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Xxxxxxxxxxx Quest Value Fund, Inc.
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0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
0.000.000.0000
Statement of Additional Information dated February 28, 2002
This Statement of Additional Information is not a Prospectus. This document contains additional information about the Fund
and supplements information in the Prospectus dated February 28, 2002. It should be read together with the Prospectus, which may be
obtained by writing to the Fund's Transfer Agent, OppenheimerFunds Services, at X.X. Xxx 0000, Xxxxxx, Xxxxxxxx 00000, or by calling
the Transfer Agent at the toll-free number shown above, or by downloading it from the OppenheimerFunds Internet web site at
xxx.xxxxxxxxxxxxxxxx.xxx.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks...................................
The Fund's Investment Policies.....................................................................
Other Investment Techniques and Strategies.........................................................
Investment Restrictions............................................................................
How the Fund is Managed ................................................................................
Organization and History...........................................................................
Directors and Officers of the Fund.................................................................
The Manager........................................................................................
Brokerage Policies of the Fund..........................................................................
Distribution and Service Plans..........................................................................
Performance of the Fund.................................................................................
About Your Account
How To Buy Shares.......................................................................................
How To Sell Shares......................................................................................
How To Exchange Shares..................................................................................
Dividends, Capital Gains and Taxes......................................................................
Additional Information About the Fund...................................................................
Financial Information About the Fund
Independent Auditors Report.............................................................................
Financial Statements....................................................................................
Appendix A: Ratings Definitions......................................................................... A-1
Appendix B: Corporate Industry Classifications.......................................................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers............................................... C-1
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A B O U T T H E F U N D
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Additional Information About the Fund's Investment Policies and Risks
The investment objective, the principal investment policies and the main risks of the Fund are described in the Prospectus.
This Statement of Additional Information contains supplemental information about those policies and risks and the types of securities
that the Fund's Investment Manager, OppenheimerFunds, Inc., can select for the Fund. Additional information is also provided about
the strategies that the Fund may use to try to achieve its objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the techniques and strategies that the Fund's
Sub-Advisor, OpCap Advisors, may use in selecting portfolio securities will vary over time. The Fund is not required to use all of
the investment techniques and strategies described below in seeking its goal. It may use some of the special investment techniques
and strategies at some times or not at all.
In selecting securities for the Fund's portfolio, the Sub-Advisor evaluates the merits of particular securities primarily
through the exercise of its own investment analysis. In the case of corporate issuers, that process may include, among other things,
evaluation of the issuer's historical operations, prospects for the industry of which the issuer is part, the issuer's financial
condition, its pending product developments and business (and those of competitors), the effect of general market and economic
conditions on the issuer's business, and legislative proposals that might affect the issuer. In the case of foreign securities, the
Sub-Advisor may also consider the conditions of a particular country's economy in relation to the U.S. economy or other foreign
economies, general political conditions in a country or region, the effect of taxes, the efficiencies and costs of particular markets
and other factors when evaluating the securities of issuers in a particular country.
|X| Investments in Equity Securities. The Fund does not limit its investments in equity securities to issuers having a
market capitalization of a specified size or range, and while it emphasizes securities of medium and large-capitalization issuers,
the Fund can also invest in securities of small-capitalization issuers. At times, the Fund may increase the relative emphasis of its
equity investments in securities of one or more capitalization ranges, based upon the Sub-Advisor's judgment of where the best market
opportunities are to seek the Fund's objective. At times, the market may favor or disfavor securities of issuers of a particular
capitalization range, and securities of small-capitalization issuers may be subject to greater price volatility in general than
securities of larger companies. Therefore, if the Fund has substantial investments in smaller-capitalization companies at times of
market volatility, the Fund's share price could fluctuate more than that of funds focusing on larger-capitalization issuers.
|_| Value Investing. In selecting equity investments for the Fund's portfolio, the portfolio manager currently uses
a value investing style. In using a value approach, the portfolio manager seeks stock and other equity securities that appear to be
temporarily undervalued, by various measures, such as price/earnings ratios. This approach is subject to change and may not
necessarily be used in all cases. Value investing seeks stocks having prices that are low in relation to their real worth or future
prospects, in the hope that the Fund will realize appreciation in the value of its holdings when other investors realize the
intrinsic value of the stock.
Using value investing requires research as to the issuer's underlying financial condition and prospects. Some of the
measures used to identify these securities include, among others:
|_| Price/Earnings ratio, which is the stock's price divided by its earnings per share. A stock having a price/earnings
ratio lower than its historical range, or the market as a whole or that of similar companies may offer attractive investment
opportunities.
|_| Price/book value ratio, which is the stock price divided by the book value of the company per share, which measures the
company's stock price in relation to its asset value.
|_| Dividend Yield is measured by dividing the annual dividend by the stock price per share.
|_| Valuation of Assets which compares the stock price to the value of the company's underlying assets, including their
projected value in the marketplace and liquidation value.
|_| Preferred Stocks. Preferred stock, unlike common stock, has a stated dividend rate payable from the
corporation's earnings. Preferred stock dividends may be cumulative or non-cumulative, participating, or auction rate. "Cumulative"
dividend provisions require all or a portion of prior unpaid dividends to be paid before dividends can be paid on the issuer's common
stock.
If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of preferred stocks
to decline. Preferred stock may have mandatory sinking fund provisions, as well as provisions allowing calls or redemptions prior to
maturity, which can also have a negative impact on prices when interest rates decline. Preferred stock generally has a preference
over common stock on the distribution of a corporation's assets in the event of liquidation of the corporation. The rights of
preferred stock on distribution of a corporation's assets in the event of a liquidation are generally subordinate to the rights
associated with a corporation's debt securities. Preferred stock may be "participating" stock, which means that it may be entitled
to a dividend exceeding the stated dividend in certain cases.
|_| Rights and Warrants. Warrants basically are options to purchase equity securities at specific prices valid for a
specific period of time. Their prices do not necessarily move parallel to the prices of the underlying securities. Rights are
similar to warrants, but normally have a short duration and are distributed directly by the issuer to its shareholders. Rights and
warrants have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer.
|_| Convertible Securities. Convertible securities are debt securities that are convertible into an issuer's common
stock. Convertible securities rank senior to common stock in a corporation's capital structure and therefore are subject to less risk
than common stock in case of the issuer's bankruptcy or liquidation.
The value of a convertible security is a function of its "investment value" and its "conversion value." If the investment
value exceeds the conversion value, the security will behave more like a debt security, and the security's price will likely increase
when interest rates fall and decrease when interest rates rise. If the conversion value exceeds the investment value, the security
will behave more like an equity security: it will likely sell at a premium over its conversion value, and its price will tend to
fluctuate directly with the price of the underlying security.
While some convertible securities are a form of debt security, in many cases their conversion feature (allowing conversion
into equity securities) causes them to be regarded by the Sub-Advisor more as "equity equivalents." As a result, the rating assigned
to the security has less impact on the Sub-Advisor's investment decision with respect to convertible securities than in the case of
non-convertible debt fixed income securities. To determine whether convertible securities should be regarded as "equity
equivalents," the Sub-Advisor may consider the following factors:
(1) whether, at the option of the investor, the convertible security can be exchanged for a
fixed number of shares of common stock of the issuer,
(2) whether the issuer of the convertible securities has restated its earnings per share of
common stock on a fully diluted basis (considering the effect of conversion of the
convertible securities), and
(3) the extent to which the convertible security may be a defensive "equity substitute,"
providing the ability to participate in any appreciation in the price of the issuer's common stock.
|X| Foreign Securities. "Foreign securities" include equity and debt securities of companies organized under the laws of
countries other than the United States and debt securities of foreign governments and their agencies and instrumentalities. They may
be traded on foreign securities exchanges or in the foreign over-the-counter markets. The Fund can purchase equity and debt
securities issued by foreign companies or foreign governments or their agencies.
Securities of foreign issuers that are represented by American Depository Receipts or that are listed on a U.S. securities
exchange or traded in the U.S. over-the-counter markets are considered "foreign securities" for the purpose of the Fund's investment
allocations. That is because they are subject to some of the special considerations and risks, discussed below, that apply to foreign
securities traded and held abroad.
Because the Fund can purchase securities denominated in foreign currencies, a change in the value of a foreign currency
against the U.S. dollar could result in a change in the amount of income the Fund has available for distribution. Because a portion
of the Fund's investment income may be received in foreign currencies, the Fund will be required to compute its income in U.S.
dollars for distribution to shareholders, and therefore the Fund will absorb the cost of currency fluctuations. After the Fund has
distributed income, subsequent foreign currency losses may result in the Fund's having distributed more income in a particular fiscal
period than was available from investment income, which could result in a return of capital to shareholders.
Investing in foreign securities offers potential benefits not available from investing solely in securities of domestic
issuers. They include the opportunity to invest in foreign issuers that appear to offer growth potential, or in foreign countries
with economic policies or business cycles different from those of the U.S., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S. markets. The Fund will hold foreign currency only in
connection with the purchase or sale of foreign securities.
|_| Foreign Debt Obligations. The debt obligations of foreign governments and their agencies and instrumentalities
may or may not be supported by the full faith and credit of the foreign government. The Fund can buy securities issued by certain
"supra-national" entities, which include entities designated or supported by governments to promote economic reconstruction or
development, international banking organizations and related government agencies. Examples are the International Bank for
Reconstruction and Development (commonly called the "World Bank"), the Asian Development bank and the Inter-American Development
Bank.
The governmental members of these supra-national entities are "stockholders" that typically make capital contributions and
may be committed to make additional capital contributions if the entity is unable to repay its borrowings. A supra-national entity's
lending activities may be limited to a percentage of its total capital, reserves and net income. There can be no assurance that the
constituent foreign governments will continue to be able or willing to honor their capitalization commitments for those entities.
|_| Risks of Foreign Investing. Investments in foreign securities may offer special opportunities for investing but
also present special additional risks and considerations not typically associated with investments in domestic securities. Some of
these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency rates or
currency control regulations (for example, currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards in foreign
countries comparable to those applicable to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
greater volatility and less liquidity on foreign markets than in the U.S.;
o less governmental regulation of foreign issuers, stock exchanges and brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or loss of
certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory taxation, political,
financial or social instability or adverse diplomatic developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. Government policies have discouraged certain investments abroad by U.S. investors, through taxation or
other restrictions, and it is possible that such restrictions could be re-imposed.
|_| Special Risks of Emerging Markets. Emerging and developing markets abroad may also offer special opportunities
for growth investing but have greater risks than more developed foreign markets, such as those in Europe, Canada, Australia, New
Zealand and Japan. There may be even less liquidity in their securities markets, and settlements of purchases and sales of securities
may be subject to additional delays. They are subject to greater risks of limitations on the repatriation of income and profits
because of currency restrictions imposed by local governments. Those countries may also be subject to the risk of greater political
and economic instability, which can greatly affect the volatility of prices of securities in those countries. The Sub-Advisor will
consider these factors when evaluating securities in these markets.
|X| Portfolio Turnover. "Portfolio turnover" describes the rate at which the Fund traded its portfolio securities during
its last fiscal year. For example, if a fund sold all of its securities during the year, its portfolio turnover rate would have been
100% annually. The Fund's portfolio turnover rate will fluctuate from year to year, but the Fund does not expect to have a portfolio
turnover rate of 100% or more. Increased portfolio turnover creates higher brokerage and transaction costs for the Fund, which may
reduce its overall performance. Additionally, the realization of capital gains from selling portfolio securities may result in
distributions of taxable long-term capital gains to shareholders, since the Fund will normally distribute all of its capital gains
realized each year, to avoid excise taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund may from time to time use the types of investment
strategies and investments described below. It is not required to use all of these strategies at all times, and at times may not use
them.
|X| Investments in Debt Securities. The Fund can invest in convertible securities and can also invest in bonds,
debentures and other debt securities, including U.S. Government securities, for liquidity or defensive purposes. Because the Fund
currently emphasizes investments in equity securities, such as stocks, it is not anticipated that more than 25% of the Fund's assets
will be invested in debt securities under normal market conditions.
|_| Credit Risk. The Fund's debt investments can include investment-grade and non-investment-grade bonds (commonly referred
to as "junk bonds"). Investment-grade bonds are bonds rated at least "Baa" by Xxxxx'x Investors Service, Inc., at least "BBB" by
Standard & Poor's Rating Service or Fitch, Inc., or have comparable ratings by another nationally recognized statistical rating
organization. In making investments in debt securities, the Sub-Advisor may rely to some extent on the ratings of ratings
organizations or it may use its own research to evaluate a security's credit-worthiness. If the securities are unrated, to be
considered part of the Fund's holdings of investment-grade securities, they must be judged by the Sub-Advisor to be of comparable
quality to bonds rated as investment grade by a rating organization. The debt security ratings definitions of the principal ratings
organizations are included in Appendix A to this Statement of Additional Information.
|_| Interest Rate Risk. Interest rate risk refers to the fluctuations in value of debt securities resulting from the inverse
relationship between price and yield. For example, an increase in general interest rates will tend to reduce the market value of
already-issued fixed-income investments, and a decline in general interest rates will tend to increase their value. In addition, debt
securities with longer maturities, which tend to have higher yields, are subject to potentially greater fluctuations in value from
changes in interest rates than obligations with shorter maturities.
Fluctuations in the market value of fixed-income securities after the Fund buys them will not affect the interest income
payable on those securities (unless the security pays interest at a variable rate pegged to interest rate changes). However, those
price fluctuations will be reflected in the valuations of the securities, and therefore the Fund's net asset values will be affected
by those fluctuations.
|_| U.S. Government Securities. Obligations of U.S. Government agencies or instrumentalities (including mortgage-backed
securities) may or may not be guaranteed or supported by the "full faith and credit" of the United States. Some are backed by the
right of the issuer to borrow from the U.S. Treasury; others, by discretionary authority of the U.S. Government to purchase the
agencies' obligations; while others are supported only by the credit of the instrumentality.
All U.S. Treasury obligations are backed by the full faith and credit of the United States. If the securities are not
backed by the full faith and credit of the United States, the owner of the securities must look principally to the agency issuing the
obligation for repayment and may not be able to assert a claim against the United States in the event that the agency or
instrumentality does not meet its commitment. The Fund will invest in U.S. Government securities of such agencies and
instrumentalities only when the Sub-Advisor is satisfied that the credit risk with respect to such instrumentality is minimal.
|_| Special Risks of Lower-Grade Securities. While it is not anticipated that the Fund currently will invest more than 5% of
its total assets in lower-grade debt securities, the Fund can invest a portion of its assets in these securities. Because lower-rated
securities tend to offer higher yields than investment grade securities, the Fund may invest in lower-grade securities if the
Sub-Advisor is trying to achieve greater income (and, in some cases, the appreciation possibilities of lower-grade securities might
be a reason they are selected for the Fund's portfolio).
"Lower-grade" debt securities are those rated below "investment grade" which means they have a rating lower than "Baa" by
Xxxxx'x or lower than "BBB" by Standard & Poor's or Duff & Xxxxxx, or similar ratings by other rating organizations. If they are
unrated, and are determined by the Sub-Advisor to be of comparable quality to debt securities rated below investment grade, they are
included in limitation on the percentage of the Fund's assets that can be invested in lower-grade securities. The Fund can invest
in securities rated as low as "C" or "D" although the Fund does not intend to invest in securities that are in default at the time
the Fund buys them.
Some of the special credit risks of lower-grade securities are discussed in the Prospectus. There is a greater risk that the
issuer may default on its obligation to pay interest or to repay principal than in the case of investment grade securities. The
issuer's low creditworthiness may increase the potential for its insolvency. An overall decline in values in the high yield bond
market is also more likely during a period of a general economic downturn. An economic downturn or an increase in interest rates
could severely disrupt the market for high yield bonds, adversely affecting the values of outstanding bonds as well as the ability of
issuers to pay interest or repay principal. In the case of foreign high yield bonds, these risks are in addition to the special risk
of foreign investing discussed in the Prospectus and in this Statement of Additional Information.
However, the Fund's limitations on these investments may reduce some of the risks to the Fund, as will the Fund's policy of
diversifying its investments. Additionally, to the extent they can be converted into stock, convertible securities may be less
subject to some of these risks than non-convertible high yield bonds, since stock may be more liquid and less affected by some of
these risk factors.
While securities rated "Baa" by Xxxxx'x or "BBB" by Standard & Poor's or Duff & Xxxxxx are investment grade and are not
regarded as junk bonds, those securities may be subject to special risks, and have some speculative characteristics.
|X| Money Market Instruments. The following is a brief description of the types of money market securities the Fund can
invest in. Those money market securities are high-quality, short-term debt instruments that are issued by the U.S. Government,
corporations, banks or other entities. They may have fixed, variable or floating interest rates.
|_| U.S. Government Securities. These include obligations issued or guaranteed by the U.S. Government or any of
its agencies or instrumentalities.
|_| Bank Obligations. The Fund may buy time deposits, certificates of deposit and bankers' acceptances. Time
deposits, other than overnight deposits, may be subject to withdrawal penalties and, if so, they are deemed to be "illiquid"
investments.
The Fund can purchase bank obligations that are fully insured by the Federal Deposit Insurance Corporation. The FDIC insures
the deposits of member banks up to $100,000 per account. Insured bank obligations may have a limited market and a particular
investment of this type may be deemed "illiquid" unless the Board of Directors of the Fund determines that a readily-available market
exists for that particular obligation, or unless the obligation is payable at principal amount plus accrued interest on demand or
within seven days after demand.
|_| Commercial Paper. The Fund can invest in commercial paper, if it is rated within the top two rating categories
of Standard & Poor's and Moody's. If the paper is not rated, it may be purchased if issued by a company having a credit rating of at
least "AA" by Standard & Poor's or "Aa" by Moody's.
The Fund can buy commercial paper, including U.S. dollar-denominated securities of foreign branches of U.S. banks, issued by
other entities if the commercial paper is guaranteed as to principal and interest by a bank, government or corporation whose
certificates of deposit or commercial paper may otherwise be purchased by the Fund.
|_| Variable Amount Master Demand Notes. Master demand notes are corporate obligations that permit the investment
of fluctuating amounts by the Fund at varying rates of interest under direct arrangements between the Fund, as lender, and the
borrower. They permit daily changes in the amounts borrowed. The Fund has the right to increase the amount under the note at any
time up to the full amount provided by the note agreement, or to decrease the amount. The borrower may prepay up to the full amount
of the note without penalty. These notes may or may not be backed by bank letters of credit.
Because these notes are direct lending arrangements between the lender and borrower, it is not expected that there will be a
trading market for them. There is no secondary market for these notes, although they are redeemable (and thus are immediately
repayable by the borrower) at principal amount, plus accrued interest, at any time. Accordingly, the Fund's right to redeem such
notes is dependent upon the ability of the borrower to pay principal and interest on demand.
The Fund has no limitations on the type of issuer from whom these notes will be purchased. However, in connection with such
purchases and on an ongoing basis, the Sub-Advisor will consider the earning power, cash flow and other liquidity ratios of the
issuer, and its ability to pay principal and interest on demand, including a situation in which all holders of such notes made demand
simultaneously. Investments in master demand notes are subject to the limitation on investments by the Fund in illiquid securities,
described in the Prospectus. The Fund does not intend that its investments in variable amount master demand notes will exceed 5% of
its total assets.
|X| Investing in Small, Unseasoned Companies. The Fund may invest in securities of small, unseasoned companies. These are
companies that have been in operation for less than three years, including the operations of any predecessors. Securities of these
companies may be subject to volatility in their prices. They may have a limited trading market, which may adversely affect the Fund's
ability to dispose of them and can reduce the price the Fund might be able to obtain for them. Other investors that own a security
issued by a small, unseasoned issuer for which there is limited liquidity might trade the security when the Fund is attempting to
dispose of its holdings of that security. In that case the Fund might receive a lower price for its holdings than might otherwise be
obtained.
|X| Investing in Other Investment Companies. The Fund can invest up to 10% of its total assets in shares of other
investment companies. It can invest up to 5% of its total assets in any one investment company (but cannot own more than 3% of the
outstanding voting stock of that company). These limits do not apply to shares acquired in a merger, consolidation, reorganization or
acquisition of another investment company. Because the Fund would be subject to its ratable share of the other investment company's
expenses, the Fund will not make these investments unless the Sub-Advisor believes that the potential investment benefits justify the
added costs and expenses.
|X| When-Issued and Delayed-Delivery Transactions. The Fund can invest in securities on a "when-issued" basis and can
purchase or sell securities on a "delayed-delivery" or "forward commitment" basis. When-issued and delayed-delivery are terms that
refer to securities whose terms and indenture are available and for which a market exists, but which are not available for immediate
delivery.
When such transactions are negotiated, the price (which is generally expressed in yield terms) is fixed at the time the
commitment is made. Delivery and payment for the securities take place at a later date (generally within 45 days of the date the
offer is accepted). The securities are subject to change in value from market fluctuations during the period until settlement. The
value at delivery may be less than the purchase price. For example, changes in interest rates in a direction other than that expected
by the Sub-Advisor before settlement will affect the value of such securities and may cause a loss to the Fund. During the period
between purchase and settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund from the
investment. No income begins to accrue to the Fund on a when-issued security until the Fund receives the security at settlement of
the trade.
The Fund will engage in when-issued transactions to secure what the Sub-Advisor considers to be an advantageous price and
yield at the time of entering into the obligation. When the Fund enters into a when-issued or delayed-delivery transaction, it relies
on the other party to complete the transaction. Its failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Sub-Advisor considers to be advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it does so for the purpose of acquiring or selling
securities consistent with its investment objective and policies for its portfolio or for delivery pursuant to options contracts it
has entered into, and not for the purpose of investment leverage. Although the Fund will enter into delayed-delivery or when-issued
purchase transactions to acquire securities, it may dispose of a commitment prior to settlement. If the Fund chooses to dispose of
the right to acquire a when-issued security prior to its acquisition or to dispose of its right to delivery or receive against a
forward commitment, it may incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security on a when-issued or delayed-delivery basis, it
records the transaction on its books and reflects the value of the security purchased in determining the Fund's net asset value. In
a sale transaction, it records the proceeds to be received. The Fund will identify on its books liquid assets at least equal in value
to the value of the Fund's purchase commitments until the Fund pays for the investment.
When-issued and delayed-delivery transactions can be used by the Fund as a defensive technique to hedge against anticipated
changes in interest rates and prices. For instance, in periods of rising interest rates and falling prices, the Fund might sell
securities in its portfolio on a forward commitment basis to attempt to limit its exposure to anticipated falling prices. In periods
of falling interest rates and rising prices, the Fund might sell portfolio securities and purchase the same or similar securities on
a when-issued or delayed-delivery basis to obtain the benefit of currently higher cash yields.
|X| Repurchase Agreements. The Fund can acquire securities subject to repurchase agreements. It might do so for liquidity
purposes to meet anticipated redemptions of Fund shares, or pending the investment of the proceeds from sales of Fund shares, or
pending the settlement of portfolio securities transactions, or for temporary defensive purposes.
In a repurchase transaction, the Fund buys a security from, and simultaneously resells it to, an approved vendor for
delivery on an agreed-upon future date. The resale price exceeds the purchase price by an amount that reflects an agreed-upon
interest rate effective for the period during which the repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been designated as primary dealers in government securities. They
must meet credit requirements set by the Manager from time to time.
The majority of these transactions run from day to day, and delivery pursuant to the resale typically occurs within one to
five days of the purchase. Repurchase agreements having a maturity beyond seven days are subject to the Fund's limits on holding
illiquid investments. There is no limit on the amount of the Fund's net assets that may be subject to repurchase agreements having
maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company Act, are collateralized by the underlying security.
The Fund's repurchase agreements require that at all times while the repurchase agreement is in effect, the value of the collateral
must equal or exceed the repurchase price to fully collateralize the repayment obligation. However, if the vendor fails to pay the
resale price on the delivery date, the Fund may incur costs in disposing of the collateral and may experience losses if there is any
delay in its ability to do so. The Sub-Advisor will monitor the vendor's creditworthiness to confirm that the vendor is financially
sound and will continuously monitor the collateral's value.
|X| Illiquid and Restricted Securities. To enable the Fund to sell its holdings of a restricted security not registered
under the Securities Act of 1933, the Fund may have to cause those securities to be registered. The expenses of registering
restricted securities may be negotiated by the Fund with the issuer at the time the Fund buys the securities. When the Fund must
arrange registration because the Fund wishes to sell the security, a considerable period may elapse between the time the decision is
made to sell the security and the time the security is registered so that the Fund could sell it. The Fund would bear the risks of
any downward price fluctuation during that period.
The Fund may also acquire restricted securities through private placements. Those securities have contractual restrictions
on their public resale. Those restrictions might limit the Fund's ability to dispose of the securities and might lower the amount the
Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are eligible for sale to qualified institutional purchasers under
Rule 144A of the Securities Act of 1933, if those securities have been determined to be liquid by the Manager and the Sub-Advisor
under Board-approved guidelines. Those guidelines take into account the trading activity for such securities and the availability of
reliable pricing information, among other factors. If there is a lack of trading interest in a particular Rule 144A security, the
Fund's holdings of that security may be considered to be illiquid.
|X| Loans of Portfolio Securities. The Fund can lend its portfolio securities to certain types of eligible borrowers
approved by the Board of Directors. It may do so to try to provide income or to raise cash or income for liquidity purposes. These
loans are limited to not more than 10% of the value of the Fund's total assets. There are some risks in connection with securities
lending. The Fund might experience a delay in receiving additional collateral to secure a loan, or a delay in recovery of the loaned
securities. The Fund presently does not intend to engage in loans of securities.
The Fund must receive collateral for a loan. Under current applicable regulatory requirements (which are subject to change),
on each business day the loan collateral must be at least equal to the value of the loaned securities. It must consist of cash, bank
letters of credit, securities of the U.S. Government or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit must obligate a bank to pay amounts demanded by the
Fund if the demand meets the terms of the letter. The terms of the letter of credit and the issuing bank must both be satisfactory
to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends or interest on loaned securities. It also
receives one or more of (a) negotiated loan fees, (b) interest on securities used as collateral, and (c) interest on any short-term
debt securities purchased with such loan collateral. Either type of interest may be shared with the borrower. The Fund may also pay
reasonable finder's, custodian and administrative fees in connection with these loans. The terms of the Fund's loans must meet
applicable tests under the Internal Revenue Code and must permit the Fund to reacquire loaned securities on five days' notice or in
time to vote on any important matter.
|X| Borrowing for Leverage. The Fund has the ability to borrow up to one-third of the value of its net assets from banks on
an unsecured basis to invest the borrowed funds in portfolio securities. This speculative technique is known as "leverage." The Fund
may borrow only from banks. Under current regulatory requirements, borrowings can be made only to the extent that the value of the
Fund's assets, less its liabilities other than borrowings, is equal to at least 300% of all borrowings (including the proposed
borrowing). If the value of the Fund's assets fails to meet this 300% asset coverage requirement, the Fund will reduce its bank debt
within three days to meet the requirement. To do so, the Fund might have to sell a portion of its investments at a disadvantageous
time.
The Fund will pay interest on these loans, and that interest expense will raise the overall expenses of the Fund and reduce
its returns. If it does borrow, its expenses will be greater than comparable funds that do not borrow for leverage. Additionally, the
Fund's net asset value per share might fluctuate more than that of funds that do not borrow. Currently, the Fund does not contemplate
using this technique.
|X| Hedging. Although the Fund can use hedging instruments, it is not obligated to use them in seeking its objective. It
does not currently contemplate using them to any significant degree. The Fund might use hedging 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. To do so, the Fund could:
|_| sell futures contracts,
|_| buy puts on such futures or on securities, or
|_| write covered calls on securities or futures.
The Fund can use hedging to establish a position in the securities market as a temporary substitute for purchasing
particular securities. In that case, the Fund would normally seek to purchase the securities and then terminate that hedging
position. The Fund might also use this type of hedge to attempt to protect against the possibility that its portfolio securities
would not be fully included in a rise in value of the market. To do so, the Fund could:
|_| buy futures, or
|_| buy calls on such futures or on securities.
The Fund's strategy of hedging with futures and options on futures will be incidental to the Fund's activities in the
underlying cash market. The particular hedging instruments the Fund can use are described below. The Fund may employ new hedging
instruments and strategies when they are developed, if those investment methods are consistent with the Fund's investment objective
and are permissible under applicable regulations governing the Fund.
|_| Futures. The Fund can buy and sell futures contracts that relate to (1) broadly-based stock indices (these referred
to as "stock index futures"), and (2) foreign currencies (these are referred to as "forward contracts").
A broadly-based stock index is used as the basis for trading stock index futures. In some cases these indices may be based
on stocks of issuers in a particular industry or group of industries. A stock index assigns relative values to the common stocks
included in the index and its value fluctuates in response to the changes in value of the underlying stocks. A stock index cannot be
purchased or sold directly. These contracts obligate the seller to deliver, and the purchaser to take, cash to settle the futures
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.
No money is paid or received by the Fund on the purchase or sale of a future. Upon entering into a futures transaction, the
Fund will be required to deposit an initial margin payment with the futures commission merchant (the "futures broker"). Initial
margin payments will be deposited with the Fund's custodian bank in an account registered in the futures broker's name. However, the
futures broker can gain access to that account only under specified conditions. As the future is marked to market (that is, its
value on the Fund's books is changed) to reflect changes in its market value, subsequent margin payments, called variation margin,
will be paid to or by the futures broker daily.
At any time prior to expiration of the future, the Fund may elect to close out its position by taking an opposite position,
at which time a final determination of variation margin is made and any additional cash must be paid by or released to the Fund. Any
loss or gain on the future is then realized by the Fund for tax purposes. All futures transactions (except forward contracts) are
effected through a clearinghouse associated with the exchange on which the contracts are traded.
|_| Put and Call Options. The Fund can buy and sell certain kinds of put options ("puts") and call options ("calls"). The
Fund can buy and sell exchange-traded put and call options on broadly-based stock indices.
|_| Writing Covered Call Options. The Fund can write (that is, sell) covered calls. If the Fund sells a call
option, it must be covered. For stock index options, that means the call must be covered by segregating liquid assets to enable the
Fund to satisfy its obligations if the call is exercised. Settlement for puts and calls on broadly-based stock indices is in cash.
Gain or loss depends on changes in the index in question (and thus on price movements in the stock market generally).
When the Fund writes a call, 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.
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 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 escrowed assets in escrow until the call expires or is
exercised.
|_| Writing Put Options. The Fund can sell put options on stock indices. 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 settle the transaction in cash with the buyer of the put at the exercise price, even if the value of the
underlying 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
settle in cash at the exercise price. That price will usually exceed the market value of the investment at that time.
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 settle the transaction in cash at the exercise price. The Fund
has no control over when it may be required to settle the transaction, 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. The Fund will realize a profit or loss from a closing purchase transaction depending on whether the cost of the transaction
is less or more than the premium received from writing the put option. Any profits from writing puts are considered short-term
capital gains for federal tax purposes, and when distributed by the Fund, are taxable as ordinary income.
|_| Purchasing Calls and Puts. The Fund can purchase calls to protect against the possibility that the Fund's
portfolio will not participate in an anticipated rise in the securities market. When the Fund buys a call (other than in a closing
purchase transaction), it pays a premium. The Fund 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.
If the Fund exercises the call during the call period, a seller of a corresponding call on the same investment will pay the
Fund an amount of cash to settle the call if the closing level of the stock index upon which the call is based is greater than the
exercise price of the call. That cash payment is equal to the difference between the closing price of the call and the exercise
price of the call times a specified multiple (the "multiplier") which determines the total dollar value for each point of
difference.
When the Fund buys a put on a stock index, it pays a premium. It has the right during the put period to require a seller of
a corresponding put, upon the Fund's exercise of its put, to deliver cash to the Fund to settle the put if the closing level of the
stock index upon which the put is based is less than the exercise price of the put. That cash payment is determined by the
multiplier, in the same manner as described above as to calls.
When the Fund purchases a put on a stock index, the put protects the Fund to the extent that the index moves in a similar
pattern to the securities the Fund holds. The Fund can resell the put. The resale price of the put will vary inversely with the
price of the underlying investment. If the market price of the underlying investment is above the exercise price, and as a result
the put is not exercised, the put will become worthless on the expiration date. In the event of a decline in price of the underlying
investment, the Fund could exercise or sell the put at a profit to attempt to offset some or all of its loss on its portfolio
securities.
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.
|_| 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 Sub-Advisor 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 may affect its costs.
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.
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 or calls on broadly-based indices. 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
may 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 Sub-Advisor might decide to sell
the security and deliver foreign currency to settle the original purchase obligation. If the market value of the security is less
than the amount of foreign currency the Fund is obligated to deliver, the Fund might have to purchase additional foreign currency on
the "spot" (that is, cash) market to settle the security trade. If the market value of the security instead exceeds the amount of
foreign currency the Fund is obligated to deliver to settle the trade, the Fund might have to sell on the spot market some of the
foreign currency received upon the sale of the security. There will be additional transaction costs on the spot market in those
cases.
The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. Forward contracts involve the risk that anticipated currency movements will not be accurately
predicted, causing the Fund to sustain losses on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are unanticipated changes in currency prices to a greater
degree than if the Fund had not entered into such contracts.
At or before the maturity of a forward contract requiring the Fund to sell a currency, the Fund might sell a portfolio
security and use the sale proceeds to make delivery of the currency. In the alternative the Fund might retain the security and offset
its contractual obligation to deliver the currency by purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to deliver. Similarly, the Fund might close out a forward
contract requiring it to purchase a specified currency by entering into a second contract entitling it to sell the same amount of the
same currency on the maturity date of the first contract. The Fund would realize a gain or loss as a result of entering into such an
offsetting forward contract under either circumstance. The gain or loss will depend on the extent to which the exchange rate or rates
between the currencies involved moved between the execution dates of the first contract and offsetting contract.
The costs to the Fund of engaging in forward contracts varies with factors such as the currencies involved, the length of
the contract period and the market conditions then prevailing. Because forward contracts are usually entered into on a principal
basis, no brokerage fees or commissions are involved. Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each forward contract.
Although the Fund values its assets daily in terms of U.S. dollars, it does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. The Fund may convert foreign currency from time to time, and will incur costs in
doing so. Foreign exchange dealers do not charge a fee for conversion, but they do seek to realize a profit based on the difference
between the prices at which they buy and sell various currencies. Thus, a dealer might offer to sell a foreign currency to the Fund
at one rate, while offering a lesser rate of exchange if the Fund desires to resell that currency to the dealer.
|_| Regulatory Aspects of Hedging Instruments. When using futures and options on futures, the Fund is required to operate
within certain guidelines and restrictions with respect to the use of futures as established by the Commodities Futures Trading
Commission (the "CFTC"). In particular, the Fund is exempted from registration with the CFTC as a "commodity pool operator" if the
Fund complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule does not limit the percentage of the Fund's assets
that may be used for futures margin and related options premiums for a bona fide hedging position. However, under the Rule, the Fund
must limit its aggregate initial futures margin and related options premiums to not more than 5% of the Fund's net assets for hedging
strategies that are not considered bona fide hedging strategies under the Rule. Under the Rule, the Fund must also use short futures
and options on futures solely for bona fide hedging purposes within the meaning and intent of the applicable provisions of the
Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established by the option exchanges. The exchanges limit the
maximum number of options that may be written or held by a single investor or group of investors acting in concert. Those limits
apply regardless of whether the options were written or purchased on the same or different exchanges or are held in one or more
accounts or through one or more different exchanges or through one or more brokers. Thus, the number of options that the Fund may
write or hold may be affected by options written or held by other entities, including other investment companies having the same
Advisor as the Fund (or an Advisor that is an affiliate of the Fund's Advisor or Sub-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.
|_| Tax Aspects of Certain Hedging Instruments. Certain foreign currency exchange contracts in which the Fund may invest
are treated as "Section 1256 contracts" under the Internal Revenue Code. In general, gains or losses relating to Section 1256
contracts are characterized as 60% long-term and 40% short-term capital gains or losses under the Code. However, foreign currency
gains or losses arising from Section 1256 contracts that are forward contracts generally are treated as ordinary income or loss. In
addition, Section 1256 contracts held by the Fund at the end of each taxable year are "marked-to-market," and unrealized gains or
losses are treated as though they were realized. These contracts also may be marked-to-market for purposes of determining the excise
tax applicable to investment company distributions and for other purposes under rules prescribed pursuant to the Internal Revenue
Code. An election can be made by the Fund to exempt those transactions from this marked-to-market treatment.
Certain forward contracts the Fund enters into may result in "straddles" for federal income tax purposes. The straddle
rules may affect the character and timing of gains (or losses) recognized by the Fund on straddle positions. Generally, a loss
sustained on the disposition of a position making up a straddle is allowed only to the extent that the loss exceeds any unrecognized
gain in the offsetting positions making up the straddle. Disallowed loss is generally allowed at the point where there is no
unrecognized gain in the offsetting positions making up the straddle, or the offsetting position is disposed of.
Under the Internal Revenue Code, the following gains or losses are treated as ordinary income or loss:
1. gains or losses attributable to fluctuations in exchange rates that occur between the time the Fund accrues interest or
other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities, and
2. gains or losses attributable to fluctuations in the value of a foreign currency between the date of acquisition of a debt
security denominated in a foreign currency or foreign currency forward contracts and the date of disposition.
Currency gains and losses are offset against market gains and losses on each trade before determining a net "Section 988"
gain or loss under the Internal Revenue Code for that trade, which may increase or decrease the amount of the Fund's investment
income available for distribution to its shareholders.
Investment Restrictions
|X| What Are "Fundamental Policies"? Fundamental policies are those policies that the Fund has adopted to govern its
investments that can be changed only by the vote of a "majority" of the Fund's outstanding voting securities. Under the Investment
Company Act, a "majority" vote is defined as the vote of the holders of the lesser of:
|_| 67% or more of the shares present or represented by proxy at a shareholder meeting, if the holders of more than 50% of
the outstanding shares are present or represented by proxy, or
|_| more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies described in the Prospectus or this Statement of
Additional Information are "fundamental" only if they are identified as such. The Fund's Board of Directors can change
non-fundamental policies without shareholder approval. However, significant changes to investment policies will be described in
supplements or updates to the Prospectus or this Statement of Additional Information, as appropriate. The Fund's most significant
investment policies are described in the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following investment restrictions are fundamental policies of
the Fund.
|_| The Fund cannot buy securities issued or guaranteed by any one issuer if more than 5% of its total assets would be
invested in securities of that issuer. This limitation applies to 75% of the Fund's total assets.
|_| The Fund cannot purchase more than 10% of the voting securities of any one issuer. The limit does not apply to
securities issued by the U.S. Government or any of its agencies or instrumentalities.
|_| The Fund cannot purchase more than 10% of any class of security of any issuer. All outstanding debt securities and all
preferred stock of an issuer are considered to be one class. This restriction does not apply to securities issued by the U.S.
Government or any of its agencies or instrumentalities.
|_| The Fund cannot lend money except in connection with the acquisition of debt securities which the Fund's investment
policies and restrictions permit it to purchase. The Fund may also make loans of portfolio securities, subject to the restrictions
stated under "Loans of Portfolio Securities."
|_| The Fund cannot concentrate its investments. That means it cannot invest 25% or more of its total assets in any
industry. However, there is no limitation on investments in U.S. Government Securities. Moreover, if deemed appropriate for seeking
its investment objective, the Fund may invest less than (but up to) 25% of its total assets (valued at the time of investment) in any
one industry classification used by the Fund for investment purposes.
|_| The Fund cannot invest in real estate or in interests in real estate (including limited partnership interests).
However, the Fund can purchase readily-marketable securities of companies holding real estate or interests in real estate.
|_| The Fund cannot invest in companies for the primary purpose of acquiring control or management of those companies.
However, the Fund may invest all of its investable assets in an open-end management investment company with substantially the same
investment objective and restrictions as the Fund.
|_| The Fund cannot underwrite securities of other companies. A permitted exception is in case it is deemed to be an
underwriter under the Securities Act of 1933 when reselling any securities held in its own portfolio. The Fund may also invest all of
its investable assets in an open-end management investment company with substantially the same investment objective and restrictions
as the Fund.
|_| The Fund cannot invest in or hold securities of any issuer if officers and directors of the Fund or its Manager or
Sub-Advisor individually beneficially own more than 1/2 of 1% of the securities of that issuer and together own more than 5% of the
securities of that issuer.
|_| The Fund cannot invest in physical commodities or physical commodity contracts. However, the Fund may buy and sell
hedging instruments to the extent specified in its Prospectus and Statement of Additional Information from time to time. The Fund can
also buy and sell options (subject to the restrictions in its other fundamental policies), futures, and securities or other
instruments backed by physical commodities or whose investment return is linked to changes in the price of physical commodities.
|_| The Fund cannot write, purchase or sell puts, calls or combinations of puts and calls on individual stocks. However,
the Fund may purchase or sell exchange-traded put and call options on stock indices to protect the Fund's assets.
|_| The Fund cannot borrow money in excess of one third of the value of the Fund's total assets. The Fund can borrow only if it
maintains a 300% ratio of assets to borrowings at all times in the manner set forth in the Investment Company Act of 1940.
|_| The Fund cannot issue "senior securities," but this does not prohibit certain investment activities for which assets of the
Fund are designated as segregated, or margin collateral or escrow arrangements are established, to cover the related obligations.
Examples of those activities include borrowing money, reverse repurchase agreements, delayed-delivery and when-issued arrangements
for portfolio securities transactions, and contracts to buy or sell derivatives, hedging instruments, options or futures.
|_| The Fund cannot pledge, mortgage or hypothecate any of its assets.
|X| Does the Fund Have Any Restrictions That Are Not Fundamental? The Fund has other investment restrictions that are not
fundamental policies, which means that they can be changed by the Board of Directors without shareholder approval.
|_| The Fund cannot invest in interests in oil, gas or other mineral exploration or development programs or leases.
|_| The Fund cannot purchase securities on margin or make short sales.
|_| The Fund cannot make loans to any person or individual. However, the Fund may lend its portfolio securities as
described in the Prospectus or Statement of Additional Information.
Unless the Prospectus or this Statement of Additional Information states that a percentage restriction applies on an ongoing
basis, it applies only at the time the Fund makes an investment. The Fund need not sell securities to meet the percentage limits if
the value of the investment increases in proportion to the size of the Fund.
For purposes of the Fund's policy not to concentrate its investments as described above, the Fund has adopted the industry
classifications set forth in Appendix B to this Statement of Additional Information. This is not a fundamental policy.
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management investment company organized as a Maryland corporation in
1979.
|X| Classes of Shares. The Board of Directors is authorized, without shareholder approval, to create new series and
classes of shares. The Directors may reclassify unissued shares of the Fund into additional series or classes of shares. The
Directors 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 Maryland corporation, 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 Directors 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 Director. The Directors will call a meeting of shareholders to vote on the removal of a Director upon the written
request of the record holders of 10% of its outstanding shares. If the Directors receive a request from at least 10 shareholders
stating that they wish to communicate with other shareholders to request a meeting to remove a Director, the Directors 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 Directors may
also take other action as permitted by the Investment Company Act.
Directors and Officers of the Fund. The Fund's Directors and officers and their positions held with the Fund and length of service
in such position(s) and the principal occupations and business affiliations during the past five years are listed below. Each of the
Directors are independent Directors, which means that they have no affiliation with the Manager as defined in the Investment Company
Act. The information for the Directors also includes the dollar range of shares of the Fund as well as the aggregate dollar range of
shares of the Board III Funds beneficially owned by the Director. All information is as of December 31, 2001. All of the Directors
are also trustees or directors of the following Xxxxxxxxxxx funds (referred to as "Board III Funds"):
Xxxxxxxxxxx Quest For Value Funds, a series fund having Rochester Portfolio Series, a series fund having one series:
the following series: Limited-Term New York Municipal Fund
Xxxxxxxxxxx Small Cap Value Fund, Bond Fund Series, a series fund having one series:
Xxxxxxxxxxx Quest Balanced Value Fund and Xxxxxxxxxxx Convertible Securities Fund
Xxxxxxxxxxx Quest Opportunity Value Fund Rochester Fund Municipals
Xxxxxxxxxxx Quest Global Value Fund, Inc. Xxxxxxxxxxx MidCap Fund
Xxxxxxxxxxx Quest Capital Value Fund, Inc.
Xxxxxxxxxxx Quest Value Fund, Inc.
In addition to being a director or trustee of the Board III Funds, Xx. Xxxxx is also a director or trustee of 33 other
portfolios in the Xxxxxxxxxxx Funds complex.
Messrs. Murphy, Bishop, Farrar, Molleur, Xxxxxx and Xxxx, and Mses. Xxxx and Ives who are officers of the Fund, respectively
hold the same offices of the other Board III Funds. As of January 15, 2002, the Directors and officers of the Fund as a group owned
of record or beneficially less than 1% of each class of shares of the Fund. The foregoing statement does not reflect ownership of
shares of the Fund held of record by an employee benefit plan for employees of the Manager, other than the shares beneficially owned
under the plan by officers of the Fund listed above. In addition, each Independent Director, and his or her family members, do not
own securities of either the Manager or Distributor of the Board III Funds or any person directly or indirectly controlling,
controlled by or under common control with the Manager or Distributor.
Independent Directors
-------------------------- ------------------------------------------------------ ----------------- -------------------
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 Directorships Held by Director / Number of Shares Owned in the Board III
Served2 Portfolios in Fund Complex Overseen by Director the Fund Funds
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxxxx X. Xxxxxxxx, Principal of Xxxxxxxx Associates, Inc. (venture $1 - $10,000 $10,001 - $50,000
Chairman of the Board of capital firm); former General Partner of Trivest
Directors, Director Venture Fund (private venture capital fund); former
since April, 1987 President of Investment Counseling Federated
Age: 68 Investors, Inc.; Trustee of Cash Assets Trust, a
money market fund; Director of OCC Cash Reserves,
Inc., and Trustee of OCC Accumulation Trust, both of
which are open-end investment companies; Trustee of
Hawaiian Tax-Free Trust and Tax Free Trust of
Arizona, tax-exempt bond funds; former Director of
Financial Analysts Federation. Director/trustee of
10 investment companies in the OppenheimerFunds
complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxx X. Xxxxxxx, Principal of Clinton Management Associates, a Over $100,000 Over $100,000
Director since April, financial and venture capital consulting firm;
1987 Trustee of Capital Cash Management Trust, a
Age: 70. money-market fund and Narragansett Tax-Free Fund, a
tax-exempt bond fund; Director of OCC Cash Reserves,
Inc. and Trustee of OCC Accumulation Trust, both of
which are open-end investment companies. Formerly:
Director, External Affairs, Kravco Corporation, a
national real estate owner and property management
corporation; President of Essex Management
Corporation, a management consulting company; a
general partner of Capital Growth Fund, a venture
capital partnership; a general partner of Essex
Limited Partnership, an investment partnership;
President of Geneve Corp., a venture capital fund;
Chairman of Woodland Capital Corp., a small business
investment company; and Vice President of X.X. Xxxxx
& Co. Director/trustee of 10 investment companies in
the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxxxx X. Xxxxx, A Trustee or Director of other Xxxxxxxxxxx funds. $0 Over $100,0003
Director since June, 1998 Formerly Vice Chairman of the Manager (October 1995
Age: 68 - December 1997). Director/trustee of 41 investment
companies in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxx X. Xxxxxxxx, Chairman and Chief Executive Officer of Aquila $10,000 -$50,000 $10,001 - $50,000
Director since April, Management Corporation, the sponsoring organization
1987 and manager, administrator and/or sub-Adviser to the
Age: 72 following open-end investment companies, and
Chairman of the Board of Trustees and President of
each: Xxxxxxxxx Cash Reserves Trust, Aquila -
Cascadia Equity Fund, Pacific Capital Cash Assets
Trust, Pacific Capital U.S. Treasuries Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets Trust,
Prime Cash Fund, Narragansett Insured Tax-Free
Income Fund, Tax-Free Fund For Utah, Xxxxxxxxx
Tax-Free Fund of Kentucky, Tax-Free Fund of
Colorado, Tax-Free Trust of Oregon, Tax-Free Trust
of Arizona, Hawaiian Tax-Free Trust, and Aquila
Rocky Mountain Equity Fund; Vice President,
Director, Secretary, and formerly Treasurer of
Aquila Distributors, Inc., distributor of the above
funds; President and Chairman of the Board of
Trustees of Capital Cash Management Trust ("CCMT"),
and an Officer and Trustee/Director of its
predecessors; President and Director of STCM
Management Company, Inc., sponsor and adviser to
CCMT; Chairman, President and a Director of InCap
Management Corporation, formerly sub-adviser and
administrator of Prime Cash Fund and Short Term
Asset Reserves; Director of OCC Cash Reserves, Inc.,
and Trustee of OCC Accumulation Trust, both of which
are open-end investment companies; Trustee Emeritus
of Xxxxx University. Director/trustee of 10
investment companies in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxxx Xxxxxx, Director Special Limited Partner (since January 1999) of $1 - $10,000 $50,001 - $100,000
since April, 2001 Odyssey Investment Partners, LLC (private equity
Age: 58 investment); General Partner (since September 1996)
of Odyssey Partners, L.P. (hedge fund in
distribution since 1/1/97); Director (since May
2000) of Ray & Berendston, Inc. (executive search);
Board of Incorporators (since August 1990) The
Xxxxxxx Laboratory; Trustee (since May 1992) of
Institute for Advanced Study (educational
institute); Trustee (since May 2000) of Research
Foundation of AIMR (investment research); Governor,
Xxxxxx Xxxx Economics Institute of Bard College
(August 1990 - September 2001) (economics research).
Director/trustee of 10 investment companies in the
OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
Officers of the Fund
----------------------------------------------- ----------------------------------------------------------------------
Name, Address,4 Age, Position(s) Held with Principal Occupation(s) During Past 5 Years
Fund and Length of Time Served
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxx X. Xxxxxx, Chairman, Chief Executive Officer and director (since June 30, 2001)
President (since October 2001) and President (since September 2000) of the Manager; President and a
Age: 52 trustee of other Xxxxxxxxxxx funds; President and a director (since
July 2001) of Xxxxxxxxxxx Acquisition Corp., the Manager's parent
holding company, and of Xxxxxxxxxxx Partnership Holdings, Inc.
(since July 2001), a holding company subsidiary of the Manager;
Chairman and a director (since July 2001) of Shareholder Services,
Inc. and of Shareholder Financial Services, Inc., transfer agent
subsidiaries of the Manager; President (since November 1, 2001) and
a director (since July 2001) of Xxxxxxxxxxx Real Asset Management,
Inc., an investment advisor subsidiary of the Manager; President and
a director (since July 2001) of OppenheimerFunds Legacy Program, a
charitable trust program established by the Manager; a director
(since November 2001) of Trinity Investment Management Corp. and
Tremont Advisers, Inc., investment advisory affiliates of the
Manager, and of OAM Institutional, Inc. (since November 2001), an
investment advisory subsidiary of the Manager, and of HarbourView
Asset Management Corporation and OFI Private Investments, Inc.
(since July 2001), investment advisor subsidiaries of the Manager;
formerly President and trustee (from November 1999 to November 2001)
of MML Series Investment Fund and MassMutual Institutional Funds,
open-end investment companies; Chief Operating Officer (from
September 2000 to July 2001) of the Manager; Executive Vice
President of Massachusetts Mutual Life Insurance Company (from
February 1997 to August 2000); a director (from 1999 to 2000) of
C.M. Life Insurance Company; President, Chief Executive Officer and
a director (from 1999 to 2000) of MML Bay State Life Insurance
Company; Executive Vice President, director and Chief Operating
Officer (from 1995 to 1997) of Xxxxx X. Xxxxxx & Company, Inc., an
investment advisor; Senior Vice President and director (from 1995 to
1997) of Potomac Babson Inc., an investment advisor subsidiary of
Xxxxx X. Xxxxxx & Company, Inc.; Senior Vice President (from 1995 to
1997) and director (from 1995 to 1999) of DBL Acquisition
Corporation, a holding company for investment advisers; a director
(from 1989 to 1998) of Emerald Isle Bancorp and Hibernia Savings
Bank, wholly-owned subsidiary of Emerald Isle Bancorp; and Chief
Operating Officer (from 1993 to 1996) of Concert Capital Management,
Inc., an investment advisor.
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxx, Treasurer, Principal Senior Vice President and Treasurer (since March 1999) of the
Financial and Accounting Officer (since March Manager; Treasurer (since March 1999) of HarbourView Asset
1999) Management Corporation, Shareholder Services, Inc., Oppenheimer Real
Age: 42 Asset Management Corporation, Shareholder Financial Services, Inc.
and Oppenheimer Partnership Holdings, Inc., of OFI Private
Investments, Inc. (since March 2000) and of OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since May
2000); Treasurer and Chief Financial Officer (since May 2000) of
Xxxxxxxxxxx Trust Company; Assistant Treasurer (since March 1999) of
Xxxxxxxxxxx Acquisition Corp.; an officer of other Xxxxxxxxxxx
funds; formerly Principal and Chief Operating Officer, Bankers Trust
Company - Mutual Fund Services Division (March 1995 - March 1999);
Vice President and Chief Financial Officer of CS First Boston
Investment Management Corp. (September 1991 - March 1995).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxxx X. Xxxxxx, Assistant Treasurer Vice President of the Manager/Mutual Fund Accounting (since May
(since May 1996) 1996); an officer of other
Age: 42 Xxxxxxxxxxx funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996) and a Fund
Controller of the Manager.
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxxxx, Assistant Treasurer Assistant Vice President of the Manager (1996-Present); Formerly
(since 1996) Assistant Vice President of Rochester Fund Services, Inc. (1994 -
Age: 38 1996).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxx, Assistant Treasurer Vice President of the Manager/Mutual Fund Accounting (since May
(since May 1996) 1996); Assistant Treasurer of Oppenheimer Millennium Funds plc
Age: 36 (since October 1997); an officer of other Xxxxxxxxxxx Funds;
formerly an Assistant Vice President of the Manager/Mutual Fund
Accounting (April 1994 - May 1996), and a Fund Controller of the
Manager.
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxxx X. Xxxx, Secretary (since October 2001) Senior Vice President (since May 1985) and Acting General Counsel
Age: 53 (since November 2001) of the Manager; Assistant Secretary of
Shareholder Services, Inc. (since May 1985), Shareholder Financial
Services, Inc. (since November 1989); OppenheimerFunds International
Ltd. and Oppenheimer Millennium Funds plc (since October 1997); an
officer of other Xxxxxxxxxxx funds.
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxxx, Assistant Secretary Vice President and Senior Counsel of the Manager (since July 1999);
(since October 2001) an officer of other Xxxxxxxxxxx funds; formerly a Vice President and
Age: 44 Associate Counsel of the Manager (September 1995 - July 1999).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxxxxxx X. Xxxx, Assistant Secretary Vice President and Senior Counsel of the Manager (since July 1999);
(since October 2001) an officer of other Xxxxxxxxxxx funds; formerly a Vice President and
Age: 43 Associate Counsel of the Manager (June 1990 - July 1999).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxxxxx X. Xxxx, Assistant Secretary Vice President and Assistant Counsel of the Manager (since June
(since October 2001) 1998); an officer of other Xxxxxxxxxxx funds; formerly an Assistant
Age: 36 Vice President and Assistant Counsel of the Manager (August 1997 -
June 1998); and Assistant Counsel of the Manager (August 1994-August
1997).
----------------------------------------------- ----------------------------------------------------------------------
|X| Remuneration of Directors. The officers of the Fund are affiliated with the Manager and receive no salary or fee from
the Fund. The Directors received the compensation shown below. The compensation from the Fund was paid during its fiscal year ended
October 31, 2001. The table below also shows the total compensation from all of the Xxxxxxxxxxx funds listed above, including the
compensation from the Fund, and from two other funds that are not Xxxxxxxxxxx funds but for which the Fund's former sub-advisor acts
as investment advisor. That amount represents compensation received as a director, trustee, or member of a committee of the Board
during the calendar year 2001.
-------------------------------- ---------------------------- ---------------------------- -------------------------
Director's Name Aggregate Compensation Retirement Benefits Total Compensation
from the Fund 1 Accrued as Fund Expenses From all Board III
Funds (10 Funds)2
-------------------------------- ---------------------------- ---------------------------- -------------------------
-------------------------------- ---------------------------- ---------------------------- -------------------------
Xxxx X. Clinton4 $6,651 $0 $157,326
-------------------------------- ---------------------------- ---------------------------- -------------------------
-------------------------------- ---------------------------- ---------------------------- -------------------------
Xxxxxx X. Courtney4 $6,651 $0 $157,326
-------------------------------- ---------------------------- ---------------------------- -------------------------
-------------------------------- ---------------------------- ---------------------------- -------------------------
Xxxxxx X. Xxxxx(3) $6,651 $0 $202,886
-------------------------------- ---------------------------- ---------------------------- -------------------------
-------------------------------- ---------------------------- ---------------------------- -------------------------
Xxxx X. Herrmann4 $6,651 $0 $157,326
-------------------------------- ---------------------------- ---------------------------- -------------------------
-------------------------------- ---------------------------- ---------------------------- -------------------------
Xxxxx Wruble5 $3,852 $0 $59,250
-------------------------------- ---------------------------- ---------------------------- -------------------------
1. Aggregate Compensation includes fees and retirement plan benefits accrued for a Director. For the fiscal year ended 10/31/01.
2. For the 2001 calendar year.
1. Total compensation for the 2001 calendar year includes $105,760 compensation received for serving as a Trustee or Director
of 33 other Xxxxxxxxxxx funds.
4. Total compensation for the 2001 calendar year also includes $60,200 compensation paid by two funds (OCC Cash Reserve and OCC
Accumulated Trust) for which the Sub-Advisor acts as the investment advisor.
5. Elected to the board on 4/01/01
|X| Retirement Plan for Directors. The Fund has adopted a retirement plan that provides for payments to retired Directors.
Payments are up to 80% of the average compensation paid during a Director's five years of service in which the highest compensation
was received. A Director must serve as Director for any of the Board III Funds listed above for at least 15 years to be eligible for
the maximum payment. Each Director's retirement benefits will depend on the amount of the Director's future compensation and length
of service. Therefore the amount of those benefits cannot be determined at this time, nor can we estimate the number of years of
credited service that will be used to determine those benefits.
|X| Major Shareholders. As of February 7, 2002, the only persons who owned of record or were known by the Fund to own of
record 5% or more of the Fund's outstanding shares were:
Unified Fund Services, Inc., 000 Xxxxx Xxxxxxxxxxxx Xxxxxx, Xxxxxxxxxxxx, Xxxxxxx 00000-0000, which owned for the benefit
of its clients 1,616,830.318 Class A shares (representing 5.01% of the Class A shares then outstanding);
Xxxxxxx Xxxxx Xxxxxx Xxxxxx & Xxxxx, Inc., 0000 Xxxx Xxxx Xxxxx Xxxx, Xxxxx 0, Xxxxxxxxxxxx, Xxxxxxx 00000-0000, which
owned for the benefit of its clients 949,677.263 Class B shares (representing 5.17% of the Class B shares then
outstanding);
Xxxxxxx Xxxxx Xxxxxx Xxxxxx & Xxxxx, Inc., 0000 Xxxx Xxxx Xxxxx Xxxx, Xxxxx 0, Xxxxxxxxxxxx, Xxxxxxx, 00000-0000, which
owned for the benefit of its clients 343,534.199 Class C shares (representing 6.92% of the Class C shares then
outstanding);
RPSS TR, VML Inc. 401k Plan, 000 XX Xxxxxxxxxx Xxxx, Xxxxxx Xxxx, XX 00000-0000, which owned for the benefit of its
clients 47,267.046 Class N shares (representing 15.89% of the Class N shares then outstanding);
RPSS TR, Xxxx Farms, 000 Xxxxxx Xxxxxx, Xxxxxxxx, XX 00000-0000, which owned for the benefit of its clients 28,121.705
Class N shares (representing 9.45% of the Class N shares then outstanding);
RPSS TR, Salem Heating & Sheet Metal Inc., X.X. Xxx 00000, Xxxxx, XX 00000-0000, which owned for the benefit of its
clients 27,836.199 Class N shares (representing 9.35% of the Class N shares then outstanding);
Reliance Trust Company TR, 0000 Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxx, XX 00000, which owned for the benefit of Mesa
Industries Inc. 20,047.400 Class N shares (representing 6.74% of the Class N shares then outstanding);
Circle Trust Company, 0 Xxxxxxx Xxxxx, Xxxxxxxx, XX 00000-0000, which owned for the benefit of Xxxxx Machinery Company
18,894.282 Class N shares (representing 6.35% of the Class N shares then outstanding);
RPSS TR, Xxxx Group 401k PSP, X.X. Xxx 0000, Xxxxxxxx, XX 00000-0000, which owned for the benefit of its clients
16,639.045 Class N shares (representing 5.59% of the Class N shares then outstanding);
MassMutual Life Insurance Co., 0000 Xxxxx Xxxxxx, Xxxxxxxxxxx, Xxxxxxxxxxxxx 00000-0000, which owned for the benefit of
its clients 1,179,256.932 Class Y shares (representing 87.93% Class Y shares then outstanding); and
Persumma Financial Services, Mass Mutual Financial Group, which owned for the benefit of its clients 125,280.922 Class Y
shares (representing 9.34% of the Class Y shares then outstanding).
The Manager. The Manager is wholly-owned by Xxxxxxxxxxx Acquisition Corp., a holding company controlled by Massachusetts Mutual Life
Insurance Company.
|X| Code of Ethics. The Fund, the Manager and the Distributor have a Code of Ethics. It is designed to detect and prevent
improper personal trading by certain employees, including portfolio managers, that would compete with or take advantage of the Fund's
portfolio transactions. Covered persons include persons with knowledge of the investments and investment intentions of the Fund and
other funds advised by the Manager. The Code of Ethics does permit personnel subject to the Code to invest in securities, including
securities that may be purchased or held by the Fund, subject to a number of restrictions and controls. Compliance with the Code of
Ethics is carefully monitored and enforced by the Manager.
The Code of Ethics is an exhibit to the Fund's registration statement filed with the Securities and Exchange Commission and
can be reviewed and copied at SEC's Public Reference Room in Washington, D.C. You can obtain information about the hours of operation
of the Public Reference Room by calling the SEC at 0.000.000.0000. the Code of Ethics can also be viewed as part of the Fund's
registration statement on the SEC's XXXXX database at the SEC's Internet website at XXXX://XXX.XXX.XXX. Copies may be obtained, after
------------------
paying a duplicating fee, by electronic request at the following E-mail address: XXXXXXXXXX@XXX.XXX., or by writing to the SEC's
-------------------
Public Reference Section, Washington, D.C. 20549-0102.
|X| The Investment Advisory Agreement. The Manager provides investment advisory and management services to the
Fund under an investment advisory agreement between the Manager and the Fund. The Manager handles the Fund's 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 Fund's portfolio management team is employed by the Sub-Advisor and is principally
responsible for the day-to-day management of the Fund's portfolio, as described below.
The investment advisory agreement between the Fund and the Manager requires the Manager, at its expense, to provide the Fund
with adequate office space, facilities and equipment. It also requires the Manager to provide and supervise the activities of all
administrative and clerical personnel required to provide effective administration for the Fund. Those responsibilities include the
compilation and maintenance of records with respect to its operations, the preparation and filing of specified reports, and
composition of proxy materials and registration statements for continuous public sale of shares of the Fund. Prior to the date
hereof, each class of shares of the Fund paid the Manager an annual fee to calculate the daily net asset value of the respective
class of shares. The annual rate of that fee was $55,000, plus reimbursement of the Manager's out-of-pocket expenses. The fee was
terminated effective as of this date.
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 calculation of the Fund's net asset values per share, interest,
taxes, brokerage commissions, fees to certain Directors, legal and audit expenses, custodian and transfer agent expenses, share
issuance costs, certain printing and registration costs and non-recurring expenses, including litigation costs. The management fees
paid by the Fund to the Manager are calculated at the rates described in the Prospectus, which are applied to the assets of the Fund
as a whole. The fees are allocated to each class of shares based upon the relative proportion of the Fund's net assets represented by
that class.
------------------------------------------------------ ----------------------------------------------
Management Fees Paid to OppenheimerFunds,
Fiscal Year ended 10/31: Inc. 1
------------------------------------------------------ ----------------------------------------------
------------------------------------------------------ ----------------------------------------------
1999 $15,030,491
------------------------------------------------------ ----------------------------------------------
------------------------------------------------------ ----------------------------------------------
2000 $10,877,808
------------------------------------------------------ ----------------------------------------------
------------------------------------------------------ ----------------------------------------------
2001 $9,672,069
------------------------------------------------------ ----------------------------------------------
1. The Manager, not the Fund, pays the Sub-Advisor an annual sub-advisory fee. For fiscal 2001, this sub-advisory fee was $3,120,115.
The investment advisory agreement states that in the absence of willful misfeasance, bad faith, gross negligence in the
performance of its duties or reckless disregard of its obligations and duties under the investment advisory agreement, the Manager is
not liable for any loss resulting from a good faith error or omission on its part with respect to any of its duties under the
agreement.
The agreement permits the Manager to act as investment Advisor for any other person, firm or corporation and to use the
names "Oppenheimer" and "Quest for Value" 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 names "Oppenheimer" or "Quest for Value" as part of its name.
|X| Annual Approval of Investment Advisory Agreement and Subadvisory Agreement. Each year, the Board of Directors,
including a majority of the Independent Directors, is required to approve the renewal of the Investment Advisory Agreement and the
Subadvisory 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 agreements. The board employs an
independent consultant to prepare a report that provides such information as the Board requests for this purpose.
The Board also receives information about the 12b-1 distribution fees the Fund pays. These distribution fees are reviewed
and approved at a different time of the year.
The Board reviewed the foregoing information in arriving at its decision to renew the investment advisory agreements. Among
other factors, the Board considered:
o The nature, cost, and quality of the services provided to the Fund and its shareholders;
o The profitability of the Fund to the Manager and the Sub-Advisor;
o The investment performance of the Fund in comparison to regular market indices
o Economies of scale that may be available to the Fund from the Manager;
o Fees paid by other mutual funds for similar services;
o The value and quality of any other benefits or services received by the Fund from its relationship with the Manager, and
o The direct and indirect benefits the Manager receives from its relationship with the Fund. These include services provided
by the General Distributor and the Transfer Agent, and brokerage and soft dollar arrangements permissible under
Section 28(e) of the Securities Exchange Act.
The Board considered that the Manager and the Sub-Advisor must be able to pay and retain high quality personnel at
competitive rates to provide services to the Fund. The Board also considered that maintaining the financial viability of the Manager
and the Sub-Advisor is important so that they will be able to continue to provide quality services to the Fund and its shareholders
in adverse times. The Board also considered the investment performance of other mutual funds advised by the Manager. The Board is
aware that there are alternatives to the use of the Manager.
These matters were also considered by the Independent Directors meeting separately from the full Board with experienced
Counsel to the Fund who assisted the Board in its deliberations. The Fund's Counsel is independent of the Manager within the meaning
and intent of the SEC Rules regarding the independence of counsel. After deliberating, the Board determined that the addition of
breakpoints to the management fee schedule was warranted.
In arriving at a decision, the Board did not single out any one factor or group of factors as being more important than
other factors, but considered all factors together. The Board judged the terms and conditions of the Agreement, including the
investment advisory fee, in light of all of the surrounding circumstances.
The Sub-Advisor. The Sub-Advisor is a wholly-owned subsidiary of Xxxxxxxxxxx Capital, a registered investment adviser. From the
Fund's inception on April 30, 1980, until November 22, 1995, the Sub-Advisor (which was then named Quest for Value Advisors) or the
Sub-Advisor's parent served as the Fund's investment advisor. The Sub-Advisor acts as investment adviser to other investment
companies and for individual investors.
The Sub-Advisor is a Delaware limited liability company which is wholly-owned by Xxxxxxxxxxx Capital LLC a wholly-owned
subsidiary of Allianz Dresdner Asset Management U.S. Equities LLC, which is wholly-owned by Allianz Dresdner Asset Management of
America L.P. (formerly PIMCO Advisors L.P.). Allianz Dresdner Asset Management of America L.P. ("XXXX") is a Delaware limited
partnership whose sole general partner is Allianz-PacLife Partners LLC. Allianz PacLife Partners LLC is a Delaware limited liability
company with two members, Allianz Dresdner Asset Management of America LLC, a Delaware limited liability company, and Pacific Asset
Management LLC, a Delaware limited liability company. Allianz Dresdner Asset Management of America LLC is a wholly-owned subsidiary
of Allianz of America, Inc., which is wholly-owned subsidiary of Pacific Life Insurance Company which is a wholly-owned subsidiary of
Pacific Mutual Holding Company. Allianz A.G. indirectly holds a controlling interest in XXXX. Allianz AG is a European-based,
multinational insurance and financial services holding company. Pacific Life Insurance Company owns an indirect minority equity
interest in XXXX and is a California-based insurance company.
Allianz Dresdner Asset Management of America, L.P. is a direct or indirect parent company of the following SEC-registered
investment advisors, all of which are affiliated: Cadence Capital Management; NFJ Investment Group; Pacific Investment Management
Company LLC; the Sub-Advisor, Xxxxxxxxxxx Capital LLC, PIMCO Allianz Advisors LLC and PIMCO Funds Advisors LLC.
|X| The Sub-Advisory Agreement. Under the Sub-Advisory Agreement between the Manager and the Sub-Advisor, the Sub-Advisor
shall regularly provide investment advice with respect to the Fund and invest and reinvest cash, securities and the property
comprising the assets of the Fund. Under the Sub-Advisory Agreement, the Sub-Advisor agrees not to change the portfolio management
of the Fund without the written approval of the Manager. The Sub-Advisor also agrees to provide assistance in the distribution and
marketing of the Fund.
Under the Sub-Advisory Agreement, the Manager pays the Sub-Advisor an annual fee in monthly installments, based on the
average daily net assets of the Fund. The fee paid to the Sub-Advisor under the Sub-Advisory agreement is paid by the Manager, not by
the Fund. The fee is equal to 40% of the investment advisory fee collected by the Manager from the Fund based on the total net assets
of the Fund as of November 22, 1995 (the "Base Amount") plus 30% of the investment advisory fee collected by the Manager based on the
total net assets of the Fund that exceed the Base Amount.
The Sub-Advisory Agreement provides that in the absence of willful misfeasance, bad faith, negligence or reckless disregard
of its duties or obligations, the Sub-Advisor shall not be liable to the Manager for any act or omission in the course of or
connected with rendering services under the Sub-Advisory Agreement or for any losses that may be sustained in the purchase, holding
or sale of any security.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement and the Sub-Advisory Agreement. One of the duties of the Sub-Advisor under
the Sub-Advisory Agreement is to arrange the portfolio transactions for the Fund. The Fund's investment advisory agreement with the
Manager and the Sub-Advisory Agreement contain provisions relating to the employment of broker-dealers to effect the Fund's portfolio
transactions. The Manager and the Sub-Advisor are authorized to employ broker-dealers, including "affiliated" brokers, as that term
is defined in the Investment Company Act. They may employ broker-dealers that they think 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. "Best execution" means prompt and reliable execution at the most favorable price obtainable.
The Manager and the Sub-Advisor need not seek competitive commission bidding. However, they are expected to be aware of the
current rates of eligible brokers and to minimize the commissions paid to the extent consistent with the interests and policies of
the Fund as established by its Board of Directors.
The Manager and the Sub-Advisor may select brokers (other than affiliates) that provide brokerage and/or research services
for the Fund and/or the other accounts over which the Manager, the Sub-Advisor or their respective affiliates have investment
discretion. The concessions paid to such brokers may be higher than another qualified broker would charge, if the Manager or
Sub-Advisor, as applicable, makes a good faith determination that the concession is fair and reasonable in relation to the services
provided. Subject to those considerations, as a factor in selecting brokers for the Fund's portfolio transactions, the Manager and
the Sub-Advisor may also consider sales of shares of the Fund and other investment companies for which the Manager or an affiliate
serves as investment 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. Brokerage for the Fund is allocated subject to the provisions of the investment advisory agreement and the
sub-advisory agreement and the procedures and rules described above. Generally, the Sub-Advisor's portfolio traders allocate
brokerage based upon recommendations from the Fund's portfolio manager. In certain instances, portfolio managers may directly place
trades and allocate brokerage. In either case, the Sub-Advisor's executive officers supervise the allocation of brokerage.
Transactions in securities other than those for which an exchange is the primary market are generally done with principals
or market makers. In transactions on foreign exchanges, the Fund may be required to pay fixed brokerage commissions and therefore
would not have the benefit of negotiated commissions available in U.S. markets. Brokerage commissions are paid primarily for
transactions in listed securities or for certain fixed-income agency transactions in the secondary market. Otherwise brokerage
commissions are paid only if it appears likely that a better price or execution can be obtained by doing so.
The Sub-Advisor serves as investment manager to a number of clients, including other investment companies, and may in the
future act as investment manager or advisor to others. It is the practice of the Sub-Advisor to allocate purchase or sale
transactions among the Fund and other clients whose assets it manages in a manner it deems equitable. In making those allocations,
the Sub-Advisor considers several main factors, including the respective investment objectives, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for investment, the size of investment commitments generally
held and the opinions of the persons responsible for managing the portfolios of the Fund and each other client's accounts.
When orders to purchase or sell the same security on identical terms are placed by more than one of the funds and/or other
advisory accounts managed by the Sub-Advisor or its affiliates, the transactions are generally executed as received, although a fund
or advisory account that does not direct trades to a specific broker (these are called "free trades") usually will have its order
executed first. Orders placed by accounts that direct trades to a specific broker will generally be executed after the free trades.
All orders placed on behalf of the Fund are considered free trades. However, having an order placed first in the market does not
necessarily guarantee the most favorable price. Purchases are combined where possible for the purpose of negotiating brokerage
commissions. In some cases that practice might have a detrimental effect on the price or volume of the security in a particular
transaction for the Fund.
Most purchases of debt obligations are principal transactions at net prices. Instead of using a broker for those
transactions, the Fund normally deals directly with the selling or purchasing principal or market maker unless the Sub-Advisor
determines that a better price or execution can be obtained by using the services of a broker. Purchases of portfolio securities
from underwriters include a commission or concession paid by the issuer to the underwriter. Purchases from dealers include a spread
between the bid and asked prices. The Fund seeks to obtain prompt execution of these orders at the most favorable net price.
The investment advisory agreement and the Sub-Advisory agreement permit the Manager and the Sub-Advisor to allocate
brokerage for research services. The research services provided by a particular broker may be useful only to one or more of the
advisory accounts of the Sub-Advisor and its affiliates. The investment research received for the commissions of those other
accounts may be useful both to the Fund and one or more of the Sub-Advisor's other accounts. Investment research may be supplied to
the Sub-Advisor by a third party at the instance of a broker through which trades are placed.
Investment research services include information and analysis on particular companies and industries as well as market or
economic trends and portfolio strategy, market quotations for portfolio evaluations, information systems, computer hardware and
similar products and services. If a research service also assists the Sub-Advisor in a non-research capacity (such as bookkeeping or
other administrative functions), then only the percentage or component that provides assistance to the Sub-Advisor in the investment
decision-making process may be paid in concession dollars.
The research services provided by brokers broadens the scope and supplements the research activities of the Sub-Advisor.
That research provides additional views and comparisons for consideration, and helps the Sub-Advisor to obtain market information for
the valuation of securities that are either held in the Fund's portfolio or are being considered for purchase. The Sub-Advisor
provides information to the Manager and the Board about the concessions paid to brokers furnishing such services, together with the
Sub-Advisor's representation that the amount of such concessions was reasonably related to the value or benefit of such services.
------------------- -------------------------------------------------------------------
Total Brokerage Concessions Paid by the Fund1
Fiscal Year
Ended:
------------------- -------------------------------------------------------------------
------------------- -------------------------------------------------------------------
10/31/99 $2,414,341
------------------- -------------------------------------------------------------------
------------------- -------------------------------------------------------------------
10/31/00 $2,334,275
------------------- -------------------------------------------------------------------
------------------- -------------------------------------------------------------------
10/31/01 $401,3502
------------------- -------------------------------------------------------------------
1. Amounts do not include spreads or concessions on principal transactions on a net trade basis.
2. In the fiscal year ended 10/31/01, the amount of transactions directed to brokers for research services was $132,162,330 and
the amount of the concessions paid to broker-dealers for those services was $174,390.
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 shares of the Fund's classes of shares. The Distributor bears the expenses normally attributable
to sales, including advertising and the cost of printing and mailing prospectuses, other 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.
The sales charges and concessions paid to, or retained by, the Distributor from the sale of shares during the Fund's three
most recent fiscal years, and the contingent deferred sales charges retained by the Distributor on the redemption of shares for the
most recent fiscal year are shown in the table below.
--------------- ------------------------------------------------------------ ------------------- -------------------
Fiscal Year Aggregate Class A Front-End
Ended 10/31: Front-End Sales Sales Charges
Charges on Class Retained by
A Shares Distributor
--------------- ------------------------------------------------------------ ------------------- -------------------
--------------- ---------------------- --------------------------
1999 $2,381,904 $657,551
--------------- ---------------------- --------------------------
--------------- ---------------------- --------------------------
2000 $1,031,889 $276,175
--------------- ---------------------- --------------------------
--------------- ---------------------- --------------------------
2001 $1,162,250 $313,651
--------------- ---------------------- --------------------------
--------------- -------------------------------------------------------------------------------- -------------------
Fiscal Year Concessions on Concessions on Concessions on Concessions on
Ended 10/31: Class A Shares Class B Shares Class C Shares Class N Shares
Advanced by Advanced by Advanced by Advanced by
Distributor1 Distributor1 Distributor1 Distributor1
--------------- -------------------------------------------------------------------------------- -------------------
--------------- -------------------------------------------------------------------------------- -------------------
1999 $500,868 $7,537,928 $633,692 N/A
--------------- -------------------------------------------------------------------------------- -------------------
--------------- -------------------------------------------------------------------------------- -------------------
2000 $408,852 $3,900,908 $348,333 N/A
--------------- -------------------------------------------------------------------------------- -------------------
--------------- --------------------- ------------------- ------------------- ------------------
2001 $166,769 $1,489,762 $198,443 $26,485
--------------- --------------------- ------------------- ------------------- ------------------
1. The Distributor advances concession payments to dealers for certain sales of Class A shares and for sales of Class B and Class C
shares from its own resources at the time of sale.
----------------- -----------------------------------------------------------------------------------------------------
Class A Contingent Deferred Class B Contingent Deferred Class C Contingent Deferred Class N Contingent Deferred Sales Charges Retained by Distributor
Fiscal Year Sales Charges Retained by Sales Charges Retained by Sales Charges Retained by
Ended 10/31 Distributor Distributor Distributor
----------------- -----------------------------------------------------------------------------------------------------
----------------- ------------------------ -------------------------- ------------------------ ------------------------
2001 $22,583 $666,068 $16,783 $0
----------------- ------------------------ -------------------------- ------------------------ ------------------------
Distribution and Service Plans. The Fund has adopted Distribution and Service Plans for Class A, Class B, Class C and Class N shares
under Rule 12b-1 of the Investment Company Act. Under those plans the Fund compensates the Distributor for all or a portion of its
costs incurred in connection with the distribution and/or servicing of the shares of the particular class.
Under the plans, the Manager and the Distributor may make payments to affiliates and, in their sole discretion, from time to
time, may use their own resources to make payments (at no direct cost to the Fund) 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 Directors and its Independent Directors 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 Directors 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 Directors and the Independent Directors 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
Directors at least quarterly for its review. The reports shall detail the amount of all payments made under a plan and the purpose
for which the payments were made. Those reports are subject to the review and approval of the Independent Directors.
Each plan states that while it is in effect, the selection and nomination of those Directors of the Fund who are not
"interested persons" of the Fund is committed to the discretion of the Independent Directors. 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 Directors.
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 Directors. The Board of Directors has set no minimum amount of assets
to qualify for payments under the plans.
|X| Service Plans. Under the service plans, the Distributor currently uses the fees it receives from the Fund to pay
brokers, dealers and other financial institutions (they are referred to as "recipients") for personal services and account
maintenance services they provide for their customers who hold shares of a particular Class, A, B, C or N. The services include,
among others, answering customer inquiries about the Fund, assisting in establishing and maintaining accounts in the Fund, making the
Fund's investment plans available and providing other services at the request of the Fund or the Distributor. The service plans
permits compensation to the Distributor at a rate of up to 0.25% of average annual net assets of the applicable class. The Board has
set the rate at that level. While the plans permit the Board to authorize payments to the Distributor to reimburse itself for
services under the plan, the Board has not yet done so. The Distributor makes payments to plan recipients quarterly at an annual rate
not to exceed 0.25% of the average annual net assets consisting of shares of the applicable class held in the accounts of the
recipients or their customers.
|X| Service and Distribution Plan Fees. Under each plan, service fees and distribution fees are computed on the average of
the net asset value of shares in the respective class, determined as of the close of each regular business day during the period. The
plans compensate the Distributor at a flat rate for its services and costs in distributing shares and servicing accounts, whether the
Distributor's expenses are more or less than the amounts paid by the Fund under the plans during the period for which the fee is
paid. The types of services that recipients receive are similar to the services provided under the Class A service plan, described
above.
The plans permit the Distributor to retain both the asset-based sales charges and the service fees or to pay recipients the
service fee on a quarterly basis, without payment in advance. However, the Distributor currently intends to pay the service fee to
recipients in advance for the first year after the shares are purchased. After the first year shares are outstanding, the Distributor
makes service fee payments quarterly on those shares. The advance payment is based on the net asset value of shares sold. Shares
purchased by exchange do not qualify for the advance service fee payment. If shares are redeemed during the first year after their
purchase, the recipient of the service fees on those shares will be obligated to repay the Distributor a pro rata portion of the
advance payment of the service fee made on those shares.
Under the Class A plan, the Distributor pays the asset-based sales charge to brokers, dealers and financial institutions.
The Distributor retains the asset-based sales charge on Class B and Class N shares. The Distributor retains the asset-based sales
charge on Class C shares during the first year the shares are outstanding. It pays the asset-based sales charge it receives on Class
C shares as an ongoing commission to the recipient on Class C shares outstanding for a year or more. If a dealer has a special
agreement with the Distributor, the Distributor will pay the Class B, Class C and/or Class N service fee and the asset-based sales
charge to the dealer quarterly in lieu of paying the sales commissions and service fee in advance at the time of purchase.
The asset-based sales charges on Class B, Class C and Class N shares allow investors to buy shares without a front-end sales
charge while allowing the Distributor to compensate dealers that sell those shares. The Fund pays the asset-based sales charges to
the Distributor for its services rendered in distributing Class A, Class B, Class C and Class N shares. The payments are made to the
Distributor in recognition that the Distributor:
o pays sales commissions to authorized brokers and dealers at the time of sale and pays service fees as described above,
o may finance payment of sales commissions and/or the advance of the service fee payment to recipients under the plans, or may
provide such financing from its own resources or from the resources of an affiliate,
o employs personnel to support distribution of shares, and
o bears the costs of sales literature, advertising and prospectuses (other than those furnished to current shareholders) and
state "blue sky" registration fees and certain other distribution expenses.
o may not be able to adequately compensate dealers that sell Class B, Class C and Class N shares without receiving payment
under the plans and therefore may not be able to offer such Classes for sale absent the plans,
o receives payments under the plans consistent with the service fees and asset-based sales charges paid by other
non-proprietary funds that change 12b-1 fees,
o may use the payment under the plan to include the Fund in various third-party distribution programs that may increase sales
of Fund shares,
o may experience increased difficulty selling the Fund's shares if payments under the plan are discontinued because most
competitor funds have plans that pay dealers for rendering distribution services as much or more than the amounts
currently being paid by the Fund, and
o may not be able to continue providing, at the same or at lesser cost, the same quality distribution sales efforts and
services, or to obtain such services from brokers and dealers, if the plan payments were to be discontinued.
When Class B, Class C or Class N shares are sold without the designation of a broker-dealer, the Distributor is automatically
designated as the broker-dealer of record. In those cases, the Distributor retains the service fee and asset-based sales charge paid
on Class B, Class C and Class N shares.
-------------------------------------------------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor in the Fiscal Year Ended 10/31/01
-------------------------------------------------------------------------------------------------------------------------
------------------- ------------------------ ------------------------- ------------------------ -------------------------
Total Payments Under Amount Retained by
Class Distributor's Distributor's
Aggregate Unreimbursed Unreimbursed Expenses
Under Plan1 Distributor Expenses Under Plan as % of Net Assets of
Class
------------------- ------------------------ ------------------------- ------------------------ -------------------------
------------------- ------------------------ ------------------------- ------------------------ -------------------------
Class A Plan $2,423,419 $462,677 N/A N/A
------------------- ------------------------ ------------------------- ------------------------ -------------------------
------------------- ------------------------ ------------------------- ------------------------ -------------------------
2.46%
Class B Plan $3,465,165 $2,681,984 $7,837,872
------------------- ------------------------ ------------------------- ------------------------ -------------------------
------------------- ------------------------ ------------------------- ------------------------ -------------------------
$136,939 $1,775,561
Class C Plan $849,121 2.17%
------------------- ------------------------ ------------------------- ------------------------ -------------------------
------------------- ----------------------- ------------------------- ------------------------ ------------------------
$1,841 $45,387
Class N Plan $2,150 1.68%
Includes amounts paid to an affiliate of the Distributor's parent company:
$108,654 (Class A), $45,020 (Class B) and $11,765 (Class C), and $0 (Class N).
All payments under the plans are subject to the limitations imposed by the Conduct Rules of the National Association of
Securities Dealers, Inc. on payments of asset-based sales charges and service fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to illustrate its investment performance. hose terms
include "cumulative total return," "average annual total return," "average annual total return at net asset value" and "total return
at net asset value." An explanation of how total returns are calculated is set forth below. The charts below show the Fund's
performance as of the Fund's most recent fiscal year end. You can obtain current performance information by calling the Fund's
Transfer Agent at 0.000.000.0000 or by visiting the OppenheimerFunds Internet web site at xxxx://xxx.xxxxxxxxxxxxxxxx.xxx.
The Fund's illustrations of its performance data in advertisements must comply with rules of the Securities and Exchange
Commission. hose rules describe the types of performance data that may be used and how it is to be calculated. n 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. hose returns must be shown for the 1-, 5- and 10-year periods (or the life of the class, if less) ending as of the most
recently ended calendar quarter prior to the publication of the advertisement (or its submission for publication).
Use of standardized performance calculations enables an investor to compare the Fund's performance to the performance of
other funds for the same periods. However, a number of factors should be considered before using the Fund's performance information
as a basis for comparison with other investments:
|_| Total returns measure the performance of a hypothetical account in the Fund over various periods and do not show the
performance of each shareholder's account. Your account's performance will vary from the model performance data if your dividends are
received in cash, or you buy or sell shares during the period, or you bought your shares at a different time and price than the
shares used in the model.
|_| The Fund's performance returns do not reflect the effect of taxes on dividends and capital gains distributions.
|_| An investment in the Fund is not insured by the FDIC or any other government agency.
|_| The principal value of the Fund's shares and total returns are not guaranteed and normally will fluctuate on a daily
basis.
|_| When an investor's shares are redeemed, they may be worth more or less than their original cost.
|_| Total returns for any given past period represent historical performance information and are not, and should not be
considered, a prediction of future returns.
The performance of each class of shares is shown separately, because the performance of each class of shares will usually be
different. That is because of the different kinds of expenses each class bears. The total returns of each class of shares of the Fund
are affected by market conditions, the quality of the Fund's investments, the maturity of debt investments, the types of investments
the Fund holds, and its operating expenses that are allocated to the particular class.
|X| Total Return Information. There are different types of "total returns" to measure the Fund's performance. Total return
is the change in value of a hypothetical investment in the Fund over a given period, assuming that all dividends and capital gains
distributions are reinvested in additional shares and that the investment is redeemed at the end of the period. Because of
differences in expenses for each class of shares, the total returns for each class are separately measured. he cumulative total
return measures the change in value over the entire period (for example, ten years). n average annual total return shows the average
rate of return for each year in a period that would produce the cumulative total return over the entire period. However, average
annual total returns do not show actual year-by-year performance. The Fund uses standardized calculations for its total returns as
prescribed by the SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales charge of 5.75% (as a percentage of the offering
price) is deducted from the initial investment ("P") (unless the return is shown without sales charge, as described below). For
Class B shares, payment of the applicable contingent deferred sales charge is applied, depending on the period for which the return
is shown: 5.0% in the first year, 4.0% in the second year, 3.0% in the third and fourth years, 2.0% in the fifth year, 1.0% in the
sixth year and none thereafter. For Class C shares, the 1% contingent deferred sales charge is deducted for returns for the 1-year
period. For Class N shares, the 1% contingent deferred sales charge is deducted for returns for the life-of-class periods as
applicable. There is no sales charge on Class Y shares.
|_| Average Annual Total Return. The "average annual total return" of each class is an average annual compounded
rate of return for each year in a specified number of years. It is the rate of return based on the change in value of a hypothetical
initial investment of $1,000 ("P" in the formula below) held for a number of years ("n" in the formula) to achieve an Ending
Redeemable Value ("ERV" in the formula) of that investment, according to the following formula:
ERV - 1 = AVERAGE ANNUAL TOTAL RETURN
-----
P
|_| Cumulative Total Return. The "cumulative total return" calculation measures the change in value of a
hypothetical investment of $1,000 over an entire period of years. Its calculation uses some of the same factors as average annual
total return, but it does not average the rate of return on an annual basis. Cumulative total return is determined as follows:
ERV - P = TOTAL RETURN
----------
P
|_| Total Returns at Net Asset Value. From time to time the Fund may also quote a cumulative or an average annual
total return "at net asset value" (without deducting sales charges) for Class A, Class B, Class C or Class N shares. There is no
sales charge on Class Y shares. Each is based on the difference in net asset value per share at the beginning and the end of the
period for a hypothetical investment in that class of shares (without considering front-end or contingent deferred sales charges) and
takes into consideration the reinvestment of dividends and capital gains distributions.
------------------------------------------------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 10/31/01
------------------------------------------------------------------------------------------------------------------------
-------------- -------------------------- ------------------------------------------------------------------------------
Cumulative Total Returns
Class of (10 years or Life of Average Annual Total Returns
Shares Class)
-------------------------- ------------------------------------------------------------------------------
-------------- -------------------------- ------------------------- -------------------------
5-Year 10-Year
1-Year (or life-of-class) (or life-of-class)
-------------------------- ------------------------- -------------------------
-------------- ------------- ------------ ----------- -------------- ------------ ------------ ------------ ------------
After Sales Without After Without After Without After Without
Charge Sales Sales Sales Charge Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
-------------- ------------- ------------ ----------- -------------- ------------ ------------ ------------ ------------
-------------- ------------- ------------ ----------- -------------- ------------ ------------ ------------ ------------
Class A1 196.44% 214.53% -10.68% -5.23% 5.80% 7.06% 11.48% 12.14%
-------------- ------------- ------------ ----------- -------------- ------------ ------------ ------------ ------------
-------------- ------------- ------------ ----------- -------------- ------------ ------------ ------------ ------------
Class B2 126.68% 126.68% -10.42% -5.83% 6.12% 6.44% 10.54% 10.54%
-------------- ------------- ------------ ----------- -------------- ------------ ------------ ------------ ------------
-------------- ------------- ------------ ----------- -------------- ------------ ------------ ------------ ------------
Class C3 123.52% 123.52% -6.74% -5.82% 6.46% 6.46% 10.35% 10.35%
-------------- ------------- ------------ ----------- -------------- ------------ ------------ ------------ ------------
-------------- ------------- ------------ ----------- -------------- ------------ ------------ ------------ ------------
Class N4 -11.14% -10.25% X/X X/X X/X X/X X/X X/X
-------------- ------------- ------------ ----------- -------------- ------------ ------------ ------------ ------------
-------------- ------------- ------------ ----------- -------------- ------------ ------------ ------------ ------------
Class Y5 N/A 41.28% N/A -4.50% N/A 7.35% N/A N/A
-------------- ------------- ------------ ----------- -------------- ------------ ------------ ------------ ------------
1. Inception of Class A: 4/30/80
2. Inception of Class B: 9/1/93
3. Inception of Class C: 9/1/93
4. Inception of Class N: 3/1/01
5. Inception of Class Y: 12/16/96
Other Performance Comparisons. The Fund compares its performance annually to that of an appropriate broadly based market index in
its Annual Report to shareholders. You can obtain that information by contacting the Transfer Agent at the addresses or telephone
numbers shown on the cover of this Statement of Additional Information. The Fund may also compare its performance to that of other
investments, including other mutual funds, or use rankings of its performance by independent ranking entities. Examples of these
performance comparisons are set forth below.
|X| Lipper Rankings. From time to time the Fund may publish the ranking of the performance of its classes of shares by
Lipper, Inc. Lipper is a widely-recognized independent mutual fund monitoring service. Lipper monitors the performance of regulated
investment companies, including the Fund, and ranks their performance for various periods based on stated fund classifications.
Lipper currently ranks the Fund's performance against all other large-cap value funds. The Lipper performance rankings are based on
total returns that include the reinvestment of capital gain distributions and income dividends but do not take sales charges or taxes
into consideration.
|X| Morningstar Rankings. From time to time the Fund may publish the ranking and/or star rating of the performance of its
classes of shares by Morningstar, Inc., an independent mutual fund monitoring service. Morningstar rates and ranks mutual funds in
broad investment categories: domestic stock funds, international stock funds, taxable bond funds and municipal bond funds. The Fund
is included among domestic stock funds.
Morningstar proprietary star rankings reflect historical risk-adjusted total investment return. For each fund with at least
a three-year history, Morningstar calculates a Morningstar RatingTM metric each month by subtracting the return on a 90-day U.S.
Treasury 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 total return ranking to that of other funds in its Morningstar category, in addition to its
star ratings. Those total return rankings are percentages from one percent to one hundred percent and are not risk adjusted. For
example, if a Fund is in the 94th percentile, that means that 94% of the Fund's 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.
---------------------------------------------------------------------------------------------------------------------------------------
A B O U T Y O U R A C C O U N T
---------------------------------------------------------------------------------------------------------------------------------------
How to Buy Shares
Additional information is presented below about the methods that can be used to buy shares of the Fund. Appendix C contains
more information about the special sales charge arrangements offered by the Fund, and the circumstances in which sales charges may be
reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must be at least $25. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the Automated Clearing House ("ACH") transfer to buy the shares.
Dividends will begin to accrue on shares purchased with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York Stock Exchange. The Exchange normally closes at 4:00
P.M., but may close earlier on certain days. If Federal Funds are received on a business day after the close of the Exchange, the
shares will be purchased and dividends will begin to accrue on the next regular business day. The proceeds of ACH transfers are
normally received by the Fund 3 days after the transfers are initiated. The Distributor and the Fund are not responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of sales efforts and reduction in expenses realized by the Distributor,
dealers and brokers making such sales. No sales charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates that apply to larger purchases of Class A shares,
you and your spouse can add together:
Class A and Class B shares you purchase for your individual accounts (including IRAs and 403(b) plans), or for your joint accounts,
----------- -
or for trust or custodial accounts on behalf of your children who are minors, and
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
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
Xxxxxxxxxxx Concentrated Growth Fund Xxxxxxxxxxx Quest Global Value Fund
Xxxxxxxxxxx Convertible Securities Fund Xxxxxxxxxxx Quest Opportunity Value Fund
Xxxxxxxxxxx Developing Markets Fund Xxxxxxxxxxx Quest Value Fund, Inc.
Xxxxxxxxxxx Disciplined Allocation Fund Xxxxxxxxxxx Real Asset Fund
Xxxxxxxxxxx Discovery Fund Xxxxxxxxxxx Rochester National Municipals
Xxxxxxxxxxx Emerging Growth Fund Xxxxxxxxxxx Senior Floating Rate Fund
Xxxxxxxxxxx Emerging Technologies Fund Xxxxxxxxxxx Small Cap Value Fund
Xxxxxxxxxxx Enterprise Fund Xxxxxxxxxxx Special Value Fund
Xxxxxxxxxxx Europe Fund Xxxxxxxxxxx Strategic Income Fund
Xxxxxxxxxxx Global Fund Xxxxxxxxxxx Total Return Fund
Xxxxxxxxxxx Global Growth and Income Fund Xxxxxxxxxxx Trinity Core Fund
Xxxxxxxxxxx Gold and Special Minerals Fund Xxxxxxxxxxx Trinity Large Cap Growth Fund
Xxxxxxxxxxx Growth Fund Xxxxxxxxxxx Trinity Value Fund
Xxxxxxxxxxx High Yield Fund Xxxxxxxxxxx U.S. Government Fund
Xxxxxxxxxxx Intermediate Municipal Fund Xxxxxxxxxxx Value Fund
Xxxxxxxxxxx International Bond Fund Limited-Term New York Municipal Fund
Xxxxxxxxxxx International Growth Fund Rochester Fund Municipals
Xxxxxxxxxxx International Small Company Fund OSM1 - Gartmore Millennium Growth Fund
Xxxxxxxxxxx Limited Term Government Fund OSM1 - Xxxxxxxx Growth Fund
Xxxxxxxxxxx Main Street Growth and Income Fund OSM1 - Mercury Advisors S and P 500 Index
Xxxxxxxxxxx Main Street Opportunity Fund OSM1 - Mercury Advisors Focus Growth Fund
Xxxxxxxxxxx Main Street Small Cap Fund OSM1 - QM Active Balanced Fund
Xxxxxxxxxxx MidCap Fund OSM1 - Salomon Brothers Capital Fund
Xxxxxxxxxxx Multiple Strategies Fund
and the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Xxxxxxxxxxx Cash Reserves
Centennial Money Market Trust Xxxxxxxxxxx Money Market Fund, Inc.
1 - "OSM" stands for Xxxxxxxxxxx Select Managers
There is an initial sales charge on the purchase of Class A shares of each of the Xxxxxxxxxxx funds except the money market
funds. Under certain circumstances described in this Statement of Additional Information, redemption proceeds of certain money market
fund shares may be subject to a contingent deferred sales charge.
|X| Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or Class A and Class B shares of the Fund
and other Xxxxxxxxxxx funds during a 13-month period, you can reduce the sales charge rate that applies to your purchases of Class A
shares. The total amount of your intended purchases of both Class A and Class B shares will determine the reduced sales charge rate
for the Class A shares purchased during that period. You can include purchases made up to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the Distributor of the intention to purchase Class A shares or
Class A and Class B shares of the Fund (and other Xxxxxxxxxxx funds) during a 13-month period (the "Letter of Intent period"). At the
investor's request, this may include purchases made up to 90 days prior to the date of the Letter. The Letter states the investor's
intention to make the aggregate amount of purchases of shares which, when added to the investor's holdings of shares of those funds,
will equal or exceed the amount specified in the Letter. Purchases made by reinvestment of dividends or distributions of capital
gains and purchases made at net asset value without sales charge do not count toward satisfying the amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares purchased under the Letter to obtain the reduced sales
charge rate on purchases of Class A shares of the Fund (and other Xxxxxxxxxxx funds) that applies under the Right of Accumulation to
current purchases of Class A shares. Each purchase of Class A shares under the Letter will be made at the offering price (including
the sales charge) that applies to a single lump-sum purchase of shares in the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase shares. However, if the investor's purchases of shares
within the Letter of Intent period, when added to the value (at offering price) of the investor's holdings of shares on the last day
of that period, do not equal or exceed the intended purchase amount, the investor agrees to pay the additional amount of sales charge
applicable to such purchases. That amount is described in "Terms of Escrow," below (those terms may be amended by the Distributor
from time to time). The investor agrees that shares equal in value to 5% of the intended purchase amount will be held in escrow by
the Transfer Agent subject to the Terms of Escrow. Also, the investor agrees to be bound by the terms of the Prospectus, this
Statement of Additional Information and the Application used for a Letter of Intent. If those terms are amended, as they may be from
time to time by the Fund, the investor agrees to be bound by the amended terms and that those amendments will apply automatically to
existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do not equal or exceed the intended purchase amount,
the commissions previously paid to the dealer of record for the account and the amount of sales charge retained by the Distributor
will be adjusted to the rates applicable to actual total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for the next sales charge rate reduction set forth in the
Prospectus, the sales charges paid will be adjusted to the lower rate. That adjustment will be made only if and when the dealer
returns to the Distributor the excess of the amount of commissions allowed or paid to the dealer over the amount of commissions that
apply to the actual amount of purchases. The excess commissions returned to the Distributor will be used to purchase additional
shares for the investor's account at the net asset value per share in effect on the date of such purchase, promptly after the
Distributor's receipt thereof.
The Transfer Agent will not hold shares in escrow for purchases of shares of the Fund and other Xxxxxxxxxxx funds by
OppenheimerFunds prototype 401(k) plans under a Letter of Intent. If the intended purchase amount under a Letter of Intent entered
into by an OppenheimerFunds prototype 401(k) plan is not purchased by the plan by the end of the Letter of Intent period, there will
be no adjustment of commissions paid to the broker-dealer or financial institution of record for accounts held in the name of that
plan.
In determining the total amount of purchases made under a Letter, shares redeemed by the investor prior to the termination
of the Letter of Intent period will be deducted. It is the responsibility of the dealer of record and/or the investor to advise the
Distributor about the Letter in placing any purchase orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.
|_| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made pursuant to a Letter, shares of the Fund equal in
value up to 5% of the intended purchase amount specified in the Letter shall be held in escrow by the Transfer Agent. For example,
if the intended purchase amount is $50,000, the escrow shall be shares valued in the amount of $2,500 (computed at the offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions on the escrowed shares will be credited to the
investor's account.
2. If the total minimum investment specified under the Letter is completed within the thirteen-month Letter of Intent period,
the escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total purchases pursuant to the Letter are less than
the intended purchase amount specified in the Letter, the investor must remit to the Distributor an amount equal to the difference
between the dollar amount of sales charges actually paid and the amount of sales charges which would have been paid if the total
amount purchased had been made at a single time. That sales charge adjustment will apply to any shares redeemed prior to the
completion of the Letter. If the difference in sales charges is not paid within twenty days after a request from the Distributor or
the dealer, the Distributor will, within sixty days of the expiration of the Letter, redeem the number of escrowed shares necessary
to realize such difference in sales charges. Full and fractional shares remaining after such redemption will be released from
escrow. If a request is received to redeem escrowed shares prior to the payment of such additional sales charge, the sales charge
will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and appoints the Transfer Agent as attorney-in-fact to
surrender for redemption any or all escrowed shares.
1. The shares eligible for purchase under the Letter (or the holding of which may be counted toward completion of a Letter)
include:
(a) Class A shares sold with a front-end sales charge or subject to a Class A contingent deferred sales charge,
(b) Class B shares of other Xxxxxxxxxxx funds acquired subject to a contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class A shares of one of the other Xxxxxxxxxxx funds
that were acquired subject to a Class A initial or contingent deferred sales charge or (2) Class B shares of one of
the other Xxxxxxxxxxx funds that were acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for shares of another fund to which an exchange is
requested, as described in the section of the Prospectus entitled "How to Exchange Shares" and the escrow will be transferred to that
other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly from a bank account, you must enclose a check
(minimum $25) for the initial purchase with your application. Shares purchased by Asset Builder Plan payments from bank accounts are
subject to the redemption restrictions for recent purchases described in the Prospectus. Asset Builder Plans also enable
shareholders of Xxxxxxxxxxx Cash Reserves to use their fund account to make monthly automatic purchases of shares of up to four other
Xxxxxxxxxxx funds.
If you make payments from your bank account to purchase shares of the Fund, your bank account will be debited automatically.
Normally, the debit will be made two business days prior to the investment dates you selected in your Application. Neither the
Distributor, the Transfer Agent nor the Fund shall be responsible for any delays in purchasing shares resulting from delays in ACH
transmissions.
Before initiating Asset Builder payments, obtain a prospectus of the selected fund(s) from the Distributor or your financial
advisor and request an application from the Distributor, complete it and return it. The amount of the Asset Builder investment may
be changed or the automatic investments may be terminated at any time by writing to the Transfer Agent. The Transfer Agent requires
a reasonable period (approximately 15 days) after receipt of such instructions to implement them. The Fund reserves the right to
amend, suspend, or discontinue offering Asset Builder plans at any time without prior notice.
Retirement Plans. Certain types of retirement plans are entitled to purchase shares of the Fund without sales charge or at reduced
sales charge rates, as described in Appendix C to this Statement of Additional Information. Certain special sales charge arrangements
described in that Appendix apply to retirement plans whose records are maintained on a daily valuation basis by Xxxxxxx Xxxxx Xxxxxx
Xxxxxx & Xxxxx, Inc. or an independent record keeper that has a contract or special arrangement with Xxxxxxx Xxxxx ("Xxxxxxx Xxxxx").
If on the date the plan sponsor signed the Xxxxxxx Xxxxx record keeping service agreement the plan has less than $3 million in assets
(other than assets invested in money market funds) invested in applicable investments, then the retirement plan may purchase only
Class B shares of the Xxxxxxxxxxx funds. Any retirement plans in that category that currently invest in Class B shares of the Fund
will have their Class B shares converted to Class A shares of the Fund when the plan's applicable investments reach $5 million.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's shares (for example, when a purchase check is
returned to the Fund unpaid) causes a loss to be incurred when the net asset value of the Fund's shares on the cancellation date is
less than on the purchase date. That loss is equal to the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that loss. If the investor fails to compensate the Fund for
the loss, the Distributor will do so. The Fund may reimburse the Distributor for that amount by redeeming shares from any account
registered in that investor's name, or the Fund or the Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in the same portfolio of investments of the Fund.
However, each class has different shareholder privileges and features. The net income attributable to a class of shares and the
dividends payable on a class of shares will be reduced by incremental expenses borne solely by that class. Those expenses include the
asset-based sales charges to which Class A, Class B, Class C and Class N are subject.
The availability of different classes of shares permits an investor to choose the method of purchasing shares that is more
appropriate for the investor. That may depend on the amount of the purchase, the length of time the investor expects to hold shares,
and other relevant circumstances. Class A shares normally are sold subject to an initial sales charge. While Class B, Class C and
Class N shares have no initial sales charge, the purpose of the deferred sales charge and asset-based sales charge on Class B, Class
C and Class N shares is the same as that of the initial sales charge on Class A shares - to compensate the Distributor and brokers,
dealers and financial institutions that sell shares of the Fund. A salesperson who is entitled to receive compensation from his or
her firm for selling Fund shares may receive different levels of compensation for selling one class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or more for Class B shares or $1 million or more for
Class C shares on behalf of a single investor (not including dealer "street name" or omnibus accounts). That is because generally it
will be more advantageous for that investor to purchase Class A shares of the Fund.
|X| Class A Shares Subject to a Contingent Deferred Sales Charge. For purchases of
Class A shares subject to a contingent deferred sales charge as described in the Prospectus, no sales concessions will be paid to the
broker-dealer of record, as described in the Prospectus, on sales of Class A shares with the redemption proceeds of shares of another
mutual fund offered as an investment option in a retirement plan in which Xxxxxxxxxxx funds are also offered as investment options
under a special arrangement with the Distributor, if the purchase occurs more than 30 days after the Xxxxxxxxxxx funds are added as
an investment option under that plan. Additionally, that concession will not be paid on purchases of shares by a retirement plan made
with the redemption proceeds of Class N shares of one or more Xxxxxxxxxxx funds held by the plan for more than 18 months.
|X| Class B Conversion. Under current interpretations of applicable federal income tax law by the Internal Revenue Service,
the conversion of Class B shares to Class A shares after six years is not treated as a taxable event for the shareholder. If those
laws or the IRS interpretation of those laws should change, the automatic conversion feature may be suspended. In that event, no
further conversions of Class B shares would occur while that suspension remained in effect. Although Class B shares could then be
exchanged for Class A shares on the basis of relative net asset value of the two classes, without the imposition of a sales charge or
fee, such exchange could constitute a taxable event for the shareholder, and absent such exchange, Class B shares might continue to
be subject to the asset-based sales charge for longer than six years.
|X| Availability of Class N Shares. to certain customers of broker-dealers and financial advisors that are identified in a
special agreement between the broker-dealer or financial advisor and the Distributor for that purpose.
The sales concession and the advance of the service fee, as described in the Prospectus, will not be paid to dealers of
record on sales of Class N shares on:
o purchases of Class N shares in amounts of $500,000 or more by a retirement plan that pays for the purchase with the
redemption proceeds of Class A shares of one or more Xxxxxxxxxxx funds (other than rollovers from an
OppenheimerFunds-sponsored Pinnacle or Ascender 401(k) plan to any XXX invested in the Xxxxxxxxxxx funds),
o purchases of Class N shares in amounts of $500,000 or more by a retirement plan that pays for the purchase with the
redemption proceeds of Class C shares of one or more Xxxxxxxxxxx funds held by the plan for more than one year
(other than rollovers from an OppenheimerFunds-sponsored Pinnacle or Ascender 401(k) plan to any XXX invested in the
Xxxxxxxxxxx funds), and
o on purchases of Class N shares by an OppenheimerFunds-sponsored Pinnacle or Ascender 401(k) plan made with the redemption
proceeds of Class A shares of one or more Xxxxxxxxxxx funds.
|X| Allocation of Expenses. The Fund pays expenses related to its daily operations, such as custodian fees, Directors'
fees, transfer agency fees, legal fees and auditing costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce the net asset value of shares, and therefore are indirectly borne by
shareholders through their investment.
The methodology for calculating the net asset value, dividends and distributions of the Fund's share classes recognizes two
types of expenses. General expenses that do not pertain specifically to any one class are allocated pro rata to the shares of all
classes. The allocation is based on the percentage of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general expenses include management fees, legal, bookkeeping and
audit fees, printing and mailing costs of shareholder reports, Prospectuses, Statements of Additional Information and other materials
for current shareholders, fees to unaffiliated Directors, custodian expenses, share issuance costs, organization and start-up costs,
interest, taxes and brokerage commissions, and non-recurring expenses, such as litigation costs.
Other expenses that are directly attributable to a particular class are allocated equally to each outstanding share within
that class. Examples of such expenses include distribution and service plan (12b-1) fees, transfer and shareholder servicing agent
fees and expenses, and shareholder meeting expenses (to the extent that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of each class of shares of the Fund are determined as of
the close of business of The New York Stock Exchange on each day that the Exchange is open. The calculation is done by dividing the
value of the Fund's net assets attributable to a class by the number of shares of that class that are outstanding. The Exchange
normally closes at 4:00 P.M., New York time, but may close earlier on some other days (for example, in case of weather emergencies or
on days falling before a U.S. holiday). The Exchange's most recent annual announcement (which is subject to change) states that it
will close on New Year's Day, Presidents' Day, Xxxxxx Xxxxxx Xxxx, Xx. Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain securities on days on which the Exchange is closed
(including weekends and U.S. holidays) or after 4:00 P.M. on a regular business day. Because the Fund's net asset values will not be
calculated on those days some of the Fund's net asset value per share may be significantly affected on such days when shareholders
may not purchase or redeem shares. Additionally, trading on European and Asian stock exchanges and over-the-counter markets normally
is completed before the close of The New York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets as a result of events that occur after the prices
of those securities are determined, but before the close of The New York Stock Exchange, will not be reflected in the Fund's
calculation of its net asset values that day unless the Manager determines that the event is likely to effect a material change in
the value of the security. If such determination is made, the Manager, acting through an internal valuation committee will establish
a valuation for such security subject to approval, ratification and confirmation by the Board at its ensuing meeting.
|X| Securities Valuation. The Fund's Board of Directors has established procedures for the valuation of the Fund's
securities. In general those procedures are as follows:
|_| Equity securities traded on a U.S. securities exchange or on NASDAQ are valued as follows:
(1) if last sale information is regularly reported, they are valued at the last reported sale price on the
principal exchange on which they are traded or on NASDAQ, as applicable, on that day, or
(2) if last sale information is not available on a valuation date, they are valued at the last reported sale price preceding the
valuation date if it is within the spread of the closing "bid" and "asked" prices on the valuation date or, if
not, at the closing "bid" price on the valuation date.
|_| Equity securities traded on a foreign securities exchange generally are valued in one of the following ways:
(1) at the last sale price available to the pricing service approved by the Board of Directors, or
(2) at the last sale price obtained by the Manager from the report of the principal exchange on which the security
is traded at its last trading session on or immediately before the valuation date, or
(3) at the mean between the "bid" and "asked" prices obtained from the principal exchange on which the security is
traded or, on the basis of reasonable inquiry, from two market makers in the security.
|_| Long-term debt securities having a remaining maturity in excess of 60 days are valued based on the mean between the
"bid" and "asked" prices determined by a portfolio pricing service approved by the Fund's Board of Directors or obtained by the
Manager from two active market makers in the security on the basis of reasonable inquiry.
|_| The following securities are valued at the mean between the "bid" and "asked" prices determined by a pricing service
approved by the Fund's Board of Directors or obtained by the Manager from two active market makers in the security on
the basis of reasonable inquiry:
(1) debt instruments that have a maturity of more than 397 days when issued,
(2) debt instruments that had a maturity of 397 days or less when issued and have a remaining maturity of more than
60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or less when issued and which have a
remaining maturity of 60 days or less.
|_| The following securities are valued at cost, adjusted for amortization of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a maturity of less than 397 days when
issued that have a remaining maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining maturity of 397 days or less.
|_| Securities (including restricted securities) not having readily-available market quotations are valued at fair value
determined under the Board's procedures. If the Manager is unable to locate two market makers willing to give quotes, a security may
be priced at the mean between the "bid" and "asked" prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).
In the case of U.S. Government securities, mortgage-backed securities, corporate bonds and foreign government securities,
when last sale information is not generally available, the Manager may use pricing services approved by the Board of Directors. 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 Directors 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 items and conditions for redeeming shares set forth in the prospectuses.
Reinvestment Privilege. Within six months of a redemption, a shareholder may reinvest all or part of the redemption proceeds of:
|_| Class A shares purchased subject to an initial sales charge or Class A shares on which a contingent deferred sales
charge was paid, or
|_| Class B shares that were subject to the Class B contingent deferred sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares of the Fund or any of the other Xxxxxxxxxxx funds
into which shares of the Fund are exchangeable as described in "How to Exchange Shares" below. Reinvestment will be at the net asset
value next computed after the Transfer Agent receives the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C or Class Y shares. The Fund may amend, suspend or
cease offering this reinvestment privilege at any time as to shares redeemed after the date of such amendment, suspension or
cessation.
Any capital gain that was realized when the shares were redeemed is taxable, and reinvestment will not alter any capital
gains tax payable on that gain. If there has been a capital loss on the redemption, some or all of the loss may not be tax
deductible, depending on the timing and amount of the reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the Fund or another of the Xxxxxxxxxxx funds within 90 days
of payment of the sales charge, the shareholder's basis in the shares of the Fund that were redeemed may not include the amount of
the sales charge paid. That would reduce the loss or increase the gain recognized from the
redemption. However, in that case the sales charge would be added to the basis of the shares
acquired by the reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for redemption is ordinarily made in cash. However, under
certain circumstances the Board of Directors of the Fund may determine that it would be detrimental to the best interests of the
remaining shareholders of the Fund to make payment of a redemption order wholly or partly in cash. In that case, the Fund may pay
the redemption proceeds in whole or in part by a distribution "in kind" of liquid securities from the portfolio of the Fund, in lieu
of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the Fund is obligated
to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any 90-day period for any one
shareholder. If shares are redeemed in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities
for cash. The Fund will value securities used to pay redemptions in kind using the same method the Fund uses to value its portfolio
securities described above under "Determination of Net Asset Values Per Share." That valuation will be made as of the time the
redemption price is determined.
Involuntary Redemptions. The Fund's Board of Directors has the right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of those shares is less than $500 or such lesser amount as the Board may fix. The Board
will not cause the involuntary redemption of shares in an account if the aggregate net asset value of such shares has fallen below
the stated minimum solely as a result of market fluctuations. If the Board exercises this right, it may also fix the requirements
for any notice to be given to the shareholders in question (not less than 30 days). The Board may alternatively set requirements for
the shareholder to increase the investment, or set other terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an event that triggers the payment of sales charges.
Therefore, shares are not subject to the payment of a contingent deferred sales charge of any class at the time of transfer to the
name of another person or entity. It does not matter whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When shares subject to a contingent deferred sales charge
are transferred, the transferred shares will remain subject to the contingent deferred sales charge. It will be calculated as if the
transferee shareholder had acquired the transferred shares in the same manner and at the same time as the transferring shareholder.
If less than all shares held in an account are transferred, and some but not all shares in the account would be subject to a
contingent deferred sales charge if redeemed at the time of transfer, the priorities described in the Prospectus under "How to Buy
Shares" for the imposition of the Class B or Class C contingent deferred sales charge will be followed in determining the order in
which shares are transferred.
Selling Shares by Wire. The wire of redemptions proceeds may be delayed if the Fund's custodian bank is not open for business on a
day when the Fund would normally authorize the wire to be made, which is usually the Fund's next regular business day following the
redemption. In those circumstances, the wire will not be transmitted until the next bank business day on which the Fund is open for
business. No dividends will be paid on the proceeds of redeemed shares awaiting transfer by wire.
Distributions From Retirement Plans. Requests for distributions from OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans,
401(k) plans or pension or profit-sharing plans should be addressed to "Trustee, OppenheimerFunds Retirement Plans," c/o the Transfer
Agent at its address listed in "How To Sell Shares" in the Prospectus or on the back cover of this Statement of Additional
Information. The request must:
(1) state the reason for the distribution;
(2) state the owner's awareness of tax penalties if the distribution is premature; and
(3) conform to the requirements of the plan and the Fund's other redemption requirements.
Participants (other than self-employed persons) in OppenheimerFunds-sponsored pension or profit-sharing plans with shares of
the Fund held in the name of the plan or its fiduciary may not directly request redemption of their accounts. The plan administrator
or fiduciary must sign the request.
Distributions from pension and profit sharing plans are subject to special requirements under the Internal Revenue Code and
certain documents (available from the Transfer Agent) must be completed and submitted to the Transfer Agent before the distribution
may be made. Distributions from retirement plans are subject to withholding requirements under the Internal Revenue Code, and IRS
Form W-4P (available from the Transfer Agent) must be submitted to the Transfer Agent with the distribution request, or the
distribution may be delayed. Unless the shareholder has provided the Transfer Agent with a certified tax identification number, the
Internal Revenue Code requires that tax be withheld from any distribution even if the shareholder elects not to have tax withheld.
The Fund, the Manager, the Distributor, and the Transfer Agent assume no responsibility to determine whether a distribution satisfies
the conditions of applicable tax laws and will not be responsible for any tax penalties assessed in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The Distributor is the Fund's agent to repurchase its shares
from authorized dealers or brokers on behalf of their customers. Shareholders should contact their broker or dealer to arrange this
type of redemption. The repurchase price per share will be the net asset value next computed after the Distributor receives an order
placed by the dealer or broker. However, if the Distributor receives a repurchase order from a dealer or broker after the close of
The New York Stock Exchange on a regular business day, it will be processed at that day's net asset value if the order was received
by the dealer or broker from its customers prior to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but may
do so earlier on some days. Additionally, the order must have been transmitted to and received by the Distributor prior to its close
of business that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure, payment will be made within three business days
after the shares have been redeemed upon the Distributor's receipt of the required redemption documents in proper form. The
signature(s) of the registered owners on the redemption documents must be guaranteed as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund valued at $5,000 or more can authorize the Transfer
Agent to redeem shares (having a value of at least $50) automatically on a monthly, quarterly, semi-annual or annual basis under an
Automatic Withdrawal Plan. Shares will be redeemed three business days prior to the date requested by the shareholder for receipt of
the payment. Automatic withdrawals of up to $1,500 per month may be requested by telephone if payments are to be made by check
payable to all shareholders of record. Payments must also be sent to the address of record for the account and the address must not
have been changed within the prior 30 days. Required minimum distributions from OppenheimerFunds-sponsored retirement plans may not
be arranged on this basis.
Payments are normally made by check, but shareholders having AccountLink privileges (see "How To Buy Shares") may arrange to
have Automatic Withdrawal Plan payments transferred to the bank account designated on the Account Application or by
signature-guaranteed instructions sent to the Transfer Agent. Shares are normally redeemed pursuant to an Automatic Withdrawal Plan
three business days before the payment transmittal date you select in the Account Application. If a contingent deferred sales charge
applies to the redemption, the amount of the check or payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The Fund reserves the right to amend, suspend or
discontinue offering these plans at any time without prior notice. Because of the sales charge assessed on Class A share purchases,
shareholders should not make regular additional Class A share purchases while participating in an Automatic Withdrawal Plan. Class B,
Class C and Class N shareholders should not establish withdrawal plans, because of the imposition of the contingent deferred sales
charge on such withdrawals (except where the contingent deferred sales charge is waived as described in Appendix C below).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder agrees to the terms and conditions that apply to
such plans, as stated below. These provisions may be amended from time to time by the Fund and/or the Distributor. When adopted,
any amendments will automatically apply to existing Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer Agent to exchange a pre-determined amount of shares
of the Fund for shares (of the same class) of other Xxxxxxxxxxx funds automatically on a monthly, quarterly, semi-annual or annual
basis under an Automatic Exchange Plan. The minimum amount that may be exchanged to each other fund account is $25. Instructions
should be provided on the OppenheimerFunds Application or signature-guaranteed instructions. Exchanges made under these plans are
subject to the restrictions that apply to exchanges as set forth in "How to Exchange Shares" in the Prospectus and below in this
Statement of Additional Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to meet withdrawal payments. Shares acquired
without a sales charge will be redeemed first. Shares acquired with reinvested dividends and capital gains distributions will be
redeemed next, followed by shares acquired with a sales charge, to the extent necessary to make withdrawal payments. Depending upon
the amount withdrawn, the investor's principal may be depleted. Payments made under these plans should not be considered as a yield
or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal Plan as agent for the shareholder(s) (the
"Planholder") who executed the Plan authorization and application submitted to the Transfer Agent. Neither the Fund nor the Transfer
Agent shall incur any liability to the Planholder for any action taken or not taken by the Transfer Agent in good faith to administer
the Plan. Share certificates will not be issued for shares of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the records of the Fund. Any share certificates held by a Planholder
may be surrendered unendorsed to the Transfer Agent with the Plan application so that the shares represented by the certificate may
be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of capital gains must be reinvested in shares of the Fund,
which will be done at net asset value without a sales charge. Dividends on shares held in the account may be paid in cash or
reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value per share determined on the redemption date.
Checks or AccountLink payments representing the proceeds of Plan withdrawals will normally be transmitted three business days prior
to the date selected for receipt of the payment, according to the choice specified in writing by the Planholder. Receipt of payment
on the date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to which checks are to be mailed or AccountLink
payments are to be sent may be changed at any time by the Planholder by writing to the Transfer Agent. The Planholder should allow
at least two weeks' time after mailing such notification for the requested change to be put in effect. The Planholder may, at any
time, instruct the Transfer Agent by written notice to redeem all, or any part of, the shares held under the Plan. That notice must
be in proper form in accordance with the requirements of the then-current Prospectus of the Fund. In that case, the Transfer Agent
will redeem the number of shares requested at the net asset value per share in effect and will mail a check for the proceeds to the
Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer Agent. The Fund may also give directions to the
Transfer Agent to terminate a Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence satisfactory to it
that the Planholder has died or is legally incapacitated. Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed will be held in uncertificated form in the name of the Planholder. The account will continue as a
dividend-reinvestment, uncertificated account unless and until proper instructions are received from the Planholder, his or her
executor or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder may request issuance of a portion of the shares
in certificated form. Upon written request from the Planholder, the Transfer Agent will determine the number of shares for which a
certificate may be issued without causing the withdrawal checks to stop. However, should such uncertificated shares become exhausted,
Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the Planholder will be deemed to have appointed any
successor transfer agent to act as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Xxxxxxxxxxx funds having more than one class of shares may be
exchanged only for shares of the same class of other Xxxxxxxxxxx funds. Shares of Xxxxxxxxxxx funds that have a single class without
a class designation are deemed "Class A" shares for this purpose. You can obtain a current list showing which funds offer which
classes by calling the Distributor at 0.000.000.0000.
o All of the Xxxxxxxxxxx funds currently offer Class A, B and C shares except Oppenheimer Money Market Fund, Inc., Centennial
Money Market Trust, Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New York Tax Exempt Trust, Centennial
California Tax Exempt Trust, and Centennial America Fund, L.P., which only offer Class A shares.
o Class B, Class C and Class N shares of Oppenheimer 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 Oppenheimer 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 Oppenheimer 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
Oppenheimer Money Market Fund or Oppenheimer 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 Oppenheimer Money Market Fund, Inc.,
Oppenheimer Cash Reserves or Oppenheimer Limited-Term Government Fund. Only participants in certain retirement plans may
purchase shares of Xxxxxxxxxxx Capital Preservation Fund, and only those participants may exchange shares of other Xxxxxxxxxxx
funds for shares of Xxxxxxxxxxx Capital Preservation Fund.
o Class A shares of Xxxxxxxxxxx Senior Floating Rate Fund are not available by exchange of shares of Xxxxxxxxxxx Money Market
Fund or Class A shares of Xxxxxxxxxxx Cash Reserves. If any Class A shares of another Xxxxxxxxxxx fund that are exchanged for
Class A shares of Xxxxxxxxxxx Senior Floating Rate Fund are subject to the Class A contingent deferred sales charge of the other
Xxxxxxxxxxx fund at the time of exchange, the holding period for that Class A contingent deferred sales charge will carry over to
the Class A shares of Xxxxxxxxxxx Senior Floating Rate Fund acquired in the exchange. The Class A shares of Xxxxxxxxxxx Senior
Floating Rate Fund acquired in that exchange will be subject to the Class A Early Withdrawal Charge of Xxxxxxxxxxx Senior
Floating Rate Fund if they are repurchased before the expiration of the holding period.
o Class A, Class B, Class C and Class Y Shares of Xxxxxxxxxxx Select Managers Mercury Advisors S&P Index Fund and Xxxxxxxxxxx
Select Managers QM Active Balanced Fund are only available to retirement plans and are available only by exchange from the same
class of shares of other Xxxxxxxxxxx funds held by retirement plans.
Class A shares of Xxxxxxxxxxx funds may be exchanged at net asset value for shares of any money market fund offered by the
Distributor. Shares of any money market fund purchased without a sales charge may be exchanged for shares of Xxxxxxxxxxx funds
offered with a sales charge upon payment of the sales charge. They may also be used to purchase shares of Xxxxxxxxxxx funds
subject to an early withdrawal charge or contingent deferred sales charge.
Shares of Xxxxxxxxxxx Money Market Fund, Inc. purchased with the redemption proceeds of shares of other mutual funds (other
than funds managed by the Manager or its subsidiaries) redeemed within the 30 days prior to that purchase may subsequently be
exchanged for shares of other Xxxxxxxxxxx funds without being subject to an initial sales charge or contingent deferred sales charge.
To qualify for that privilege, the investor or the investor's dealer must notify the Distributor of eligibility for this privilege at
the time the shares of Xxxxxxxxxxx Money Market Fund, Inc. are purchased. If requested, they must supply proof of entitlement to
this privilege.
Shares of the Fund acquired by reinvestment of dividends or distributions from any of the other Xxxxxxxxxxx funds or from
any unit investment trust for which reinvestment arrangements have been made with the Distributor may be exchanged at net asset value
for shares of any of the Xxxxxxxxxxx funds.
The Fund may amend, suspend or terminate the exchange privilege at any time. Although
the Fund may impose these changes at any time, it will provide you with notice of those changes whenever it is required to do so by
applicable law. It may be required to provide 60 days notice prior to materially amending or terminating the exchange privilege.
That 60 day notice is not required in extraordinary circumstances.
How Exchanges Affect Contingent Deferred Sales Charges. No contingent deferred sales charge is imposed on exchanges of
shares of any class purchased subject to a contingent deferred sales charge. However, when Class A shares acquired by exchange of
Class A shares of other Xxxxxxxxxxx funds purchased subject to a Class A contingent deferred sales charge are redeemed within 18
months of the end of the calendar month of the initial purchase of the exchanged Class A shares, the Class A contingent deferred
sales charge is imposed on the redeemed shares. The Class B contingent deferred sales charge is imposed on Class B shares acquired by
exchange if they are redeemed within 6 years of the initial purchase of the exchanged Class B shares. The Class C contingent
deferred sales charge is imposed on Class C shares acquired by exchange if they are redeemed within 12 months of the initial purchase
of the exchanged Class C shares. With respect to Class N shares, a 1% contingent deferred sales charge will be imposed if the
retirement plan (not including IRAs and 403(b) plans) is terminated or Class N shares of all Xxxxxxxxxxx funds are terminated as an
investment option of the plan and Class N shares are redeemed within 18 months after the plan's first purchase of Class N shares of
any Xxxxxxxxxxx fund or with respect to an individual retirement plan or 403(b) plan, Class N shares are redeemed within 18 months of
the plan's first purchase of Class N shares of any Xxxxxxxxxxx fund.
When Class B or Class C shares are redeemed to effect an exchange, the priorities described in "How To Buy Shares" in the Prospectus
for the imposition of the Class B or the Class C contingent deferred sales charge will be followed in determining the order in which
the shares are exchanged. Before exchanging shares, shareholders should take into account how the exchange may affect any contingent
deferred sales charge that might be imposed in the subsequent redemption of remaining shares. If Class B shares of an Xxxxxxxxxxx
fund are exchanged for Class B shares of Xxxxxxxxxxx Limited-Term Government Fund or Limited-Term New York Municipal Fund and those
shares acquired by exchange are subsequently redeemed, they will be subject to the contingent deferred sales charge of the
Xxxxxxxxxxx fund from which they were exchanged. The contingent deferred sales charge rates of Class B shares of other Xxxxxxxxxxx
funds are typically higher for the same holding period than for Class B shares of Xxxxxxxxxxx Limited-Term Government Fund and
Limited-Term New York Municipal Fund. They will not be subject to the contingent deferred sales charge of Xxxxxxxxxxx Limited-Term
Government Fund or Limited-Term New York Municipal Fund.
Shareholders owning shares of more than one class must specify which class of shares they wish to exchange.
|X| Limits on Multiple Exchange Orders. The Fund reserves the right to reject telephone or written exchange requests
submitted in bulk by anyone on behalf of more than one account. The Fund may accept requests for exchanges of up to 50 accounts per
day from representatives of authorized dealers that qualify for this privilege.
|X| Telephone Exchange Requests. When exchanging shares by telephone, a shareholder must have an existing account in the
fund to which the exchange is to be made. Otherwise, the investors must obtain a Prospectus of that fund before the exchange request
may be submitted. If all telephone lines are busy (which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone and would have to submit written exchange requests.
|X| Processing Exchange Requests. 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. Shares to be exchanged are redeemed on
the regular business day the Transfer Agent receives an exchange request in proper form (the "Redemption Date"). Normally, shares of
the fund to be acquired are purchased on the Redemption Date, but such purchases may be delayed by either fund up to five business
days if it determines that it would be disadvantaged by an immediate transfer of the redemption proceeds. The Fund reserves the
right, in its discretion, to refuse any exchange request that may disadvantage it. For example, if the receipt of multiple exchange
requests from a dealer might require the disposition of portfolio securities at a time or at a price that might be disadvantageous to
the Fund, the Fund may refuse the request. For full or partial exchanges of an account made by telephone, any special account
features such as Asset Builder Plans and Automatic Withdrawal Plans will be switched to the new account unless the Transfer Agent is
instructed otherwise.
In connection with any exchange request, the number of shares exchanged may be less than the number requested if the
exchange or the number requested would include shares subject to a restriction cited in the Prospectus or this Statement of
Additional Information, or would include shares covered by a share certificate that is not tendered with the request. In those
cases, only the shares available for exchange without restriction will be exchanged.
The different Xxxxxxxxxxx funds available for exchange have different investment objectives, policies and risks. A
shareholder should assure that the fund selected is appropriate for his or her investment and should be aware of the tax consequences
of an exchange. For federal income tax purposes, an exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some of the tax consequences of reinvestment of redemption
proceeds in such cases. The Fund, the Distributor, and the Transfer Agent are unable to provide investment, tax or legal advice to a
shareholder in connection with an exchange request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. The Fund has no fixed dividend rate and there can be no assurance as to the payment of any dividends or
the realization of any capital gains. The dividends and distributions paid by a class of shares will vary from time to time depending
on market conditions, the composition of the Fund's portfolio, and expenses borne by the Fund or borne separately by a class.
Dividends are calculated in the same manner, at the same time, and on the same day for each class of shares. However, dividends on
Class B, Class C and Class N shares are expected to be lower than dividends on Class A and Class Y shares. That is because of the
effect of the higher asset-based sales charge on Class B, Class C and Class N shares. Those dividends will also differ in amount as
a consequence of any difference in the net asset values of each class of shares.
Dividends, distributions and proceeds of the redemption of Fund shares represented by checks returned to the Transfer Agent
by the Postal Service as undeliverable will be invested in shares of Xxxxxxxxxxx Money Market Fund, Inc. Reinvestment will be made
as promptly as possible after the return of such checks to the Transfer Agent, to enable the investor to earn a return on otherwise
idle funds. Unclaimed accounts may be subject to state escheatment laws, and the Fund and the Transfer Agent will not be liable to
shareholders or their representatives for compliance with those laws in good faith.
Tax Status of the Fund's Dividends, Distributions and Redemptions of Shares. The federal tax treatment of the Fund's dividends and
capital gains distributions is briefly highlighted in the Prospectus. The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders.
The tax discussion in the Prospectus and this Statement of Additional Information is based on tax law in effect on the date
of the Prospectus and this Statement of Additional Information. Those laws and regulations may be changed by legislative, judicial,
or administrative action, sometimes with retroactive effect. State and local tax treatment of ordinary income dividends and capital
gain dividends from regulated investment companies may differ from the treatment under the Internal Revenue Code described below.
Potential purchasers of shares of the Fund are urged to consult their tax advisers with specific reference to their own tax
circumstances as well as the consequences of federal, state and local tax rules affecting an investment in the Fund.
|X| Qualification as a Regulated Investment Company. The Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. As a regulated investment company, the Fund is not subject to
federal income tax on the portion of its investment company taxable income (that is, taxable interest, dividends, other taxable
ordinary income net of expenses, and net short-term capital gain in excess of long-term capital loss) and capital gain net income
(that is, the excess of net long-term capital gains over net short-term capital losses) that it distributes to shareholders. That
qualification enables the Fund to "pass through" its income and realized capital gains to shareholders without having to pay tax on
them. This avoids a "double tax" on that income and capital gains, since shareholders normally will be taxed on the dividends and
capital gains they receive from the Fund (unless their Fund shares are held in a retirement account or the shareholder is otherwise
exempt from tax). The Internal Revenue Code contains a number of complex tests relating to qualification that the Fund might not meet
in a particular year. If it did not qualify as a regulated investment company, the Fund would be treated for tax purposes as an
ordinary corporation and would receive no tax deduction for payments made to shareholders.
To qualify as a regulated investment company, the Fund must distribute at least 90% of its investment company taxable income
(in brief, net investment income and the excess of net short-term capital gain over net long-term capital loss) for the taxable year.
The Fund must also satisfy certain other requirements of the Internal Revenue Code, some of which are described below. Distributions
by the Fund made during the taxable year or, under specified circumstances, within twelve months after the close of the taxable year,
will be considered distributions of income and gains for the taxable year and will therefore count toward satisfaction of the
above-mentioned requirement.
To qualify as a regulated investment company, the Fund must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business
of investing in stock or securities) and certain other income.
In addition to satisfying the requirements described above, the Fund must satisfy an asset diversification test in order to
qualify as a regulated investment company. Under that test, at the close of each quarter of the Fund's taxable year, at least 50% of
the value of the Fund's assets must consist of cash and cash items, U.S. government securities, securities of other regulated
investment companies, and securities of other issuers. As to each of those issuers, the Fund must not have invested more than 5% of
the value of the Fund's total assets in securities of each such issuer and the Fund must not hold more than 10% of the outstanding
voting securities of each such issuer. No more than 25% of the value of its total assets may be invested in the securities of any one
issuer (other than U.S. government securities and securities of other regulated investment companies), or in two or more issuers
which the Fund controls and which are engaged in the same or similar trades or businesses. For purposes of this test, obligations
issued or guaranteed by certain agencies or instrumentalities of the U.S. government are treated as U.S. government securities.
|X| Excise Tax on Regulated Investment Companies. Under the Internal Revenue Code, by December 31 each year, the Fund
must distribute 98% of its taxable investment income earned from January 1 through December 31 of that year and 98% of its capital
gains realized in the period from November 1 of the prior year through October 31 of the current year. If it does not, the Fund must
pay an excise tax on the amounts not distributed. It is presently anticipated that the Fund will meet those requirements. To meet
this requirement, in certain circumstances the Fund might be required to liquidate portfolio investments to make sufficient
distributions to avoid excise tax liability. However, the Board of Directors and the Manager might determine in a particular year
that it would be in the best interests of shareholders for the Fund not to make such distributions at the required levels and to pay
the excise tax on the undistributed amounts. That would reduce the amount of income or capital gains available for distribution to
shareholders.
|X| Taxation of Fund Distributions. The Fund anticipates distributing substantially all of its investment company taxable
income for each taxable year. Those distributions will be taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes.
Special provisions of the Internal Revenue Code govern the eligibility of the Fund's dividends for the dividends-received
deduction for corporate shareholders. Long-term capital gains distributions are not eligible for the deduction. The amount of
dividends paid by the Fund that may qualify for the deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum period, usually 46 days. A corporate shareholder will
not be eligible for the deduction on dividends paid on Fund shares held for 45 days or less. To the extent the Fund's dividends are
derived from gross income from option premiums, interest income or short-term gains from the sale of securities or dividends from
foreign corporations, those dividends will not qualify for the deduction. Since it is anticipated that most of the Fund's income will
be derived from interest it receives on its investments, the Fund does not anticipate that its distributions will qualify for this
deduction.
The Fund may either retain or distribute to shareholders its net capital gain for each taxable year. The Fund currently
intends to distribute any such amounts. If net long term capital gains are distributed and designated as a capital gain
distribution, it will be taxable to shareholders as long-term capital gain. It does not matter how long the shareholder has held his
or her shares or whether that gain was recognized by the Fund before the shareholder acquired his or her shares.
If the Fund elects to retain its net capital gain, the Fund will be subject to tax on it at the 35% corporate tax rate. If
the Fund elects to retain its net capital gain, it is expected that the Fund also will elect to have shareholders of record on the
last day of its taxable year treated as if each received a distribution of their pro rata share of such gain. As a result, each
shareholder will be required to report his or her pro rata share of such gain on their tax return as long-term capital gain, will
receive a refundable tax credit for his/her pro rata share of tax paid by the Fund on the gain, and will increase the tax basis for
his/her shares by an amount equal to the deemed distribution less the tax credit.
Investment income that may be received by the Fund from sources within foreign countries may be subject to foreign taxes
withheld at the source. The United States has entered into tax treaties with many foreign countries which entitle the Fund to a
reduced rate of, or exemption from, taxes on such income.
Distributions by the Fund that do not constitute ordinary income dividends or capital gain distributions will be treated as
a return of capital to the extent of the shareholder's tax basis in their shares. Any excess will be treated as gain from the sale of
those shares, as discussed below. Shareholders will be advised annually as to the U.S. federal income tax consequences of
distributions made (or deemed made) during the year. If prior distributions made by the Fund must be re-characterized as a
non-taxable return of capital at the end of the fiscal year as a result of the effect of the Fund's investment policies, they will be
identified as such in notices sent to shareholders.
Distributions by the Fund will be treated in the manner described above regardless of whether the distributions are paid in
cash or reinvested in additional shares of the Fund (or of another fund). Shareholders receiving a distribution in the form of
additional shares will be treated as receiving a distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date.
The Fund will be required in certain cases to withhold and remit to the U.S. Treasury 31% of ordinary income dividends and
capital gains distributions and the proceeds of the redemption of shares, paid to any shareholder (1) who has failed to provide a
correct, certified taxpayer identification number, (2) who is subject to backup withholding for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the Fund that the shareholder is not subject to backup
withholding or is an "exempt recipient" (such as a corporation).
|X| Tax Effects of Redemptions of Shares. If a shareholder redeems all or a portion of his/her shares, the shareholder will
-
recognize a gain or loss on the redeemed shares in an amount equal to the difference between the proceeds of the redeemed shares and
the shareholder's adjusted tax basis in the shares. All or a portion of any loss recognized in that manner may be disallowed if the
shareholder purchases other shares of the Fund within 30 days before or after the redemption.
In general, any gain or loss arising from the redemption of shares of the Fund will be considered capital gain or loss, if
the shares were held as a capital asset. It will be long-term capital gain or loss if the shares were held for more than one year.
However, any capital loss arising from the redemption of shares held for six months or less will be treated as a long-term capital
loss to the extent of the amount of capital gain dividends received on those shares. Special holding period rules under the Internal
Revenue Code apply in this case to determine the holding period of shares and there are limits on the deductibility of capital losses
in any year.
|X| Foreign Shareholders. Taxation of a shareholder who under United States law is a nonresident alien individual, foreign
trust or estate, foreign corporation, or foreign partnership depends on whether the shareholder's income from the Fund is effectively
connected with a U.S. trade or business carried on by such shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or business carried on by a foreign shareholder,
ordinary income dividends paid to such foreign shareholder will be subject to U.S. withholding tax. The rate of the tax depends on a
number of factors. If the income from the Fund is effectively connected with a U.S. trade or business carried on by a foreign
shareholder, then ordinary income dividends, capital gain dividends, and any gains realized upon the sale of shares of the Fund will
be subject to U.S. federal income tax at the rates applicable to U.S. citizens or domestic corporations.
In the case of a foreign non-corporate shareholder, the Fund may be required to withhold U.S. federal income tax at a rate
of 31% on distributions that are otherwise exempt from withholding tax (or taxable at a reduced treaty rate) unless the shareholder
furnishes the Fund with proper notification of their foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different
from those described herein. Foreign shareholders are urged to consult their own tax advisers with respect to the particular tax
consequences to them of an investment in the Fund, including the applicability of foreign taxes.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to reinvest all dividends and/or capital gains
distributions in shares of the same class of any of the other Xxxxxxxxxxx funds listed above. Reinvestment will be made without sales
charge at the net asset value per share in effect at the close of business on the payable date of the dividend or distribution. To
elect this option, the shareholder must notify the Transfer Agent in writing and must have an existing account in the fund selected
for reinvestment. Otherwise the shareholder first must obtain a prospectus for that fund and an application from the Distributor to
establish an account. Dividends and/or distributions from shares of certain other Xxxxxxxxxxx funds (other than Xxxxxxxxxxx Cash
Reserves) may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other financial institutions that have a sales agreement
with OppenheimerFunds Distributor, Inc., a subsidiary of the Manager that acts as the Fund's Distributor. The Distributor also
distributes shares of the other Xxxxxxxxxxx funds and is sub-distributor for funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a division of the Manager. It is responsible for
maintaining the Fund's shareholder registry and shareholder accounting records, and for paying dividends and distributions to
shareholders. It also handles shareholder servicing and administrative functions. The Fund pays the Transfer Agent a fixed annual
maintenance fee for each shareholder account and reimburses the Transfer Agent for its out-of-pocket-expenses. It also acts as
shareholder servicing agent for the other Xxxxxxxxxxx funds. Shareholders should direct inquiries about their accounts to the
Transfer Agent at the address and toll-free numbers shown on the back cover.
|X| Shareholder Servicing Agent for Certain Shareholders. Unified Management Corporation (0-000-000-0000) is the
shareholder servicing agent for shareholders of the Fund who were former shareholders of the AMA Family of Funds and clients of AMA
Investment Advisors, Inc. (which had been the investment Advisor of AMA Family of Funds). It is also the servicing agent for Fund
shareholders who are:
(i) former shareholders of the Unified Funds and Liquid Green Trusts,
(ii) accounts that participated or participate in a retirement plan for which Unified Investment Advisors, Inc. or an
affiliate acts as custodian or trustee,
(iii) accounts that have a Money Manager brokerage account, and
other accounts for which Unified Management Corporation is the dealer of record.
The Custodian. Citibank, N.A. 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. KPMG LLP are the independent auditors of the Fund. They audit the Fund's financial statements and perform
other related audit services. They also act as independent auditors for certain other funds advised by the Manager.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Xxxxxxxxxxx Quest Value Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Xxxxxxxxxxx Quest Value Fund, Inc., including the statement of investments, as
of October 31, 2001, and the related statement of operations for the year then
ended, the statements of changes in net assets and the financial highlights for
each of the two years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each of
the three years in the period ended October 31, 1999, were audited by other
auditors whose report dated November 19, 1999, expressed an unqualified opinion
on this information.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of October 31, 2001, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Xxxxxxxxxxx Quest Value Fund, Inc. as of October 31, 2001, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for each of the two years in the period then ended, in
conformity with accounting principles generally accepted in the United States
of America.
/s/ KPMG LLP
------------
KPMG LLP
Denver, Colorado
November 21, 2001
STATEMENT OF INVESTMENTS October 31, 2001
Market Value
Shares See Note 1
================================================================================
Common Stocks--88.0%
--------------------------------------------------------------------------------
Basic Materials--1.8%
--------------------------------------------------------------------------------
Metals--1.8%
Alcoa, Inc. 550,000 $ 17,748,500
--------------------------------------------------------------------------------
Capital Goods--12.2%
--------------------------------------------------------------------------------
Aerospace/Defense--1.6%
Boeing Co. 500,000 16,300,000
--------------------------------------------------------------------------------
Industrial Services--1.9%
Waste Management, Inc. 750,000 18,375,000
--------------------------------------------------------------------------------
Manufacturing--8.7%
Caterpillar, Inc. 400,000 17,888,000
--------------------------------------------------------------------------------
CP Holders/1/ 745,000 27,267,000
--------------------------------------------------------------------------------
Minnesota Mining & Manufacturing Co. 300,000 31,314,000
--------------------------------------------------------------------------------
Textron, Inc. 300,000 9,495,000
--------------
85,964,000
--------------------------------------------------------------------------------
Communication Services--8.9%
--------------------------------------------------------------------------------
Telecommunications-Long Distance--7.4%
Sprint Corp. (Fon Group) 1,000,000 20,000,000
--------------------------------------------------------------------------------
Verizon Communications, Inc. 600,000 29,886,000
--------------------------------------------------------------------------------
WorldCom, Inc./MCI Group 56,000 663,600
--------------------------------------------------------------------------------
WorldCom, Inc./WorldCom Group/1/ 1,700,000 22,865,000
--------------
73,414,600
--------------------------------------------------------------------------------
Telephone Utilities--1.5%
SBC Communications, Inc. 400,000 15,244,000
--------------------------------------------------------------------------------
Consumer Cyclicals--1.3%
--------------------------------------------------------------------------------
Leisure & Entertainment--1.3%
Carnival Corp. 600,000 13,068,000
--------------------------------------------------------------------------------
Consumer Staples--12.9%
--------------------------------------------------------------------------------
Broadcasting--1.2%
Clear Channel Communications, Inc./1/ 300,000 11,436,000
--------------------------------------------------------------------------------
Entertainment--3.2%
XxXxxxxx'x Corp. 1,200,000 31,284,000
--------------------------------------------------------------------------------
Food & Drug Retailers--7.2%
CVS Corp. 850,000 20,315,000
--------------------------------------------------------------------------------
Kroger Co. (The)/1/ 2,100,000 51,366,000
--------------
71,681,000
--------------------------------------------------------------------------------
Household Goods--1.3%
Xxxxxxxx Co. 400,000 12,436,000
--------------------------------------------------------------------------------
Energy--4.9%
--------------------------------------------------------------------------------
Energy Services--1.0%
Halliburton Co. 400,000 9,876,000
12 | XXXXXXXXXXX QUEST VALUE FUND, INC.
Market Value
Shares See Note 1
================================================================================
Oil: Domestic--3.9%
ChevronTexaco Corp. 250,000 $ 22,137,500
--------------------------------------------------------------------------------
Unocal Corp. 500,000 16,100,000
--------------
38,237,500
--------------------------------------------------------------------------------
Financial--31.9%
--------------------------------------------------------------------------------
Banks--8.6%
FleetBoston Financial Corp. 1,000,000 32,860,000
--------------------------------------------------------------------------------
X.X. Xxxxxx Chase & Co. 600,000 21,216,000
--------------------------------------------------------------------------------
Xxxxx Fargo Co. 800,000 31,600,000
--------------
85,676,000
--------------------------------------------------------------------------------
Diversified Financial--15.9%
Citigroup, Inc. 700,000 31,864,000
--------------------------------------------------------------------------------
Countrywide Credit Industries, Inc. 600,000 23,958,000
--------------------------------------------------------------------------------
Xxxxxxx Mac 1,000,000 67,820,000
--------------------------------------------------------------------------------
Household International, Inc. 650,000 33,995,000
--------------
157,637,000
--------------------------------------------------------------------------------
Insurance--7.4%
AFLAC, Inc. 600,000 14,676,000
--------------------------------------------------------------------------------
Xxxx Xxxxxxx Financial Services, Inc. 900,000 30,672,000
--------------------------------------------------------------------------------
XL Capital Ltd., Cl. A 325,000 28,229,500
--------------
73,577,500
--------------------------------------------------------------------------------
Healthcare--6.8%
--------------------------------------------------------------------------------
Healthcare/Drugs--6.8%
American Home Products Corp. 500,000 27,915,000
--------------------------------------------------------------------------------
Merck & Co., Inc. 100,000 6,381,000
--------------------------------------------------------------------------------
Pharmacia Corp. 400,000 16,208,000
--------------------------------------------------------------------------------
Schering-Plough Corp. 450,000 16,731,000
--------------
67,235,000
--------------------------------------------------------------------------------
Healthcare/Supplies & Services--0.0%
Xxxxxxxxxx Healthcare Corp./1/,/2/ 3,107 --
--------------------------------------------------------------------------------
Technology--2.3%
--------------------------------------------------------------------------------
Computer Hardware--1.4%
Dell Computer Corp./1/ 600,000 14,388,000
--------------------------------------------------------------------------------
Computer Software--0.9%
Microsoft Corp./1/ 150,000 8,722,500
--------------------------------------------------------------------------------
Transportation--3.3%
--------------------------------------------------------------------------------
Air Transportation--0.9%
AMR Corp./1/ 500,000 9,100,000
--------------------------------------------------------------------------------
Railroads & Truckers--2.4%
Burlington Northern Santa Fe Corp. 900,000 24,183,000
13 | XXXXXXXXXXX QUEST VALUE FUND, INC.
STATEMENT OF INVESTMENTS Continued
Market Value
Shares See Note 1
------------------------------------------------------------------------------------------
Utilities--1.7%
------------------------------------------------------------------------------------------
Electric Utilities--1.7%
Exelon Corp. 400,000 $ 16,828,000
-------------
Total Common Stocks (Cost $801,817,233) 872,411,600
Principal
Amount
==========================================================================================
Short-Term Notes--12.1%
Federal National Mortgage Assn., 2.29%, 11/26/01 $ 73,945,000 73,827,407
------------------------------------------------------------------------------------------
General Electric Capital Corp., 2.43%, 11/9/01 21,997,000 21,985,122
------------------------------------------------------------------------------------------
Prudential Funding LLC, 2.44%, 11/13/01 23,605,000 23,585,801
-------------
Total Short-Term Notes (Cost $119,398,330) 119,398,330
------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $921,215,563) 100.1% 991,809,930
------------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (0.1) (622,887)
----------------------------
Net Assets 100.0% $991,187,043
============================
Footnotes to Statement of Investments
1. Non-income-producing security.
2. Identifies issues considered to be illiquid--See Note 5 of Notes to Financial
Statements.
See accompanying Notes to Financial Statements.
14 | XXXXXXXXXXX QUEST VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES October 31, 2001
=======================================================================================
Assets
Investments, at value (cost $921,215,563)--see accompanying statement $991,809,930
---------------------------------------------------------------------------------------
Cash 60,732
---------------------------------------------------------------------------------------
Receivables and other assets:
Shares of capital stock sold 939,700
Interest and dividends 895,875
Other 58,486
-------------
Total assets 993,764,723
=======================================================================================
Liabilities
Payables and other liabilities:
Shares of capital stock redeemed 1,913,316
Shareholder reports 247,214
Distribution and service plan fees 212,917
Directors' compensation 101,850
Transfer and shareholder servicing agent fees 529
Other 101,854
-------------
Total liabilities 2,577,680
=======================================================================================
Net Assets $991,187,043
==============
=======================================================================================
Composition of Net Assets
Par value of shares of capital stock $ 55,997,538
---------------------------------------------------------------------------------------
Additional paid-in capital 843,222,979
---------------------------------------------------------------------------------------
Accumulated net investment loss (101,903)
---------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investment transactions 21,474,062
---------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments 70,594,367
-------------
Net Assets $991,187,043
=============
STATEMENT OF ASSETS AND LIABILITIES Continued
===============================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share
(based on net assets of $567,123,581 and
31,562,080 shares of capital stock outstanding) $17.97
Maximum offering price per share (net asset value
plus sales charge of 5.75% of offering price) $19.07
-------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes
applicable contingent deferred sales charge) and
offering price per share (based on net assets of
$318,916,164 and 18,422,517 shares of capital
stock outstanding) $17.31
-------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes
applicable contingent deferred sales charge) and
offering price per share (based on net assets of
$81,770,617 and 4,720,197 shares of capital stock
outstanding) $17.32
-------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes
applicable contingent deferred sales charge) and
offering price per share (based on net assets of
$2,695,961 and 150,141 shares of capital stock
outstanding) $17.96
-------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering
price per share (based on net assets of $20,680,720
and 1,142,603 shares of capital stock outstanding) $18.10
See accompanying Notes to Financial Statements.
16 | XXXXXXXXXXX QUEST VALUE FUND, INC.
STATEMENT OF OPERATIONS For the Year Ended October 31, 2001
=======================================================================================
Investment Income
Dividends (net of foreign withholding taxes of $43,764) $ 14,161,970
---------------------------------------------------------------------------------------
Interest 4,334,849
-------------
Total income 18,496,819
=======================================================================================
Expenses
Management fees 9,672,069
---------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 2,423,419
Class B 3,465,165
Class C 849,121
Class N 2,150
---------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 986,096
Class B 764,933
Class C 167,302
Class N 1,030
Class Y 47,058
---------------------------------------------------------------------------------------
Shareholder reports 289,081
---------------------------------------------------------------------------------------
Directors' compensation 30,372
---------------------------------------------------------------------------------------
Custodian fees and expenses 28,559
---------------------------------------------------------------------------------------
Other 462,389
-------------
Total expenses 19,188,744
Less reduction to excess expenses (83,713)
Less reduction to custodian expenses (19,041)
Less voluntary waiver of transfer and shareholder servicing agent
fees-Class Y (4,758)
-------------
Net expenses 19,081,232
=======================================================================================
Net Investment Loss (584,413)
=======================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on investments 26,691,740
---------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on investments (89,735,914)
-------------
Net realized and unrealized gain (loss) (63,044,174)
======================================================================================
Net Decrease in Net Assets Resulting from Operations $ (63,628,587)
=============
See accompanying Notes to Financial Statements.
17 | XXXXXXXXXXX QUEST VALUE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended October 31, 2001 2000
===================================================================================
Operations
Net investment income (loss) $ (584,413) $ (2,388,916)
-----------------------------------------------------------------------------------
Net realized gain (loss) 26,691,740 29,632,446
-------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (89,735,914) (47,103,924)
----------------------------
Net increase (decrease) in net assets resulting from
operations (63,628,587) (19,860,394)
===================================================================================
Dividends and/or Distributions to Shareholders
Distributions from net realized gain:
Class A (12,873,705) (103,683,645)
Class B (7,881,656) (61,125,823)
Class C (1,839,669) (15,442,065)
Class N -- --
Class Y (321,742) (1,711,662)
===================================================================================
Capital Stock Transactions
Net increase (decrease) in net assets resulting from
capital stock transactions:
Class A 46,323,847 (224,908,276)
Class B 11,374,154 (114,394,586)
Class C 9,956,000 (35,635,653)
Class N 2,889,520 --
Class Y 9,297,478 562,999
===================================================================================
Net Assets
Total decrease (6,704,360) (576,199,105)
-----------------------------------------------------------------------------------
Beginning of period 997,891,403 1,574,090,508
----------------------------
End of period (including accumulated net investment
loss of $101,903 and $107,064, respectively) $991,187,043 $ 997,891,403
============================
See accompanying Notes to Financial Statements.
18 | XXXXXXXXXXX QUEST VALUE FUND, INC.
FINANCIAL HIGHLIGHTS
Class A Year Ended October 31, 2001 2000 1999 1998 1997
======================================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 19.40 $ 21.77 $ 21.46 $ 20.49 $ 17.30
------------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income .03 .04 .02 .15 .11
Net realized and unrealized gain (loss) (1.01) .17 1.28 1.80 4.07
-------------------------------------------------------------
Total income (loss) from
investment operations (.98) .21 1.30 1.95 4.18
------------------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income -- -- (.15) (.11) (.07)
Dividends in excess of net investment
income -- -- --/1/ -- --
Distributions from net realized gain (.45) (2.58) (.84) (.87) (.92)
-------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.45) (2.58) (.99) (.98) (.99)
------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.97 $ 19.40 $ 21.77 $ 21.46 $ 20.49
=============================================================
======================================================================================================
Total Return, at Net Asset Value/2/ (5.23)% 1.44% 6.15% 9.87% 25.41%
======================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $567,124 $569,086 $906,698 $976,655 $699,230
------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $593,910 $685,319 $977,120 $853,061 $560,582
------------------------------------------------------------------------------------------------------
Ratios to average net assets:/3/
Net investment income 0.21% 0.05% 0.07% 0.83% 0.74%
Expenses 1.57% 1.61% 1.60% 1.59%/4/ 1.60%/4/
Expenses, net of reduction
to excess expenses N/A 1.56% N/A N/A N/A
------------------------------------------------------------------------------------------------------
Portfolio turnover rate 19% 51% 62% 21% 20%
1. Less than $0.005 per share.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Sales
charges are not reflected in the total returns. Total returns are not annualized
for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
19 | XXXXXXXXXXX QUEST VALUE FUND, INC.
FINANCIAL HIGHLIGHTS Continued
Class B Year Ended October 31, 2001 2000 1999 1998 1997
====================================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 18.82 $ 21.32 $ 21.08 $ 20.17 $ 17.08
----------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income (loss) (.08) (.17) (.11) .07 .05
Net realized and unrealized gain (loss) (.98) .25 1.26 1.76 3.97
-----------------------------------------------------------
Total income (loss) from
investment operations (1.06) .08 1.15 1.83 4.02
----------------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income -- -- (.07) (.05) (.01)
Dividends in excess of net investment -- -- --/1/ -- --
income
Distributions from net realized gain (.45) (2.58) (.84) (.87) (.92)
-----------------------------------------------------------
Total dividends and/or distributions
to shareholders (.45) (2.58) (.91) (.92) (.93)
----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.31 $ 18.82 $ 21.32 $ 21.08 $ 20.17
===========================================================
====================================================================================================
Total Return, at Net Asset Value/2/ (5.83)% 0.79% 5.51% 9.38% 24.71%
====================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $318,916 $336,225 $520,146 $512,885 $298,348
----------------------------------------------------------------------------------------------------
Average net assets (in thousands) $346,623 $390,734 $541,440 $417,011 $200,752
----------------------------------------------------------------------------------------------------
Ratios to average net assets:/3/
Net investment income (loss) (0.45)% (0.58)% (0.51)% 0.33% 0.25%
Expenses 2.21% 2.24% 2.17% 2.09%/4/ 2.10%/4/
Expenses, net of reduction
to excess expenses N/A 2.19% N/A N/A N/A
----------------------------------------------------------------------------------------------------
Portfolio turnover rate 19% 51% 62% 21% 20%
1. Less than $0.005 per share.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Sales
charges are not reflected in the total returns. Total returns are not annualized
for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
20 | XXXXXXXXXXX QUEST VALUE FUND, INC.
Class C Year Ended October 31, 2001 2000 1999 1998 1997
=====================================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 18.83 $ 21.32 $ 21.07 $ 20.17 $ 17.07
-----------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (.05) (.17) (.11) .07 .05
Net realized and unrealized gain (loss) (1.01) .26 1.26 1.75 3.98
---------------------------------------------------
Total income (loss) from
investment operations (1.06) .09 1.15 1.82 4.03
-----------------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Dividends from net investment income -- -- (.06) (.05) (.01)
Dividends in excess of net investment income -- -- --/1/ -- --
Distributions from net realized gain (.45) (2.58) (.84) (.87) (.92)
---------------------------------------------------
Total dividends and/or distributions
to shareholders (.45) (2.58) (.90) (.92) (.93)
-----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.32 $ 18.83 $ 21.32 $ 21.07 $ 20.17
===================================================
=====================================================================================================
Total Return, at Net Asset Value/2/ (5.82)% 0.83% 5.55% 9.32% 24.79%
=====================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 81,771 $ 79,102 $ 132,668 $ 140,461 $ 82,098
-----------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 84,956 $ 94,621 $ 143,378 $ 116,160 $ 55,969
-----------------------------------------------------------------------------------------------------
Ratios to average net assets:/3/
Net investment income (loss) (0.42)% (0.55)% (0.48)% 0.33% 0.25%
Expenses 2.19% 2.21% 2.15% 2.10%/4/ 2.10%/4/
Expenses, net of reduction
to excess expenses N/A 2.16% N/A N/A N/A
-----------------------------------------------------------------------------------------------------
Portfolio turnover rate 19% 51% 62% 21% 20%
1. Less than $0.005 per share.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Sales
charges are not reflected in the total returns. Total returns are not annualized
for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
21 | XXXXXXXXXXX QUEST VALUE FUND, INC.
FINANCIAL HIGHLIGHTS Continued
Class N Class Y
Period Ended Year Ended
October 31, October 31,
2001/1/ 2001 2000 1999 1998 1997/2/
====================================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 20.01 $ 19.47 $ 21.82 $ 21.54 $ 20.55 $ 16.50
---------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income --/3/ .04 .04 .08 .21 .10
Net realized and unrealized gain (loss) (2.05) (.96) .19 1.28 1.83 3.95
--------------------------------------------------------
Total income (loss) from
investment operations (2.05) (.92) .23 1.36 2.04 4.05
---------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income -- -- -- (.24) (.18) --
Dividends in excess of net investment income -- -- -- --/3/ -- --
Distributions from net realized gain -- (.45) (2.58) (.84) (.87) --
--------------------------------------------------------
Total dividends and/or distributions
to shareholders -- (.45) (2.58) (1.08) (1.05) --
---------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.96 $ 18.10 $ 19.47 $ 21.82 $ 21.54 $ 20.55
========================================================
===================================================================================================
Total Return, at Net Asset Value/4/ (10.25)% (4.89)% 1.54% 6.45% 10.36% 24.55%
===================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 2,696 $20,681 $13,478 $14,579 $10,036 $ 3,086
---------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 651 $18,259 $12,712 $12,065 $ 5,673 $ 1,372
---------------------------------------------------------------------------------------------------
Ratios to average net assets:/5/
Net investment income (loss) (0.13)% 0.52% 0.21% 0.32% 1.30% 1.20%
Expenses 1.72% 1.25% 1.45% 1.33% 1.14%/6/ 1.19%/6/
Expenses, net of reduction to
excess expenses N/A N/A 1.40% N/A N/A N/A
Expenses, net of voluntary waiver of
transfer agent fees--Class Y N/A 1.22% N/A N/A N/A N/A
---------------------------------------------------------------------------------------------------
Portfolio turnover rate 19% 19% 51% 62% 21% 20%
1. For the period from March 1, 2001 (inception of offering) to October 31,
2001.
2. For the period from December 16, 1996 (inception of offering) to October 31,
1997.
3. Less than $0.005 per share.
4. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total returns.
Total returns are not annualized for periods of less than one full year.
5. Annualized for periods of less than one full year.
6. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
22 | XXXXXXXXXXX QUEST VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. Significant Accounting Policies
Xxxxxxxxxxx Quest Value Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund's investment objective is to seek capital appreciation. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager). The Manager has
entered into a sub-advisory agreement with OpCap Advisors.
The Fund offers Class A, Class B, Class C, Class N and Class Y shares. Class
A shares are sold at their offering price, which is normally net asset value
plus a front-end sales charge. Class B, Class C and Class N shares are sold
without a front-end sales charge but may be subject to a contingent deferred
sales charge (CDSC). Class N shares are sold only through retirement plans.
Retirement plans that offer Class N shares may impose charges on those
accounts. Class Y shares are sold to certain institutional investors without
either a front-end sales charge or a CDSC. All classes of shares have identical
rights to earnings, assets and voting privileges, except that each class has
its own expenses directly attributable to that class and exclusive voting
rights with respect to matters affecting that class. Classes A, B, C and N have
separate distribution and/or service plans. No such plan has been adopted for
Class Y shares. Class B shares will automatically convert to Class A shares six
years after the date of purchase. The following is a summary of significant
accounting policies consistently followed by the Fund.
--------------------------------------------------------------------------------
Securities Valuation. Securities listed or traded on National Stock Exchanges
or other domestic or foreign exchanges are valued based on the last sale price
of the security traded on that exchange prior to the time when the Fund's
assets are valued. In the absence of a sale, the security is valued at the last
sale price on the prior trading day, if it is within the spread of the closing
bid and asked prices, and if not, at the closing bid price. Securities
(including restricted securities) for which quotations are not readily
available are valued primarily using dealer-supplied valuations, a portfolio
pricing service authorized by the Board of Directors, or at their fair value.
Fair value is determined in good faith under consistently applied procedures
under the supervision of the Board of Directors. Short-term "money market type"
debt securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
--------------------------------------------------------------------------------
Allocation of Income, Expenses, Gains and Losses. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily
to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.
--------------------------------------------------------------------------------
Federal Taxes. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.
23 | XXXXXXXXXXX QUEST VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
1. Significant Accounting Policies Continued
Directors' Compensation. The Fund has adopted an unfunded retirement plan for
the Fund's independent Board of Directors. Benefits are based on years of
service and fees paid to each director during the years of service. During the
year ended October 31, 2001, the Fund's projected benefit obligations were
decreased by $2,884 and payments of $2,277 were made to retired directors,
resulting in an accumulated liability of $101,901 as of October 31, 2001.
The Board of Directors has adopted a deferred compensation plan for
independent directors that enables directors to elect to defer receipt of all
or a portion of annual compensation they are entitled to receive from the Fund.
Under the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Board of Directors in shares of one
or more Xxxxxxxxxxx funds selected by the director. The amount paid to the
Board of Directors under the plan will be determined based upon the performance
of the selected funds. Deferral of directors' fees under the plan will not
affect the net assets of the Fund, and will not materially affect the Fund's
assets, liabilities or net investment income per share.
--------------------------------------------------------------------------------
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
Classification of Dividends and Distributions to Shareholders. Net investment
income (loss) and net realized gain (loss) may differ for financial statement
and tax purposes. The character of dividends and distributions made during the
fiscal year from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes. Also, due to
timing of dividends and distributions, the fiscal year in which amounts are
distributed may differ from the fiscal year in which the income or realized gain
was recorded by the Fund.
The Fund adjusts the classification of distributions to shareholders to
reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended October 31, 2001, amounts have been reclassified to reflect an
increase in additional paid-in capital of $3,028,699, a decrease in accumulated
net investment loss of $589,574, and a decrease in accumulated net realized
gain on investments of $3,618,273. This reclassification includes $3,028,699
distributed in connection with Fund share redemptions which increased paid-in
capital and reduced accumulated net realized gain. Net assets of the Fund were
unaffected by the reclassifications.
--------------------------------------------------------------------------------
Investment Income. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the ex-
dividend date may have passed. Non-cash dividends included in dividend income,
if any, are recorded at the fair market value of the securities received.
Interest income, which includes accretion of discount and amortization of
premium, is accrued as earned.
24 | XXXXXXXXXXX QUEST VALUE FUND, INC.
--------------------------------------------------------------------------------
Security Transactions. Security transactions are accounted for as of trade date.
Gains and losses on securities sold are determined on the basis of identified
cost.
--------------------------------------------------------------------------------
Other. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
25 | XXXXXXXXXXX QUEST VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
2. Capital Stock
The Fund has authorized 125 million shares of $1.00 par value capital stock in
the aggregate to be apportioned among each class of shares. Transactions in
shares of capital stock were as follows:
Year Ended October 31, 2001/1/ Year Ended October 31, 2000
Shares Amount Shares Amount
-------------------------------------------------------------------------------------------------------
Class A
Sold 9,352,021 $ 186,833,455 7,369,319 $ 136,341,325
Dividends and/or
distributions reinvested 626,615 12,075,026 5,320,582 99,335,067
Redeemed (7,755,675) (152,584,634) (25,006,301) (460,584,668)
-------------------------------------------------------------------------
Net increase (decrease) 2,222,961 $ 46,323,847 (12,316,400) $ (224,908,276)
=========================================================================
-------------------------------------------------------------------------------------------------------
Class B
Sold 4,296,082 $ 82,580,719 2,877,044 $ 52,021,342
Dividends and/or
distributions reinvested 381,086 7,118,687 3,169,518 57,747,250
Redeemed (4,117,343) (78,325,252) (12,581,412) (224,163,178)
-------------------------------------------------------------------------
Net increase (decrease) 559,825 $ 11,374,154 (6,534,850) $ (114,394,586)
=========================================================================
-------------------------------------------------------------------------------------------------------
Class C
Sold 1,664,615 $ 31,875,328 1,049,415 $ 18,987,209
Dividends and/or
distributions reinvested 88,252 1,648,568 811,047 14,785,640
Redeemed (1,233,511) (23,567,896) (3,881,669) (69,408,502)
-------------------------------------------------------------------------
Net increase (decrease) 519,356 $ 9,956,000 (2,021,207) $ (35,635,653)
=========================================================================
-------------------------------------------------------------------------------------------------------
Class N
Sold 152,195 $ 2,927,413 -- $ --
Dividends and/or
distributions reinvested -- -- -- --
Redeemed (2,054) (37,893) -- --
-------------------------------------------------------------------------
Net increase (decrease) 150,141 $ 2,889,520 -- $ --
=========================================================================
-------------------------------------------------------------------------------------------------------
Class Y
Sold 1,222,217 $ 24,487,880 605,486 $ 11,164,899
Dividends and/or
distributions reinvested 16,627 321,741 91,386 1,711,661
Redeemed (788,350) (15,512,143) (673,010) (12,313,561)
-------------------------------------------------------------------------
Net increase (decrease) 450,494 $ 9,297,478 23,862 $ 562,999
=========================================================================
1. For the year ended October 31, 2001, for Class A, B, C and Y shares and for
the period from March 1, 2001 (inception of offering) to October 31, 2001, for
Class N shares.
26 | XXXXXXXXXXX QUEST VALUE FUND, INC.
================================================================================
3. Purchases and Sales of Securities
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended October 31, 2001, were
$180,048,441 and $182,864,704, respectively.
As of October 31, 2001, unrealized appreciation (depreciation) based on cost of
securities for federal income tax purposes of $922,664,970 was:
Gross unrealized appreciation $139,330,426
Gross unrealized depreciation (70,185,466)
------------
Net unrealized appreciation (depreciation) $ 69,144,960
============
================================================================================
4. Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance with the
investment advisory agreement with the Fund which provides for a fee of 1.00% of
the first $400 million of average annual net assets of the Fund, 0.90% of the
next $400 million, 0.85% of the next $3.2 billion, 0.80% of the next $4 billion
and 0.75% of average annual net assets in excess of $8 billion. Effective March
31, 2000, the Manager and the subadvisor had voluntarily agreed to waive
advisory fees at an annual rate of 0.05% or 0.10% based on criteria set forth in
the prospectus. The foregoing waiver is voluntary and may be terminated by the
Manager or the subadvisor at any time. The Fund's management fee for the year
ended October 31, 2001 was an annualized rate of 0.93%.
--------------------------------------------------------------------------------
Subadvisor Fees. The Manager pays OpCap Advisors (the subadvisor) based on the
fee schedule set forth in the Prospectus. For the year ended October 31, 2001,
the Manager paid $3,120,115 to the subadvisor.
--------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the Manager,
acts as the transfer and shareholder servicing agent for the Fund. The Fund pays
OFS an agreed upon per account fee. OFS has voluntarily undertaken to waive a
portion of its transfer agent fee for Classes A, B, C, N and Y shares. This
voluntary waiver of expenses limits transfer agent fees to 0.35% of average net
assets for Classes A, B, C and N shares effective October 1, 2001 and to 0.25%
of average net assets for Class Y shares effective January 1, 2001.
--------------------------------------------------------------------------------
Distribution and Service Plan Fees. Under its General Distributor's Agreement
with the Manager, the Distributor acts as the Fund's principal underwriter in
the continuous public offering of the different classes of shares of the Fund.
27 | XXXXXXXXXXX QUEST VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
4. Fees and Other Transactions with Affiliates Continued
The compensation paid to (or retained by) the Distributor from the sale of
shares or on the redemption of shares is shown in the table below for the
period indicated.
Aggregate Class A Commissions Commissions Commissions Commissions
Front-End Front-End on Class A on Class B on Class C on Class N
Sales Charges Sales Charges Shares Shares Shares Shares
on Class A Retained by Advanced by Advanced by Advanced by Advanced by
Year Ended Shares Distributor Distributor/1/ Distributor/1/ Distributor/1/ Distributor/1/
----------------------------------------------------------------------------------------------------------------
October 31, 2001 $1,162,250 $313,651 $166,769 $1,489,76 $198,443 $26,485
1. The Distributor advances commission payments to dealers for certain sales
of Class A shares and for sales of Class B, Class C and Class N shares from its
own resources at the time of sale.
Class A Class B Class C Class N
Contingent Deferred Contingent Deferred Contingent Deferred Contingent Deferred
Sales Charges Sales Charges Sales Charges Sales Charges
Retained by Retained by Retained by Retained by
Year Ended Distributor Distributor Distributor Distributor
------------------------------------------------------------------------------------------------------------------------
October 31, 2001 $22,583 $666,068 $16,783 $--
The Fund has adopted Distribution and Service Plans for Class A, Class B, Class
C and Class N shares under Rule 12b-1 of the Investment Company Act. Under those
plans the Fund pays the Distributor for all or a portion of its costs incurred
in connection with the distribution and/or servicing of the shares of the
particular class.
--------------------------------------------------------------------------------
Class A Distribution and Service Plan Fees. Under the plan the Fund pays an
asset-based sales charge to the Distributor at an annual rate of 0.15% of
average annual net assets of Class A shares of the Fund (the Board of Directors
can set this rate up to 0.25%). Effective January 1, 2001, the asset-based sales
charge rate for Class A shares was reduced from 0.20% to 0.15% of average annual
net assets representing Class A shares. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions. The Class A service plan permits
compensation to the Distributor at a rate up to a specified percent of average
annual net assets of Class A shares purchased. The Distributor makes payments to
plan recipients quarterly at an annual rate not to exceed a specified percent of
the average annual net assets consisting of Class A shares of the Fund. For the
year ended October 31, 2001, payments under the Class A Plan totaled $2,423,419,
all of which was paid by the Distributor to recipients. That included $108,654
paid to an affiliate of the Manager. Any unreimbursed expenses the Distributor
incurs with respect to Class A shares in any fiscal year cannot be recovered in
subsequent years.
--------------------------------------------------------------------------------
Class B, Class C and Class N Distribution and Service Plan Fees. Under each
plan, service fees and distribution fees are computed on the average of the net
asset value of shares in the respective class, determined as of the close of
each regular business day during the period. The Class B, Class C and Class N
plans provide for the Distributor to be compensated at a flat rate, whether the
Distributor's distribution expenses are more or less than the amounts paid by
the Fund under the plan during the period for which the fee is paid.
28 | XXXXXXXXXXX QUEST VALUE FUND, INC.
The Distributor retains the asset-based sales charge on Class B shares. The
Distributor retains the asset-based sales charge on Class C shares during the
first year the shares are outstanding. The Distributor retains the asset-based
sales charge on Class N shares. The asset-based sales charges on Class B, Class
C and Class N shares allow investors to buy shares without a front-end sales
charge while allowing the Distributor to compensate dealers that sell those
shares.
The Distributor's actual expenses in selling Class B, Class C and Class N
shares may be more than the payments it receives from the contingent deferred
sales charges collected on redeemed shares and asset-based sales charges from
the Fund under the plans. If any plan is terminated by the Fund, the Board of
Directors may allow the Fund to continue payments of the asset-based sales
charge to the Distributor for distributing shares before the plan was
terminated. The plans allow for the carryforward of distribution expenses, to be
recovered from asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended October 31, 2001,
were as follows:
Distributor's
Distributor's Aggregate
Aggregate Unreimbursed
Amount Unreimbursed Expenses as %
Total Payments Retained by Expenses of Net Assets
Under Plan Distributor Under Plan of Class
------------------------------------------------------------------------------------------
Class B Plan $3,465,165 $2,681,984 $7,837,872 2.46%
Class C Plan 849,121 136,939 1,775,561 2.17
Class N Plan 2,150 1,841 45,387 1.68
==========================================================================================
5. Illiquid Securities
As of October 31, 2001, investments in securities included issues that are
illiquid. A security may be considered illiquid if it lacks a readily available
market or if its valuation has not changed for a certain period of time. The
Fund intends to invest no more than 15% of its net assets (determined at the
time of purchase and reviewed periodically) in illiquid securities. The
aggregate value of illiquid securities subject to this limitation as of October
31, 2001, was zero.
================================================================================
6. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Xxxxxxxxxxx funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of 0.08%
per annum.
The Fund had no borrowings outstanding during the year ended or at October
31, 2001.
Appendix A
RATINGS DEFINITIONS
Below are summaries of the rating definitions used by the nationally-recognized rating agencies listed below. Those ratings represent
the opinion of the agency as to the credit quality of issues that they rate. The summaries below are based upon publicly-available
information provided by the rating organizations.
Xxxxx'x Investors Service, Inc.
---------------------------------------------------------------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated "Aaa" are judged to be the best quality. They carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely
to change, the changes that can be expected are most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group, they comprise what are
generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as
with "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which
make the long-term risk appear somewhat larger than that of "Aaa" securities.
A: Bonds rated "A" possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to
impairment some time in the future.
Baa: Bonds rated "Baa" are considered medium-grade obligations; that is, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and have
speculative characteristics as well.
Ba: Bonds rated "Ba" are judged to have speculative elements. Their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B: Bonds rated "B" generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be small.
Caa: Bonds rated "Caa" are of poor standing. Such issues may be in default or there may be present elements of danger with respect to
principal or interest.
Ca: Bonds rated "Ca" represent obligations which are speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C: Bonds rated "C" are the lowest class of rated bonds and can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Con. (...): Bonds for which the security depends on the completion of some act or the fulfillment of some condition are rated
conditionally. These bonds are secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in
operating experience, (c) rentals that begin when facilities are completed, or (d) payments to which some other limiting condition
attaches. The parenthetical rating denotes probable credit stature upon completion of construction or elimination of the basis of the
condition.
Xxxxx'x applies numerical modifiers 1, 2, and 3 in each generic rating classification from "Aa" through "Caa." The modifier "1"
indicates that the obligation ranks in the higher end of its generic rating category; the modifier "2" indicates a mid-range ranking;
and the modifier "3" indicates a ranking in the lower end of that generic rating category. Advanced refunded issues that are secured
by certain assets are identified with a # symbol.
Short-Term Ratings - Taxable Debt
These ratings apply to the ability of issuers to honor senior debt obligations having an original maturity not exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt obligations. Earnings trends and coverage ratios, while
sound, may be more subject to variation. Capitalization characteristics, while appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and
market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
---------------------------------------------------------------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment
on the obligation is extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still
strong.
BBB: Bonds rated "BBB" exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC, CC, and C
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having significant speculative characteristics. "BB" indicates the least
degree of speculation, and "C" the highest. While such obligations will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB: Bonds rated "BB" are less vulnerable to nonpayment than other speculative issues. However, these face major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
B: Bonds rated "B" are more vulnerable to nonpayment than obligations rated "BB", but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the obligation.
CCC: Bonds rated "CCC" are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial or
economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC: Bonds rated "CC" are currently highly vulnerable to nonpayment.
C: A subordinated debt or preferred stock obligation rated "C" is currently highly vulnerable to nonpayment. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this
obligation are being continued. A "C" also will be assigned to a preferred stock issue in arrears on dividends or sinking fund
payments, but that is currently paying.
D: Bonds rated "D" are in default. Payments on the obligation are not being made on the date due even if the applicable grace period
has not expired, unless Standard and Poor's believes that such payments will be made during such grace period. The "D" rating will
also be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the
major rating categories. The "r" symbol is attached to the ratings of instruments with significant noncredit risks.
Short-Term Issue Credit Ratings
A-1: Obligation is rated in the highest category. The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, a plus (+) sign designation indicates the obligor's capacity to meet its financial obligation is
extremely strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is
satisfactory.
A-3: Obligation exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
B: Obligation is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation. However, it faces major ongoing uncertainties which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.
C: Obligation is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.
D: Obligation is in payment default. Payments on the obligation have not been made on the due date even if the applicable grace
period has not expired, unless Standard and Poor's believes that such payments will be made during such grace period. The "D" rating
will also be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are
jeopardized.
Fitch, Inc.
---------------------------------------------------------------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of credit risk. They are assigned only in the case of
exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of credit risk. They indicate a very strong capacity for
timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments
is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than
is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a low expectation of credit risk. The capacity for timely
payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more
likely to impair this capacity. This is the lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse
economic change over time. However, business or financial alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.
B: Highly Speculative. "B" ratings indicate that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met. However, capacity for continued payment is contingent upon a sustained, favorable
business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon
sustained, favorable business or economic developments. A "CC" rating indicates that default of some kind appears probable. "C"
ratings signal imminent default.
DDD, DD, and D: Default. The ratings of obligations in this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be
estimated with any precision, the following serve as general guidelines. "DDD" obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest. "DD" indicates potential recoveries in the range of 50%-90%, and "D" the
lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their obligations. Entities rated "DDD" have the highest prospect
for resumption of performance or continued operation with or without a formal reorganization process. Entities rated "DD" and "D" are
generally undergoing a formal reorganization or liquidation process; those rated "DD" are likely to satisfy a higher portion of their
outstanding obligations, while entities rated "D" have a poor prospect for repaying all obligations.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote relative status within the major rating categories. Plus
and minus signs are not added to the "AAA" category or to categories below "CCC," nor to short-term ratings other than "F1" (see
below).
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment of financial commitments. May have an added "+" to denote any
exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as
great as in the case of higher ratings.
F3: Fair credit quality. Capacity for timely payment of financial commitments is adequate. However, near-term adverse changes could
result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.
C: High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a
sustained, favorable business and economic environment.
D: Default. Denotes actual or imminent payment default.
Appendix B
---------------------------------------------------------------------------------------------------------------------------------------
Industry Classifications
---------------------------------------------------------------------------------------------------------------------------------------
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads & Truckers
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Long Distance
Electrical Equipment Telephone - Utility
Electronics Textile, Apparel & Home Furnishings
Energy Services Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of Class A shares5 of the Xxxxxxxxxxx funds or the contingent
deferred sales charge that may apply to Class A, Class B or Class C shares may be waived.6 That is because of the economies of sales
efforts realized by 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 plans7
(4) Group Retirement Plans8
(5) 403(b)(7) custodial plan accounts
(6) Individual Retirement Accounts ("IRAs"), including traditional IRAs, Xxxx IRAs, SEP-IRAs, SARSEPs or SIMPLE plans
The interpretation of these provisions as to the applicability of a special arrangement or waiver in a particular case is in the sole
discretion of the Distributor or the transfer agent (referred to in this document as the "Transfer Agent") of the particular
Xxxxxxxxxxx fund. These waivers and special arrangements may be amended or terminated at any time by a particular fund, the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the "Manager").
Waivers that apply at the time shares are redeemed must be requested by the shareholder and/or dealer in the redemption request.
Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Xxxxxxxxxxx Funds That Are Not Subject to Initial Sales Charge but May Be Subject to the Class A
Contingent Deferred Sales Charge (unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of the Xxxxxxxxxxx funds in the cases listed below.
However, these purchases may be subject to the Class A contingent deferred sales charge if redeemed within 18 months of the end of
the calendar month of their purchase, as described in the Prospectus (unless a waiver described elsewhere in this Appendix applies to
the redemption). Additionally, on shares purchased under these waivers that are subject to the Class A contingent deferred sales
charge, the Distributor will pay the applicable concession described in the Prospectus under "Class A Contingent Deferred Sales
Charge."9 This waiver provision applies to:
- Purchases of Class A shares aggregating $1 million or more.
- Purchases of Class A shares by a Retirement Plan that was permitted to purchase such shares at net asset value but subject
to a contingent deferred sales charge prior to March 1, 2001.
- Purchases by an OppenheimerFunds-sponsored Rollover 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.
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.10
(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.11
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.
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.
- Distributions12 from Retirement Plans or other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue Code) of the participant or beneficiary. The death or
disability must occur after the participant's account was established in an Xxxxxxxxxxx fund.
(2) To return excess contributions made to a participant's account.
(3) To return contributions made due to a mistake of fact.
(4) To make hardship withdrawals, as defined in the plan.13
(5) To make distributions required under a Qualified Domestic Relations Order or, in the case of an 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.14
(9) On account of the participant's separation from service.15
(10) Participant-directed redemptions to purchase shares of a mutual fund (other than a fund managed by the Manager or a
subsidiary of the Manager) offered as an investment option in a Retirement Plan if the plan has made special
arrangements with the Distributor.
(11) Distributions made on account of a plan termination or "in-service" distributions, if the redemption proceeds are rolled
over directly to an OppenheimerFunds-sponsored 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.
Special Sales Charge Arrangements for Shareholders of Certain Xxxxxxxxxxx Funds Who Were Shareholders of FormerIV. 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. o Sales Charge as a % of Net Amount Invested
Xxxxxxxxxxx Small Cap Value Fund
Xxxxxxxxxxx Quest Balanced Value Fund
Xxxxxxxxxxx Quest Global Value Fund, Inc.
Xxxxxxxxxxx Quest Opportunity Value Fund
These arrangements also apply to shareholders of
the following funds when they merged (were
reorganized) into various Xxxxxxxxxxx funds on
November 24, 1995:
Quest for Value U.S. Government Income Fund
Quest for Value New York Tax-Exempt Fund
Quest for Value Investment Quality Income Fund
Quest for Value National Tax-Exempt Fund
Quest for Value Global Income Fund
Quest for Value California Tax-Exempt Fund
All of the funds listed above are referred to
in this Appendix as the "Former Quest for Value
Funds." The waivers of initial and contingent
deferred sales charges described in this Appendix
apply to shares of an Xxxxxxxxxxx fund that are
either:
- acquired by such shareholder
pursuant to an exchange of shares of an
Xxxxxxxxxxx fund that was one of the Former
Quest for Value Funds, or
- purchased by such shareholder by
exchange of shares of another Xxxxxxxxxxx fund that
were acquired pursuant to the merger of any of the
Former Quest for Value Funds into that other
Xxxxxxxxxxx fund on November 24, 1995.
A. Reductions or Waivers of Class A Sales Charges.
- - Reduced Class A Initial Sales Charge
Rates for Certain Former Quest for Value Funds
Shareholders.
Purchases by Groups and Associations. The following
table sets forth the initial sales charge rates for
Class A shares purchased by members of "Associations"
formed for any purpose other than the purchase of
securities. The rates in the table apply if that
Association purchased shares of any of the Former
Quest for Value Funds or received a proposal to
purchase such shares from OCC Distributors prior to
November 24, 1995.
Number of Eligible Employees or Members IConcessioneasC%aofeOffering Priceering Price Initial
---------------------------- ---------------------------- ----------------------------
------------------------------ ---------------------------- ---------------------------- ----------------------------
9 or Fewer 2.50% 2.56% 2.00%
------------------------------ ---------------------------- ---------------------------- ----------------------------
------------------------------ ---------------------------- ---------------------------- ----------------------------
At least 10 but not more 2.00% 2.04% 1.60%
than 49
------------------------------ ---------------------------- ---------------------------- ----------------------------
For purchases by Associations having 50 or more eligible employees or members, there is no initial sales charge on purchases
of Class A shares, but those shares are subject to the Class A contingent deferred sales charge described in the applicable fund's
Prospectus.
Purchases made under this arrangement qualify for the lower of either the sales charge rate in the table based on the number
of members of an Association, or the sales charge rate that applies under the Right of Accumulation described in the applicable
fund's Prospectus and Statement of Additional Information. Individuals who qualify under this arrangement for reduced sales charge
rates as members of Associations also may purchase shares for their individual or custodial accounts at these reduced sales charge
rates, upon request to the Distributor.
- - Waiver of Class A Sales Charges for Certain Shareholders. Class A shares purchased by the following investors are not
subject to any Class A initial or contingent deferred sales charges:
- Shareholders who were shareholders of the AMA Family of Funds on February 28, 1991 and who acquired shares of any of
the Former Quest for Value Funds by merger of a portfolio of the AMA Family of Funds.
- Shareholders who acquired shares of any Former Quest for Value Fund by merger of any of the portfolios of the
Unified Funds.
- - Waiver of Class A Contingent Deferred Sales Charge in Certain Transactions. The Class A contingent deferred sales
charge will not apply to redemptions of Class A shares purchased by the following investors who were shareholders of any Former Quest
for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not permitted to receive a sales load or redemption fee
imposed on a shareholder with whom that dealer has a fiduciary relationship, under the Employee Retirement Income Security Act of
1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
- - Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In the following cases, the contingent deferred
sales charge will be waived for redemptions of Class A, Class B or Class C shares of an Xxxxxxxxxxx fund. The shares must have been
acquired by the merger of a Former Quest for Value Fund into the fund or by exchange from an Xxxxxxxxxxx fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been purchased prior to March 6, 1995 in connection with:
- withdrawals under an automatic withdrawal plan holding only either Class B or Class C shares if the annual
withdrawal does not exceed 10% of the initial value of the account value, adjusted annually, and
- liquidation of a shareholder's account if the aggregate net asset value of shares held in the account is
less than the required minimum value of such accounts.
- - Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but Prior to November 24, 1995. In the following
cases, the contingent deferred sales charge will be waived for redemptions of Class A, Class B or Class C shares of an Xxxxxxxxxxx
fund. The shares must have been acquired by the merger of a Former Quest for Value Fund into the fund or by exchange from an
Xxxxxxxxxxx fund that was a Former Quest For Value Fund or into which such Former Quest for Value Fund merged. Those shares must have
been purchased on or after March 6, 1995, but prior to November 24, 1995:
- redemptions following the death or disability of the shareholder(s) (as evidenced by a determination of total disability by
the U.S. Social Security Administration);
- withdrawals under an automatic withdrawal plan (but only for Class B or Class C shares) where the annual withdrawals do not
exceed 10% of the initial value of the account value; adjusted annually, and
- liquidation of a shareholder's account if the aggregate net asset value of shares held in the account is
less than the required minimum account value.
A shareholder's account will be credited with the amount of any contingent deferred sales charge paid on the redemption of
any Class A, Class B or Class C shares of the Xxxxxxxxxxx fund described in this section if the proceeds are invested in the same
Class of shares in that fund or another Xxxxxxxxxxx fund within 90 days after redemption.
V. Special Sales Charge Arrangements for Shareholders of 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;
(1) 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;(4) 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
(5) 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.
Special Reduced Sales Charge for Former Shareholders VI. 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. C-1
---------------------------------------------------------------
Xxxxxxxxxxx Quest Value Fund, Inc.
---------------------------------------------------------------
Internet Web Site:
XXX.XXXXXXXXXXXXXXXX.XXX
------------------------
Investment Advisor
OppenheimerFunds, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Sub-Advisor
OpCap Advisors
1345 Avenue of the Americas, 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
KPMG LLP
000 Xxxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Legal Counsel
Mayer, Brown, Xxxx & Maw
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
225SAI_0202.
