the Board and subject to the 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 (6) 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, Class N 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 ninety (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.
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, Class C or Class N
contingent deferred sales charge will be followed in determining the order in which shares are transferred.
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 automatic withdrawal plans, because of the potential imposition of the contingent deferred sales charge
on such withdrawals (except where the Class B, Class C or Class N contingent deferred sales charge is waived as
described in Appendix B to this Statement of Additional Information).
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.
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.
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.
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.
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.
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.
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 six 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, Class C or Class N 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, Class C or Class N 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. 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. 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. 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 Withdrawal Plans cannot be switched to an account in Xxxxxxxxxxx Senior Floating Rate Fund.
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 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 the different classes 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 net investment income (that is,
taxable interest, dividends, and 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.
It serves as the Transfer Agent for an annual per account fee. 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.
The Custodian. The Bank of New York is the custodian 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 Accountants. KPMG LLP are the independent accountants of the Fund. They audit the Fund's financial
statements and perform other related audit services. They also act as accountants for certain other funds
advised by the Manager and its affiliates.
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
================================================================================
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
XXXXXXXXXXX MIDCAP FUND:
We have audited the accompanying statement of assets and liabilities of
Xxxxxxxxxxx XxxXxx 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 the year ended October 31,
1999, and the 11-month period ended October 31, 1998, were audited by other
auditors whose report dated November 19, 1999, expresses 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
and brokers or by other appropriate auditing procedures where replies from
brokers were not received. 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 MidCap 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--80.1%
-----------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--6.2%
-----------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--2.7%
SPX Corp.(1) 305,000 $ 30,378,000
-----------------------------------------------------------------------------------------------------------------------
MANUFACTURING--3.5%
Millipore Corp. 739,600 38,681,080
-----------------------------------------------------------------------------------------------------------------------
COMMUNICATION SERVICES--0.9%
-----------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS: LONG DISTANCE--0.9%
Corvis Corp.(1) 208,200 468,450
-----------------------------------------------------------------------------------------------------------------------
Corvis Corp.(1,2) 894,072 2,011,662
-----------------------------------------------------------------------------------------------------------------------
Tellium, Inc.(1) 416,600 2,770,390
-----------------------------------------------------------------------------------------------------------------------
Tellium, Inc.(1,2) 733,334 4,876,671
---------------
10,127,173
-----------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICALS--12.2%
-----------------------------------------------------------------------------------------------------------------------
CONSUMER SERVICES--2.6%
IMS Health, Inc. 1,361,500 29,095,255
-----------------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY--9.6%
Bed Bath & Beyond, Inc.(1) 1,500,000 37,590,000
-----------------------------------------------------------------------------------------------------------------------
BJ's Wholesale Club, Inc.(1) 1,345,000 68,285,650
---------------
105,875,650
-----------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--7.5%
-----------------------------------------------------------------------------------------------------------------------
BROADCASTING--1.7%
Charter Communications, Inc., Cl. A(1) 1,325,000 18,735,500
-----------------------------------------------------------------------------------------------------------------------
FOOD & DRUG RETAILERS--5.8%
AmerisourceBergen Corp.(1) 762,600 48,470,856
-----------------------------------------------------------------------------------------------------------------------
Express Scripts, Inc.(1) 391,200 16,015,728
---------------
64,486,584
-----------------------------------------------------------------------------------------------------------------------
FINANCIAL--15.2%
-----------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--7.7%
AMBAC Financial Group, Inc. 575,000 27,600,000
-----------------------------------------------------------------------------------------------------------------------
Concord EFS, Inc.(1) 2,109,200 57,728,804
---------------
85,328,804
-----------------------------------------------------------------------------------------------------------------------
INSURANCE--7.5%
First Health Group Corp.(1) 1,170,000 31,590,000
-----------------------------------------------------------------------------------------------------------------------
MBIA Inc. 1,102,500 50,781,150
-----------------------------------------------------------------------------------------------------------------------
Radian Group, Inc. 30,000 1,016,100
---------------
83,387,250
00 XXXXXXXXXXX XXXXXX XXXX
XXXXXXXXX OF INVESTMENTS Continued
--------------------------------------------------------------------------------
MARKET VALUE
SHARES SEE NOTE 1
-----------------------------------------------------------------------------------------------------------------------
HEALTHCARE--30.8%
-----------------------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS--9.8%
Gilead Sciences, Inc.(1) 985,000 $ 61,956,500
-----------------------------------------------------------------------------------------------------------------------
IDEC Pharmaceuticals Corp.(1) 540,000 32,389,200
-----------------------------------------------------------------------------------------------------------------------
King Pharmaceuticals, Inc.(1) 350,000 13,646,500
---------------
107,992,200
-----------------------------------------------------------------------------------------------------------------------
HEALTHCARE/SUPPLIES & SERVICES--21.0%
Biomet, Inc. 1,415,000 43,157,500
-----------------------------------------------------------------------------------------------------------------------
Cytyc Corp.(1) 1,680,000 44,049,600
-----------------------------------------------------------------------------------------------------------------------
Lincare Holdings, Inc.(1) 2,390,000 61,423,000
-----------------------------------------------------------------------------------------------------------------------
Stryker Corp. 774,000 43,529,760
-----------------------------------------------------------------------------------------------------------------------
Varian Medical Systems, Inc.(1) 600,000 40,260,000
---------------
232,419,860
-----------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--2.9%
-----------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES--2.1%
Cerner Corp.(1) 348,400 18,726,500
-----------------------------------------------------------------------------------------------------------------------
Sonus Networks, Inc.(1) 1,011,100 4,256,731
---------------
22,983,231
-----------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE--0.5%
Veritas Software Corp.(1) 194,500 5,519,910
-----------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.3%
Bookham Technology plc, ADR(1,2) 315,856 386,924
-----------------------------------------------------------------------------------------------------------------------
ONI Systems Corp.(1) 607,500 2,970,675
---------------
3,357,599
-----------------------------------------------------------------------------------------------------------------------
UTILITIES--4.4%
-----------------------------------------------------------------------------------------------------------------------
GAS UTILITIES--4.4%
Xxxxxx Xxxxxx, Inc. 970,000 48,141,100
---------------
Total Common Stocks (Cost $968,564,056) 886,509,196
=======================================================================================================================
PREFERRED STOCKS--0.8%
-----------------------------------------------------------------------------------------------------------------------
Axsun Technologies, Inc., Cv., Series C(1,2,3) 771,208 1,636,889
-----------------------------------------------------------------------------------------------------------------------
Centerpoint Broadband Technologies, Inc., Cv., Series D(1,2) 556,586 2,155,101
-----------------------------------------------------------------------------------------------------------------------
fusionOne, Inc., 8% Non-Cum. Cv., Series D(1,2,3) 1,675,894 1,541,822
-----------------------------------------------------------------------------------------------------------------------
ITF Optical Technologies, Inc., Cv., Series A(1,2,3) 200,000 3,884,800
---------------
Total Preferred Stocks (Cost $29,100,099) 9,218,612
14 XXXXXXXXXXX MIDCAP FUND
PRINCIPAL MARKET VALUE
AMOUNT SEE NOTE 1
=======================================================================================================================
CONVERTIBLE CORPORATE BONDS AND NOTES--0.3%
Cyras Systems, Inc., 4.50% Cv. Unsec. Sub. Nts., 8/15/05(2)
(Cost $3,150,000) $ 3,150,000 $ 3,654,000
=======================================================================================================================
SHORT-TERM NOTES--9.1%
Federal Home Loan Bank, 2.46%, 11/1/01 (Cost $100,000,000) 100,000,000 100,000,000
=======================================================================================================================
REPURCHASE AGREEMENTS--8.9%
Repurchase agreement with Deutsche Bank Securities, Inc., 2.54%,
dated 10/31/01, to be repurchased at $98,219,929 on 11/1/01,
collateralized by U.S. Treasury Bonds, 8.125%-8.75%,
8/15/20-8/15/21, with a value of $100,546,356 (Cost $98,213,000) 98,213,000 98,213,000
-----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $1,199,027,155) 99.2% 1,097,594,808
-----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS NET OF LIABILITIES 0.8 8,962,492
----------------------------------------
NET ASSETS 100.0% $ 1,106,557,300
========================================
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Non-income-producing security.
2. Identifies issues considered to be illiquid or restricted--See Note 6 of
Notes to Financial Statements.
3. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer, and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the period ended October 31, 2001.
The aggregate fair value of securities of affiliated companies held by the Fund
as of October 31, 2001, amounts to $7,063,511. Transactions during the period in
which the issuer was an affiliate are as follows:
SHARES SHARES UNREALIZED
OCTOBER 31, GROSS GROSS OCTOBER 31, APPRECIATION
2000 ADDITIONS REDUCTIONS 2001 (DEPRECIATION)
-------------------------------------------------------------------------------------------------------------------------
STOCKS AND WARRANTS
Axsun Technologies, Inc., Cv.,
Series C -- 771,208 -- 771,208 $(7,363,108)
fusionOne, Inc., 8%
Non-Cum. Cv., Series D 1,675,894 -- -- 1,675,894 (7,558,282)
ITF Optical Technologies,
Inc., Cv., Series A 200,000 -- -- 200,000 (1,115,200)
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15 XXXXXXXXXXX XXXXXX FUND
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2001
--------------------------------------------------------------------------------
=====================================================================================================
ASSETS
Investments, at value--see accompanying statement:
Unaffiliated companies (cost $1,175,927,054) $ 1,090,531,297
Affiliated companies (cost $23,100,101) 7,063,511
--------------------
1,097,594,808
-----------------------------------------------------------------------------------------------------
Cash 342,723
-----------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 9,522,367
Shares of beneficial interest sold 2,380,607
Interest and dividends 115,374
Other 10,153
--------------------
Total assets 1,109,966,032
=====================================================================================================
LIABILITIES
Payables and other liabilities:
Shares of beneficial interest redeemed 2,834,924
Distribution and service plan fees 251,042
Trustees' compensation 137,737
Shareholder reports 17,503
Transfer and shareholder servicing agent fees 3,907
Other 163,619
--------------------
Total liabilities 3,408,732
=====================================================================================================
NET ASSETS $ 1,106,557,300
====================
=====================================================================================================
COMPOSITION OF NET ASSETS
Paid-in capital $ 2,124,803,896
-----------------------------------------------------------------------------------------------------
Accumulated net investment loss (130,348)
-----------------------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investment transactions (916,683,901)
-----------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments (101,432,347)
-----------------------------------------------------------------------------------------------------
NET ASSETS $ 1,106,557,300
====================
16 XXXXXXXXXXX MIDCAP FUND
=====================================================================================================
NET ASSET VALUE PER SHARE
Class A Shares:
Net asset value and redemption price per share (based on net assets of
$532,337,862 and 36,915,572 shares of beneficial interest outstanding) $14.42
Maximum offering price per share (net asset value plus sales charge of 5.75% of
offering price) $15.30
-----------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $438,961,540
and 31,302,493 shares of beneficial interest outstanding) $14.02
-----------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $128,230,460
and 9,147,359 shares of beneficial interest outstanding) $14.02
-----------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred
sales charge) and offering price per share (based on net assets of $2,268,131
and 157,505 shares of beneficial interest outstanding) $14.40
-----------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share (based on net
assets of $4,759,307 and 323,944 shares of beneficial interest outstanding) $14.69
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17 XXXXXXXXXXX XXXXXX FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2001
--------------------------------------------------------------------------------
=====================================================================================================
INVESTMENT INCOME
-----------------------------------------------------------------------------------------------------
Interest $ 16,773,539
-----------------------------------------------------------------------------------------------------
Dividends (net of foreign withholding taxes of $128) 1,383,690
--------------------
Total income 18,157,229
=====================================================================================================
EXPENSES
Management fees 9,759,526
-----------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 1,801,991
Class B 5,929,361
Class C 1,703,539
Class N 4,166
-----------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 2,365,370
Class B 1,948,616
Class C 561,227
Class N 4,039
Class Y 8,683
-----------------------------------------------------------------------------------------------------
Shareholder reports 1,003,304
-----------------------------------------------------------------------------------------------------
Custodian fees and expenses 34,257
-----------------------------------------------------------------------------------------------------
Other 322,980
--------------------
Total expenses 25,447,059
Less reduction to custodian expenses (21,345)
Less voluntary waiver of transfer and shareholder servicing agent
fees--Class A, B, C and N (180,480)
Less voluntary waiver of transfer and shareholder servicing
agent fees--Class Y (1,308)
--------------------
Net expenses 25,243,926
=====================================================================================================
NET INVESTMENT LOSS (7,086,697)
=====================================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments (765,861,273)
Closing and expiration of option contracts written 515,728
--------------------
Net realized gain (loss) (765,345,545)
-----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (463,263,091)
--------------------
Net realized and unrealized gain (loss) (1,228,608,636)
=====================================================================================================
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,235,695,333)
====================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18 XXXXXXXXXXX MIDCAP FUND
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2001 2000
=====================================================================================================
OPERATIONS
-----------------------------------------------------------------------------------------------------
Net investment income (loss) $ (7,086,697) $ (1,600,045)
-----------------------------------------------------------------------------------------------------
Net realized gain (loss) (765,345,545) (144,891,367)
-----------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (463,263,091) 296,033,356
---------------------------------------
Net increase (decrease) in net assets resulting
from operations (1,235,695,333) 149,541,944
=====================================================================================================
BENEFICIAL INTEREST TRANSACTIONS
Net increase (decrease) in net assets resulting from
beneficial interest transactions:
Class A 72,996,958 805,221,452
Class B 59,856,987 700,136,215
Class C 22,021,277 210,488,193
Class N 2,566,730 --
Class Y 6,333,492 115,803
=====================================================================================================
NET ASSETS
Total increase (decrease) (1,071,919,889) 1,865,503,607
-----------------------------------------------------------------------------------------------------
Beginning of period 2,178,477,189 312,973,582
---------------------------------------
End of period (including accumulated net investment
loss of $130,348 and $192,223, respectively) $1,106,557,300 $2,178,477,189
=======================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19 XXXXXXXXXXX XXXXXX FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
CLASS A YEAR ENDED OCTOBER 31, 2001 2000 1999 1998(1)
============================================================================================================================
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 30.41 $ 19.88 $ 10.83 $ 10.00
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment gain (loss) (.02) .04 (.04) (.02)
Net realized and unrealized gain (loss) (15.97) 10.49 9.11 .85
-------------------------------------------------------------
Total income (loss) from investment operations (15.99) 10.53 9.07 .83
----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions in excess of net realized gain -- -- (.02) --
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.42 $ 30.41 $ 19.88 $ 10.83
=============================================================
============================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (52.58)% 52.97% 83.79% 8.30%
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 532,338 $ 1,055,967 $ 167,879 $ 14,607
----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 718,814 $ 728,168 $ 60,644 $ 7,185
----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment gain (loss) (0.09)% 0.28% (0.49)% (0.33)%
Expenses 1.33% 1.16% 1.40% 1.59%(4)
Expenses, net of voluntary waiver of transfer agent fees 1.32% N/A N/A N/A
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 84% 23% 61% 117%
1. For the period from December 1, 1997 (inception of offering) to October 31,
1998.
2. 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.
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 XXXXXX FUND
CLASS B YEAR ENDED OCTOBER 31, 2001 2000 1999 1998(1)
============================================================================================================================
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 29.79 $ 19.62 $ 10.77 $ 10.00
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.15) (.07) (.07) (.05)
Net realized and unrealized gain (loss) (15.62) 10.24 8.94 .82
-------------------------------------------------------------
Total income (loss) from investment operations (15.77) 10.17 8.87 .77
----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions in excess of net realized gain -- -- (.02) --
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.02 $ 29.79 $ 19.62 $ 10.77
=============================================================
============================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (52.94)% 51.83% 82.40% 7.70%
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 438,962 $ 874,830 $ 118,611 $ 7,654
----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 592,096 $ 594,390 $ 40,455 $ 3,521
----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment loss (0.84)% (0.48)% (1.25)% (1.06)%
Expenses 2.08% 1.91% 2.16% 2.35%(4)
Expenses, net of voluntary waiver of transfer agent fees 2.07% N/A N/A N/A
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 84% 23% 61% 117%
1. For the period from December 1, 1997 (inception of offering) to October 31,
1998.
2. 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.
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 MIDCAP FUND
FINANCIAL HIGHLIGHTS CONTINUED
--------------------------------------------------------------------------------
CLASS C YEAR ENDED OCTOBER 31, 2001 2000 1999 1998(1)
============================================================================================================================
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 29.78 $ 19.60 $ 10.76 $ 10.00
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.15) (.07) (.06) (.05)
Net realized and unrealized gain (loss) (15.61) 10.25 8.92 .81
-------------------------------------------------------------
Total income (loss) from investment operations (15.76) 10.18 8.86 .76
----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions in excess of net realized gain -- -- (.02) --
----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.02 $ 29.78 $ 19.60 $ 10.76
=============================================================
============================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (52.92)% 51.94% 82.38% 7.60%
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 128,230 $ 247,566 $ 26,482 $ 2,587
----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 170,129 $ 161,221 $ 9,066 $ 1,271
----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment loss (0.85)% (0.48)% (1.26)% (1.07)%
Expenses 2.08% 1.91% 2.16% 2.35%(4)
Expenses, net of voluntary waiver of transfer agent fees 2.07% N/A N/A N/A
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 84% 23% 61% 117%
1. For the period from December 1, 1997 (inception of offering) to October 31,
1998.
2. 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.
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 XXXXXX FUND
PERIOD ENDED
CLASS N OCTOBER 31, 2001(1)
==========================================================================================
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 19.54
------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.05)
Net realized and unrealized gain (loss) (5.09)
-------------
Total income (loss) from investment operations (5.14)
------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions in excess of net realized gain --
------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.40
=============
==========================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (26.31)%
==========================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 2,268
------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 1,250
------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment loss (0.94)%
Expenses 1.73%
Expenses, net of voluntary waiver of transfer agent fees 1.72%
------------------------------------------------------------------------------------------
Portfolio turnover rate 84%
1. For the period from March 1, 2001 (inception of offering) to October 31,
2001.
2. 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.
3. Annualized for periods of less than one full year.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23 XXXXXXXXXXX MIDCAP FUND
FINANCIAL HIGHLIGHTS CONTINUED
--------------------------------------------------------------------------------
CLASS Y YEAR ENDED OCTOBER 31, 2001 2000 1999 1998(1)
============================================================================================================================
PER SHARE OPERATING DATA
Net asset value, beginning of period $ 30.86 $ 20.07 $ 10.88 $ 10.00
----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.08) (.02) (.01) .01
Net realized and unrealized gain (loss) (16.09) 10.81 9.22 .87
-------------------------------------------------------------
Total income (loss) from investment operations (16.17) 10.79 9.21 .88
----------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions in excess of net realized gain -- -- (.02) --
---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.69 $ 30.86 $ 20.07 $ 10.88
=============================================================
============================================================================================================================
TOTAL RETURN, AT NET ASSET VALUE(2) (52.40)% 53.76% 84.69% 8.80%
============================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 4,759 $ 115 $ 2 $ 1
----------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 2,720 $ 33 $ 2 $ 1
----------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:(3)
Net investment income (loss) (0.12)% 0.60% (0.06)% 0.05%
Expenses 1.07% 0.74% 1.03% 1.09%(4)
Expenses, net of voluntary waiver of transfer agent fees 1.02% N/A N/A N/A
----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 84% 23% 61% 117%
1. For the period from December 1, 1997 (inception of offering) to October 31,
1998.
2. 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.
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.
24 XXXXXXXXXXX XXXXXX FUND
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Xxxxxxxxxxx MidCap Fund (the Fund) is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
Fund's investment objective is to seek capital appreciation. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager).
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).
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires its custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
25 XXXXXXXXXXX XXXXXX 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
unused capital loss carryovers as follows:
EXPIRING
---------------------------
2006 $ 2,792,572
2007 3,516,822
2008 142,020,390
2009 764,990,986
-------------
Total $ 913,320,770
=============
--------------------------------------------------------------------------------
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
$58,974 and payments of $2,903 were made to retired trustees, resulting in an
accumulated liability of $130,346 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 XXXXXX 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 a
decrease in paid-in capital of $7,148,572. Accumulated net investment loss was
decreased 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 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 MIDCAP FUND
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
================================================================================
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of no 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 21,601,589 $ 431,618,994 33,833,586 $ 1,036,803,331
Dividends and/or
distributions reinvested -- -- -- --
Redeemed (19,413,730) (358,622,036) (7,550,876) (231,581,879)
---------------------------------------------------------------------
Net increase (decrease) 2,187,859 $ 72,996,958 26,282,710 $ 805,221,452
=====================================================================
--------------------------------------------------------------------------------------------------
CLASS B
Sold 12,038,231 $ 240,307,506 27,648,563 $ 830,933,407
Dividends and/or
distributions reinvested -- -- -- --
Redeemed (10,102,864) (180,450,519) (4,327,314) (130,797,192)
---------------------------------------------------------------------
Net increase (decrease) 1,935,367 $ 59,856,987 23,321,249 $ 700,136,215
=====================================================================
--------------------------------------------------------------------------------------------------
CLASS C
Sold 4,550,109 $ 87,698,946 9,424,959 $ 281,662,027
Dividends and/or
distributions reinvested -- -- -- --
Redeemed (3,716,188) (65,677,669) (2,462,638) (71,173,834)
---------------------------------------------------------------------
Net increase (decrease) 833,921 $ 22,021,277 6,962,321 $ 210,488,193
=====================================================================
--------------------------------------------------------------------------------------------------
CLASS N
Sold 167,066 $ 2,704,211 -- $ --
Dividends and/or
distributions reinvested -- -- -- --
Redeemed (9,561) (137,481) -- --
---------------------------------------------------------------------
Net increase (decrease) 157,505 $ 2,566,730 -- $ --
=====================================================================
--------------------------------------------------------------------------------------------------
CLASS Y
Sold 499,899 $ 9,750,294 3,687 $ 118,326
Dividends and/or
distributions reinvested -- -- -- --
Redeemed (179,670) (3,416,802) (72) (2,523)
---------------------------------------------------------------------
Net increase (decrease) 320,229 $ 6,333,492 3,615 $ 115,803
=====================================================================
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 XXXXXX 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
$1,397,493,059 and $978,081,643, respectively.
As of October 31, 2001, unrealized appreciation (depreciation) based on cost of
securities for federal income tax purposes of $1,202,390,287 was:
Gross unrealized appreciation $ 56,668,154
Gross unrealized depreciation (161,463,633)
--------------
Net unrealized appreciation (depreciation) $ (104,795,479)
==============
================================================================================
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 an annual fee of
0.75% of the first $200 million of average annual net assets of the Fund, 0.72%
of the next $200 million, 0.69% of the next $200 million, 0.66% of the next $200
million and 0.60% of average annual net assets in excess of $800 million. The
Fund's management fee for the year ended October 31, 2001, was an annualized
rate of 0.66%.
--------------------------------------------------------------------------------
TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS an agreed upon per account fee. OFS has voluntarily undertaken to waive a
portion of its transfer agent fee for Class A, B, C, N and Y shares. This
voluntary waiver of expenses limits transfer agent fees to 0.35% of average net
assets for Class A, B, C and N shares effective October 1, 2001 and to 0.25% of
average net assets for Class Y shares effective January 1, 2001.
--------------------------------------------------------------------------------
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 $4,350,671 $1,160,339 $480,871 $6,744,263 $613,517 $24,109
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 DEFERRED CONTINGENT DEFERRED CONTINGENT DEFERRED CONTINGENT 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 $3,441 $1,306,155 $69,810 $--
29 XXXXXXXXXXX XXXXXX FUND
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
================================================================================
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued
The Fund has adopted a Service Plan for Class A shares and Distribution
and Service Plans for 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 SERVICE PLAN FEES. 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 reimbursements to
the Distributor at a rate of 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 $1,801,991, all
of which were paid by the Distributor to recipients, and included $122,885 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.
--------------------------------------------------------------------------------
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.
30 XXXXXXXXXXX MIDCAP FUND
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 $5,929,361 $4,999,449 $19,030,675 4.34%
Class C Plan 1,703,539 738,209 2,376,697 1.85
Class N Plan 4,166 3,871 48,490 2.14
================================================================================
5. OPTION ACTIVITY
The Fund may buy and sell put and call options, or write put and covered call
options on portfolio securities in order to produce incremental earnings or
protect against changes in the value of portfolio securities.
The Fund generally purchases put options or writes covered call options
to hedge against adverse movements in the value of portfolio holdings. When an
option is written, the Fund receives a premium and becomes obligated to sell or
purchase the underlying security at a fixed price, upon exercise of the option.
Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded and unrealized appreciation or
depreciation is recorded. The Fund will realize a gain or loss upon the
expiration or closing of the option transaction. When an option is exercised,
the proceeds on sales for a written call option, the purchase cost for a written
put option, or the cost of the security for a purchased put or call option is
adjusted by the amount of premium received or paid.
Securities designated to cover outstanding call options are noted in the
Statement of Investments where applicable. Shares subject to call, expiration
date, exercise price, premium received and market value are detailed in a note
to the Statement of Investments. Options written are reported as a liability in
the Statement of Assets and Liabilities. Realized gains and losses are reported
in the Statement of Operations.
The risk in writing a call option is that the Fund gives up the
opportunity for profit if the market price of the security increases and the
option is exercised. The risk in writing a put option is that the Fund may incur
a loss if the market price of the security decreases and the option is
exercised. The risk in buying an option is that the Fund pays a premium whether
or not the option is exercised. The Fund also has the additional risk of not
being able to enter into a closing transaction if a liquid secondary market does
not exist.
Written option activity for the year ended October 31, 2001, was as follows:
CALL OPTIONS
-----------------------------
NUMBER OF AMOUNT OF
CONTRACTS PREMIUMS
------------------------------------------------------------------------------------
Options outstanding as of October 31, 2000 -- $ --
Options written 2,250 515,728
Options closed or expired (2,250) (515,728)
-----------------------------
Options outstanding as of October 31, 2001 -- $ --
=============================
31 XXXXXXXXXXX XXXXXX FUND
NOTES TO FINANCIAL STATEMENTS CONTINUED
--------------------------------------------------------------------------------
================================================================================
6. ILLIQUID OR RESTRICTED SECURITIES
As of October 31, 2001, investments in securities included issues that are
illiquid or restricted. Restricted securities are often purchased in private
placement transactions, are not registered under the Securities Act of 1933, may
have contractual restrictions on resale, and are valued under methods approved
by the Board of Trustees as reflecting fair value. A security may also be
considered illiquid if it lacks a readily available market or if its valuation
has not changed for a certain period of time. The Fund intends to invest no more
than 15% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to qualified institutional investors, are not
subject to that limitation. The aggregate value of illiquid or restricted
securities subject to this limitation as of October 31, 2001, was $20,147,869,
which represents 1.82% of the Fund's net assets, of which $16,493,869 is
considered restricted. Information concerning restricted securities is as
follows:
UNREALIZED
ACQUISITION VALUATION AS OF APPRECIATION
SECURITY DATES COST OCTOBER 31, 2001 (DEPRECIATION)
-----------------------------------------------------------------------------------------------------------------------------
STOCKS AND WARRANTS
Axsun Technologies, Inc., Cv., Series C 12/13/00 $ 8,999,997 $1,636,889 $(7,363,108)
-----------------------------------------------------------------------------------------------------------------------------
2/24/00-
Bookham Technology plc, ADR 10/18/00 5,000,000 386,924 (4,613,076)
-----------------------------------------------------------------------------------------------------------------------------
Centerpoint Broadband Technologies,
Inc., Cv., Series D 10/23/00 5,999,997 2,155,101 (3,844,896)
-----------------------------------------------------------------------------------------------------------------------------
Corvis Corp. 12/16/99 5,999,968 2,011,662 (3,988,306)
-----------------------------------------------------------------------------------------------------------------------------
fusionOne, Inc., 8% Non-Cum. Cv.,
Series D 9/6/01 9,100,104 1,541,822 (7,558,282)
-----------------------------------------------------------------------------------------------------------------------------
ITF Optical Technologies, Inc., Cv.,
Series A 4/7/00 5,000,000 3,884,800 (1,115,200)
-----------------------------------------------------------------------------------------------------------------------------
Tellium, Inc. 9/20/00 11,000,010 4,876,671 (6,123,339)
================================================================================
7. 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.
32 XXXXXXXXXXX XXXXXX FUND
Appendix A
-------------------------------------------------------------------------------------------------------------------
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
X-00
Xxxxxxxx X
------------------------------------------------------------------------------------------------------------
OppenheimerFunds Special Sales Charge Arrangements and Waivers
------------------------------------------------------------------------------------------------------------
In certain cases, the initial sales charge that applies to purchases of Class A shares1 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.2
That is because of the economies of sales efforts realized by OppenheimerFunds 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 plans3
(4) Group Retirement Plans4
(5) 403(b)(7) custodial plan accounts
(6) Individual Retirement Accounts ("IRAs"), including traditional IRAs, Xxxx IRAs, SEP-IRAs, SARSEPs or
SIMPLE plans
(7)
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.
--------------
1. Certain waivers also apply to Class M shares of Xxxxxxxxxxx Convertible Securities Fund.
2. In the case of Xxxxxxxxxxx Senior Floating Rate Fund, a continuously-offered closed-end fund, references
to contingent deferred sales charges mean the Fund's Early Withdrawal Charges and references to
"redemptions" mean "repurchases" of shares.
3. An "employee benefit plan" means any plan or arrangement, whether or not it is "qualified" under the
Internal Revenue Code, under which Class A shares of an Xxxxxxxxxxx fund or funds are purchased by a
fiduciary or other administrator for the account of participants who are employees of a single employer or
of affiliated employers. These may include, for example, medical savings accounts, payroll deduction plans
or similar plans. The fund accounts must be registered in the name of the fiduciary or administrator
purchasing the shares for the benefit of participants in the plan.
4. The term "Group Retirement Plan" means any qualified or non-qualified retirement plan for employees of a
corporation or sole proprietorship, members and employees of a partnership or association or other organized
group of persons (the members of which may include other groups), if the group has made special arrangements
with the Distributor and all members of the group participating in (or who are eligible to participate in)
the plan purchase Class A shares of an Xxxxxxxxxxx fund or funds through a single investment dealer, broker
or other financial institution designated by the group. Such plans include 457 plans, SEP-IRAs, SARSEPs,
SIMPLE plans and 403(b) plans other than plans for public school employees. The term "Group Retirement Plan"
also includes qualified retirement plans and non-qualified deferred compensation plans and IRAs that
purchase Class A shares of an Xxxxxxxxxxx fund or funds through a single investment dealer, broker or other
financial institution that has made special arrangements with the Distributor enabling those plans to
purchase Class A shares at net asset value but subject to the Class A contingent deferred sales charge.
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 commission described in the Prospectus under "Class A Contingent Deferred Sales Charge."7
This waiver provision applies to:
|_| Purchases of Class A shares aggregating $1 million or more.
|_| Purchases by a Retirement Plan (other than an XXX or 403(b)(7) custodial plan) that:
(1) buys shares costing $500,000 or more, or
(2) has, at the time of purchase, 100 or more eligible employees or total plan assets of $500,000 or more,
or
(3) certifies to the Distributor that it projects to have annual plan purchases of $200,000 or more.
|_| Purchases by an OppenheimerFunds-sponsored Rollover XXX, if the purchases are made:
(1) through a broker, dealer, bank or registered investment advisor 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
Asset Management, L.P. ("MLAM"), 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 MLAM (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 May 1, 1999.
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
commissions 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 sibling'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 advisors 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 advisor 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.
B. Waivers 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
commissions 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.8
(5) Under a Qualified Domestic Relations Order, as defined in the Internal Revenue Code, or, in the case of
an XXX, 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.9
(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 XXX.
|_| 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.
|_| Distributions 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.10
(5) To make distributions required under a Qualified Domestic Relations Order or, in the case of an XXX, 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.11
(9) On account of the participant's separation from service.12
(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 XXX.
(12) Distributions from Retirement Plans having 500 or more eligible employees, but excluding distributions
made because of the Plan's elimination as investment options under the Plan of all of the
Xxxxxxxxxxx funds that had been offered.
(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.
|_| 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.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B, Class C and Class N 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 Certain 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 Quest Small Cap Value Fund
Xxxxxxxxxxx Quest Balanced Value Fund Xxxxxxxxxxx Quest Global Value Fund
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.
|X| 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 Commission 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.
|X| 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.
|X| 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.
|X| 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.
|X| 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 Certain Xxxxxxxxxxx Funds Who Were Shareholders of
Connecticut Mutual Investment Accounts, Inc.
The initial and contingent deferred sales 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):
x Xxxxxxxxxxx U. S. Government Trust,
x Xxxxxxxxxxx Bond Fund,
x Xxxxxxxxxxx Disciplined Value Fund and
x 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 advisor 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 commission 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 Equity 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.
-------------------------------------------------------------------------------------------------------------------
For More Information About Xxxxxxxxxxx XxxXxx Fund
-------------------------------------------------------------------------------------------------------------------
Internet Website:
XXX.XXXXXXXXXXXXXXXX.XXX
------------------------
Investment Adviser
OppenheimerFunds, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Distributor
OppenheimerFunds Distributor, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Transfer Agent
OppenheimerFunds Services
X.X. Xxx 0000
Xxxxxx, Xxxxxxxx 00000
0-000-000-0000
Custodian Bank
The Bank of New York
Xxx Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Independent Accountants
KPMG LLP
000 Xxxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Legal Counsel
Mayer, Brown, Xxxx & Maw
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
890
PX745.0201
--------
1 The address of each Trustee is 0000 X. Xxxxxx Xxx, Xxxxxxxxx, XX 00000-0000.
2 Each Trustee serves for an indefinite term, until his resignation, death or removal.
3 Includes shares owned by Xx. Xxxxx in other Xxxxxxxxxxx Funds for which he serves as director or trustee.
4 The address of each Officer is 000 Xxxxxxx Xxxxxx, Xxx Xxxx, XX 00000 except for Messrs. Xxxxxx, Xxxxxx and
Xxxxxx and Xx. Xxxx, whose address is 0000 X. Xxxxxx Xxx, Xxxxxxxxx, XX 00000-0000, and for [Messrs. Fielding and
Xxxxxx and Xxxxxxx] and Xx. Xxxxxxxx whose address is 000 Xxxxxx Xxxx, Xxxxxxxxx, XX 00000.
5 Each Officer serves for an indefinite term, until his or her resignation, death or removal.
6. In accordance with Rule 12b-1 of the Investment Company Act, the term "Independent Trustees" in this
Statement of Additional Information refers to those Trustees who are not "interested persons" of the Fund and who
do not have any direct or indirect financial interest in the operation of the distribution plan or any agreement
under the plan.
7 However, that commission will not be paid on purchases of shares in amounts of $1 million or more (including
any right of accumulation) 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.
8 This provision does not apply to IRAs.
9 This provision does not apply to 403(b)(7) custodial plans if the participant is less than age 55, nor to IRAs.
10 This provision does not apply to IRAs.
11 This provision does not apply to loans from 403(b)(7) custodial plans.
12 This provision does not apply to 403(b)(7) custodial plans if the participant is less than age 55, nor to IRAs.
