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Xxxxxxxxxxx Real Estate 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.
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........................................................2
Investment Restrictions..........................................................................18
How the Fund is Managed ..............................................................................19
Organization and History.........................................................................19
Trustees and Officers of the Fund................................................................21
The Manager......................................................................................25
Brokerage Policies of the Fund........................................................................27
Distribution and Service Plans........................................................................29
Performance of the Fund...............................................................................33
About Your Account
How To Buy Shares.....................................................................................37
How To Sell Shares....................................................................................46
How To Exchange Shares................................................................................51
Dividends, Capital Gains and Taxes....................................................................54
Additional Information About the Fund.................................................................58
Financial Information About the Fund
Independent Auditors' Report..........................................................................59
Financial Statements..................................................................................60
Appendix A: Industry Classifications.................................................................A-1
Appendix B: Special Sales Charge Arrangements and Waivers............................................B-1
17
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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 portfolio manager can select for the Fund. Additional information is also provided about the strategies that the
Fund may use to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the techniques and strategies that the Fund's portfolio
manager, who is employed by Cornerstone Real Estate Advisers, Inc. (the "Sub-Advisor") 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. The following
investment policies are principal investment policies.
|X| Real Estate Investment Trusts. REITs are sometimes informally characterized as EQUITY REITs, MORTGAGE REITs and HYBRID
REITs. An EQUITY REIT invests primarily in the fee ownership or leasehold ownership of land and buildings and derives its income
primarily from rental income. An EQUITY REIT may also realize capital gains (or losses) by selling real estate properties in its
portfolio that have appreciated (or depreciated) in value. A MORTGAGE REIT invests primarily in mortgages on real estate, which may
secure construction, development or long-term loans. A MORTGAGE REIT generally derives its income primarily from interest payments on
the credit it has extended. A HYBRID REIT combines the characteristics of EQUITY REITs and MORTGAGE REITs, generally by holding both
ownership interests and mortgage interests in real estate. It is anticipated, although not required, that under normal circumstances
a majority of the Fund's investments in REITs will consist of EQUITY REITs.
|X| Portfolio Turnover. "Portfolio turnover" describes the rate at which the Fund traded its portfolio securities during its
last fiscal year. For example, if a fund sold all of its securities during the year, its portfolio turnover rate would have been
100%. The Fund's portfolio turnover rate will fluctuate from year to year, although the Fund might have a high portfolio turnover
rate of more than 100% annually. Increased portfolio turnover creates higher brokerage and transaction costs for the Fund, which
could reduce its overall performance. Additionally, the realization of capital gains from selling portfolio securities may result in
distributions of taxable long-term capital gains to shareholders, since the Fund will normally distribute all of its capital gains
realized each year, to avoid excise taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund may from time to time employ 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. The following investments and strategies are not principal investment policies.
|X| Foreign Securities. The Fund can purchase securities issued by foreign real estate companies. "Foreign securities"
include equity securities of companies organized under the laws of countries other than the United States. They may be traded on
foreign securities exchanges or in the foreign over-the-counter markets.
Securities of foreign issuers that are represented by American Depository Receipts are not considered "foreign securities"
for the purpose of the Fund's investment allocations. That is because they are not subject to many of the special considerations and
risks, discussed below, that apply to foreign securities traded and held abroad.
Depository Receipts involve the same risks as investing directly in foreign securities. Those risks are discussed in the
Prospectus under "Foreign Investing." Sponsored ADRs are receipts typically issued by an American bank or trust company that show
evidence of underlying securities issued by a foreign corporation. On the other hand, the issuers of unsponsored Depository Receipts
are not obligated to disclose material information in the United States, and therefore, there may be less information available
regarding such issuers.
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| Repurchase Agreements. The Fund can acquire securities subject to repurchase agreements. It may 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 Manager from time to time.
The majority of these transactions run from day to day, and delivery pursuant to the resale typically occurs within one to
five days of the purchase. Repurchase agreements having a maturity beyond seven days are subject to the Fund's limits on holding
illiquid investments. The Fund will not enter into a repurchase agreement that causes more than 10% of its net assets to be subject
to repurchase agreements having a maturity beyond seven 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 impose creditworthiness requirements 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 may also acquire restricted securities through private placements. Those securities have contractual restrictions
on their public resale. Those restrictions might limit the Fund's ability to dispose of the securities and might lower the amount the
Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are eligible for sale to qualified institutional purchasers under
Rule 144A of the Securities Act of 1933, if those securities have been determined to be liquid by the Manager 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 and participation interests that do not
have puts exercisable within 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 in the
coming year, but if it does so, such loans will likely not 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 finders', custodian and administrative fees in connection with these loans. The terms of the Fund's loans must meet
applicable tests under the Internal Revenue Code and must permit the Fund to reacquire loaned securities on five days' notice or in
time to vote on any important matter.
|X| Borrowing for Leverage. The Fund has the ability to borrow 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| Non-Diversification of Investments. The Fund is operated as a "non-diversified" portfolio. As a non-diversified
investment company, the Fund may be subject to greater risks than a diversified company because of the possible fluctuation in the
values of securities of fewer issuers. However, at the close of each fiscal quarter at least 50% of the value of the Fund's total
assets will be represented by one or more of the following: (i) cash and cash items, including receivables; (ii) U.S. government
securities; (iii) securities of other regulated investment companies; and (iv) securities (other than U.S. government securities and
securities of other regulated investment companies) of any one or more issuers which meet the following limitations: (a) the Fund
will not invest more than 5% of its total assets in the securities of any such issuer and (b) the entire amount of the securities of
such issuer owned by the Fund will not represent more than 10% of the outstanding voting securities of such issuer. Additionally, not
more than 25% of the value of a Fund's total assets may be invested in the securities of any one issuer.
|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.
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 may
not be as high as the Manager expected.
|X| Hedging. Although the Fund does not anticipate the extensive use of hedging instruments, the Fund can use hedging
instruments. 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:
o sell futures contracts,
o buy puts on such futures or on securities, or
o write covered calls on securities or futures. Covered calls may also be used to increase the Fund's income, but the
portfolio 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:
o buy futures, or
o buy calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is permitted to use them in the Manager's discretion,
as described below. 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 may buy and sell futures contracts that relate to (1) broadly-based stock indices (these are referred
to as "stock index futures"), (2) other broadly-based securities indices (these are referred to as "financial futures") and (3)
foreign currencies (these are referred to as "forward contracts").
A broadly-based stock index is used as the basis for trading stock index futures. They may in some cases 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. Financial futures are similar contracts based on the future value of the basket of securities that comprise the index.
These contracts obligate the seller to deliver, and the purchaser to take, cash to settle the futures transaction. There is no
delivery made of the underlying securities to settle the futures obligation. Either party may also settle the transaction by entering
into an offsetting contract.
An interest rate future obligates the seller to deliver (and the purchaser to take) cash or a specified type of debt
security to settle the futures transaction. Either party could also enter into an offsetting contract to close out the position.
The Fund can invest a portion of its assets in commodity futures contracts. Commodity futures may be based upon commodities
within five 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 payment 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 index options, securities options,
currency options, commodities options and options on the other types of futures described above.
o 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. Up to 25% of the Fund's total assets may be subject to calls the Fund writes.
When the Fund writes a call on a security, it receives cash (a premium). 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.
When the Fund writes an over-the-counter ("OTC") option, it will enter into an arrangement which will establish a formula
price at which the Fund will have the absolute right to repurchase that OTC option. The formula price will generally be based on a
multiple of the premium received for the option, plus the amount by which the option is exercisable below the market price of the
underlying security (that is, the option is "in the money"). When the Fund writes an OTC option, it will treat as illiquid (for
purposes of its restriction on holding illiquid securities) the xxxx-to-market value of any OTC option it holds, unless the option is
subject to a buy-back agreement by the executing broker.
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.
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 securities gives the purchaser the right to sell, and
the writer the obligation to buy, the underlying investment at the exercise price during the option period. The Fund will not write
puts if, as a result, more than 25% of the Fund's net assets would be required to be segregated to cover such put options.
If the Fund writes a put, the put must be covered by segregated liquid assets. The premium the Fund receives from writing a
put represents a profit, as long as the price of the underlying investment remains equal to or 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 a put the Fund has written expires
unexercised, the Fund realizes a gain in the amount of the premium less the transaction costs incurred. 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 an unrealized loss immediately, which would then be
realized when the underlying security is sold. 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 the Fund 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 securities. 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 broker-dealer
through which the put was sold. That notice will require the Fund 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 it 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 also 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 on securities, broadly-based securities indices, foreign
currencies and futures. It may do so 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 on securities, broadly-based securities indices, foreign currencies and futures, 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.
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 might 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 put, 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 additional appreciation in excess of the covered call
price 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.
|_| Interest Rate Swap Transactions. The Fund can enter into interest rate swap agreements. In an interest rate swap,
the Fund and another party exchange their right to receive or their obligation to pay interest on a security. For example, they might
swap the right to receive floating rate payments for fixed rate payments. The Fund can enter into swaps only on securities that it
owns. The Fund will not enter into swaps with respect to more than 25% of its total assets. Also, the Fund will identify on its books
liquid assets (such as cash or U.S. government securities) to cover any amounts it could owe under swaps that exceed the amounts it
is entitled to receive, and it will adjust that amount daily, as needed.
Swap agreements entail both interest rate risk and credit risk. There is a risk that, based on movements of interest rates
in the future, the payments made by the Fund under a swap agreement will be greater than the payments it received. Credit risk
arises from the possibility that the counterparty will default. If the counterparty defaults, the Fund's loss will consist of the
net amount of contractual interest payments that the Fund has not yet received. The Manager will monitor the creditworthiness of
counterparties to the Fund's interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with certain counterparties pursuant to master netting agreements. A master
netting agreement provides that all swaps done between the Fund and that counterparty shall be regarded as parts of an integral
agreement. If amounts are payable on a particular date in the same currency in respect of one or more swap transactions, the amount
payable on that date in that currency shall be the net amount. In addition, the master netting agreement may provide that if one
party defaults generally or on one swap, the counterparty can terminate all of the swaps with that party. Under these agreements, if
a default results in a loss to one party, the measure of that party's damages is calculated by reference to the average cost of a
replacement swap for each swap. It is measured by the xxxx-to-market value at the time of the termination of each swap. The gains
and losses on all swaps are then netted, and the result is the counterparty's gain or loss on termination. The termination of all
swaps and the netting of gains and losses on termination are generally referred to as "aggregation."
|_| 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. The account must be a segregated account or accounts held by the Fund's custodian bank. The Fund will maintain other
segregated accounts in appropriate cases.
|_| 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
company income available for distribution to its shareholders.
|X| Temporary Defensive and Interim 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:
o high-quality (rated in the top two rating categories of nationally-recognized rating organizations or deemed by the Manager
to be of comparable quality), short-term money market instruments, including those issued by the U. S. Treasury or other
government agencies,
o commercial paper (short-term, unsecured, promissory notes of domestic or foreign companies),
o short-term debt obligations of corporate issuers,
o certificates of deposit and bankers' acceptances of domestic and foreign banks and savings and loan associations, and
o repurchase agreements.
These short-term debt securities would 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. If securities of foreign companies are selected, the issuer must have assets of
at least (U.S.) $1 billion.
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:
o 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
o more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies described in the Prospectus or this Statement of
Additional Information are "fundamental" only if they are identified as such. The Fund's Board of Trustees can change non-fundamental
policies without shareholder approval. However, significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as appropriate. The Fund's most significant investment
policies are described in the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following investment restrictions are fundamental policies of
the Fund as contemplated by the Investment Company Act of 1940 (the "Act"). The limitations of the following policies may be changed
to the extent that the corresponding policies of the Act are changed by amendment, exemptive or interpretive relief.
o 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 50% 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 or securities of other investment companies.
o The Fund cannot make loans except as permitted by the Act. Permitted loans under the Act include (a) the lending of
securities, (b) the purchase of debt instruments or similar evidences of indebtedness, (c) an interfund lending program
(if applicable) with other affiliated funds, provided that no such loan may be made if, as a result, the aggregate of
such loans would exceed 33 1/3% of the value of its total assets (taken at market value at the time of such loans), and
(d) through repurchase agreements.
o The Fund cannot borrow except as permitted by the Act. Currently the Act permits loans only from banks and/or affiliated
investment companies and only to the extent that the value of its assets less its liabilities other than borrowing is
equal to at least 300% of all borrowings (including the proposed borrowing.)
o The Fund cannot concentrate its investments to the extent of 25% of its total assets in any industry. However, there is no
limitation as to the Fund's investments in the real estate industry in general.
o The Fund cannot invest in other investment companies except to the extent permitted by the Act. The Fund would be permitted
under this policy to invest its assets in the securities of one or more open-end management investment company for which
the Manager, one of its affiliates or a successor is the investment advisor or sub-advisor. That fund or funds must have
substantially the same fundamental investment objective, policies and limitations as the Fund. This policy also would
permit the Fund to adopt a "master-feeder" structure. Under that structure, the Fund would be a "feeder" fund and would
invest all of its assets in a single pooled "master fund" in which other feeder funds could also invest. This could
enable the Fund to take advantage of potential operational and cost efficiencies in the master-feeder structure. The
Fund has no present intention of adopting the master-feeder structure. If it did so, the Prospectus and this Statement
of Additional Information would be revised accordingly.
o The Fund cannot underwrite securities of other companies except as permitted by the Act. 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.
o The Fund cannot invest in real estate or in interests in real estate. Securities issued by companies which invest in real
estate or interests therein, or securities directly or indirectly secured by real estate or interests therein are not
considered to be investments in real estate.
o The Fund cannot issue "senior securities," except as permitted by the Act. 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.
Non-Fundamental 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 with the exception of the borrowing policy. 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 except in the real estate industry as described above,
the Fund has adopted the industry classifications set forth in Appendix A to this Statement of Additional Information. The industry
classifications may be changed from time to time by the Fund.
How the Fund is Managed
Organization and History. The Fund is an open-end, non-diversified management investment company with an unlimited number of
authorized shares of beneficial interest. The Fund was organized as a Massachusetts business trust on November 27, 2001.
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.
|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. However, this does not cover the prohibited acts referred to in sections 17(h) and (i) under the Investment
Company Act of 1940.
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 Trustees have appointed an Audit Committee, comprised of Messrs. Xxxx, Xxxxxxx and Xxxxx, all of whom are independent
Trustees. The Audit Committee is scheduled to meet one time during the fiscal year ended April 30, 2002. The Board of Trustees does
not have a standing nominating or compensation committee.
The Audit Committee furnishes the Board with recommendations regarding the selection of the independent auditor. Other
functions of the Audit Committee include: (i) reviewing the scope and results of audits and the audit fees charged; (ii) reviewing
reports from the Fund's independent auditor regarding the adequacy of the Fund's internal accounting procedures and controls; and
(iii) establishing a separate line of communication between the Fund's independent auditors and its Non-Affiliated Trustees.
Based on the Audit Committee's recommendation, the Board of Trustees of the Fund, including a majority of the Non-Affiliated
Trustees, at a meeting held February 12, 2002, selected Ernst & Young LLP ("Ernst & Young") as auditors of the Fund. Ernst & Young
also serves as auditors for certain other funds for which the Manager acts as investment advisor.
It is anticipated the Ernst & Young will perform audit services for the Fund including the audit of the Fund's financial
statements, review of the Fund's annual report and registration statement amendment, consultation on financial accounting and
reporting matters, and meetings with the Board of Trustees.
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 their principal occupations and business affiliations during the past five years are listed below. Each of the
Trustees except Xx. Xxxxxx and Xx. Xxxxxxx are independent trustees, as defined in the Investment Company Act. Xx. Xxxxxx is an
"interested trustee," because he is affiliated with the Manager by virtue of his positions as an officer and director of the Manager,
and as a shareholder of its parent company. Xx. Xxxxxxx is an "interested trustee" by virtue of his former position as an officer of
the Manager's parent company. Xx. Xxxxxx was elected as a Trustee of the Fund with the understanding that in the event his
affiliation with the Manager is terminated, he will resign as a trustee of the Fund and the other Board IV Funds for which he is a
trustee or director. All information is as of December 31, 2001. All of the Trustees are Trustees or Managers of the following
Xxxxxxxxxxx funds (referred to as "Board IV Funds"):
Xxxxxxxxxxx Tremont Market Neutral Fund LLC
Xxxxxxxxxxx Tremont Opportunity Fund LLC
Xxxxxxxxxxx Real Estate Fund
Messrs. Murphy, Farrar, Xxxxxx and Xxxx and Mses. Xxxx and Ives who are officers of the Fund, respectively hold the same
offices with the other Xxxxxxxxxxx funds. Xx. Xxx is also an officer of the Fund. As of the date of this Statement of Additional
Information, the Trustees and the officers of the Fund as a group owned less than 1% of the outstanding 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 the officers of the Fund listed above. In addition, each
Independent Trustee, and his family members, do not own securities of either the Manager or Distributor of the Board IV funds or any
person directly or indirectly controlling, controlled by or under common control with the Manager or Distributor.
Independent Trustees
-------------------------- ------------------------------------------------------ ----------------- ------------------
Aggregate Dollar
Name, Address,1 Age, Range of Shares
Position(s) Held with Principal Occupation(s) During Past 5 Years / Other Dollar Range of Owned in any of
Fund and Length of Time Trusteeships Held by Trustee / Number of Portfolios Shares Owned in the Board IV
Served2 in Fund Complex Overseen by Trustee the Fund Funds3
-------------------------- ------------------------------------------------------ ----------------- ------------------
-------------------------- ------------------------------------------------------ ----------------- ------------------
Xxxxxx X. Xxxxx, Trustee President, Xxxxx Corporation (operator of $0 $0
since February 2002, restaurants): Trustee, Xxxxx G&R Trust and Xxxxx Co.
Age70. (owners and operators of restaurant properties);
Partner, Xxxxx Partnership, Xxxxx Auburn Associates
and Xxxxx Hazard Associates (owners and operators of
restaurant properties); Chairman, Western Mass
Development Corp; Chairman, American International
College; Trustee (since 1993) of MML Series
Investment Fund and Trustee (since 1994) of
MassMutual Institutional Funds (open-end investment
companies). Trustee/manager of three investment
companies in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- ------------------
-------------------------- ------------------------------------------------------ ----------------- ------------------
Xxxxxx X. Xxxxxx, Self-employed as an investment consultant; a
Trustee (since February director of Lakes Environmental Association (since
2002), 1996), and Medintec (since 1992) and Cathco (since
Age 60. 1995) (medical device companies); and a member of
the investment committee of the Associated Jewish $0 $0
Charities of Baltimore (since 1994); formerly a
director of Fortis/Hartford mutual funds (1994 -
December 2001). Trustee/manager of three investment
companies in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- ------------------
-------------------------- ------------------------------------------------------ ----------------- ------------------
Xxxxx X. Xxxx, Trustee President of Xxxx Properties, Inc. (an oil and gas $0 $0
(since February 2002), exploration and production company); Vice President,
Age 53. Secretary and Treasurer of Xxxx Xxxxx Company, Inc.
(soda ash processing and production); Vice President
of Xxxx Talc Company, Inc. (talc mining); Managing
Member, Hole-in-the-Wall Ranch (cattle ranching);
formerly Director and Chairman of the Board, Denver
Branch of the Federal Reserve Bank of Kansas City
(1993-1999) and Director of PacifiCorp. (1995 -
1999), an electric utility. Trustee/manager of three
investment companies in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- ------------------
Interested Trustee
-------------------------- ------------------------------------------------------ ----------------- ------------------
Name, Address,4 Age, Principal Occupation(s) During Past 5 Years / Other Dollar Range of Aggregate Dollar
Position(s) Held with Trusteeships Held by Trustee / Number of Portfolios Shares Owned in Range of Shares
Fund and Length of Time in Fund Complex Overseen by Trustee the Fund Owned in any of
Served5 the Xxxxxxxxxxx
Funds6
-------------------------- ------------------------------------------------------ ----------------- ------------------
-------------------------- ------------------------------------------------------ ----------------- ------------------
Eustis Walcott, Trustee Principal with Ardsley Associates (since August $0 $0
since February 2002, Age 2000) (consulting firm); formerly Senior Vice
64. President, MassMutual Financial Group (May 1990 -
July 2000). Trustee/manager of three investment
companies in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- ------------------
Interested Trustee and Officer
-------------------------- ------------------------------------------------------ ----------------- ------------------
Name, Address,7 Age, Principal Occupation(s) During Past 5 Years / Other Dollar Range of Aggregate Dollar
Range of Shares
Position(s) Held with Owned in any of
Fund and Length of Time Trusteeships Held by Trustee / Number of Portfolios Shares Owned in the Xxxxxxxxxxx
Served8 in Fund Complex Overseen by Trustee the Fund Funds9
-------------------------- ------------------------------------------------------ ----------------- ------------------
-------------------------- ------------------------------------------------------ ----------------- ------------------
Xxxx X. Xxxxxx, Chairman, Chief Executive Officer and director $0 $50,001 -
President and Trustee (since June 30, 2001) and President (since September
and Chairman of the Board 2000) of the Manager; President and a trustee of
Trustee since February other Xxxxxxxxxxx funds; President and a director
2002 (since July 2001) of Xxxxxxxxxxx Acquisition Corp.,
Age: 52 the Manager's parent holding company, and of
Xxxxxxxxxxx Partnership Holdings, Inc. (since July
2001), a holding company subsidiary of the Manager;
Chairman and a director (since July 2001) of
Shareholder Services, Inc. and of Shareholder
Financial Services, Inc., transfer agent
subsidiaries of the Manager; President (since
November 1, 2001) and a director (since July 2001)
of Xxxxxxxxxxx Real Asset Management, Inc., an
investment advisor subsidiary of the Manager;
President and a director (since July 2001) of
OppenheimerFunds Legacy Program, a charitable trust
program established by the Manager; a director
(since November 2001) of Trinity Investment
Management Corp. and Tremont Advisers, Inc.,
investment advisory affiliates of the Manager, and
of OAM Institutional, Inc. (since November 2001), an
investment advisory subsidiary of the Manager, and
of HarbourView Asset Management Corporation and OFI
Private Investments, Inc. (since July 2001),
investment advisor subsidiaries of the Manager;
formerly President and trustee (from November 1999 $100,000
to November 2001) of MML Series Investment Fund and
MassMutual Institutional Funds, open-end investment
companies; Chief Operating Officer (from September
2000 to July 2001) of the Manager; Executive Vice
President of Massachusetts Mutual Life Insurance
Company (from February 1997 to August 2000); a
director (from 1999 to 2000) of C.M. Life Insurance
Company; President, Chief Executive Officer and a
director (from 1999 to 2000) of MML Bay State Life
Insurance Company; Executive Vice President,
director and Chief Operating Officer (from 1995 to
1997) of Xxxxx X. Xxxxxx & Company, Inc., an
investment advisor; Senior Vice President and
director (from 1995 to 1997) of Potomac Babson Inc.,
an investment advisor subsidiary of Xxxxx X. Xxxxxx
& Company, Inc.; Senior Vice President (from 1995 to
1997) and director (from 1995 to 1999) of DBL
Acquisition Corporation, a holding company for
investment advisers; a director (from 1989 to 1998)
of Emerald Isle Bancorp and Hibernia Savings Bank,
wholly-owned subsidiary of Emerald Isle Bancorp; and
Chief Operating Officer (from 1993 to 1996) of
Concert Capital Management, Inc., an investment
advisor. Director/trustee/manager of 62 investment
companies in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- ------------------
Officers of the Fund
----------------------------------------------- ----------------------------------------------------------------------
Name, Address,10 Age, Position(s) Held with Principal Occupation(s) During Past 5 Years
Fund and Length of Time Served11
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxx, Treasurer, Principal Senior Vice President and Treasurer (since March 1999) of the
Financial and Accounting Officer since Manager; Treasurer (since March 1999) of HarbourView Asset
February 2002 Management Corporation, Shareholder Services, Inc., Xxxxxxxxxxx Real
Age: 42 Asset Management Corporation, Shareholder Financial Services, Inc.
and Xxxxxxxxxxx Partnership Holdings, Inc., of OFI Private
Investments, Inc. (since March 2000) and of OppenheimerFunds
International Ltd. and Xxxxxxxxxxx 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).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxx, Assistant Treasurer Vice President of the Manager/Mutual Fund Accounting (since May
since February 2002 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 Senior Vice President (since May 1985) and Acting General Counsel
since February 2002 (since November 2001) of the Manager; Assistant Secretary of
Age: 53 Shareholder Services, Inc. (since May 1985), Shareholder Financial
Services, Inc. (since November 1989); OppenheimerFunds International
Ltd. and Xxxxxxxxxxx Millennium Funds plc (since October 1997); an
officer of other Xxxxxxxxxxx funds.
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxx X. Xxx, Assistant Secretary Assistant Vice President and Assistant Counsel of the Manager (since
since February 2002 December 2000); Formerly an attorney and Assistant Secretary of Van
Age: 31 Xxx Global (until December 2000).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxxxxxx X. Xxxx, Assistant Secretary Vice President and Senior Counsel of the Manager (since July 1999);
since February 2002 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 February 2002 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 and one Trustee of the Fund (Xx. Xxxxxx) who are affiliated with the
Manager receive no salary or fee from the Fund. The remaining Trustees will receive the estimated compensation shown below during the
Fund's fiscal year ending April 30, 2003. As of the date of this Statement of Additional Information the Fund has paid no
compensation to the Trustees because the Fund is a new fund with no prior operations.
|X| Major Shareholders. As of the date of this Statement of Additional Information, OppenheimerFunds, Inc. was the only
shareholder of record of the Fund.
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 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 handles its day-to-day business, and the agreement
permits the Manager to enter into sub-advisory agreements with other registered investment advisors to obtain specialized services
for the Fund, as long as the Fund is not obligated to pay any additional fees for those services. The Manager has retained the
Sub-Advisor pursuant to a separate Sub-Advisory Agreement, described below, under which the Sub-Advisor buys and sells portfolio
securities for the Fund. The portfolio manager of the Fund is employed by the Sub-Advisor and is the person who is principally
responsible for the day-to-day management of the Fund's portfolio.
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 net 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.
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.
|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.
For the initial approval of the Fund's investment advisory agreement and the Sub-Advisory Agreement in February 2002, the
Board reviewed the foregoing information. In addition, the Board considered, with its independent counsel:
o The nature, cost, and quality of the services provided to the Fund and its shareholders by the Manager and the Sub-Advisor,
respectively;
o The profitability of the Fund to the Manager and the Sub-Advisor;
o The investment performance of the Fund in comparison to regular market indices;
o Economies of scale that may be available to the Fund from the Manager and the Sub-Advisor;
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
Sub-Advisor; and
o The direct and indirect benefits the Manager and the Sub-Advisor receives from their relationship with the Fund. These
include services provided by the General Distributor and the Transfer Agent, and brokerage and soft dollar
arrangements permissible under Section 28(e) of the Securities Exchange Act.
The Board considered that the Manager 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.
The Sub-Advisor. The Sub Advisor is a wholly owned subsidiary of Massachusetts Mutual Life Insurance Company ("MassMutual"), the
parent company of the Manager.
|X| The Sub-Advisory Agreement. Under the Sub-Advisory Agreement between the Manager and the Sub-Advisor, the Sub-Advisor shall
regularly provide investment advice with respect to the Fund and invest and reinvest cash, securities and the property comprising the
assets of the Fund. The Sub-Advisor also agrees to provide assistance in the distribution and marketing of the Fund.
Under the Sub-Advisory Agreement, the Manager pays the Sub-Advisor an annual fee in monthly installments, based on the
average daily net assets of the Fund. The fee paid to the Sub-Advisor under the Sub-Advisory agreement is paid by the Manager, not by
the Fund. The Advisor will pay the Sub-Advisor a fee equal to 40% of the investment management fee collected by the Advisor from the
Fund, which shall be calculated after any investment management fee waivers (voluntary or otherwise). Notwithstanding the foregoing,
if the Advisor, without the Sub-Advisor's concurrence, agrees to voluntarily waive a portion of the investment management fee the
Fund is required to pay to the Advisor, the Sub-Advisor's fee hereunder shall be based upon the investment management fee the Fund
would have to pay exclusive of any such waiver agreed to by the Advisor in its sole discretion."
The Sub-Advisory Agreement states that in the absence of willful misfeasance, bad faith, negligence or reckless disregard of
its duties or obligations, the Sub-Advisor shall not be liable to the Manager for any act or omission in the course of or connected
with rendering services under the Sub-Advisory Agreement or for any losses that may be sustained in the purchase, holding or sale of
any security.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement and the Sub-Advisory Agreement. One of the duties of the Sub-Advisor under
the Sub-Advisory Agreement is to arrange the portfolio transactions for the Fund. The Fund's investment advisory agreement with the
Manager and the Sub-Advisory Agreement between the Manager and the Sub-Advisor contain provisions relating to the employment of
broker-dealers to effect the Fund's portfolio transactions. The Manager and the Sub-Advisor are authorized to employ broker-dealers,
including "affiliated" brokers, as that term is defined in the Investment Company Act. They may employ broker-dealers that, in their
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. "Among other things, "best execution" means prompt and reliable execution at the
most favorable price obtainable. The Manager and Sub-Advisor need not seek competitive commission bidding. However, they are expected
to be aware of the current rates of eligible brokers and to minimize the commissions paid to the extent consistent with the interests
and policies of the Fund as established by the Board of Trustees.
The Manager and the Sub-Advisor may select brokers (other than affiliates) that provide brokerage and/or research services
for the Fund and/or the other accounts over which the Manager, the Sub-Advisor or their respective affiliates have investment
discretion. The commissions paid to such brokers may be higher than another qualified broker would charge, if the Manager or
Sub-Advisor, as applicable, makes a good faith determination that the 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 and
the Sub-Advisor may also consider sales of shares of the Fund and other investment companies for which the Manager or an affiliate
serves as investment advisor.
The Sub-Advisory Agreement permits the Sub-Advisor to enter into "soft-dollar" arrangements through the agency of third
parties to obtain services for the Fund. Pursuant to these arrangements, the Sub-Advisor will undertake to place brokerage business
with broker-dealers who pay third parties that provide services. Any such "soft-dollar" arrangements will be made in accordance with
policies adopted by the Board of the Trust and in compliance with applicable law.
Brokerage Practices Followed by the Sub-Advisor. The Sub-Advisor allocates brokerage for the Fund subject to the provisions of the
Sub-Advisory Agreement and the procedures and rules described above. Generally, the Sub-Advisor's portfolio traders allocate
brokerage based upon best execution and recommendations from research. In certain instances, the portfolio manager may directly
place trades and allocate brokerage. In either case, the Sub-Advisor's executive officers supervise the allocation of brokerage.
Transactions in securities other than those for which an exchange is the primary market are generally done with principals
or market makers. In transactions on foreign exchanges, the Fund may be required to pay fixed brokerage commissions and therefore
would not have the benefit of negotiated commissions available in U.S. markets. Brokerage commissions are paid primarily for
transactions in listed securities or for certain fixed-income agency transactions in the secondary market. Otherwise brokerage
commissions are paid only if it appears likely that a better price or execution can be obtained by doing so. 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 managed by the Sub-Advisor 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 managed by the Sub-Advisor 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.
The Sub-Advisor serves as investment manager to MassMutual, and may in the future act as investment manager to others. It is
the practice of the Sub-Advisor to allocate purchase or sale transactions among the Fund and other clients whose assets it manages in
a manner it deems equitable. If such securities are purchased for the clients at or about the same time, such purchases normally
will be combined to the extent practicable, and will be allocated as nearly as practicable on a pro rata basis in proportion to the
amounts to be purchased for each. In determining the amounts to be purchased, the Sub-Advisor considers several main factors,
including the respective investment objectives, the relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment, the size of investment commitments generally held and the opinions of the persons responsible
for managing the portfolios of the Fund and other client's accounts.
When orders to purchase or sell the same security on identical terms are placed by more than one of the funds and/or other
advisory accounts managed by the Sub-Advisor or its affiliates, the transactions are generally executed as received, although a fund
or advisory account that does not direct trades to a specific broker (these are called "free trades") usually will have its order
executed first. Orders placed by accounts that direct trades to a specific broker will generally be executed after the free trades.
All orders placed on behalf of the Fund are considered free trades. However, having an order placed first in the market does not
necessarily guarantee the most favorable price. Purchases are combined where possible for the purpose of negotiating brokerage
concessions. In some cases that practice might have a detrimental effect on the price or volume of the security in a particular
transaction for the Fund.
Most purchases of debt obligations are principal transactions at net prices. Instead of using a broker for those
transactions, the Fund normally deals directly with the selling or purchasing principal or market maker unless the Sub-Advisor
determines that a better price or execution can be obtained by using the services of a broker. Purchases of portfolio securities from
underwriters include a commission or concession paid by the issuer to the underwriter. Purchases from dealers include a spread
between the bid and asked prices. The Fund seeks to obtain prompt execution of these orders at the most favorable net price.
The investment advisory agreement and the Sub-Advisory Agreement permit the Manager and the Sub-Advisor to allocate
brokerage for research services. The research services provided by a particular broker may be useful only to one or more of the
advisory accounts of the Sub-Advisor and its affiliates. The investment research received for the commissions of those other accounts
may be useful both to the Fund and one or more of the Sub-Advisor's other accounts. Investment research may be supplied to the
Sub-Advisor by a third party at the instance of a broker through which trades are placed.
Investment research services include information and analysis on particular companies and industries as well as market or
economic trends and portfolio strategy, market quotations for portfolio evaluations, information systems, computer hardware and
similar products and services. If a research service also assists the Sub-Advisor in a non-research capacity (such as bookkeeping or
other administrative functions), then only the percentage or component that provides assistance to the Sub-Advisor in the investment
decision-making process may be paid in commission dollars.
The Board of Trustees permits the Sub-Advisor to use stated commissions on secondary fixed-income agency trades to obtain
research if the broker represents to the Sub-Advisor 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 Sub-Advisor to use commissions 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 Sub-Advisor.
That research provides additional views and comparisons for consideration, and helps the Sub-Advisor to obtain market information for
the valuation of securities that are either held in the Fund's portfolio or are being considered for purchase. The Sub-Advisor
provides information to the Manager and the Board about the commissions paid to brokers furnishing such services, together with the
Sub-Advisor's representation that the amount of such commissions was reasonably related to the value or benefit of such services.
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 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. Expenses normally attributable to sales are borne by the
Distributor.
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 Trustees12, cast in
person at a meeting called for the purpose of voting on that plan. Each plan has also been approved by the holders of a "majority"
(as defined in the Investment Company Act) of the shares of the applicable class. The shareholder votes for the plans were cast by
the Manager as the sole initial holder 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. The Manager may use its profits from the advisory fee it
receives from the Fund. In their sole discretion, the Distributor and the Manager may increase or decrease the amount of payments
they make from their own resources to plan recipients.
Unless a plan is terminated as described below, the plan continues in effect from year to year but only if the Fund's Board
of Trustees and its Independent Trustees specifically vote annually to approve its continuance. Approval must be by a vote cast in
person at a meeting called for the purpose of voting on continuing the plan. A plan may be terminated at any time by the vote of a
majority of the Independent Trustees or by the vote of the holders of a "majority" (as defined in the Investment Company Act) of the
outstanding shares of that class.
The Board of Trustees and the Independent Trustees must approve all material amendments to a plan. An amendment to increase
materially the amount of payments to be made under a plan must be approved by shareholders of the class affected by the amendment.
Because Class B shares of the Fund automatically convert into Class A shares after six years, the Fund must obtain the approval of
both Class A and Class B shareholders for a proposed material amendment to the Class A Plan that would materially increase payments
under the Plan. That approval must be by a "majority" (as defined in the Investment Company Act) of the shares of each Class, voting
separately by class.
While the Plans are in effect, the Treasurer of the Fund shall provide separate written reports on the plans to the Board of
Trustees at least quarterly for its review. The Reports shall detail the amount of all payments made under a plan, the purpose for
which the payments were made and the identity of each recipient of a payment. The reports on the Class B Plan and Class C Plan shall
also include the Distributor's distribution costs for that quarter and in the case of the Class B plan the amount of those costs for
previous fiscal periods that have been carried forward. 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.
|X| Class B, Class C and Class N Service and Distribution Plan Fees. Under each plan, service fees and distribution fees are
computed on the average of the net asset value of shares in the respective class, determined as of the close of each regular business
day during the period. The 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 asset based sales charge and service fees increase Class B and Class C expenses by 1.00% and increase Class N expenses
by 0.50% of the net assets per year of the respective class.
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 on Class C and
Class N to the dealer quarterly in lieu of paying the sales concessions and service fee in advance at the time of purchase. 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 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,
o may not be able to adequately compensate dealers that sell Class B, Class C and Class N shares without receiving payment
under the plans and therefore may not be able to offer such Classes for sale absent the plans,
o receives payments under the plans consistent with the service fees and asset-based sales charges paid by other
non-proprietary funds that 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.
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. For periods of less than one year, the
Fund may quote its performance on a non-annualized basis. You can obtain current performance information by calling the Fund's
Transfer Agent at 0.000.000.0000.
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:
o 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.
o The Fund's performance returns do not reflect the effect of taxes on dividends and capital gains distributions.
o An investment in the Fund is not insured by the FDIC or any other government agency.
o The principal value of the Fund's shares and total returns are not guaranteed and normally will fluctuate on a daily basis.
o When an investor's shares are redeemed, they may be worth more or less than their original cost.
o 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, 10 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 the 1.0% contingent deferred sales charge is deducted for returns for the one year period. For
Class N shares, the 1.0% contingent deferred sales charge is deducted for returns for the one-year and life-of-class periods as
applicable. There is no sales charge for 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:
[OBJECT OMITTED]
|_| 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:
[OBJECT OMITTED]
|_| 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.
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"). Lipper is a widely-recognized independent mutual fund monitoring service. Lipper monitors the performance of
regulated investment companies, including the Fund, and ranks their performance for various periods based on categories relating to
investment styles. The Fund expects to be ranked in the large cap growth category. 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., 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 expects to be 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
ratings. Those total return rankings are percentages from one percent to one hundred percent and are not risk adjusted. For example,
if a fund is in the 94th percentile, that means that 94% of the funds in the same category performed better than it did.
|X| Performance Rankings and Comparisons by Other Entities and Publications. From time to time the Fund may include in its
advertisements and sales literature performance information about the Fund cited in newspapers and other periodicals such as The New
York Times, The Wall Street Journal, Xxxxxx'x, or similar publications. That information may include performance quotations from
other sources, including Lipper and Morningstar. The performance of the Fund's classes of shares may be compared in publications to
the performance of various market indices or other investments, and averages, performance rankings or other benchmarks prepared by
recognized mutual fund statistical services.
Investors may also wish to compare the returns on the Fund's share classes to the return on fixed-income investments
available from banks and thrift institutions. Those include certificates of deposit, ordinary interest-paying checking and savings
accounts, and other forms of fixed or variable time deposits, and various other instruments such as Treasury bills. However, the
Fund's returns and share price are not guaranteed or insured by the FDIC or any other agency and will fluctuate daily, while bank
depository obligations may be insured by the FDIC and may provide fixed rates of return. Repayment of principal and payment of
interest on Treasury securities is backed by the full faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager or Transfer Agent, and of the investor services
provided by them to shareholders of the Xxxxxxxxxxx funds, other than performance rankings of the Xxxxxxxxxxx funds themselves. Those
ratings or rankings of shareholder and investor services by third parties may include comparisons of their services to those provided
by other mutual fund families selected by the rating or ranking services. They may be based upon the opinions of the rating or
ranking service itself, using its research or judgment, or based upon surveys of investors, brokers, shareholders or others.
From time to time, the Fund may include in its advertisements and sales literature the total return performance of a hypothetical
investment account that includes shares of the Fund and other Xxxxxxxxxxx funds. The combined account may be part of an illustration
of an asset allocation model or similar presentation. The account performance may combine total return performance of the Fund and
the total return performance of other Xxxxxxxxxxx funds included in the account. Additionally, from time to time, the Fund's
advertisements and sales literature may include, for illustrative or comparative purposes, statistical data or other information
about general or specific market and economic conditions. That may include, for example,
o information about the performance of certain securities or commodities markets or segments of those markets,
o information about the performance of the economies of particular countries or regions,
o the earnings of companies included in segments of particular industries, sectors, securities markets, countries or regions,
o the availability of different types of securities or offerings of securities,
o information relating to the gross national or gross domestic product of the United States or other countries or regions,
o comparisons of various market sectors or indices to demonstrate performance, risk, or other characteristics of the Fund.
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A B O U T Y O U R A C C O U N T
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How to Buy Shares
Additional information is presented below about the methods that can be used to buy shares of the Fund. Appendix B 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 $5,000. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the Automated Clearing House ("ACH") transfer to buy the shares. That
instruction must be received prior to the close of The New York Stock Exchange that day. Dividends will begin to accrue on shares
purchased with the proceeds of ACH transfers on the business day after the shares are purchased. The Exchange normally closes at 4:00
P.M., but may close earlier on certain days. The proceeds of ACH transfers are normally received by the Fund three days after the
transfers are initiated. If the proceeds of the ACH transfer are not received on a timely basis, the Distributor reserves the right
to cancel the purchase order. The Distributor and the Fund are not responsible for any delays in purchasing shares resulting from
delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of sales efforts and reduction in expenses realized by the Distributor,
dealers and brokers making such sales. No sales charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates that apply to larger purchases of Class A shares, you
and your spouse can add together:
o Class A and Class B shares you purchase for your individual accounts (including IRAs and 403(b) plans), or for your joint
accounts, or for trust or custodial accounts on behalf of your children who are minors, and
o Current purchases of Class A and Class B shares of the Fund and other Xxxxxxxxxxx funds to reduce the sales charge rate that
applies to current purchases of Class A shares, and
o Class A and Class B shares of Xxxxxxxxxxx funds you previously purchased subject to an initial or contingent deferred sales
charge to reduce the sales charge rate for current purchases of Class A shares, provided that you still hold your
investment in one of the Xxxxxxxxxxx funds.
A fiduciary can count all shares purchased for a trust, estate or other fiduciary account (including one or more employee
benefit plans of the same employer) that has multiple accounts. The Distributor will add the value, at current offering price, of the
shares you previously purchased and currently own to the value of current purchases to determine the sales charge rate that applies.
The reduced sales charge will apply only to current purchases. You must request it when you buy shares.
|X| The Xxxxxxxxxxx Funds. The Xxxxxxxxxxx funds are those mutual funds for which the Distributor acts as the distributor or
the sub-distributor and currently include the following:
Xxxxxxxxxxx Bond Fund Xxxxxxxxxxx Municipal Bond Fund
Xxxxxxxxxxx California Municipal Fund Xxxxxxxxxxx New York Municipal Fund
Xxxxxxxxxxx Capital Appreciation Fund Xxxxxxxxxxx New Jersey Municipal Fund
Xxxxxxxxxxx Capital Preservation Fund Xxxxxxxxxxx Pennsylvania Municipal Fund
Xxxxxxxxxxx Capital Income Fund Xxxxxxxxxxx Quest Balanced Value Fund
Xxxxxxxxxxx Champion Income Fund Xxxxxxxxxxx Quest Capital Value Fund, Inc.
Xxxxxxxxxxx Concentrated Growth Fund Xxxxxxxxxxx Quest Global Value Fund, Inc.
Xxxxxxxxxxx Convertible Securities Fund Xxxxxxxxxxx Quest Opportunity Value Fund
Xxxxxxxxxxx Developing Markets Fund Xxxxxxxxxxx Quest Value Fund, Inc.
Xxxxxxxxxxx Disciplined Allocation Fund Xxxxxxxxxxx Real Asset Fund
Xxxxxxxxxxx Discovery Fund Xxxxxxxxxxx Real Estate Fund
Xxxxxxxxxxx Emerging Growth Fund Xxxxxxxxxxx Rochester National Municipals
Xxxxxxxxxxx Emerging Technologies Fund Xxxxxxxxxxx Senior Floating Rate Fund
Xxxxxxxxxxx Enterprise Fund Xxxxxxxxxxx Small Cap Value Fund
Xxxxxxxxxxx Europe Fund Xxxxxxxxxxx Special Value Fund
Xxxxxxxxxxx Global Fund Xxxxxxxxxxx Strategic Income Fund
Xxxxxxxxxxx Global Growth & Income Fund Xxxxxxxxxxx Total Return Fund, Inc.
Xxxxxxxxxxx Gold & Special Minerals Fund Xxxxxxxxxxx Trinity Core Fund
Xxxxxxxxxxx Growth Fund Xxxxxxxxxxx Trinity Large Cap Growth Fund
Xxxxxxxxxxx High Yield Fund Xxxxxxxxxxx Trinity Value Fund
Xxxxxxxxxxx Intermediate Municipal Fund Xxxxxxxxxxx U.S. Government Trust
Xxxxxxxxxxx International Bond Fund Xxxxxxxxxxx Value Fund
Xxxxxxxxxxx International Growth Fund Limited-Term New York Municipal Fund
Xxxxxxxxxxx International Small Company Fund Rochester Fund Municipals
Xxxxxxxxxxx Limited-Term Government Fund OSM1- Gartmore Millennium Growth Fund II
Xxxxxxxxxxx Main Street Growth & Income Fund OSM1 - Xxxxxxxx Growth Fund
Xxxxxxxxxxx Main Street Opportunity Fund OSM1 - Mercury Advisors S&P 500 Index
Xxxxxxxxxxx Main Street Small Cap Fund OSM1 - Mercury Advisors Focus Growth Fund
Xxxxxxxxxxx XxxXxx Fund OSM1 - QM Active Balanced Fund
Xxxxxxxxxxx Multiple Strategies Fund OSM1 - Salomon Brothers Capital Fund
And the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Xxxxxxxxxxx Cash Reserves
Centennial Money Market Trust Xxxxxxxxxxx Money Market Fund, Inc.
1 - "OSM" stands for Xxxxxxxxxxx Select Managers
There is an initial sales charge on the purchase of Class A shares of each of the Xxxxxxxxxxx funds except the money market
funds. Under certain circumstances described in this Statement of Additional Information, redemption proceeds of certain money market
fund shares may be subject to a contingent deferred sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or Class A and Class B shares of the Fund and other
Xxxxxxxxxxx funds during a 13 month period, you can reduce the sales charge rate that applies to your purchases of Class A shares.
The total amount of your intended purchases of both Class A and Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. You can include purchases made up to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the Distributor of the intention to purchase Class A shares or
Class A and Class B shares of the Fund (and other Xxxxxxxxxxx funds) during a 13 month period (the "Letter of Intent period"). At the
investor's request, this may include purchases made up to 90 days prior to the date of the Letter. The Letter states the investor's
intention to make the aggregate amount of purchases of shares which, when added to the investor's holdings of shares of those funds,
will equal or exceed the amount specified in the Letter. Purchases made by reinvestment of dividends or distributions of capital
gains and purchases made at net asset value without sales charge do not count toward satisfying the amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares purchased under the Letter to obtain the reduced sales
charge rate on purchases of Class A shares of the Fund (and other Xxxxxxxxxxx funds) that applies under the Right of Accumulation to
current purchases of Class A shares. Each purchase of Class A shares under the Letter will be made at the offering price (including
the sales charge) that applies to a single lump-sum purchase of shares in the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase shares. However, if the investor's purchases of shares
within the Letter of Intent period, when added to the value (at offering price) of the investor's holdings of shares on the last day
of that period, do not equal or exceed the intended purchase amount, the investor agrees to pay the additional amount of sales charge
applicable to such purchases. That amount is described in "Terms of Escrow," below (those terms may be amended by the Distributor
from time to time). The investor agrees that shares equal in value to 5% of the intended purchase amount will be held in escrow by
the Transfer Agent subject to the Terms of Escrow. Also, the investor agrees to be bound by the terms of the Prospectus, this
Statement of Additional Information and the Application used for a Letter of Intent. If those terms are amended, as they may be from
time to time by the Fund, the investor agrees to be bound by the amended terms and that those amendments will apply automatically to
existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do not equal or exceed the intended purchase amount,
the concessions 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 concessions allowed or paid to the dealer over the amount of concessions that
apply to the actual amount of purchases. The excess concessions 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 concessions paid to the broker-dealer or financial institution of record for accounts held in the name of that
plan.
In determining the total amount of purchases made under a Letter, shares redeemed by the investor prior to the termination
of the Letter of Intent period will be deducted. It is the responsibility of the dealer of record and/or the investor to advise the
Distributor about the Letter in placing any purchase orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
|X| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made pursuant to a Letter, shares of the Fund equal
in value up to 5% of the intended purchase amount specified in the Letter shall be held in escrow by the Transfer Agent. For example,
if the intended purchase amount is $50,000, the escrow shall be shares valued in the amount of $2,500 (computed at the offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions on the escrowed shares will be credited to the
investor's account.
2. If the total minimum investment specified under the Letter is completed within the 13-month Letter of Intent period,
the escrowed shares will be promptly released to the investor.
3. If, at the end of the 13 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 20 days after a request from the Distributor or the
dealer, the Distributor will, within 60 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) B shares of other Xxxxxxxxxxx funds acquired subject to a contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class A shares of one of the other Xxxxxxxxxxx funds that were
acquired subject to a Class A initial or contingent deferred sales charge or (2) Class B shares of one of the
other Xxxxxxxxxxx funds that were acquired subject to a contingent deferred sales charge.
6. 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.
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, Class N or Class Y
shares and the dividends payable on Class B, Class C, Class N or Class Y 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 shares 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.
|X| Class A Shares Subject to a Contingent Deferred Sales Charge. For purchases of Class A shares subject to a contingent
deferred sales charge as described in the Prospectus, no sales concessions will be paid to the broker-dealer of record, as described
in the Prospectus, on sales of Class A shares 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 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 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 C 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.
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 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 values 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 holidays) or after 4:00 P.M. on a regular business day. Because the Fund's net asset values will not be
calculated on those days, the Fund's net asset values per share may be significantly affected on such days when shareholders may not
purchase or redeem shares. Additionally, trading on European and Asian stock exchanges and over-the-counter markets normally is
completed before the close of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets as a result of events that occur after the prices
of those securities are determined, but before the close of The New York Stock Exchange, will not be reflected in the Fund's
calculation of its net asset values that day unless the Manager determines that the event is likely to effect a material change in
the value of the security. If such determination is made, the Manager, acting through an internal valuation committee, will establish
a valuation for such security subject to 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:
o 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 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.
o 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.
o 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.
o 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.
o 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.
o Securities (including restricted securities) not having readily-available market quotations are valued at fair value
determined under the Board's procedures. If the Manager is unable to locate two market makers willing to give quotes, a
security may be priced at the mean between the "bid" and "asked" prices provided by a single active market maker (which in
certain cases may be the "bid" price if no "asked" price is available).
In the case of U.S. government securities, mortgage-backed securities, corporate bonds and foreign government securities,
when last sale information is not generally available, the Manager may use pricing services approved by the Board of Trustees. The
pricing service may use "matrix" comparisons to the prices for comparable instruments on the basis of quality, yield, and maturity.
Other special factors may be involved (such as the tax-exempt status of the interest paid by municipal securities). The Manager will
monitor the accuracy of the pricing services. That monitoring may include comparing prices used for portfolio valuation to actual
sales prices of selected securities.
The closing prices in the London foreign exchange market on a particular business day that are provided to the Manager by a
bank, dealer or pricing service that the Manager has determined to be reliable are used to value foreign currency, including forward
contracts, and to convert to U.S. dollars securities that are denominated in foreign currency.
Puts, calls, and futures are valued at the last sale price on the principal exchange on which they are traded or on NASDAQ,
as applicable, as determined by a pricing service approved by the Board of Trustees or by the Manager. If there were no sales that
day, they shall be valued at the last sale price on the preceding trading day if it is within the spread of the closing "bid" and
"asked" prices on the principal exchange or on NASDAQ on the valuation date. If not, the value shall be the closing bid price on the
principal exchange or on NASDAQ on the valuation date. If the put, call or future is not traded on an exchange or on NASDAQ, it shall
be valued by the mean between "bid" and "asked" prices obtained by the Manager from two active market makers. In certain cases that
may be at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium received is included in the Fund's Statement of Assets and
Liabilities as an asset. An equivalent credit is included in the liability section. The credit is adjusted ("marked-to-market") to
reflect the current market value of the option. In determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or put written by the Fund expires, the Fund has a gain
in the amount of the premium. If the Fund enters into a closing purchase transaction, it will have a gain or loss, depending on
whether the premium received was more or less than the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by the amount of premium paid by the Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming shares set forth in the Prospectus.
Reinvestment Privilege. Within six months of a redemption, a shareholder may reinvest all or part of the redemption proceeds of:
o Class A shares purchased subject to an initial sales charge or Class A shares on which a contingent deferred sales charge
was paid, or
o 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 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, 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 securities from the portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the Fund is obligated
to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any 90-day period for any one
shareholder. If shares are redeemed in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities
for cash. The Fund will value securities used to pay redemptions in kind using the same method the Fund uses to value its portfolio
securities described above under "Determination of Net Asset Values Per Share." That valuation will be made as of the time the
redemption price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of those shares is less than $500 or such lesser amount as the Board may fix. The Board will
not cause the involuntary redemption of shares in an account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises this right, it may also fix the requirements for any
notice to be given to the shareholders in question (not less than 30 days). The Board may alternatively set requirements for the
shareholder to increase the investment, or set other terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an event that triggers the payment of sales charges.
Therefore, shares are not subject to the payment of a contingent deferred sales charge of any class at the time of transfer to the
name of another person or entity. It does not matter whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When shares subject to a contingent deferred sales charge
are transferred, the transferred shares will remain subject to the contingent deferred sales charge. It will be calculated as if the
transferee shareholder had acquired the transferred shares in the same manner and at the same time as the transferring shareholder.
If less than all shares held in an account are transferred, and some but not all shares in the account would be subject to a
contingent deferred sales charge if redeemed at the time of transfer, the priorities described in the Prospectus under "How to Buy
Shares" for the imposition of the Class B, Class N or Class C 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.
o All of the Xxxxxxxxxxx funds currently offer Class A, B and C shares except Xxxxxxxxxxx Money Market Fund, Inc., Xxxxxxxxxxx
Real Estate Fund, Centennial Money Market Trust, Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New York
Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America Fund, L.P., which only offer Class A shares.
o Class B, Class C and Class N shares of Xxxxxxxxxxx Cash Reserves are generally available only by exchange from the same
class of shares of other Xxxxxxxxxxx funds or through OppenheimerFunds-sponsored 401(k) plans.
o Only certain Xxxxxxxxxxx funds currently offer Class Y shares. Class Y shares of Xxxxxxxxxxx Real Asset Fund may not be
exchanged for shares of any other fund.
o Only certain Xxxxxxxxxxx funds currently offer Class N shares, which are only offered to retirement plans as described in
the Prospectus. Class N shares can be exchanged only for Class N shares of other Xxxxxxxxxxx funds.
o Class M shares of Xxxxxxxxxxx Convertible Securities Fund may be exchanged only for Class A shares of other Xxxxxxxxxxx
funds. They may not be acquired by exchange of shares of any class of any other Xxxxxxxxxxx funds except Class A shares of
Xxxxxxxxxxx Money Market Fund or Xxxxxxxxxxx Cash Reserves acquired by exchange of Class M shares.
o Class X shares of Limited Term New York Municipal Fund can be exchanged only for Class B shares of other Xxxxxxxxxxx funds
and no exchanges may be made to Class X shares.
o Shares of Xxxxxxxxxxx Capital Preservation Fund may not be exchanged for shares of Xxxxxxxxxxx Money Market Fund, Inc.,
Xxxxxxxxxxx Cash Reserves or Xxxxxxxxxxx Limited-Term Government Fund. Only participants in certain retirement plans may
purchase shares of Xxxxxxxxxxx Capital Preservation Fund, and only those participants may exchange shares of other Xxxxxxxxxxx
funds for shares of Xxxxxxxxxxx Capital Preservation Fund.
o Class A shares of Xxxxxxxxxxx Senior Floating Rate Fund are not available by exchange of shares of Xxxxxxxxxxx Money Market
Fund or Class A shares of Xxxxxxxxxxx Cash Reserves. If any Class A shares of another Xxxxxxxxxxx fund that are exchanged for
Class A shares of Xxxxxxxxxxx Senior Floating Rate Fund are subject to the Class A contingent deferred sales charge of the other
Xxxxxxxxxxx fund at the time of exchange, the holding period for that Class A contingent deferred sales charge will carry over to
the Class A shares of Xxxxxxxxxxx Senior Floating Rate Fund acquired in the exchange. The Class A shares of Xxxxxxxxxxx Senior
Floating Rate Fund acquired in that exchange will be subject to the Class A Early Withdrawal Charge of Xxxxxxxxxxx Senior
Floating Rate Fund if they are repurchased before the expiration of the holding period.
o Class A, Class B, Class C and Class Y Shares of Xxxxxxxxxxx Select Managers Mercury Advisors S&P Index Fund and Xxxxxxxxxxx
Select Managers QM Active Balanced Fund are only available to retirement plans and are available only by exchange from the same
class of shares of other Xxxxxxxxxxx funds held by retirement plans.
o 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.
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.
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.
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.
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, subject to applicable required notice as described above. 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 Automatic
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
Tax Status of the Fund's Dividends, Distributions and Redemptions of Shares. The federal tax treatment of the Fund's dividends and
capital gains distributions is briefly highlighted in the Prospectus. The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders.
The tax discussion in the Prospectus and this Statement of Additional Information is based on tax law in effect on the date
of the Prospectus and this Statement of Additional Information. Those laws and regulations may be changed by legislative, judicial,
or administrative action, sometimes with retroactive effect. State and local tax treatment of ordinary income dividends and capital
gain dividends from regulated investment companies may differ from the treatment under the Internal Revenue Code described below.
Potential purchasers of shares of the Fund are urged to consult their tax advisers with specific reference to their own tax
circumstances as well as the consequences of federal, state and local tax rules affecting an investment in the Fund.
|X| Qualification as a Regulated Investment Company. The Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. As a regulated investment company, the Fund is not subject to
federal income tax on the portion of its investment company taxable income (that is, taxable interest, dividends, other taxable
ordinary income net of expenses and net short-term capital gain in excess of long-term capital loss) and capital gain net income
(that is, the excess of net long-term capital gains over net short-term capital losses) that it distributes to shareholders. That
qualification enables the Fund to "pass through" its income and realized capital gains to shareholders without having to pay tax on
them. This avoids a "double tax" on that income and capital gains, since shareholders normally will be taxed on the dividends and
capital gains they receive from the Fund (unless their Fund shares are held in a retirement account or the shareholder is otherwise
exempt from tax). The Internal Revenue Code contains a number of complex tests relating to qualification that the Fund might not meet
in a particular year. If it did not qualify as a regulated investment company, the Fund would be treated for tax purposes as an
ordinary corporation and would receive no tax deduction for payments made to shareholders.
To qualify as a regulated investment company, the Fund must distribute at least 90% of its investment company taxable income
(in brief, net investment income and the excess of net short-term capital gain over net long-term capital loss) for the taxable year.
The Fund must also satisfy certain other requirements of the Internal Revenue Code, some of which are described below. Distributions
by the Fund made during the taxable year or, under specified circumstances, within twelve months after the close of the taxable year,
will be considered distributions of income and gains for the taxable year and will therefore count toward satisfaction of the
above-mentioned requirement.
To qualify as a regulated investment company, the Fund must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business
of investing in stock or securities) and certain other income.
In addition to satisfying the requirements described above, the Fund must satisfy an asset diversification test in order to
qualify as a regulated investment company. Under that test, at the close of each quarter of the Fund's taxable year, at least 50% of
the value of the Fund's assets must consist of cash and cash items, U.S. government securities, securities of other regulated
investment companies, and securities of other issuers. As to each of those issuers, the Fund must not have invested more than 5% of
the value of the Fund's total assets in securities of each such issuer and the Fund must not hold more than 10% of the outstanding
voting securities of each such issuer. No more than 25% of the value of its total assets may be invested in the securities of any one
issuer (other than U.S. government securities and securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are engaged in the same or similar trades or businesses. For purposes of this test, obligations
issued or guaranteed by certain agencies or instrumentalities of the U.S. government are treated as U.S. government securities.
|X| Excise Tax on Regulated Investment Companies. Under the Internal Revenue Code, by December 31 each year, the Fund
must distribute 98% of its taxable investment income earned from January 1 through December 31 of that year and 98% of its capital
gains realized in the period from November 1 of the prior year through October 31 of the current year. If it does not, the Fund must
pay an excise tax on the amounts not distributed. It is presently anticipated that the Fund will meet those requirements. To meet
this requirement, in certain circumstances the Fund might be required to liquidate portfolio investments to make sufficient
distributions to avoid excise tax liability. However, the Board of Trustees and the Manager might determine in a particular year that
it would be in the best interests of shareholders for the Fund not to make such distributions at the required levels and to pay the
excise tax on the undistributed amounts. That would reduce the amount of income or capital gains available for distribution to
shareholders.
|X| Taxation of Fund Distributions. The Fund anticipates distributing substantially all of its investment company taxable
income for each taxable year. Those distributions will be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes.
Special provisions of the Internal Revenue Code govern the eligibility of the Fund's dividends for the dividends-received
deduction for corporate shareholders. Long-term capital gains distributions are not eligible for the deduction. The amount of
dividends paid by the Fund that may qualify for the deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum period, usually 46 days. A corporate shareholder will
not be eligible for the deduction on dividends paid on Fund shares held for 45 days or less. To the extent the Fund's dividends are
derived from gross income from option premiums, interest income or short-term gains from the sale of securities or dividends from
foreign corporations, those dividends will not qualify for the deduction. Since it is anticipated that most of the Fund's income will
be derived from interest it receives on its investments, the Fund does not anticipate that its distributions will qualify for this
deduction.
The Fund may either retain or distribute to shareholders its net capital gain for each taxable year. The Fund currently
intends to distribute any such amounts. If net long term capital gains are distributed and designated as a capital gain
distribution, it will be taxable to shareholders as long-term capital gain. It does not matter how long the shareholder has held his
or her shares or whether that gain was recognized by the Fund before the shareholder acquired his or her shares.
If the Fund elects to retain its net capital gain, the Fund will be subject to tax on it at the 35% corporate tax rate. If
the Fund elects to retain its net capital gain, it is expected that the Fund also will elect to have shareholders of record on the
last day of its taxable year treated as if each received a distribution of their pro rata share of such gain. As a result, each
shareholder will be required to report his or her pro rata share of such gain on their tax return as long-term capital gain, will
receive a refundable tax credit for his/her pro rata share of tax paid by the Fund on the gain, and will increase the tax basis for
his/her shares by an amount equal to the deemed distribution less the tax credit.
Investment income that may be received by the Fund from sources within foreign countries may be subject to foreign taxes
withheld at the source. The United States has entered into tax treaties with many foreign countries which entitle the Fund to a
reduced rate of, or exemption from, taxes on such income.
Distributions by the Fund that do not constitute ordinary income dividends or capital gain distributions will be treated as
a return of capital to the extent of the shareholder's tax basis in their shares. Any excess will be treated as gain from the sale of
those shares, as discussed below. Shareholders will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) during the year. If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the effect of the Fund's investment policies, they will be
identified as such in notices sent to shareholders.
Distributions by the Fund will be treated in the manner described above regardless of whether the distributions are paid in
cash or reinvested in additional shares of the Fund (or of another fund). Shareholders receiving a distribution in the form of
additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
The Fund will be required in certain cases to withhold and remit to the U.S. Treasury 31% of ordinary income dividends and
capital gains distributions and the proceeds of the redemption of shares, paid to any shareholder (1) who has failed to provide a
correct, certified taxpayer identification number, (2) who is subject to backup withholding for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the Fund that the shareholder is not subject to backup
withholding or is an "exempt recipient" (such as a corporation).
|X| Tax Effects of Redemptions of Shares. If a shareholder redeems all or a portion of his/her shares, the shareholder will
-
recognize a gain or loss on the redeemed shares in an amount equal to the difference between the proceeds of the redeemed shares and
the shareholder's adjusted tax basis in the shares. All or a portion of any loss recognized in that manner may be disallowed if the
shareholder purchases other shares of the Fund within 30 days before or after the redemption.
In general, any gain or loss arising from the redemption of shares of the Fund will be considered capital gain or loss, if
the shares were held as a capital asset. It will be long-term capital gain or loss if the shares were held for more than one year.
However, any capital loss arising from the redemption of shares held for six months or less will be treated as a long-term capital
loss to the extent of the amount of capital gain dividends received on those shares. Special holding period rules under the Internal
Revenue Code apply in this case to determine the holding period of shares and there are limits on the deductibility of capital losses
in any year.
|X| Foreign Shareholders. Taxation of a shareholder who under United States law is a nonresident alien individual, foreign
trust or estate, foreign corporation, or foreign partnership depends on whether the shareholder's income from the Fund is effectively
connected with a U.S. trade or business carried on by such shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or business carried on by a foreign shareholder,
ordinary income dividends paid to such foreign shareholder will be subject to U.S. withholding tax. The rate of the tax depends on a
number of factors. If the income from the Fund is effectively connected with a U.S. trade or business carried on by a foreign
shareholder, then ordinary income dividends, capital gain dividends, and any gains realized upon the sale of shares of the Fund will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations.
In the case of a foreign non-corporate shareholder, the Fund may be required to withhold U.S. federal income tax at a rate
of 31% on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless the shareholder
furnishes the Fund with proper notification of their foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different
from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund, including the applicability of foreign taxes.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to reinvest all dividends and/or capital gains
distributions in shares of the same class of any of the other Xxxxxxxxxxx funds listed above. Reinvestment will be made without sales
charge at the net asset value per share in effect at the close of business on the payable date of the dividend or distribution. To
elect this option, the shareholder must notify the Transfer Agent in writing and must have an existing account in the fund selected
for reinvestment. Otherwise the shareholder first must obtain a prospectus for that fund and an application from the Distributor to
establish an account. Dividends and/or distributions from shares of certain other Xxxxxxxxxxx funds (other than Xxxxxxxxxxx Cash
Reserves) may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other financial institutions that have a sales agreement
with OppenheimerFunds Distributor, Inc., a subsidiary of the Manager that acts as the Fund's Distributor. The Distributor also
distributes shares of the other Xxxxxxxxxxx funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a division of the Manager. It is responsible for
maintaining the Fund's shareholder registry and shareholder accounting records, and for paying dividends and distributions to
shareholders. It also handles shareholder servicing and administrative functions. 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. Citibank 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 Auditors. Ernst & Young LLP are the independent auditors of the Fund. They audit the Fund's financial statements and
perform other related audit services. They also act as auditors for certain other funds advised by the Manager and its affiliates.
Report of Independent Auditors
To the Shareholder and
Board of Trustees of
Xxxxxxxxxxx Real Estate Fund
We have audited the accompanying statement of assets and liabilities of Xxxxxxxxxxx Real Estate Fund (the "Fund") as of February 8,
2002. This statement of assets and liabilities is the responsibility of the Fund's management. Our responsibility is to express an
opinion on this statement of assets and liabilities based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
statement of assets and liabilities. An audit also includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall statement of assets and liabilities presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above presents fairly, in all material respects, the financial
position of Xxxxxxxxxxx Real Estate Fund at February 8, 2002, in conformity with accounting principles generally accepted in the
United States.
ERNST & YOUNG LLP
New York, New York
February 8, 2002
Xxxxxxxxxxx Real Estate Fund
Statement of Assets and Liabilities
February 8, 2002
ASSETS:
Cash $100,000
LIABILITIES: $0
------------------
Net Assets $100,000
--------
NET ASSETS - Applicable to 10,000 Class A shares
of no par value, unlimited shares authorized
of beneficial interest outstanding. $100,000
NET ASSET VALUE PER SHARE (net assets divided by
10,000 shares of beneficial interest for Class A.) $10.00
MAXIMUM OFFERING PRICE PER SHARE (net asset
value plus sales charge of 5.75% of offering price
for Class A shares). $10.61
Notes to Statement of Assets and Liabilities
Note 1. Organization
Xxxxxxxxxxx Real Estate Fund (the "Fund"), was organized as a business trust in the State of Massachusetts on November 27, 2001
as a non-diversified, open-end management investment company registered under the Investment Company Act of 1940, as amended.
The Fund has had no operations through February 8, 2002 other than those related to organizational matters and the sale and
issuance of 10,000 Class A Shares to OppenheimerFunds, Inc. (OFI or the "Adviser").
On February 12, 2002 the Fund's Board of Trustees (the "Board") approved an Investment Advisory Agreement with OFI and a
Distributor's Agreement with OppenheimerFunds Distributor, Inc. (OFDI). Cornerstone Real Estate Advisors, Inc. (the
"Subadviser), an affiliate of the Adviser, serves as the investment manager.
The Fund's investment objective is total return through investment in real estate securities.
Note 2. Significant Accounting Policies
OFI has assumed all organization costs which were estimated at $62,000.
The Fund's financial statements are prepared in conformity with accounting principles generally accepted in the United States
which may require the use of management estimates and assumptions. Actual results could differ from those estimates.
The Fund intends to comply in its initial fiscal year and thereafter with provisions of the Internal Revenue Code applicable to
regulated investment companies and as such, will not be subject to federal income taxes on otherwise taxable income (including
net realized capital gains) distributed to shareholders.
Note 3. Fees and Other Transactions with Affiliated
The Fund will pay the Adviser a monthly fee (the "Management Fee") at the annual rate of 0.75% of the Fund's first $200 million
of average annual net assets, 0.72% of the next $200 million, 0.69% of the next $200 million, 0.66% of net assets over $600
million, and 0.60% of average annual net assets in excess of $800 million.
The Adviser has retained the Subadvisor, Cornerstone Real Estate Advisers, Inc. to provide day-to-day portfolio management for
the Fund. The Sub-Advisor is a subsidiary of Massachusetts Mutual Life Insurance Company, the parent company of the advisor.
The Adviser pays the Sub-Adviser an annual fee under the Sub-Advisory Agreement between the Advisor and the Sub-Advisor.
OppenheimerFunds Services (OFS), a division of the Adviser, acts as the transfer and shareholder servicing agent for the Fund.
The Fund pays OFS an agreed upon per account fee.
A-1
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
B-11
Appendix B
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of Class A shares13 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.14 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 plans15
(4) Group Retirement Plans16
(5) 403(b)(7) custodial plan accounts
(6) Individual Retirement Accounts ("IRAs"), including traditional IRAs, Xxxx IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a special arrangement or waiver in a particular case is in the sole
discretion of the Distributor or the transfer agent (referred to in this document as the "Transfer Agent") of the particular
Xxxxxxxxxxx fund. These waivers and special arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the "Manager").
Waivers that apply at the time shares are redeemed must be requested by the shareholder and/or dealer in the redemption request.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Xxxxxxxxxxx Funds That Are Not Subject to Initial Sales Charge but May Be Subject to the Class A
Contingent Deferred Sales Charge (unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of the Xxxxxxxxxxx funds in the cases listed below.
However, these purchases may be subject to the Class A contingent deferred sales charge if redeemed within 18 months of the end of
the calendar month of their purchase, as described in the Prospectus (unless a waiver described elsewhere in this Appendix applies to
the redemption). Additionally, on shares purchased under these waivers that are subject to the Class A contingent deferred sales
charge, the Distributor will pay the applicable concession described in the Prospectus under "Class A Contingent Deferred Sales
Charge."17 This waiver provision applies to:
- Purchases of Class A shares aggregating $1 million or more.
- Purchases of Class A shares by a Retirement Plan that was permitted to purchase such shares at net asset value but subject
to a contingent deferred sales charge prior to March 1, 2001.
- Purchases by an OppenheimerFunds-sponsored Rollover XXX, if the purchases are made:
(1) through a broker, dealer, bank or registered investment adviser that has made special arrangements with the Distributor for
those purchases, or
(2) by a direct rollover of a distribution from a qualified Retirement Plan if the administrator of that Plan has made special
arrangements with the Distributor for those purchases.
- Purchases of Class A shares by Retirement Plans that have any of the following record-keeping arrangements:
(1) The record keeping is performed by Xxxxxxx Xxxxx Xxxxxx Xxxxxx & Xxxxx, Inc. ("Xxxxxxx Xxxxx") on a daily valuation basis
for the Retirement Plan. On the date the plan sponsor signs the record-keeping service agreement with Xxxxxxx Xxxxx, the
Plan must have $3 million or more of its assets invested in (a) mutual funds, other than those advised or managed by
Xxxxxxx Xxxxx Investment Management, L.P. ("MLIM"), that are made available under a Service Agreement between Xxxxxxx
Xxxxx and the mutual fund's principal underwriter or distributor, and (b) funds advised or managed by MLIM (the funds
described in (a) and (b) are referred to as "Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily valuation basis by a record keeper whose services are
provided under a contract or arrangement between the Retirement Plan and Xxxxxxx Xxxxx. On the date the plan sponsor
signs the record keeping service agreement with Xxxxxxx Xxxxx, the Plan must have $3 million or more of its assets
(excluding assets invested in money market funds) invested in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a service agreement with Xxxxxxx Xxxxx and on the date the plan
sponsor signs that agreement, the Plan has 500 or more eligible employees (as determined by the Xxxxxxx Xxxxx plan
conversion manager).
- Purchases by a Retirement Plan whose record keeper had a cost-allocation agreement with the Transfer Agent on or before
March 1, 2001.
II. Waivers of Class A Sales Charges of Xxxxxxxxxxx Funds
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain Purchasers.
Class A shares purchased by the following investors are not subject to any Class A sales charges (and no concessions are paid by the
Distributor on such purchases):
- The Manager or its affiliates.
- Present or former officers, directors, trustees and employees (and their "immediate families") of the Fund, the Manager and
its affiliates, and retirement plans established by them for their employees. The term "immediate family" refers to one's
spouse, children, grandchildren, grandparents, parents, parents-in-law, brothers and sisters, sons- and daughters-in-law, a
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 advisers that have entered into an agreement with the Distributor to sell
shares to defined contribution employee retirement plans for which the dealer, broker or investment adviser provides
administration services.
- Retirement Plans and deferred compensation plans and trusts used to fund those plans (including, for example, plans
qualified or created under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue Code), in each case if those
purchases are made through a broker, agent or other financial intermediary that has made special arrangements with the
Distributor for those purchases.
- A TRAC-2000 401(k) plan (sponsored by the former Quest for Value Advisors) whose Class B or Class C shares of a Former Quest
for Value Fund were exchanged for Class A shares of that Fund due to the termination of the Class B and Class C TRAC-2000
program on November 24, 1995.
- A qualified Retirement Plan that had agreed with the former Quest for Value Advisors to purchase shares of any of the Former
Quest for Value Funds at net asset value, with such shares to be held through DCXchange, a sub-transfer agency mutual fund
clearinghouse, if that arrangement was consummated and share purchases commenced by December 31, 1996.
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 concessions are paid by the
Distributor on such purchases):
- Shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the Fund is a
party.
- Shares purchased by the reinvestment of dividends or other distributions reinvested from the Fund or other Xxxxxxxxxxx funds
(other than Xxxxxxxxxxx Cash Reserves) or unit investment trusts for which reinvestment arrangements have been made with the
Distributor.
- Shares purchased through a broker-dealer that has entered into a special agreement with the Distributor to allow the
broker's customers to purchase and pay for shares of Xxxxxxxxxxx funds using the proceeds of shares redeemed in the prior 30
days from a mutual fund (other than a fund managed by the Manager or any of its subsidiaries) on which an initial sales
charge or contingent deferred sales charge was paid. This waiver also applies to shares purchased by exchange of shares of
Xxxxxxxxxxx Money Market Fund, Inc. that were purchased and paid for in this manner. This waiver must be requested when the
purchase order is placed for shares of the Fund, and the Distributor may require evidence of qualification for this waiver.
- Shares purchased with the proceeds of maturing principal units of any Qualified Unit Investment Liquid Trust Series.
- Shares purchased by the reinvestment of loan repayments by a participant in a Retirement Plan for which the Manager or an
affiliate acts as sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would otherwise be subject to the contingent deferred
sales charge are redeemed in the following cases:
- To make Automatic Withdrawal Plan payments that are limited annually to no more than 12% of the account value adjusted
annually.
- Involuntary redemptions of shares by operation of law or involuntary redemptions of small accounts (please refer to
"Shareholder Account Rules and Policies," in the applicable fund Prospectus).
- For distributions from Retirement Plans, deferred compensation plans or other employee benefit plans for any of the
following purposes:
(1) Following the death or disability (as defined in the Internal Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact.
(4) Hardship withdrawals, as defined in the plan.18
(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.19
(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.
- Distributions20 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.21
(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.22
(9) On account of the participant's separation from service.23
(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, except distributions made because of the
elimination of all of the Xxxxxxxxxxx funds as an investment option under the Plan.
(13) For distributions from a participant's account under an Automatic Withdrawal Plan after the participant reaches age 59 1/2, as
long as the aggregate value of the distributions does not exceed 10% of the account's value, adjusted annually.
(14) Redemptions of Class B shares under an Automatic Withdrawal Plan for an account other than a Retirement Plan, if the
aggregate value of the redeemed shares does not exceed 10% of the account's value, adjusted annually.
(15) For distributions from 401(k) plans sponsored by broker-dealers that have entered into a special arrangement with the
Distributor allowing this waiver.
- Redemptions of Class B shares or Class C shares under an Automatic Withdrawal Plan from an account other than a
Retirement Plan if the aggregate value of the redeemed shares does not exceed 10% of the account's value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C shares sold or issued in the following cases:
- Shares sold to the Manager or its affiliates.
- Shares sold to registered management investment companies or separate accounts of insurance companies having an agreement
with the Manager or the Distributor for that purpose.
- Shares issued in plans of reorganization to which the Fund is a party.
- Shares sold to present or former officers, directors, trustees or employees (and their "immediate families" as defined above
in Section I.A.) of the Fund, the Manager and its affiliates and retirement plans established by them for their
employees.
IV. Special Sales Charge Arrangements for Shareholders of 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 Small Cap Value Fund
Xxxxxxxxxxx Quest Balanced Value Fund Xxxxxxxxxxx Quest Global Value Fund, Inc.
Xxxxxxxxxxx Quest Opportunity Value Fund
These arrangements also apply to shareholders of the following funds when they merged (were reorganized) into various
Xxxxxxxxxxx funds on November 24, 1995:
Quest for Value U.S. Government Income Fund Quest for Value New York Tax-Exempt Fund
Quest for Value Investment Quality Income Fund Quest for Value National Tax-Exempt Fund
Quest for Value Global Income Fund Quest for Value California Tax-Exempt Fund
All of the funds listed above are referred to in this Appendix as the "Former Quest for Value Funds." The waivers of initial
and contingent deferred sales charges described in this Appendix apply to shares of an Xxxxxxxxxxx fund that are either:
- acquired by such shareholder pursuant to an exchange of shares of an Xxxxxxxxxxx fund that was one of the Former Quest for
Value Funds, or
- purchased by such shareholder by exchange of shares of another Xxxxxxxxxxx fund that were acquired pursuant to the merger
of any of the Former Quest for Value Funds into that other Xxxxxxxxxxx fund on November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
-- Reduced Class A Initial Sales Charge Rates for Certain Former Quest for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial sales charge rates for Class A shares purchased by
members of "Associations" formed for any purpose other than the purchase of securities. The rates in the table apply if that
Association purchased shares of any of the Former Quest for Value Funds or received a proposal to purchase such shares from OCC
Distributors prior to November 24, 1995.
------------------------------ ---------------------------- ---------------------------- ----------------------------
Number of Initial Sales Initial Sales Charge Concession
Eligible Employees Charge as a % as a % of Net as % of
or Members of Offering Price Amount Invested Offering Price
------------------------------ ---------------------------- ---------------------------- ----------------------------
------------------------------ ---------------------------- ---------------------------- ----------------------------
9 or Fewer 2.50% 2.56% 2.00%
------------------------------ ---------------------------- ---------------------------- ----------------------------
------------------------------ ---------------------------- ---------------------------- ----------------------------
At least 10 but not 2.00% 2.04% 1.60%
more than 49
------------------------------ ---------------------------- ---------------------------- ----------------------------
For purchases by Associations having 50 or more eligible employees or members, there is no initial sales charge on purchases
of Class A shares, but those shares are subject to the Class A contingent deferred sales charge described in the applicable fund's
Prospectus.
Purchases made under this arrangement qualify for the lower of either the sales charge rate in the table based on the number
of members of an Association, or the sales charge rate that applies under the Right of Accumulation described in the applicable
fund's Prospectus and Statement of Additional Information. Individuals who qualify under this arrangement for reduced sales charge
rates as members of Associations also may purchase shares for their individual or custodial accounts at these reduced sales charge
rates, upon request to the Distributor.
-- Waiver of Class A Sales Charges for Certain Shareholders. Class A shares purchased by the following investors are not
subject to any Class A initial or contingent deferred sales charges:
- Shareholders who were shareholders of the AMA Family of Funds on February 28, 1991 and who acquired shares of any of
the Former Quest for Value Funds by merger of a portfolio of the AMA Family of Funds.
- Shareholders who acquired shares of any Former Quest for Value Fund by merger of any of the portfolios of the
Unified Funds.
-- Waiver of Class A Contingent Deferred Sales Charge in Certain Transactions. The Class A contingent deferred sales charge
will not apply to redemptions of Class A shares purchased by the following investors who were shareholders of any Former Quest for
Value Fund:
Investors who purchased Class A shares from a dealer that is or was not permitted to receive a sales load or redemption fee
imposed on a shareholder with whom that dealer has a fiduciary relationship, under the Employee Retirement Income Security Act of
1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
-- Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C shares of an Xxxxxxxxxxx fund. The shares must have been
acquired by the merger of a Former Quest for Value Fund into the fund or by exchange from an Xxxxxxxxxxx fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been purchased prior to March 6, 1995 in connection with:
- withdrawals under an automatic withdrawal plan holding only either Class B or Class C shares if the annual
withdrawal does not exceed 10% of the initial value of the account value, adjusted annually, and
- liquidation of a shareholder's account if the aggregate net asset value of shares held in the account is less than
the required minimum value of such accounts.
-- Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but Prior to November 24, 1995. In the following
cases, the contingent deferred sales charge will be waived for redemptions of Class A, Class B or Class C shares of an Xxxxxxxxxxx
fund. The shares must have been acquired by the merger of a Former Quest for Value Fund into the fund or by exchange from an
Xxxxxxxxxxx fund that was a Former Quest For Value Fund or into which such Former Quest for Value Fund merged. Those shares must have
been purchased on or after March 6, 1995, but prior to November 24, 1995:
- redemptions following the death or disability of the shareholder(s) (as evidenced by a determination of total disability by
the U.S. Social Security Administration);
- withdrawals under an automatic withdrawal plan (but only for Class B or Class C shares) where the annual withdrawals do not
exceed 10% of the initial value of the account value; adjusted annually, and
- liquidation of a shareholder's account if the aggregate net asset value of shares held in the account is less than
the required minimum account value.
A shareholder's account will be credited with the amount of any contingent deferred sales charge paid on the redemption of
any Class A, Class B or Class C shares of the Xxxxxxxxxxx fund described in this section if the proceeds are invested in the same
Class of shares in that fund or another Xxxxxxxxxxx fund within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain Xxxxxxxxxxx Funds Who Were Shareholders of Connecticut Mutual
Investment Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A and Class B shares described in the respective
Prospectus (or this Appendix) of the following Xxxxxxxxxxx funds (each is referred to as a "Fund" in this section):
Xxxxxxxxxxx U. S. Government Trust,
Xxxxxxxxxxx Bond Fund,
Xxxxxxxxxxx Value Fund and
Xxxxxxxxxxx Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were shareholders of the following funds (referred to as the "Former
Connecticut Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the investment adviser to the Former Connecticut
Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return Account
Connecticut Mutual Government Securities Account CMIA LifeSpan Capital Appreciation Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
-- Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund and the other Former Connecticut Mutual Funds
are entitled to continue to make additional purchases of Class A shares at net asset value without a Class A initial sales charge,
but subject to the Class A contingent deferred sales charge that was in effect prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC, if any of those shares are redeemed within one year of purchase, they will be assessed a 1% contingent
deferred sales charge on an amount equal to the current market value or the original purchase price of the shares sold, whichever is
smaller (in such redemptions, any shares not subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are:
(1) persons whose purchases of Class A shares of a Fund and other Former Connecticut Mutual Funds were $500,000 prior to March
18, 1996, as a result of direct purchases or purchases pursuant to the Fund's policies on Combined Purchases or Rights
of Accumulation, who still hold those shares in that Fund or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered into prior to March 18, 1996, with the former
general distributor of the Former Connecticut Mutual Funds to purchase shares valued at $500,000 or more over a
13-month period entitled those persons to purchase shares at net asset value without being subject to the Class A
initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut Mutual Funds that were purchased at net asset value
prior to March 18, 1996, remain subject to the prior Class A CDSC, or if any additional shares are purchased by those shareholders at
net asset value pursuant to this arrangement they will be subject to the prior Class A CDSC.
-- Class A Sales Charge Waivers. Additional Class A shares of a Fund may be purchased without a sales charge, by a person
who was in one (or more) of the categories below and acquired Class A shares prior to March 18, 1996, and still holds Class A shares:
(1) any purchaser, provided the total initial amount invested in the Fund or any one or more of the Former Connecticut Mutual
Funds totaled $500,000 or more, including investments made pursuant to the Combined Purchases, Statement of Intention
and Rights of Accumulation features available at the time of the initial purchase and such investment is still held in
one or more of the Former Connecticut Mutual Funds or a Fund into which such Fund merged;
(2) any participant in a qualified plan, provided that the total initial amount invested by the plan in the Fund or any one or
more of the Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut Mutual Funds and members of their immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial Services, L.L.C. ("CMFS"), the prior distributor of the
Former Connecticut Mutual Funds, and its affiliated companies;
(5) one or more members of a group of at least 1,000 persons (and persons who are retirees from such group) engaged in a common
business, profession, civic or charitable endeavor or other activity, and the spouses and minor dependent children of
such persons, pursuant to a marketing program between CMFS and such group; and
(6) an institution acting as a fiduciary on behalf of an individual or individuals, if such institution was directly compensated
by the individual(s) for recommending the purchase of the shares of the Fund or any one or more of the Former
Connecticut Mutual Funds, provided the institution had an agreement with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be subject to the Class A CDSC of the Former Connecticut
Mutual Funds described above.
Additionally, Class A shares of a Fund may be purchased without a sales charge by any holder of a variable annuity contract
issued in New York State by Connecticut Mutual Life Insurance Company through the Panorama Separate Account which is beyond the
applicable surrender charge period and which was used to fund a qualified plan, if that holder exchanges the variable annuity
contract proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix, above, the contingent deferred sales charge will be
waived for redemptions of Class A and Class B shares of a Fund and exchanges of Class A or Class B shares of a Fund into Class A or
Class B shares of a Former Connecticut Mutual Fund provided that the Class A or Class B shares of the Fund to be redeemed or
exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by exchange from an Xxxxxxxxxxx fund that was a Former
Connecticut Mutual Fund. Additionally, the shares of such Former Connecticut Mutual Fund must have been purchased prior to March 18,
1996:
(1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or beneficiaries from retirement plans qualified under Sections
401(a) or 403(b)(7)of the Code, or from IRAs, deferred compensation plans created under Section 457 of the Code, or
other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state, county, or city, or any instrumentality, department,
authority, or agency thereof, that is prohibited by applicable investment laws from paying a sales charge or
concession in connection with the purchase of shares of any registered investment management company;
(6) in connection with the redemption of shares of the Fund due to a combination with another investment company by virtue of a
merger, acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or liquidate the Fund;
(8) in connection with automatic redemptions of Class A shares and Class B shares in certain retirement plan accounts pursuant
to an Automatic Withdrawal Plan but limited to no more than 12% of the original value annually; or
(9) as involuntary redemptions of shares by operation of law, or under procedures set forth in the Fund's Articles of
Incorporation, or as adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of Advance America Funds, Inc.
Shareholders of Xxxxxxxxxxx Municipal Bond Fund, Xxxxxxxxxxx U.S. Government Trust, Xxxxxxxxxxx Strategic Income Fund and Xxxxxxxxxxx
Capital Income Fund who acquired (and still hold) shares of those funds as a result of the reorganization of series of Advance
America Funds, Inc. into those Xxxxxxxxxxx funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on March 30,
1990, may purchase Class A shares of those four Xxxxxxxxxxx funds at a maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of Xxxxxxxxxxx Convertible Securities Fund
Xxxxxxxxxxx Convertible Securities Fund (referred to as the "Fund" in this section) may sell Class M shares at net asset value
without any initial sales charge to the classes of investors listed below who, prior to March 11, 1996, owned shares of the Fund's
then-existing Class A and were permitted to purchase those shares at net asset value without sales charge:
- the Manager and its affiliates,
- present or former officers, directors, trustees and employees (and their "immediate families" as defined in the Fund's
Statement of Additional Information) of the Fund, the Manager and its affiliates, and retirement plans established by
them or the prior investment advisor of the Fund for their employees,
- registered management investment companies or separate accounts of insurance companies that had an agreement with the Fund's
prior investment advisor or distributor for that purpose,
- dealers or brokers that have a sales agreement with the Distributor, if they purchase shares for their own accounts or for
retirement plans for their employees,
- employees and registered representatives (and their spouses) of dealers or brokers described in the preceding section or
financial institutions that have entered into sales arrangements with those dealers or brokers (and whose identity is
made known to the Distributor) or with the Distributor, but only if the purchaser certifies to the Distributor at the
time of purchase that the purchaser meets these qualifications,
- dealers, brokers, or registered investment advisors that had entered into an agreement with the Distributor or the prior
distributor of the Fund specifically providing for the use of Class M shares of the Fund in specific investment products
made available to their clients, and
- dealers, brokers or registered investment advisors that had entered into an agreement with the Distributor or prior
distributor of the Fund's shares to sell shares to defined contribution employee retirement plans for which the dealer,
broker, or investment advisor provides administrative services.
Oppenheimer Real Estate Fund
Investment Advisor
OppenheimerFunds, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Sub-Advisor
Cornerstone Real Estate Advisers, Inc.
000 Xxxxxxxxx Xxxxxx - 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
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
Citibank, N.A.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Independent Auditors
Ernst & Young, LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Legal Counsel
Mayer, Brown, Xxxx & Maw
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
890
PX0590.0202
