Contents Page About the Fund Additional Information About the Fund's Investment Policies and Risks.............................................2 The Fund's Investment Policies...............................................................
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Xxxxxxxxxxx New Jersey Municipal Fund
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0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
0-000-000-0000
Statement of Additional Information dated November 28, 2001
This Statement of Additional Information is not a Prospectus. This document contains additional
information about the Fund and supplements information in the Prospectus dated November 28, 2001. It should be
read together with the Prospectus. You can obtain the Prospectus by writing to the Fund's Transfer Agent,
OppenheimerFunds Services, at X.X. Xxx 0000, Xxxxxx, Xxxxxxxx 00000 or by calling the Transfer Agent at the
toll-free number shown above or by downloading it from the OppenheimerFunds Internet web site at
xxx.xxxxxxxxxxxxxxxx.xxx.
Contents Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks.............................................2
The Fund's Investment Policies.............................................................................2
Municipal Securities.......................................................................................2
Other Investment Techniques and Strategies.................................................................8
Investment Restrictions...................................................................................20
How the Fund is Managed..........................................................................................23
Organization and History..................................................................................23
Trustees and Officers of the Fund.........................................................................25
The Manager ..............................................................................................30
Brokerage Policies of the Fund...................................................................................32
Distribution and Service Plans...................................................................................34
Performance of the Fund..........................................................................................37
About Your Account
How To Buy Shares................................................................................................43
How To Sell Shares...............................................................................................51
How to Exchange Shares...........................................................................................56
Dividends, Capital Gains and Taxes...............................................................................59
Additional Information About the Fund............................................................................61
Financial Information About the Fund
Independent Auditors' Report.......................................................................................
Financial Statements ..............................................................................................
Appendix A: Municipal Bond Ratings..............................................................................A-1
Appendix B: Industry Classifications............................................................................B-1
Appendix C: Special Sales Charge Arrangements and Waivers.......................................................C-1
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ABOUT THE FUND
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Additional Information About the Fund's Investment Policies and Risks
The investment objective and 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 the types of securities that the Fund's investment Manager, OppenheimerFunds, Inc., can select
for the Fund. Additional explanations are also provided about the strategies 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 Manager uses in selecting portfolio securities will vary over time. The Fund is not required to use
all of the investment techniques and strategies described below at all times in seeking its goals. It may use
some of the special investment techniques and strategies at some times or not at all.
The Fund does not make investments with the objective of seeking capital growth. However, the values of
the securities held by the Fund may be affected by changes in general interest rates and other factors prior to
their maturity. Because the current value of debt securities vary inversely with changes in prevailing interest
rates, if interest rates increased after a security is purchased, that security will normally decline in value.
Conversely, should interest rates decrease after a security is purchased, normally its value will rise.
However, those fluctuations in value will not generally result in realized gains or losses to the Fund
unless the Fund sells the security prior to the security's maturity. A debt security held to maturity is
redeemable by its issuer at full principal value plus accrued interest. The Fund does not usually intend to
dispose of securities prior to their maturity, but may do so for liquidity purposes, or because of other factors
affecting the issuer that cause the Manager to sell the particular security. In that case, the Fund could realize
a capital gain or loss on the sale.
There are variations in the credit quality of municipal securities, both within a particular rating
classification and between classifications. These variations depend on numerous factors. The yields of
municipal securities depend on a number of factors, including general conditions in the municipal securities
market, the size of a particular offering, the maturity of the obligation and rating (if any) of the issue. These
factors are discussed in greater detail below.
Municipal Securities. The types of municipal securities in which the Fund may invest are described in the
Prospectus under "About the Fund's Investments." Municipal securities are generally classified as general
obligation bonds, revenue bonds and notes. A discussion of the general characteristics of these principal types
of municipal securities follows below.
|X| Municipal Bonds. We have classified municipal securities having a maturity (when the security is
issued) of more than one (1) year as "municipal bonds." The principal classifications of long-term municipal
bonds are "general obligation" and "revenue" (including "private activity") bonds. They may have fixed, variable
or floating rates of interest, as described below.
Some bonds may be "callable," allowing the issuer to redeem them before their maturity date. To protect
bondholders, callable bonds may be issued with provisions that prevent them from being called for a period of
time. Typically, that is five (5) to ten (10) years from the issuance date. When interest rates decline, if the
call protection on a bond has expired, it is more likely that the issuer may call the bond. If that occurs, the
Fund might have to reinvest the proceeds of the called bond in bonds that pay a lower rate of return.
|_| General Obligation Bonds. The basic security behind general obligation bonds is the
issuer's pledge of its full faith and credit and taxing power, if any, for the repayment of principal and the
payment of interest. Issuers of general obligation bonds include states, counties, cities, towns, and school
districts. The proceeds of these obligations are used to fund a wide range of public projects, including
construction or improvement of schools, highways and roads, and water and sewer systems. The rate of taxes that
can be levied for the payment of debt service on these bonds may be limited or unlimited. Additionally, there
may be limits as to the rate or amount of special assessments that can be levied to meet these obligations.
|_| Revenue Bonds. The principal security for a revenue bond is generally the net revenues
derived from a particular facility, group of facilities, or, in some cases, the proceeds of a special excise tax
or other specific revenue source. Revenue bonds are issued to finance a wide variety of capital projects.
Examples include electric, gas, water and sewer systems; highways, bridges, and tunnels; port and airport
facilities; colleges and universities; and hospitals.
Although the principal security for these types of bonds may vary from bond to bond, many
provide additional security in the form of a debt service reserve fund that may be used to make principal and
interest payments on the issuer's obligations. Housing finance authorities have a wide range of security,
including partially or fully insured mortgages, rent subsidized and/or collateralized mortgages, and/or the net
revenues from housing or other public projects. Some authorities provide further security in the form of a
state's ability (without obligation) to make up deficiencies in the debt service reserve fund.
|_| Private Activity Bonds. Interest on certain Qualified Private Activity Bonds is
excludable from gross income for federal income tax purposes if certain tests are met. They are issued by or on
behalf of public authorities to raise money to finance various privately operated facilities for business and
manufacturing, housing, sports, and pollution control. These bonds may also be used to finance public facilities
such as airports, mass transit systems, ports, and parking. The payment of the principal and interest on such
bonds is dependent solely on the ability of the facility's user to meet its financial obligations and the pledge,
if any, of real and personal property financed by the bond as security for those payments.
The Tax Reform Act of 1986 (the "Tax Reform Act") reorganized, as well as amended, the rules governing
tax exemption for interest on certain types of municipal securities. The Tax Reform Act generally did not change
the tax treatment of bonds issued in order to finance governmental operations. Thus, interest on general
obligation bonds issued by or on behalf of state or local governments, the proceeds of which are used to finance
the operations of such governments, continues to be tax-exempt (and excludable from gross income). However, the
Tax Reform Act limited the use of tax-exempt bonds for non-governmental (private) purposes. More stringent
restrictions were placed on the use of proceeds of such bonds. Interest on certain private activity bonds is
taxable under the revised rules. There is an exception for "qualified" tax-exempt private activity bonds, for
example, exempt facility bonds including certain qualified mortgage bonds, qualified Section 501(c)(3) bonds, and
qualified student loan bonds.
In addition, limitations as to the amount of private activity bonds which each state may issue were
revised downward by the Tax Reform Act, which will reduce the supply of such bonds. The value of the Fund's
portfolio could be affected if there is a reduction in the availability of such bonds.
Interest on certain private activity bonds issued after August 7, 1986, which continues to be
tax-exempt, will be treated as a tax preference item subject to the alternative minimum tax (discussed below) to
which certain taxpayers are subject. The Fund may hold municipal securities the interest on which (and thus a
proportionate share of the exempt-interest dividends paid by the Fund) will be subject to the Federal alternative
minimum tax on individuals and corporations. There are no limits on the amount of assets the Fund may invest in
private activity bonds.
The Federal alternative minimum tax is designed to ensure that all persons who receive income pay some
tax, even if their regular tax is zero. This is accomplished in part by including in taxable income certain tax
preference items that are used to calculate alternative minimum taxable income. The Tax Reform Act made
tax-exempt interest from certain private activity bonds a tax preference item for purposes of the alternative
minimum tax on individuals and corporations. Any exempt-interest dividend paid by a regulated investment company
will be treated as interest on a specific private activity bond to the extent of the proportionate relationship
the interest the investment company receives on such bonds bears to all its exempt interest dividends.
In addition, corporate taxpayers subject to the alternative minimum tax may, under some circumstances,
have to include exempt-interest dividends in calculating their alternative minimum taxable income. That could
occur in situations where the "adjusted current earnings" of the corporation exceeds its alternative minimum
taxable income.
To determine whether a private activity bond is treated as a taxable private activity bond, it is
subject to a test for: (a) a trade or business use and security interest, or (b) a private loan restriction.
Under the trade or business use and security interest test, an obligation is a private activity bond if: (i) more
than 10% of the bond proceeds are used for private business purposes and (ii) 10% or more of the payment of
principal or interest on the issue is directly or indirectly derived from such private use or is secured by the
privately used property or the payments related to the use of the property. For certain types of uses, a 5%
threshold is substituted for this 10% threshold.
The term "private business use" means any direct or indirect use in a trade or business carried on by an
individual or entity other than a state or municipal governmental unit. Under the private loan restriction, the
amount of bond proceeds that may be used to make private loans is limited to the lesser of 5% or $5.0 million of
the proceeds. Thus, certain issues of municipal securities could lose their tax-exempt status retroactively if
the issuer fails to meet certain requirements as to the expenditure of the proceeds of that issue or the use of
the bond-financed facility. The Fund makes no independent investigation of the users of such bonds or their use
of proceeds of the bonds. If the Fund should hold a bond that loses its tax-exempt status retroactively, there
might be an adjustment to the tax-exempt income previously distributed to shareholders.
Additionally, a private activity bond that would otherwise be a qualified tax-exempt private activity
bond will not, under Internal Revenue Code Section 147(a), be a qualified bond for any period during which it is
held by a person who is a "substantial user" of the facilities or by a "related person" of such a substantial
user. This "substantial user" provision applies primarily to exempt facility bonds, including industrial
development bonds. The Fund may invest in industrial development bonds and other private activity bonds.
Therefore, the Fund may not be an appropriate investment for entities which are "substantial users" (or persons
related to "substantial users") of such exempt facilities. Those entities and persons should consult their tax
advisers before purchasing shares of the Fund.
A "substantial user" of such facilities is defined generally as a "non-exempt person who regularly uses
part of a facility" financed from the proceeds of exempt facility bonds. Generally, an individual will not be a
"related person" under the Internal Revenue Code unless such individual or the individual's immediate family
(spouse, brothers, sisters and immediate descendants) own directly or indirectly in the aggregate more than 50%
in value of the equity of a corporation or partnership which is a "substantial user" of a facility financed from
the proceeds of exempt facility bonds.
|X| Municipal Notes. Municipal securities having a maturity (when the security is issued) of less than
one (1) year are generally known as municipal notes. Municipal notes generally are used to provide for short-term
working capital needs. Some of the types of municipal notes the Fund can invest in are described below.
|_| Tax Anticipation Notes. These are issued to finance working capital needs of
municipalities. Generally, they are issued in anticipation of various seasonal tax revenue, such as income,
sales, use or other business taxes, and are payable from these specific future taxes.
|_| Revenue Anticipation Notes. These are notes issued in expectation of receipt of other
types of revenue, such as Federal revenues available under Federal revenue-sharing programs.
|_| Bond Anticipation Notes. Bond anticipation notes are issued to provide interim financing
until long-term financing can be arranged. The long-term bonds that are issued typically also provide the money
for the repayment of the notes.
|_| Construction Loan Notes. These are sold to provide project construction financing until
permanent financing can be secured. After successful completion and acceptance of the project, it may receive
permanent financing through public agencies, such as the Federal Housing Administration.
|X| Municipal Lease Obligations. The Fund's investments in municipal lease obligations may be through
certificates of participation that are offered to investors by public entities. Municipal leases may take the
form of a lease or an installment purchase contract issued by a state or local government authority to obtain
funds to acquire a wide variety of equipment and facilities.
Some municipal lease securities may be deemed to be "illiquid" securities. Their purchase by the Fund
would be limited as described below in "Illiquid Securities." From time to time the Fund may invest more than 5%
of its net assets in municipal lease obligations that the Manager has determined to be liquid under guidelines
set by the Board of Trustees. Those guidelines require the Manager to evaluate:
|_| the frequency of trades and price quotations for such securities;
|_| the number of dealers or other potential buyers willing to purchase or sell such securities;
|_| the availability of market-makers; and
|_| the nature of the trades for such securities.
Municipal leases have special risk considerations. Although lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the
lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the
municipality has no obligation to make lease or installment purchase payments in future years unless money is
appropriated for that purpose on a yearly basis. While the obligation might be secured by the lease, it might be
difficult to dispose of that property in case of a default.
Projects financed with certificates of participation generally are not subject to state constitutional
debt limitations or other statutory requirements that may apply to other municipal securities. Payments by the
public entity on the obligation underlying the certificates are derived from available revenue sources. That
revenue might be diverted to the funding of other municipal service projects. Payments of interest and/or
principal with respect to the certificates are not guaranteed and do not constitute an obligation of a state or
any of its political subdivisions.
In addition to the risk of "non-appropriation," municipal lease securities do not have as highly liquid
a market as conventional municipal bonds. Municipal leases, like other municipal debt obligations, are subject to
the risk of non-payment of interest or repayment of principal by the issuer. The ability of issuers of municipal
leases to make timely lease payments may be adversely affected in general economic downturns and as relative
governmental cost burdens are reallocated among federal, state and local governmental units. A default in
payment of income would result in a reduction of income to the Fund. It could also result in a reduction in the
value of the municipal lease and that, as well as a default in repayment of principal, could result in a decrease
in the net asset value of the Fund. While the Fund holds such securities, the Manager will also evaluate the
likelihood of a continuing market for these securities and their credit quality.
|X| Ratings of Municipal Securities. Ratings by ratings organizations such as Xxxxx'x Investors
Service, Inc. ("Moody's"), Standard & Poor's Rating Corporation ("S&P") and Fitch, Inc. ("Fitch") represent the
respective rating agency's opinions of the credit quality of the municipal securities they undertake to rate.
However, their ratings are general opinions and are not guarantees of quality. Municipal securities that have
the same maturity, coupon and rating may have different yields, while other municipal securities that have the
same maturity and coupon but different ratings may have the same yield.
Lower grade securities may have a higher yield than securities rated in the higher rating categories. In
addition to having a greater risk of default than higher-grade, securities, there may be less of a market for
these securities. As a result they may be harder to sell at an acceptable price. The additional risks mean that
the Fund may not receive the anticipated level of income from these securities, and the Fund's net asset value
may be affected by declines in the value of lower-grade securities. However, because the added risk of lower
quality securities might not be consistent with the Fund's policy of preservation of capital, the Fund limits its
investments in lower quality securities.
Subsequent to its purchase by the Fund, a municipal security may cease to be rated or its rating may be
reduced below the minimum required for purchase by the Fund. Neither event requires the Fund to sell the
security, but the Manager will consider such events in determining whether the Fund should continue to hold the
security. To the extent that ratings given by Moody's, S&P or Fitch change as a result of changes in those
rating organizations or their rating systems, the Fund will attempt to use comparable ratings as standards for
investments in accordance with the Fund's investment policies.
The Fund may buy municipal securities that are "pre-refunded." The issuer's obligation to repay the
principal value of the security is generally collateralized with U.S. government securities placed in an escrow
account. This causes the pre-refunded security to have essentially the same risks of default as a AAA-rated
security.
The rating definitions of Moody's, S&P and Fitch for municipal securities are contained in Appendix A to
this Statement of Additional Information. The Fund can purchase securities that are unrated by nationally
recognized rating organizations. The Manager will make its own assessment of the credit quality of unrated
issues the Fund buys. The Manager will use criteria similar to those used by the rating agencies, and assign a
rating category to a security that is comparable to what the Manager believes a rating agency would assign to
that security. However, the Manager's rating does not constitute a guarantee of the quality of a particular
issue.
Special Risks of Investing Primarily in New Jersey Municipal Securities. Because the Fund focuses its
investments primarily on New Jersey municipal securities, the value of its portfolio investments will be highly
sensitive to events affecting the fiscal stability of the State of New Jersey and its municipalities, authorities
and other instrumentalities that issue securities in which the Fund invests, including political developments,
economic problems and legislation.
It is not possible to predict the future impact of political developments, economic problems and
legislation on the long-term ability of the State of New Jersey or New Jersey municipal issuers to pay interest
or repay principal on their obligations. The information below is only a brief summary of general information
regarding the state and the types of obligations issued by it and its political subdivisions, based upon
information the Fund has drawn from sources that it believes are reliable, including official statements relating
to securities offerings of New Jersey issuers. The information below is general in nature and does not provide
information about the financial condition of the state or specific issuers in whose securities the Fund may
invest, or the risks of those specific investments.
|X| General Information Regarding the State. New Jersey is the ninth largest state in population and
fifth smallest in land area. With an average of 1,134 persons per square mile, it is the most densely populated
of all the states. New Jersey is located at the center of the megalopolis which extends from Boston to Washington
and that includes over one-fifth of the country's population.
The extensive facilities of the Port Authority of New York and New Jersey, the Delaware River Port
Authority and the South Jersey Port Corporation across the Delaware River from Philadelphia augment the air, land
and water transportation facilities that have influenced the development of the state's economy. The state's
central position in the northeast corridor, its transportation and port facilities and proximity to New York City
make New Jersey an attractive location for corporate headquarters and international business offices. A number of
major companies have their headquarters or major facilities in New Jersey. Many foreign-owned firms have located
facilities in the state.
The State's economic base is diversified, consisting of a variety of manufacturing, construction and
service industries, supplemented by rural areas with selective commercial agriculture. New Jersey has the
Atlantic seashore on the east and the lakes and mountains on the north and northwest, which provide recreation
for residents as well as for out-of-state visitors. Since 1976, casino gambling in Atlantic City has been an
important State tourist attraction.
The state finances capital projects primarily through the sale of general obligation bonds of the state.
Those bonds are backed by the full faith and credit of the state. State tax revenues and certain other fees are
pledged to meet the principal and interest payments required to pay those debts fully. No general obligations can
be issued by the state without prior voter approval. The exception is that no prior voter approval is required
for any law authorizing the creation of a debt for the purpose of refinancing all or a portion of outstanding
state debt, as long as the law requires that the refinancing measure provide a debt service savings. All
appropriations for capital projects and all proposals for state bond authorization are subject to the review and
recommendation of the New Jersey Commission on Capital Budgeting and Planning.
The state may also enter into lease finance arrangements. Through those, lease payments made by the
state must be sufficient to cover debt service on the obligations issued to finance the project. Those rental
payments are subject to annual appropriation by the state legislature. Also, various state entities have issued
obligations for which the state has a "moral obligation" to appropriate funds to cover a deficiency in a debt
service reserve fund maintained to meet payments of principal of and interest on the obligations. The state
legislature is not bound to make such appropriations, however.
The state has extensive control over school districts, city and county governments, and local financing
authorities. The local finance system is regulated by various statutes to assure that those entities remain on a
sound financial footing. State laws impose specific limitations on appropriations, with exemptions subject to
state approval. The state shares the proceeds of a number of taxes. Those funds are earmarked primarily for local
education programs, homestead rebates, and Medicaid and welfare programs. Certain bonds are issued by localities
but supported by direct state payments. In addition, the state participates in local waste water treatment
programs.
Counties, municipalities and school districts finance capital projects through the sale of general
obligation bonds backed by their respective taxing power. Other entities, such as local financing authorities,
typically finance their capital needs through the sale of bonds backed by a particular pledge of revenues, which
may or may not include revenues derived from taxing powers
Other Investment Techniques and Strategies. In seeking its objective, the Fund may from time to time employ the
types of investment strategies and investments described below. It is not required to use all of these
strategies at all times, and at times may not use them.
Portfolio Turnover. The Fund may engage in some short-term trading to seek its objective. Portfolio turnover
can increase the Fund's transaction costs (and reduce its performance). However, in most cases the Fund does not
pay brokerage commissions on debt securities it trades, so active trading is not expected to increase Fund
expenses greatly. While securities trading can cause the Fund to realize gains that are distributed to
shareholders as taxable distributions.
|X| Floating Rate and Variable Rate Obligations. Variable rate demand obligations have a demand
feature that allows the Fund to tender the obligation to the issuer or a third party prior to its maturity. The
tender may be at par value plus accrued interest, according to the terms of the obligation.
The interest rate on a floating rate demand note is based on a stated prevailing market rate, such as a
bank's prime rate, the ninety-one (91) day U.S. Treasury Xxxx rate, or some other standard, and is adjusted
automatically each time such rate is adjusted. The interest rate on a variable rate demand note is also based on
a stated prevailing market rate but is adjusted automatically at specified intervals of no less than one (1)
year. Generally, the changes in the interest rate on such securities reduce the fluctuation in their market
value. As interest rates decrease or increase, the potential for capital appreciation or depreciation is less
than that for fixed-rate obligations of the same maturity.
The Manager may determine that an unrated floating rate or variable rate demand obligation meets the
Fund's quality standards by reason of being backed by a letter of credit or guarantee issued by a bank that meets
those quality standards.
Floating rate and variable rate demand notes that have a stated maturity in excess of one (1) year may
have features that permit the holder to recover the principal amount of the underlying security at specified
intervals not exceeding one (1) year and upon not more than thirty (30) days' notice. The issuer of that type of
note normally has a corresponding right in its discretion, after a given period, to prepay the outstanding
principal amount of the note plus accrued interest. Generally the issuer must provide a specified number of
days' notice to the holder. Floating rate or variable rate obligations that do not provide for the recovery of
principal and interest within seven (7) days are subject to the Fund's limitations on investments in illiquid
securities.
|X| Inverse Floaters and Other Derivative Investments. Inverse floaters may offer relatively high
current income, reflecting the spread between short-term and long-term tax exempt interest rates. As long as the
municipal yield curve remains relatively steep and short term rates remain relatively low, owners of inverse
floaters will have the opportunity to earn interest at above-market rates because they receive interest at the
higher long-term rates but have paid for bonds with lower short-term rates. If the yield curve flattens and
shifts upward, an inverse floater will lose value more quickly than a conventional long-term bond. The Fund will
invest in inverse floaters to seek higher tax-exempt yields than are available from fixed-rate bonds that have
comparable maturities and credit ratings. In some cases, the holder of an inverse floater may have an option to
convert the floater to a fixed-rate bond, pursuant to a "rate-lock option."
Some inverse floaters have a feature known as an interest rate "cap" as part of the terms of the
investment. Investing in inverse floaters that have interest rate caps might be part of a portfolio strategy to
try to maintain a high current yield for the Fund when the Fund has invested in inverse floaters that expose the
Fund to the risk of short-term interest rate fluctuations. "Embedded" caps can be used to hedge a portion of the
Fund's exposure to rising interest rates. When interest rates exceed a pre-determined rate, the cap generates
additional cash flows that offset the decline in interest rates on the inverse floater, and the hedge is
successful. However, the Fund bears the risk that if interest rates do not rise above the pre-determined rate,
the cap (which is purchased for additional cost) will not provide additional cash flows and will expire worthless.
Inverse floaters are a form of derivative investment. Certain derivatives, such as options, futures,
indexed securities and entering into swap agreements, can be used to increase or decrease the Fund's exposure to
changing security prices, interest rates or other factors that affect the value of securities. However, these
techniques could result in losses to the Fund, if the Manager judges market conditions incorrectly or employs a
strategy that does not correlate well with the Fund's other investments. These techniques can cause losses if
the counterparty does not perform its promises. An additional risk of investing in municipal securities that are
derivative investments is that their market value could be expected to vary to a much greater extent than the
market value of municipal securities that are not derivative investments but have similar credit quality,
redemption provisions and maturities.
|X| "When-Issued" and "Delayed Delivery" Transactions. The Fund can purchase securities on a
"when-issued" basis, and may purchase or sell such securities on a "delayed delivery" (or "forward commitment")
basis. "When-issued" or "delayed delivery" refers 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.
Normally the settlement date is within six (6) months of the purchase of municipal bonds and notes. However, the
Fund may, from time to time, purchase municipal securities having a settlement date more than six (6) months and
possibly as long as two (2) years or more after the trade date. The securities are subject to change in value
from market fluctuation during the settlement period. 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 Manager before
settlement will affect the value of such securities and may cause loss to the Fund. 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 in order to secure what is considered to be an
advantageous price and yield at the time of entering into the obligation. When the Fund
engages in when-issued or delayed delivery transactions, it relies on the buyer or seller, as the case may be, to
complete the transaction. Their failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield it considers 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 purposes of investment leverage.
Although the Fund will enter into when-issued or delayed-delivery purchase transactions to acquire securities,
the Fund 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 deliver or receive against a
forward commitment, it may incur a gain or loss.
At the time the Fund makes a commitment to purchase or sell a security on a when-issued or forward
commitment basis, it records the transaction on its books and reflects the value of the security purchased. In a
sale transaction, it records the proceeds to be received, in determining its net asset value. The Fund will
identify on its books liquid securities of any type at least equal to the value of purchase commitments until the
Fund pays for the investment.
When-issued transactions and forward commitments 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
forward commitment basis, to obtain the benefit of currently higher cash yields.
|X| Zero-Coupon Securities. The Fund may buy zero-coupon and delayed interest municipal securities.
Zero-coupon securities do not make periodic interest payments and are sold at a deep discount from their face
value. The buyer recognizes a rate of return determined by the gradual appreciation of the security, which is
redeemed at face value on a specified maturity date. This discount depends on the time remaining until maturity,
as well as prevailing interest rates, the liquidity of the security and the credit quality of the issuer. In the
absence of threats to the issuer's credit quality, the discount typically decreases as the maturity date
approaches. Some zero-coupon securities are convertible, in that they are zero-coupon securities until a
predetermined date, at which time they convert to a security with a specified coupon rate.
Because zero-coupon securities pay no interest and compound semi-annually at the rate fixed at the time
of their issuance, their value is generally more volatile than the value of other debt securities. Their value
may fall more dramatically than the value of interest-bearing securities when interest rates rise. When
prevailing interest rates fall, zero-coupon securities tend to rise more rapidly in value because they have a
fixed rate of return.
The Fund's investment in zero-coupon securities may cause the Fund to recognize income and make
distributions to shareholders before it receives any cash payments on the zero-coupon investment. To generate
cash to satisfy those distribution requirements, the Fund may have to sell portfolio securities that it otherwise
might have continued to hold or to use cash flows from other sources such as the sale of Fund shares.
|X| Puts and Standby Commitments. When the Fund buys a municipal security subject to a standby
commitment to repurchase the security, the Fund is entitled to same-day settlement from the purchaser. The Fund
receives an exercise price equal to the amortized cost of the underlying security plus any accrued interest at
the time of exercise. A put purchased in conjunction with a municipal security enables the Fund to sell the
underlying security within a specified period of time at a fixed exercise price.
The Fund might purchase a standby commitment or put separately in cash or it might acquire the security
subject to the standby commitment or put (at a price that reflects that additional feature). The Fund will enter
into these transactions only with banks and securities dealers that, in the Manager's opinion, present minimal
credit risks. The Fund's ability to exercise a put or standby commitment will depend on the ability of the bank
or dealer to pay for the securities if the put or standby commitment is exercised. If the bank or dealer should
default on its obligation, the Fund might not be able to recover all or a portion of any loss sustained from
having to sell the security elsewhere.
Puts and standby commitments are not transferable by the Fund. They terminate if the Fund sells the
underlying security to a third party. The Fund intends to enter into these arrangements to facilitate portfolio
liquidity, although such arrangements might enable the Fund to sell a security at a pre-arranged price that may
be higher than the prevailing market price at the time the put or standby commitment is exercised. However, the
Fund might refrain from exercising a put or standby commitment if the exercise price is significantly higher than
the prevailing market price, to avoid imposing a loss on the seller that could jeopardize the Fund's business
relationships with the seller.
A put or standby commitment increases the cost of the security and reduces the yield otherwise available
from the security. Any consideration paid by the Fund for the put or standby commitment will be reflected on the
Fund's books as unrealized depreciation while the put or standby commitment is held, and a realized gain or loss
when the put or commitment is exercised or expires. Interest income received by the Fund from municipal
securities subject to puts or stand-by commitments may not qualify as tax exempt in its hands if the terms of the
put or stand-by commitment cause the Fund not to be treated as the tax owner of the underlying municipal
securities.
|X| Repurchase Agreements. The Fund may acquire securities subject to repurchase agreements. It may do
so for liquidity purposes to meet anticipated redemptions of Fund shares, or pending the investment of the
proceeds from sales of Fund shares, or pending the settlement of portfolio securities.
In a repurchase transaction, the Fund acquires 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 a primary dealer in government securities, which meet the credit requirements set by
the Fund's Board of Trustees from time to time.
The majority of these transactions run from day to day. Delivery pursuant to resale typically will occur
within one (1) to five (5) days of the purchase. Repurchase agreements having a maturity beyond seven (7) 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 of seven (7) days or less.
Repurchase agreements considered "loans" under the Investment Company Act of 1940 ("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 collateral's value must equal or exceed the repurchase price to
fully collateralize the repayment obligation.
The Manager will monitor the vendor's creditworthiness to confirm that the vendor is financially sound
and will continuously monitor the collateral's value. 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.
|X| Illiquid and Restricted Securities. The Fund has percentage limitations that apply to purchases of
illiquid and restricted securities, as stated in the Prospectus. The Manager monitors holdings of illiquid and
restricted securities on an ongoing basis to determine whether to sell any holdings to maintain adequate
liquidity.
|X| Borrowing for Leverage. The Fund has the ability to borrow from banks on an unsecured basis in
amounts limited (as a fundamental policy) to a maximum of 10% of its total assets, to invest the borrowed funds
in portfolio securities. This technique is known as "leverage." The Fund may borrow only from banks for
investment purposes and extraordinary or emergency purposes and, may borrow from affiliated investment companies
subject to obtaining all required authorizations and regulatory approvals. As a fundamental policy, 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 is required to reduce its bank debt within
three (3) 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. The interest on a loan might be more (or less) than the yield on the securities
purchased with the loan proceeds. Additionally, the Fund's net asset value per share might fluctuate more than
that of funds that do not borrow.
|X| Loans of Portfolio Securities. To attempt to raise income or raise cash for liquidity purposes, the
Fund may lend its portfolio securities to brokers, dealers and other financial institutions. These loans are
limited to not more than 25% of the value of the Fund's total assets. There are 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
that will exceed 5% of the value of the Fund's total assets in the coming year. Income from securities loans does
not constitute exempt-interest income for the purpose of paying tax-exempt dividends.
The Fund must receive collateral for a loan. Under current applicable regulatory requirements (which are
subject to change), on each business day the loan collateral must be at least equal to the value of the loaned
securities. It must consist of cash, bank letters of credit, securities of the U.S. government or its agencies
or instrumentalities, or other cash equivalents in which the Fund is permitted to invest. To be acceptable as
collateral, letters of credit must obligate a bank to pay amounts demanded by the Fund if the demand meets the
terms of the letter. The terms of the letter of credit and the issuing bank both must be satisfactory to the
Fund.
When it lends securities, the Fund receives amounts equal to the dividends or interest on the loaned
securities, It also receives one or more of (a) negotiated loan fees, (b) interest on securities used as
collateral, and (c) interest on short-term debt securities purchased with the loan collateral. Either type of
interest may be shared with the borrower. The Fund may pay reasonable finder's, administrative or other fees in
connection with these loans. The terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five (5) days' notice or in time to vote on any
important matter.
|X| Hedging. The Fund may use hedging to attempt to protect against declines in the market value of its
portfolio, to permit the Fund to retain unrealized gains in the value of portfolio securities that have
appreciated, or to facilitate selling securities for investment reasons. To do so the Fund could:
|_| sell interest rate futures or municipal bond index futures,
|_| buy puts on such futures or securities, or
|_| write covered calls on securities, interest rate futures or municipal bond index futures.
The Fund can also write covered calls on debt securities to attempt to increase the Fund's income, but
that income would not be tax-exempt. Therefore it is unlikely that the Fund would write covered calls for that
purpose.
The Fund may also use hedging to establish a position in the debt securities market as a temporary
substitute for purchasing individual debt securities. In that case the Fund would normally seek to purchase the
securities, and then terminate that hedging position. For this type of hedging, the Fund could:
|_| buy interest rate futures or municipal bond index futures, or
|_| buy calls on such futures or on securities.
The Fund is not obligated to use hedging instruments, even though it is permitted to use them in the
Manager's discretion, as described below. The Fund's strategy of hedging with futures and options on futures
will be incidental to the Fund's investment 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, are
approved by its Board, and are permissible under applicable regulations governing the Fund.
|X| Futures. The Fund may buy and sell futures contracts relating to debt securities (these are called
"interest rate futures") and municipal bond indices (these are referred to as "municipal bond index futures").
An interest rate future obligates the seller to deliver (and the purchaser to take) cash or a specific
type of debt security to settle the futures transaction. Either party could also enter into an offsetting
contract to close out the futures position.
A "municipal bond index" assigns relative values to the municipal bonds in the index, and is used as the
basis for trading long-term municipal bond futures contracts. Municipal bond index futures are similar to
interest rate futures except that settlement is made only in cash. The obligation under the contract may also be
satisfied by entering into an offsetting contract. The strategies which the Fund employs in using municipal bond
index futures are similar to those with regard to interest rate futures.
No money is paid by or received by the fund on the purchase or sale of a futures contract. Upon entering
into a futures transaction, the Fund will be required to deposit an initial margin payment in cash or U.S.
government securities with the futures commission merchant (the "futures broker"). Initial margin payments will
be deposited with the Fund's Custodian in an account registered in the futures broker's name. However, the
futures broker can gain access to that account only under certain 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 the 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 additional cash
is required to be paid by or released to the Fund. Any gain or loss is then realized by the Fund on the Future
for tax purposes. Although interest rate futures by their terms call for settlement by the delivery of debt
securities, in most cases the obligation is fulfilled without such delivery by entering into an offsetting
transaction. All futures transactions are effected through a clearing house associated with the exchange on
which the contracts are traded.
The Fund may concurrently buy and sell futures contracts in a strategy anticipating that the future the
Fund purchased will perform better than the future the Fund sold. For example, the Fund might buy municipal bond
futures and concurrently sell U.S. Treasury Bond futures (a type of interest rate future). The Fund would
benefit if municipal bonds outperform U.S. Treasury Bonds on a duration-adjusted basis.
Duration is a volatility measure that refers to the expected percentage change in the value of a bond
resulting from a change in general interest rates (measured by each 1% change in the rates on U.S. Treasury
securities). For example, if a bond has an effective duration of three years, a 1% increase in general interest
rates would be expected to cause the value of the bond to decline about 3%. There are risks that this type of
futures strategy will not be successful. U.S. Treasury bonds might perform better on a duration-adjusted basis
than municipal bonds, and the assumptions about duration that were used might be incorrect (for example, the
duration of municipal bonds relative to U.S. Treasury Bonds might have been greater than anticipated).
|X| Put and Call Options. The Fund can buy and sell certain kinds of put options (puts) and call
options (calls). These strategies are described below.
|X| Writing Covered Call Options. The Fund can write (that is, sell) call options. The Fund's call
writing is subject to a number of restrictions:
(1) After the Fund writes a call, not more than 25% of the Fund's total assets may be subject to calls.
(2) Calls the Fund sells must be listed on a securities or commodities exchange or quoted on NASDAQ, the
automated quotation system of The Nasdaq Stock Market, Inc. or traded in the over-the-counter
market.
(3) Each call the Fund writes must be "covered" while it is outstanding. That means the Fund must own the
investment on which the call was written.
When the Fund writes a call on a security, it receives cash (a premium). The Fund agrees to sell the
underlying investment to a purchaser of a corresponding call on the same security during the call period at a
fixed exercise price regardless of market price changes during the call period. The call period is usually not
more than nine (9) months. The exercise price may differ from the market price of the underlying security. The
Fund has retained the risk of loss that the price of the underlying security may decline during the call period.
That risk may be offset to some extent by the premium the Fund receives. If the value of the investment does not
rise above the call price, it is likely that the call will lapse without being exercised. In that case the Fund
would keep the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If the buyer of the call
exercises it, the Fund will pay an amount of cash equal to the difference between the closing price of the call
and the exercise price, multiplied by the specified multiple that determines the total value of the call for each
point of difference. If the value of the underlying investment does not rise above the call price, it is likely
that the call will lapse without being exercised. In that case the Fund would keep the cash premium.
The Fund's custodian, or a securities depository acting for the custodian, will act as the Fund's escrow
agent through the facilities of the Options Clearing Corporation ("OCC"), as to the investments on which the Fund
has written calls traded on exchanges, or as to other acceptable escrow securities. In that way, no margin will
be required for such transactions. OCC will release the securities on the expiration of the calls or upon the
Fund's entering into a closing purchase transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter into an arrangement with a
primary U.S. Government securities dealer which will establish a formula price at which the Fund will have the
absolute right to repurchase that OTC option. The formula price would generally be based on a multiple of the
premium received for the option, plus the amount by which the option is exercisable below the market price of the
underlying security (that is, the option is "in-the-money"). When the Fund writes an OTC option, it will treat as
illiquid (for purposes of its restriction on illiquid securities) the xxxx-to-market value of any OTC option held
by it, unless the option is subject to a buy-back agreement by the executing broker. The Securities and Exchange
Commission is evaluating whether OTC options should be considered liquid securities. The procedure described
above could be affected by the outcome of that evaluation.
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 was more or less
than the price of the call the Fund purchased to close out the transaction. A profit may also be realized if the
call lapses unexercised, because the Fund retains the underlying investment and the premium received. Any such
profits are considered short-term capital gains for Federal tax purposes, as are premiums on lapsed calls. When
distributed by the Fund they are taxable as ordinary income.
The Fund may also write calls on futures contracts without owning the futures contract or securities
deliverable under the contract. To do so, at the time the call is written, the Fund must cover the call by
segregating in escrow in all appropriate cases an equivalent dollar value of liquid assets identified on the
Fund's books. The Fund will segregate additional liquid assets if the value of the escrowed assets drops below
100% of the current value of the future. Because of this escrow requirement, in no circumstances would the
Fund's receipt of an exercise notice as to that future put the Fund in a "short" futures position.
|X| Purchasing Calls and Puts. The Fund may buy calls only on securities, broadly-based
municipal bond indices, municipal bond index futures and interest rate futures. It can also buy calls to close
out a call it has written, as discussed above. Calls the Fund buys must be listed on a securities or commodities
exchange, or quoted on NASDAQ, or traded in the over-the-counter market. A call or put option may not be
purchased if the purchase would cause the value of all the Fund's put and call options to exceed 5% of its total
assets. The aggregate premiums paid on all options that the Fund holds at any time are limited to 20% of the
Fund's total assets.
When the Fund purchases a call (other than in a closing purchase transaction), it pays a premium. For
calls on securities that the Fund buys, it has the right to buy the underlying investment from a seller of a
corresponding call on the same investment during the call period at a fixed exercise price. The Fund benefits
only if (1) the call is sold at a profit or (2) the call is exercised when the market price of the underlying
investment is above the sum of the exercise price plus the transaction costs and premium paid for the call. If
the call is not either exercised or sold (whether or not at a profit), it will become worthless at its expiration
date. In that case the Fund will lose its premium payment and the right to purchase the underlying investment.
Calls on municipal bond indices, interest rate futures and municipal bond index futures are settled in
cash rather than delivering the underlying investment. Gain or loss depends on changes in
the securities included in the index in question (and thus on price movements in the debt securities market
generally) rather than on changes in price of the individual futures contract.
The Fund may buy only those puts that relate to securities that the Fund owns, broadly-based municipal
bond indices, municipal bond index futures or interest rate futures (whether or not the Fund owns the futures).
The Fund may not sell puts other than puts it has previously purchased.
When the Fund purchases a put, it pays a premium. The Fund then has the right to sell the underlying
investment to a seller of a corresponding put on the same investment during the put period at a fixed exercise
price. Puts on municipal bond indices are settled in cash. Buying a put on a debt security, interest rate
future or municipal bond index future the Fund owns enables it to protect itself during the put period against a
decline in the value of the underlying investment below the exercise price. If the market price of the
underlying investment is equal to or above the exercise price and as a result the put is not exercised or resold,
the put will become worthless at its expiration date. In that case the Fund will lose its premium payment and
the right to sell the underlying investment. A put may be sold prior to expiration (whether or not at a profit).
|_| Risks of Hedging with Options and Futures. The use of hedging instruments requires special skills
and knowledge of investment techniques that are different than what is required for normal portfolio management.
If the Manager uses a hedging instrument at the wrong time or judges market conditions incorrectly, hedging
strategies may reduce the Fund's returns.
The Fund's option activities may affect its portfolio turnover rate and brokerage commissions. The
exercise of calls written by the Fund may cause the Fund to sell related portfolio securities, thus increasing
its turnover rate. The exercise by the Fund of puts on securities will cause the sale of underlying investments,
increasing portfolio turnover. Although the decision whether to exercise a put it holds is within the Fund's
control, holding a put might cause the Fund to sell the related investments for reasons that would not exist in
the absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put, sells a call, or buys or
sells an underlying investment in connection with the exercise of a call or put. Such commissions may be higher
on a relative basis than the commissions for direct purchases or sales of the underlying investments. Premiums
paid for options are small in relation to the market value of the underlying investments. Consequently, put and
call options offer large amounts of leverage. The leverage offered by trading in options could result in the
Fund's net asset value being more sensitive to changes in the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that has increased in value, the
Fund will be required to sell the investment at the call price. It will not be able to realize any profit if the
investment has increased in value above the call price.
There is a risk in using short hedging by selling interest rate futures and municipal bond index futures
or purchasing puts on municipal bond indices or futures to attempt to protect against declines in the value of
the Fund's securities. The risk is that the prices of such futures or the applicable index will correlate
imperfectly with the behavior of the cash (that is, market) prices of the Fund's securities. It is possible for
example, that while the Fund has used hedging instruments in a short hedge, the market may advance and the value
of debt 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 value of its debt securities. However, while this could
occur over a brief period or to a very small degree, over time the value of a diversified portfolio of debt
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 debt securities being hedged and movements in the price of the hedging instruments, the Fund may use
hedging instruments in a greater dollar amount than the dollar amount of debt securities being hedged. It might
do so if the historical volatility of the prices of the debt securities being hedged is greater 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 natures of those markets. All participants in the futures markets are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may
close out futures contracts through offsetting transactions which could distort the normal relationship between
the cash and futures markets. From the point of view of speculators, the deposit requirements in the futures
markets are less onerous than margin requirements in the securities markets. Therefore, increased participation
by speculators in the futures markets may cause temporary price distortions.
The Fund may use hedging instruments to establish a position in the municipal securities markets as a
temporary substitute for the purchase of individual securities (long hedging). It is possible that the market
may decline. If the Fund then concludes not to invest in such securities because of concerns that there may be
further market decline or for other reasons, the Fund will realize a loss on the hedging instruments that is not
offset by a reduction in the purchase price of the securities.
An option position may be closed out only on a market that provides secondary trading for options of the
same series. There is no assurance that a liquid secondary market will exist for a particular option. If the
Fund could not effect a closing purchase transaction due to a lack of a market, it would have to hold the
callable investment until the call lapsed or was exercised, and could incur losses.
|_| Interest Rate Swap Transactions. In an interest rate swap, the Fund and another party exchange their
right to receive or their obligation to pay interest on a security. For example, they may swap a right to
receive floating rate payments for fixed rate payments. The Fund can enter into swaps only on securities it
owns. The Fund can enter into swaps with respect to more than 25% of its total assets. Also, the Fund will
segregate liquid assets (such as cash or U.S. Government securities) to cover any amounts it could owe under
swaps that exceed the amounts it is entitled to receive, and it will adjust that amount daily, as needed. Income
from interest rate swaps may be taxable.
Swap agreements entail both interest rate risk and credit risk. There is a risk that, based on movements
of interest rates in the future, the payments made by the Fund under a swap agreement will have been greater than
those received by it. Credit risk arises from the possibility that the counterparty will default. If the
counterparty to an interest rate swap defaults, the Fund's loss will consist of the net amount of contractual
interest payments that the Fund has not yet received. The Manager will monitor the creditworthiness of
counterparties to the Fund's interest rate swap transactions on an ongoing basis.
The Fund can enter into swap transactions with appropriate counterparties pursuant to master netting
agreements. A master netting agreement provides that all swaps done between the Fund and that counterparty under
the master agreement shall be regarded as parts of an integral agreement. If on any date amounts are payable
under one or more swap transactions, the net amount payable on that date shall be paid. In addition, the master
netting agreement may provide that if one party defaults generally or on one swap, the counterparty can terminate
the swaps with that party. Under master netting agreements, if there is a default resulting in a loss to one
party, that party's damages are calculated by reference to the average cost of a replacement swap with respect to
each swap. The gains and losses on all swaps are then netted, and the result is the counterparty's gain or loss
on termination. The termination of all swaps and the netting of gains and losses on termination is generally
referred to as "aggregation."
|_| Regulatory Aspects of Hedging Instruments. When using futures and options on futures, the Fund is
required to operate within certain guidelines and restrictions established by the Commodity 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. That 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 no 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 also must use short futures and
options on futures positions 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 adviser as the
Fund (or an adviser that is an affiliate of the Fund's adviser). 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 an interest rate future or municipal bond
index future, it must maintain cash or readily marketable short-term debt instruments in an amount equal to the
market value of the investments underlying the future, less the margin deposit applicable to it. The account must
be a segregated account or accounts held by its custodian bank.
|X| Temporary Defensive Investments. The securities the Fund can invest in for temporary defensive
purposes include the following:
|_| short-term municipal securities;
|_| obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities;
|_| corporate debt securities rated within the three highest grades by a nationally recognized
rating agency;
|_| commercial paper rated "A-1" by S&P, or a comparable rating by another nationally
recognized rating agency; and
|_| certificates of deposit of domestic banks with assets of $1 billion or more.
|X| Taxable Investments. While the Fund can invest up to 20% of its total assets in investments that
generate income subject to income taxes, it does not anticipate investing substantial amounts of its assets in
taxable investments under normal market conditions or as part of its normal trading strategies and policies. To
the extent it invests in taxable securities, the Fund would not be able to meet its objective of providing tax
exempt income to its shareholders. Taxable investments include, for example, hedging instruments, repurchase
agreements, and some of the types of securities the Fund would buy for temporary defensive purposes.
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, such a "majority" vote is defined as the vote of the holders of
the lesser of:
|_| 67% or more of the shares present or represented by proxy at a shareholder meeting, if the holders
of more than 50% of the outstanding shares are present or represented by proxy, or
|_| more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies described in the Prospectus or
this Statement of Additional Information are "fundamental" only if they are identified as such. The Fund's Board
of Trustees can change non-fundamental policies without shareholder approval. However, significant changes to
investment policies will be described in supplements or updates to the Prospectus or this Statement of Additional
Information, as appropriate. The Fund's most significant investment policies are described in the Prospectus.
|X| Does the Fund Have Additional Fundamental Policies? The following investment restrictions are
fundamental policies of the Fund:
|_| The Fund cannot concentrate its investments to the extent of 25% of its total assets in any
industry. However, there is no limitation as to the Fund's investments in municipal securities in general or in
New Jersey municipal securities, or in obligations issued by the U.S. Government and its agencies or
instrumentalities.
|_| The Fund cannot invest in real estate. This restriction shall not prevent the Fund from investing
in municipal securities or other permitted securities that are secured by real estate or interests in real
estate.
|_| The Fund cannot underwrite securities of other companies. A permitted exception is in case it is
deemed to be an underwriter under the Securities Act of 1933 when reselling any securities held in its own
portfolio.
|_| The Fund cannot make loans except (a) by lending portfolio securities, (b) through the purchase of
debt instruments or similar evidences of indebtedness, (c) through repurchase agreements, and (d) through an
interfund lending program with other affiliated funds. No such loan may be made through interfund lending if, as
a result, the aggregate of those loans would exceed 33 1/3% of the value of the Fund's total assets (taken at
market value at the time the loan is made).
|_| The Fund cannot borrow money or securities for any purposes except that (a) borrowing up to 10% of
the Fund's total assets from banks and/or affiliated investment companies as a temporary measure for
extraordinary or emergency purposes and (b) borrowing up to 5% of the Fund's total assets from banks for
investment purposes, is permitted.
|_| 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 agreements 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.
Unless the Prospectus or 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. In that case 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.
|X| Does the Fund Have Other Restrictions that are Not Fundamental Policies?
The Fund has several additional restrictions on its investment policies that are not fundamental, which
means that they can be changed by the Board of Trustees, without obtaining shareholder approval.
|_| The Fund cannot invest in securities or other investments other than municipal securities, the
temporary investments described in its Prospectus, repurchase agreements, covered calls, private activity
municipal securities and hedging instruments described in "About the Fund" in the Prospectus or this Statement of
Additional Information.
|_| The Fund cannot purchase securities other than hedging instruments on margin. However, the Fund may
obtain short-term credits that may be necessary for the clearance of purchases and sales of securities.
|_| The Fund cannot sell securities short.
|_| The Fund cannot pledge, mortgage or otherwise encumber, transfer or assign its assets to secure a
debt. However, the use of escrow or other collateral arrangements in connection with hedging instruments is
permitted.
|_| The Fund cannot buy or sell futures contracts other than interest rate futures and municipal bond
index futures.
|_| The Fund will not invest more than 10% of its net assets in securities which are restricted as to
disposition under the federal securities laws, except that the Fund may purchase without regard to this
limitation restricted securities which are eligible for resale pursuant to Rule 144A under the Securities Act of
1933.
The Fund currently has an operating policy (which is not a fundamental policy but will not be changed
without the approval of a shareholder vote) that prohibits the Fund from issuing senior securities. However,
that policy does not prohibit certain activities that are permitted by the Fund's other policies, including
borrowing money for emergency purposes as permitted by its other investment policies and applicable regulations,
entering into delayed-delivery and when-issued arrangements for portfolio securities transactions, and entering
into contracts to buy or sell derivatives, hedging instruments, options, futures and the related margin,
collateral or escrow arrangements permitted under its other investment policies.
Non-Diversification of the Fund's Investments. The Fund is "non-diversified," as defined in the Investment
Company Act. Funds that are diversified have restrictions against investing too much of their assets in the
securities of any one "issuer." That means that the Fund can invest more of its assets in the securities of a
single issuer than a fund that is diversified.
Being non-diversified poses additional investment risks, because if the Fund invests more of its assets
in fewer issuers, the value of its shares is subject to greater fluctuations from adverse conditions affecting
any one of those issuers. However, the Fund does limit its investments in the securities of any one issuer to
qualify for tax purposes as a "regulated investment company" under the Internal Revenue Code. By qualifying, it
does not have to pay federal income taxes if more than 90% of its earnings are distributed to shareholders. To
qualify, the Fund must meet a number of conditions. First, not more than 25% of the market value of the Fund's
total assets may be invested in the securities of a single issuer. Second, with respect to 50% of the market
value of its total assets, (1) no more than 5% of the market value of its total assets may be invested in the
securities of a single issuer, and (2) the Fund must not own more than 10% of the outstanding voting securities
of a single issuer.
The identification of the issuer of a municipal security depends on the terms and conditions of the
security. When the assets and revenues of an agency, authority, instrumentality or other political subdivision
are separate from those of the government creating it and the security is backed only by the assets and revenues
of the subdivision, agency, authority or instrumentality, the latter would be deemed to be the sole issuer.
Similarly, if an industrial development bond is backed only by the assets and revenues of the non-governmental
user, then that user would be deemed to be the sole issuer. However, if in either case the creating government
or some other entity guarantees a security, the guarantee would be considered a separate security and would be
treated as an issue of such government or other entity.
Applying the Restriction Against Concentration. To implement its policy not to concentrate its investments, the
Fund has adopted the industry classifications set forth in Appendix B to this Statement of Additional
Information. Those industry classifications are not a fundamental policy.
In implementing the Fund's policy not to concentrate its investments, the Manager will consider a
non-governmental user of facilities financed by industrial development bonds as being in a particular industry.
That is done even though the bonds are municipal securities, as to which the Fund has no concentration
limitation. Although this application of the concentration restriction is not a fundamental policy of the Fund,
it will not be changed without shareholder approval. The Manager has no present intention of investing more than
25% of the Fund's total assets in securities paying interest from revenues of similar type projects or in
industrial development bonds. This is not a fundamental policy and therefore could be changed without shareholder
approval. However, if that change were made, the Prospectus or this Statement of Additional Information would be
supplemented to reflect the change.
How the Fund Is Managed
Organization and History. The Fund is a series of a Massachusetts business trust that was originally organized
in 1989, as a trust having one series. In 1993 it was reorganized to be a multi-series business trust (now
called Xxxxxxxxxxx Multi-State Municipal Trust). The Fund was added as a separate series of that Trust in 1994.
The Fund is an open-end, non-diversified management investment company with an unlimited number of authorized
shares of beneficial interest. Each of the three (3) series of the Trust is a separate fund that issues its own
shares, has its own investment portfolio, and has its own assets and liabilities.
The Fund is governed by a Board of Trustees, which is responsible for protecting the interests of
shareholders under Massachusetts law. The Trustees meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager. Although the Fund will not normally
hold annual meetings of its shareholders, it may hold shareholder meetings from time to time on important
matters, and shareholders have the right to call a meeting to remove a Trustee or to take other action described
in the Fund's Declaration of Trust.
|X| Classes of Shares. The Board of Trustees has the power, without shareholder approval, to divide
unissued shares of the Fund into two or more classes. The Board has done so, and the Fund currently has three
classes of shares, Class A, Class B and Class C. All classes invest in the same investment portfolio. 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 the interests of one class are different from
the interests of another class, and
o votes as a class on matters that affect that class alone.
All classes invest in the same investment portfolio. Shares are freely transferable. Each share 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.
The Trustees are authorized to create new series and classes of shares. The Trustees may reclassify
unissued shares of the Fund into additional series or classes of shares. The Trustees also may divide or combine
the shares of a class into a greater or lesser number of shares without changing the proportionate beneficial
interest of a shareholder in the Fund. Shares do not have cumulative voting rights or preemptive or subscription
rights. Shares may be voted in person or by proxy at shareholder meetings.
|X| Meetings of Shareholders. As a series of a Massachusetts business trust, the Fund is not required
to hold, and does not plan to hold, regular annual meetings of shareholders. The Fund will hold meetings when
required to do so by the Investment Company Act or other applicable law. It will also do so when a shareholder
meeting is called by the Trustees or upon proper request of the shareholders.
Shareholders have the right, upon the declaration in writing or vote of two-thirds of the outstanding
shares of the Fund, to remove a Trustee. The Trustees will call a meeting of shareholders to vote on the removal
of a Trustee upon the written request of the record holders of 10% of its outstanding shares. If the Trustees
receive a request from at least ten (10) shareholders stating that they wish to communicate with other
shareholders to request a meeting to remove a Trustee, the Trustees will then either make the shareholder lists
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 (6) months and must hold shares
of the Fund valued at $25,000 or more or constituting at least 1% of the Fund's outstanding shares, whichever is
less. The Trustees may also take other action as permitted by the Investment Company Act.
|X| Shareholder and Trustee Liability. The Fund's Declaration of Trust contains an express disclaimer
of shareholder or Trustee liability for the Fund's obligations. It also provides for indemnification and
reimbursement of expenses out of the Fund's property for any shareholder held personally liable for its
obligations. The Declaration of Trust also states that upon request, the Fund shall assume the defense of any
claim made against a shareholder for any act or obligation of the Fund and shall satisfy any judgment on that
claim. Massachusetts law permits a shareholder of a business trust (such as the trust of which the Fund is a
series) to be held personally liable as a "partner" under certain circumstances. However, the risk that a Fund
shareholder will incur financial loss from being held liable as a "partner" of the Fund is limited to the
relatively remote circumstances in which the Fund would be unable to meet its obligations.
The Fund's contractual arrangements state that any person doing business with the Fund (and each
shareholder of the Fund) agrees under its Declaration of Trust to look solely to the assets of the Fund for
satisfaction of any claim or demand that may arise out of any dealings with the Fund. The contracts further
state that the Trustees shall have no personal liability to any such person, to the extent permitted by law.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their principal occupations and business
affiliations and occupations during the past five (5) years are listed below. Trustees denoted with an asterisk
(*) below are deemed to be "interested persons" of the Fund under the Investment Company Act. All of the
Trustees are Trustees or Directors of the following New York-based Xxxxxxxxxxx funds1:
Xxxxxxxxxxx California Municipal Fund Xxxxxxxxxxx International Growth Fund
Xxxxxxxxxxx Capital Appreciation Fund Xxxxxxxxxxx International Small Company Fund
Xxxxxxxxxxx Capital Preservation Fund Xxxxxxxxxxx Money Market Fund, Inc.
Xxxxxxxxxxx Concentrated Growth Fund Xxxxxxxxxxx Multiple Strategies Fund
Xxxxxxxxxxx Developing Markets Fund Xxxxxxxxxxx Multi-Sector Income Trust
Xxxxxxxxxxx Discovery Fund Xxxxxxxxxxx Multi-State Municipal Trust
Xxxxxxxxxxx Emerging Growth Fund Xxxxxxxxxxx Municipal Bond Fund
Xxxxxxxxxxx Emerging Technologies Fund Xxxxxxxxxxx New York Municipal Fund
Xxxxxxxxxxx Enterprise Fund Xxxxxxxxxxx Series Fund, Inc.
Xxxxxxxxxxx Europe Fund Xxxxxxxxxxx Special Value Fund
Xxxxxxxxxxx Global Fund Xxxxxxxxxxx Trinity Core Fund
Xxxxxxxxxxx Global Growth & Income Fund Xxxxxxxxxxx Trinity Large Cap Growth Fund
Xxxxxxxxxxx Gold & Special Minerals Fund Xxxxxxxxxxx Trinity Value Fund
Xxxxxxxxxxx Growth Fund Xxxxxxxxxxx U.S. Government Trust
Messrs. Xxxxxx, Xxxxx, Xxxxxx, Xxxx, Xxxxxx and Xxxxxx respectively hold the same offices with the other
New York-based Xxxxxxxxxxx funds as with the Fund. As of November 7, 2001, the Trustees and Officers of the Fund
as a group owned of record or beneficially less than 1% of the outstanding Class A shares of the Fund and owned
no shares of Class B or C. The foregoing statement does not reflect ownership of shares of the Fund held of
record by an employee benefit plan for employees of the Manager, other than the shares beneficially owned under
the plan by the officers of the Fund listed above. Xx. Xxxxxx is a trustee of that Plan.
Xxxx Xxxx, Chairman of the Board of Trustees, Age: 76.
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
General Partner of Odyssey Partners, L.P. (investment partnership) (since 1982) and Chairman of the Board of
Avatar Holdings, Inc. (real estate development) (since 1981).
Xxxxxx X. Xxxxx, Vice Chairman of the Board of Trustees, Age: 76.
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
Chairman Emeritus of the Manager (since 1991). Formerly he held the following positions: Chairman (November 1987
- January 1991) and a director (January 1969 - August 1999) of the Manager; President and Director of
OppenheimerFunds Distributor, Inc., a subsidiary of the Manager and the Fund's Distributor (July 1978 - January
1992).
Xxxxxx X. Xxxxx, Trustee, Age: 68.
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
A Trustee or Director of other Xxxxxxxxxxx funds. Formerly he held the following positions: Vice Chairman
(October 1995 - December 1997) and Executive Vice President (December 1977 - October 1995) of the Manager;
Executive Vice President and a director (April 1986 - October 1993) of HarbourView Asset Management Corporation.
Xxxxxxx X. Xxxxxxxxx, Trustee, Age: 63.
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
The Director of the Institute for Advanced Study, Princeton, N.J. (since 1991), director of GSI Lumonics (since
2001) and a member of the National Academy of Sciences (since 1979); formerly (in descending chronological order)
a director of Bankers Trust Corporation, Xxxxxxx and Professor of Mathematics at Duke University, a director of
Research Triangle Institute, Raleigh, N.C., and a Professor of Mathematics at Harvard University.
Xxxxxxxx Xxxxxxxx, Trustee, Age: 78.
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
Professor Emeritus of Marketing, Xxxxx Graduate School of Business Administration, New York University.
Xxxx X. Xxxxxx*, President and Trustee, Age: 52
000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000
Chairman and Chief Executive Officer and director (since July 2001) and President (since August 2000) of the
Manager; President and a 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 adviser 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 adviser 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 (August 2000 - July 2001) of the Manager; Executive Vice President (from 1995 to 1997) of
MassMutual Financial Group; Executive Vice President and Chief Operating Officer (from 1995 to 1997) of Xxxxx X.
Xxxxxx & Company, an investment advisor; Chief Operating Officer (from 1993 to 1996) of Concert Capital
Management, Inc., an investment advisor.
Xxxxxxxxx X. Xxxxxxxx, Trustee, Age: 72.
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
Author and architectural historian; a trustee of the Xxxxx Gallery of Art and Xxxxxx X. Xxxxxxx Gallery
(Smithsonian Institute), Trustees Council of the National Building Museum; a member of the Trustees Council,
Preservation League of New York State.
Xxxxxxx X. Xxxxxxx, Trustee, Age: 73.
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
A director of Dominion Resources, Inc. (electric utility holding company) and Prime Retail, Inc. (real estate
investment trust); formerly a director of Dominion Energy, Inc. (electric power and oil & gas producer),
President and Chief Executive Officer of The Conference Board, Inc. (international economic and business
research) and a director of Lumbermens Mutual Casualty Company, American Motorists Insurance Company and American
Manufacturers Mutual Insurance Company.
Xxxxxx X. Xxxxx, Trustee, Age: 72.
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
President, Baruch College, CUNY; a director of RBAsset (real estate manager); a director of OffitBank; formerly
Trustee, Financial Accounting Foundation (FASB and GASB); Senior Fellow of Xxxxxx Xxxx Economics Institute, Bard
College; Chairman of Municipal Assistance Corporation for the City of New York; New York State Comptroller and
Trustee of New York State and Local Retirement Fund.
Xxxxxxx X. Xxxxxxxx, Xx., Trustee, Age: 69.
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
Chairman of The Directorship Search Group, Inc. (corporate governance consulting and executive recruiting) (since
1993); a director of Professional Staff Limited (a U.K. temporary staffing company) (since 1995); a life trustee
of International House (non-profit educational organization), and a trustee of the Greenwich Historical Society
(since 1996).
Xxxxxxx X. Xxxxxxx, Trustee, Age: 70.
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
Of Counsel, Xxxxx & Xxxxxxx (a law firm) (since 1993). Other directorships: Caterpillar, Inc. (since 1993);
Zurich Financial Services (since 1998); ConAgra, Inc. (since 1993); FMC Corporation (since 1993); Texas
Instruments Incorporated (since 1993); and Weyerhaeuser Co. (since 1999); formerly a director of Farmers Group
Inc. (1994-2000), Zurich Allied AG (1998-2000) and of Allied Zurich Pl.c (1998-2000).
Xxxxx X. Xxxxxx, Treasurer and Principal Financial and Accounting Officer, Age: 41.
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
Senior Vice President and Treasurer (since March 1999) of the Manager; Treasurer (since March 1999) of
HarbourView Asset Management Corporation, Shareholder Services, Inc., Xxxxxxxxxxx Real Asset Management
Corporation, Shareholder Financial Services, Inc. and Xxxxxxxxxxx Partnership Holdings, Inc., of OFI Private
Investments, Inc. (since March 2000) and of OppenheimerFunds International Ltd. and Xxxxxxxxxxx Millennium Funds
plc (since May 2000); Treasurer and Chief Financial Officer (since May 2000) of Xxxxxxxxxxx Trust Company;
Assistant Treasurer (since March 1999) of Xxxxxxxxxxx Acquisition Corp.; an officer of other Xxxxxxxxxxx funds;
formerly Principal and Chief Operating Officer, Bankers Trust Company - Mutual Fund Services Division (March 1995
- March 1999); Vice President and Chief Financial Officer of CS First Boston Investment Management Corp.
(September 1991 - March 1995).
Xxxxxx X. Xxxx, Secretary, Age: 53.
000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000
Senior Vice President (since May 1985) and Acting General Counsel (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 Xxxxxxxxxxx Millennium Funds plc (since October 1997); an officer
of other Xxxxxxxxxxx funds. Formerly Associate General Counsel (May 1981 - November 2001).
Xxxxxx X. Xxxxxx, Assistant Treasurer, Age: 43.
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
Vice President of the Manager/Mutual Fund Accounting (since May 1996); 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. Vice President of OppenheimerFunds, Inc. (since May 1996); an officer of other
Xxxxxxxxxxx funds; formerly an Assistant Vice President (April 1994 - May 1996) and a Fund Controller of
OppenheimerFunds, Inc.
Xxxxx X. Xxxxxx, Assistant Treasurer, Age: 35.
0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx, Xxxxxxxx 00000
Vice President of the Manager/Mutual Fund Accounting (since May 1996); Assistant Treasurer of Xxxxxxxxxxx
Millennium Funds plc (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.
Vice President of OppenheimerFunds, Inc. (since May 1996); Assistant Treasurer of Xxxxxxxxxxx Millennium Funds
plc (since October 1997); an officer of other Xxxxxxxxxxx funds; formerly an Assistant Vice President (April 1994
- May 1996) and a Fund Controller of OppenheimerFunds, Inc.
Merrell Hora, Portfolio Manager, Age: 33.
000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000
Vice President of the Manager (since July 1999); a portfolio manager of other Xxxxxxxxxxx funds;
formerly a Senior Quantitative Analyst for the Fixed Income Department's Quantitative Analysis Team (July 1998 -
August 2000); prior to joining the Manager in July 1998 he was a quantitative analyst with a subsidiary of the
Cargill Financial Services Group (January 1997 - September 1997) and also held numerous positions at the
University of Minnesota from which he obtained his Ph.D. in Economics.
Xxxxx X. Xxxxxx, Portfolio Manager, Age: 52.
000 Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000
Senior Vice President and Senior Investment Officer and Director of the Fixed Income Department of the Manager
(since February 1996); Senior Vice President of HarbourView Asset Management Corporation (since May 1999); a
portfolio manager of other Xxxxxxxxxxx funds; before joining the Manager in February 1996, he was a Vice
President and portfolio manager with Prudential Investment Corporation (March 1986 - February 1996).
|X| Remuneration of Trustees. The officers of the Fund and two Trustees of the Fund (Xx. Xxxxxx and Xx.
Xxxxx) who are affiliated with the Manager receive no salary or fee from the Fund. The remaining Trustees of the
Fund received the compensation shown below. The compensation from the Fund was paid during its fiscal year ended
July 31, 2001. The compensation from all of the New York-based Xxxxxxxxxxx funds (including the Fund) was
received as a director, trustee or member of a committee of the boards of those funds during the calendar year
2000.
------------------------------------ -------------------------- ------------------------- ----------------------------
Total
Retirement Compensation
Benefits from all
Aggregate Compensation Accrued New York-Based Xxxxxxxxxxx
from Fund1 as Fund Funds (29 Funds) 2
Name and Position Expenses*
------------------------------------ -------------------------- ------------------------- ----------------------------
------------------------------------ -------------------------- ------------------------- ----------------------------
Xxxx Xxxx $6,941 $0 $171,950
Chairman
------------------------------------ -------------------------- ------------------------- ----------------------------
------------------------------------ -------------------------- ------------------------- ----------------------------
Xxxxxx X. Xxxxx $ 2,869 $0 $191,134
Study Committee Member3
------------------------------------ -------------------------- ------------------------- ----------------------------
------------------------------------ -------------------------- ------------------------- ----------------------------
Xxxxxxx X. Griffiths4 $2,869 $0 $ 59,529
------------------------------------ -------------------------- ------------------------- ----------------------------
------------------------------------ -------------------------- ------------------------- ----------------------------
Xxxxxxxx Xxxxxxxx $6,000 $0 $148,639
Study Committee Chairman,
Audit Committee Member
------------------------------------ -------------------------- ------------------------- ----------------------------
------------------------------------ -------------------------- ------------------------- ----------------------------
Xxxxxxxxx X. Xxxxxxxx $4,227 $0 $104,695
Study Committee
Member
------------------------------------ -------------------------- ------------------------- ----------------------------
------------------------------------ -------------------------- ------------------------- ----------------------------
Xxxxxxx X. Xxxxxxx $3,878 $0 $96,034
Audit Committee Member
------------------------------------ -------------------------- ------------------------- ----------------------------
------------------------------------ -------------------------- ------------------------- ----------------------------
Xxxxxx X. Xxxxx $2,563 $0 $94,995
Proxy Committee Chairman, Audit
Committee Member
------------------------------------ -------------------------- ------------------------- ----------------------------
------------------------------------ -------------------------- ------------------------- ----------------------------
Xxxxxxx X. Xxxxxxxx, Xx. $3,834 $0 $71,069
Proxy Committee
Member
------------------------------------ -------------------------- ------------------------- ----------------------------
------------------------------------ -------------------------- ------------------------- ----------------------------
Xxxxxx X. Xxxxx $4,227 $0 $63,435
------------------------------------ -------------------------- ------------------------- ----------------------------
------------------------------------ -------------------------- ------------------------- ----------------------------
Xxxxxxx X. Yeutter5 $2,324 $0 $71,069
Proxy Committee
Member
------------------------------------ -------------------------- ------------------------- ----------------------------
-------------------
1 Aggregate compensation includes fees, deferred compensation, if any, and retirement plan benefits accrued for
a Trustee.
2 For the 2000 calendar year.
3 Total compensation for the 2000 calendar year includes compensation received for serving as a Trustee or
Director of 11 other Xxxxxxxxxxx funds.
4 Includes $2,869 deferred under Deferred Compensation Plan described below.
5 Includes $581 deferred under Deferred Compensation Plan described below.
* Trustee retirement accruals were ($49,591) for the period. The Aggregate compensation from the Fund does not
reflect this negative accrual.
|X| Retirement Plan for Trustees. The Fund has adopted a retirement plan that provides for payments to
retired Trustees. Payments are up to 80% of the average compensation paid during a Trustee's five (5) years of
service in which the highest compensation was received. A Trustee must serve as trustee for any of the New
York-based Xxxxxxxxxxx funds for at least fifteen (15) years to be eligible for the maximum payment. Each
Trustee's retirement benefits will depend on the amount of the Trustee's future compensation and length of
service.
|X| Deferred Compensation Plan for Trustees. The Board of Trustees has adopted a Deferred Compensation
Plan for disinterested trustees that enables them to elect to defer receipt of all or a portion of the annual
fees they are entitled to receive from the Fund. Under the plan, the compensation deferred by a Trustee is
periodically adjusted as though an equivalent amount had been invested in shares of one or more Xxxxxxxxxxx funds
selected by the Trustee. The amount paid to the Trustee under the plan will be determined based upon the
performance of the selected funds.
Deferral of Trustees' fees under the plan will not materially affect the Fund's assets, liabilities or
net income per share. The plan will not obligate the Fund to retain the services of any Trustee or to pay any
particular level of compensation to any Trustee. Pursuant to an Order issued by the Securities and Exchange
Commission, the Fund may invest in the funds selected by the Trustee under the plan without shareholder approval
for the limited purpose of determining the value of the Trustee's deferred fee account.
|X| Major Shareholders. As of November 7, 2001, the only persons who owned of record or who were
known by the Fund to own beneficially 5% or more of the Fund's outstanding Class A, Class B or Class C shares
were:
Xxxxxxx Xxxxx Xxxxxx Xxxxxx & Xxxxx, 0000 Xxxx Xxxx Xxxxx X., Xxxxxxxxxxxx, XX 00000, which owned, for
the benefit of its customers, 326,280.902 Class A shares (representing approximately 8.42% of the Fund's then
outstanding Class A shares); 301,825.902 Class B shares (representing approximately 8.03% of the Fund's then
outstanding Class B shares); and 129,672.871 Class C shares (representing approximately 15.55% of the Fund's then
outstanding Class C shares).
The Manager. The Manager is wholly-owned by Xxxxxxxxxxx Acquisition Corp., a holding company controlled by
Massachusetts Mutual Life Insurance Company.
|X| Code of Ethics. The Fund, the Manager and the Distributor have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees, including portfolio managers, that would
compete with or take advantage of the Fund's portfolio transactions. Covered persons include persons with
knowledge of the investments and investment intentions of the Fund and other funds advised by the Manager. The
Code of Ethics does permit personnel subject to the Code to invest in securities, including securities that may
be purchased or held by the Fund, subject to a number of restrictions and controls. Compliance with the Code of
Ethics is carefully monitored and enforced by the Manager.
The Code of Ethics is an exhibit to the Fund's registration statement filed with the Securities and
Exchange Commission and can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. You
can obtain information about the hours of operation of the Public Reference Room by calling the SEC at
0-000-000-0000. The Code of Ethics can also be viewed as part of the Fund's registration statement on the SEC's
XXXXX database at the SEC's Internet website at XXXX://XXX.XXX.XXX. Copies may be obtained after paying a
------------------
duplicating fee, by electronic request at the following E-mail address: XXXXXXXXXX@XXX.XXX, or by writing to the
------------------
SEC's Public Reference Section, Washington, D.C. 20549-0102.
|X| The Investment Advisory Agreement. The Manager provides investment advisory and management
services to the Fund under an investment advisory agreement between the Manager and the Fund. The Manager
selects securities for the Fund's portfolio and handles its day-to day business. The portfolio manager of the
Fund is employed by the Manager and is the person who is principally responsible for the day-to-day management of
the Fund's investment portfolio.
Other members of the Manager's Fixed-Income Portfolio Team provide the portfolio manager with research and
counsel in managing the Fund's investments.
That agreement requires the Manager, at its expense, to provide the Fund with adequate office space,
facilities and equipment. It also requires the Manager to provide and supervise the activities of all
administrative and clerical personnel required to provide effective corporate administration for the Fund. Those
responsibilities include the compilation and maintenance of records with respect to the Fund's operations, the
preparation and filing of specified reports, and the composition of proxy materials and registration statements
for continuous public sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the advisory agreement. The advisory
agreement lists examples of expenses paid by the Fund. The major categories relate to interest, taxes, fees to
disinterested Trustees, legal and audit expenses, custodian and transfer agent expenses, share issuance costs,
certain printing and registration costs, brokerage commissions, and non-recurring expenses, including litigation
cost. 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. The management
fees paid by the Fund to the Manager during its last three (3) fiscal years are listed below.
---------------------------------------- -------------------------------------- --------------------------------------
Management Fee Paid to
Fiscal Year Management Fee OppenheimerFunds, Inc.
Ended 7/31 (Without Voluntary Waiver) (after waiver)
---------------------------------------- -------------------------------------- --------------------------------------
---------------------------------------- -------------------------------------- --------------------------------------
1999 $523,550 $130,366
$230,723
---------------------------------------- -------------------------------------- --------------------------------------
---------------------------------------- -------------------------------------- --------------------------------------
2000 $490,267 $263,552
---------------------------------------- -------------------------------------- --------------------------------------
---------------------------------------- -------------------------------------- --------------------------------------
2001 $476,017 $317,344
---------------------------------------- -------------------------------------- --------------------------------------
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 for its obligations and duties under the
investment advisory agreement, the Manager is not liable for any loss sustained by reason of any investment of
the Fund assets made with due care and in good faith. The agreement permits the Manager to act as investment
adviser for any other person, firm or corporation. The Manager can use the name "Xxxxxxxxxxx" in connection with
other investment companies for which it or an affiliate is the investment adviser or general distributor. If the
Manager shall no longer act as investment adviser to the Fund, the Manager can withdraw its permission to the
Fund to use the name "Xxxxxxxxxxx" as part of its name.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of the Manager under the investment
advisory agreement is to buy and sell portfolio securities for the Fund. The investment advisory agreement
allows the Manager to use broker-dealers to effect the Fund's portfolio transactions. Under the agreement, the
Manager may employ those broker-dealers (including "affiliated" brokers, as that term is defined in the
Investment Company Act) that, in the Manager's best judgment based on all relevant factors, will implement the
Fund's policy to obtain, at reasonable expense, the "best execution" of portfolio transactions. "Best execution"
refers to prompt and reliable execution at the most favorable price obtainable. The Manager need not seek
competitive commission bidding. However, the Manager is expected to minimize the commissions paid to the extent
consistent with the interest and policies of the Fund as established by its Board of Trustees.
Under the investment advisory agreement, the Manager may select brokers that provide brokerage and/or
research services for the Fund and/or the other accounts over which the Manager or its affiliates have investment
discretion. The commissions paid to such brokers may be higher than another qualified broker would charge, if
the Manager makes a good faith determination that the commission is fair and reasonable in relation to the
services provided. Subject to those other considerations, as a factor in selecting brokers for the Fund's
portfolio transactions, the Manager may also consider sales of shares of the Fund and other investment companies
managed by the Manager or its affiliates.
Brokerage Practices Followed by the Manager. The Manager allocates brokerage for the Fund subject to the
provisions of the investment advisory agreement and the procedures and rules described above. Generally the
Manager's portfolio traders allocate brokerage upon recommendations from the Manager's portfolio managers. In
certain instances, portfolio managers may directly place trades and allocate brokerage. In either case, the
Manager's executive officers supervise the allocation of brokerage.
Most securities purchases made by the Fund are in principal transactions at net prices. The Fund usually
deals directly with the selling or purchasing principal or market maker without incurring charges for the
services of a broker on its behalf unless the Manager determines that a better price or execution may be obtained
by using the services of a broker. Therefore, the Fund does not incur substantial brokerage costs. Portfolio
securities purchased from underwriters include a commission or concession paid by the issuer to the underwriter
in the price of the security. Portfolio securities purchased from dealers include a spread between the bid and
asked price.
The Fund seeks to obtain prompt execution of orders at the most favorable net prices. In an option
transaction, the Fund ordinarily uses the same broker for the purchase or sale of the option and any transaction
in the investment to which the option relates. Other funds advised by the Manager have investment objectives and
policies similar to those of the Fund. Those other funds may purchase or sell the same securities as the Fund at
the same time as the Fund, which could affect the supply and price of the securities. When possible, the Manager
tries to combine concurrent orders to purchase or sell the same security by more than one of the accounts managed
by the Manager or its affiliates. The transactions under those combined orders are averaged as to price and
allocated in accordance with the purchase or sale orders actually placed for each account.
The investment advisory agreement permits the Manager 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 Manager and its affiliates. Investment research received by the Manager for the commissions paid by those
other accounts may be useful both to the Fund and one or more of the Manager's other accounts. Investment
research services may be supplied to the Manager by a third party at the instance of a broker through which
trades are placed. Investment research services include information and analyses on particular companies and
industries as well as market or economic trends and portfolio strategy, market quotations for portfolio
evaluations, information systems, computer hardware and similar products and services. If a research service
also assists the Manager in a non-research capacity (such as bookkeeping or other administrative functions), then
only the percentage or component that provides assistance to the Manager in the investment decision-making
process may be paid in commission dollars.
The Board of Trustees permits the Manager to use commissions on fixed-price offerings to obtain
research, in the same manner as is permitted for agency transactions. The Board permits the Manager to use
stated commissions on secondary fixed-income agency trades to obtain research if the broker represents to the
Manager that: (i) the trade is not from or for the broker's own inventory, (ii) the trade was executed by the
broker on an agency basis at the stated commission, and (iii) the trade is not a riskless principal transaction.
The research services provided by brokers broaden the scope and supplement the research activities of
the Manager. That research provides additional views and comparisons for consideration and helps the Manager to
obtain market information for the valuation of securities that are either held in the Fund's portfolio or are
being considered for purchase. The Manager provides information to the Board of the Fund about the commissions
paid to brokers furnishing research services, together with the Manager's representation that the amount of such
commissions was reasonably related to the value or benefit of such services.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Fund, the Distributor acts as the Fund's
principal underwriter in the continuous public offering of the different classes of shares of the Fund. 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 tables below:
------------- ------------------ ------------------- -------------------- ------------------- -------------------
Aggregate Class A Front-End Concessions on Concessions on Concessions on
Front-End Sales Sales Charges Class A Shares Class B Shares Class C Shares
Fiscal Year Charges on Class Retained by Advanced by Advanced by Advanced by
Ended 7/31: A Shares Distributor* Distributor1 Distributor1 Distributor1
------------- ------------------ ------------------- -------------------- ------------------- -------------------
------------- ------------------ ------------------- -------------------- ------------------- -------------------
1999 $274,066 $42,452 $45,803 $686,850 $45,815
------------- ------------------ ------------------- -------------------- ------------------- -------------------
------------- ------------------ ------------------- -------------------- ------------------- -------------------
2000 $ 89,670 $11,968 $ 4,034 $193,383 $20,626
------------- ------------------ ------------------- -------------------- ------------------- -------------------
------------- ------------------ ------------------- -------------------- ------------------- -------------------
2001 $150,702 $25,811 $579 $284,744 $23,625
------------- ------------------ ------------------- -------------------- ------------------- -------------------
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.
* Includes amounts retained by a broker-dealer that is an affiliate or a parent of the distributor.
----------------- ------------------------------ ------------------------------- --------------------------------
Class A Contingent Deferred Class B Contingent Deferred Class C Contingent Deferred
Fiscal Year Sales Charges Retained by Sales Charges Retained by Sales Charges Retained by
Ended 7/31: Distributor Distributor Distributor
----------------- ------------------------------ ------------------------------- --------------------------------
----------------- ------------------------------ ------------------------------- --------------------------------
2001 $422 $132,505 $1,881
----------------- ------------------------------ ------------------------------- --------------------------------
For additional information about distribution of the Fund's shares, including fees and expenses, please
refer to "Distribution and Service Plans."
Distribution and Service Plans. The Fund has adopted a Service Plan for its Class A shares and Distribution and
Service Plans for its Class B and Class C shares under Rule 12b-1 of the Investment Company Act. Under those
plans, the Fund makes payments to the Distributor in connection with the distribution and/or servicing of the
shares of the particular class. Each plan has been approved by a vote of the Board of Trustees of the Fund,
including a majority of the Independent Trustees,2 cast in person at a meeting called for the purpose of voting
on that plan.
Under the plans the Manager and the Distributor, in their sole discretion, from time to time may use
their own resources (at no direct cost to the Fund) to make payments to brokers, dealers or other financial
institutions for distribution and administrative services they perform The Manager may use profits from the
advisory fee it receives from the Fund. The Distributor and the Manager may, in their sole discretion, increase
or decrease the amount of payments they make to plan recipients from their own resources.
Unless a plan is terminated as described below, the plan continues in effect from year to year, but only
if the Fund's Board of Trustees and its Independent Trustees specifically vote annually to approve its
continuance. Approval must be by a vote cast in person at a meeting called for the purpose of voting on
continuing the plan. A plan may be terminated at any time by the vote of a majority of the Independent Trustees
or by the vote of the holders of a "majority" (as defined in the Investment Company Act) of the outstanding
shares of that class.
The Board and the Independent Trustees must approve all material amendments to a plan. An amendment to
increase materially the amount of payments to be made under the plan must be approved by shareholders of the
class affected by the amendment. Because Class B shares automatically convert into Class A shares after six (6)
years, the Fund must obtain the approval of both Class A and Class B shareholders for an amendment to the Class A
plan that would materially increase the amount to be paid 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 Fund's Board of Trustees at least quarterly for its review. The reports shall detail the amount of
all payments made under a plan and the purpose for which the payments were made. Those reports are subject to the
review and approval of the Independent Trustees in the exercise of their fiduciary duty.
Each plan states that while it is in effect, the selection or replacement and nomination of those
Trustees of the Fund who are not "interested persons" of the Fund is committed to the discretion of the
Independent Trustees. This provision does not prevent the involvement of others in the selection and nomination
process as long as the final decision as to selection or nomination is approved by a majority of the Independent
Trustees.
Under the plan for a class, no payment will be made to any recipient in any quarter in which the
aggregate net asset value of all Fund shares 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 Fund's Independent Trustees. The
Board of Trustees has set the fees at the maximum rate allowed under the plans and has set no minimum asset
amount needed to qualify for payments.
|_| Class A Service Plan Fees. Under the Class A service plan, the Distributor currently uses the fees
it receives from the Fund to pay brokers, dealers and other financial institutions (they are referred to as
"recipients") for personal services and account maintenance services they provide for their customers who hold
Class A shares. The services include, among others, answering customer inquiries about the Fund, assisting in
establishing and maintaining accounts in the Fund, making the Fund's investment plans available and providing
other services at the request of the Fund or the Distributor. The Distributor makes payments to plan recipients
quarterly at an annual rate not to exceed 0.15% of the average annual net assets of Class A shares held in
accounts of the service providers or their customers.
For the fiscal year ended July 31, 2001, payments under the Plan for Class A shares totaled $52,362, all
of which was paid by the Distributor to recipients. That included $1,288 paid to an affiliate of the
Distributor. Any unreimbursed expenses the Distributor incurs with respect to Class A shares for any fiscal year
may not be recovered in subsequent years. The Distributor may not use payments received under the Class A plan
to pay any of its interest expenses, carrying charges, other financial costs, or allocation of overhead.
|_| Class B and Class C Service and Distribution Plans.
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 and Class C 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 plans during
that period. The types of services that recipients provide for the service fee are similar to the services
provided under Class A plans, described above.
The Class B and Class C plans permit the Distributor to retain both the asset-based sales charges and
the service fee on shares or to pay recipients the service fee on a quarterly basis, without payment in advance.
The types of services that recipients provide for the service fee are similar to the services provided under
Class A plans, described above. However, the Distributor presently intends to pay recipients the service fee on
Class B and Class C shares in advance for the first year the shares are outstanding. 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 an advance service
fee payment. If Class B or Class C 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 made on those shares.
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. It pays the
asset-based sales charge as an ongoing concession to the dealer 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 and/or Class C
service fees and the asset-based sales charge to the dealer quarterly in lieu of paying the sales concession and
service fee in advance at the time of purchase.
The asset-based sales charge on Class B and Class C shares allows 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 and Class C shares may be more than the payments it receives
from contingent deferred sales charges collected on redeemed shares and from the Fund under the plans. The Fund
pays the asset-based sales charge to the Distributor for its services rendered in distributing Class B and Class
C shares. The payments are made to the Distributor in recognition that the Distributor:
|_| pays sales concessions to authorized brokers and dealers at the time of sale and pays service fees as
described above,
|_| may finance payment of sales concessions and/or the advance of the service fee payment to recipients
under the plans, or may provide such financing from its own resources or from the resources of an
affiliate,
|_| employs personnel to support distribution of shares, and
|_| 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.
|_| may not be able to adequately compensate dealers that sell Class B and Class C shares without receiving
payment under the plans and therefore may not be able to offer such Classes for sale absent the plans,
|_| receives payments under the plans consistent with the service fees and asset-based sales charges paid by
other non-proprietary funds that charge 12b-1 fees,
|_| may use the payments under the plan to include the Fund in various third-party distribution programs
that may increase sales of Fund shares,
|_| 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
|_| may not be able to continue providing, at the same or at a lesser cost, the same quality distribution
sales efforts and services, or to obtain such services from brokers and dealers, if the plan payments
were to be discontinued.
When Class B and Class C 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 and Class C shares.
The Distributor's actual expenses in selling Class B and Class C shares may be more than the payments it
receives from contingent deferred sales charges collected on redeemed shares and from the Fund under the plans.
If either the Class B or Class C plan is terminated by the Fund, the Board of Trustees may allow the Fund to
continue payments of the asset-based sales charge to the Distributor for distributing shares before the plan was
terminated. The Class B and Class C plans allow for the carry-forward of distribution expenses, to be recovered
from asset-based sales charges in subsequent fiscal periods.
--------------------------------------------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor in the Fiscal Year Ended 7/31/01
--------------------------------------------------------------------------------------------------------------------
---------------- ------------------------ ------------------------ ------------------------ ------------------------
Class: Total Payments Under Amount Retained by Distributor's Distributor's
Unreimbursed Expenses
Aggregate Unreimbursed as % of Net Assets of
Plan Distributor Expenses Under Plan Class
---------------- ------------------------ ------------------------ ------------------------ ------------------------
---------------- ------------------------ ------------------------ ------------------------ ------------------------
Class B Plan $328,466 $281,627 $1,386,753 3.54%
---------------- ------------------------ ------------------------ ------------------------ ------------------------
---------------- ------------------------ ------------------------ ------------------------ ------------------------
Class C Plan $ 65,599 $ 14,058 $ 123,493 1.43%
---------------- ------------------------ ------------------------ ------------------------ ------------------------
All payments under the Class B and Class C 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 to NASD members.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to illustrate its performance. These
terms include "standardized yield," "tax-equivalent yield," "dividend yield," "average annual total return,"
"cumulative total return," "average annual total return at net asset value" and "total return at net asset
value." An explanation of how yields and total returns are calculated is set forth below. The charts below show
the Fund's performance during its most recent fiscal year end. You can obtain current performance information by
calling the Fund's Transfer Agent at 0.000.000.0000 or by visiting the OppenheimerFunds Internet web site at
xxxx://xxx.xxxxxxxxxxxxxxxx.xxx.
--------------------------------
The Fund's illustrations of its performance data in advertisements must comply with rules of the
Securities and Exchange Commission. Those rules describe the types of performance data that may be used and how
it is to be calculated. In general, any advertisement by the Fund of its performance data must include the
average annual total returns for the advertised class of shares of the Fund. Those returns must be shown for the
1, 5 and 10-year periods (or the life of the class, if less) ending as of the most recently ended calendar
quarter prior to the publication of the advertisement (or its submission for publication). Certain types of
yields may also be shown, provided that they are accompanied by standardized average annual total returns.
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:
|_| Yields and 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 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 its yields 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.
|_| Yields and total returns for any given past period represent historical performance information and
are not, and should not be considered, a prediction of future yields or 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
yields and 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 those investments, the types of investments the Fund holds, and its
operating expenses that are allocated to the particular class.
|X| Yields. The Fund uses a variety of different yields to illustrate its current returns. Each class
of shares calculates its yield separately because of the different expenses that affect each class.
|_| Standardized Yield. The "standardized yield" (sometimes referred to just as "yield") is shown for a
class of shares for a stated thirty (30) day period. It is not based on actual distributions paid by the Fund to
shareholders in the thirty (30) day period, but is a hypothetical yield based upon the net investment income from
the Fund's portfolio investments for that period. It may therefore differ from the "dividend yield" for the same
class of shares, described below.
Standardized yield is calculated using the following formula set forth in rules adopted by the
Securities and Exchange Commission, designed to assure uniformity in the way that all funds calculate their
yields:
Standardized Yield = 2[(a-b 6
--- + 1) - 1]
cd
The symbols above represent the following factors:
a = dividends and interest earned during the thirty (30) day period.
b = expenses accrued for the period (net of any expense assumptions).
c = the average daily number of shares of that class outstanding during the thirty (30) day period
that were entitled to receive dividends.
d = the maximum offering price per share of that class on the last day of the period, adjusted for
undistributed net investment income.
The standardized yield for a particular thirty (30) day period may differ from the yield for other
periods. The SEC formula assumes that the standardized yield for a thirty (30) day period occurs at a constant
rate for a six (6) month period and is annualized at the end of the six (6) month period. Additionally, because
each class of shares is subject to different expenses, it is likely that the standardized yields of the Fund's
classes of shares will differ for any thirty (30) day period.
|_| Dividend Yield. The Fund may quote a "dividend yield" for each class of its shares. Dividend yield
is based on the dividends paid on a class of shares during the actual dividend period. To calculate dividend
yield, the dividends of a class declared during a stated period are added together, and the sum is multiplied by
twelve (12) (to annualize the yield) and divided by the maximum offering price on the last day of the dividend
period. The formula is shown below:
Dividend Yield = dividends paid x 12/maximum offering price (payment date)
The maximum offering price for Class A shares includes the current maximum initial sales charge. The
maximum offering price for Class B and Class C shares is the net asset value per share, without considering the
effect of contingent deferred sales charges. The Class A dividend yield may also be quoted without deducting the
maximum initial sales charge.
|_| Tax-Equivalent Yield. The "tax-equivalent yield" of a class of shares is the equivalent yield that
would have to be earned on a taxable investment to achieve the after-tax results represented by the Fund's
tax-equivalent yield. It adjusts the Fund's standardized yield, as calculated above, by a stated Federal tax
rate. Using different tax rates to show different tax equivalent yields shows investors in different tax
brackets the tax equivalent yield of the Fund based on their own tax bracket.
The tax-equivalent yield is based on a thirty (30) day period, and is computed by dividing the
tax-exempt portion of the Fund's current yield (as calculated above) by one minus a stated income tax rate. The
result is added to the portion (if any) of the Fund's current yield that is not tax-exempt.
The tax-equivalent yield may be used to compare the tax effects of income derived from the Fund with
income from taxable investments at the tax rates stated. Your tax bracket is determined by your Federal and
state taxable income (the net amount subject to Federal and state income tax after deductions and exemptions).
The tax-equivalent yield table assumes that the investor is taxed at the highest bracket, regardless of whether a
switch to non-taxable investments would cause a lower bracket to apply.
----------------------------------------------------------------------------------------------------------------------
The Fund's Yields for the 30-Day Periods Ended 7/31/01
----------------------------------------------------------------------------------------------------------------------
------------------ --------------------------------- -------------------------------- --------------------------------
Tax-Equivalent Yield (43.45%
Standardized Yield Dividend Yield Combined Federal/New Jersey
Tax Bracket)
Class of Shares
------------------ --------------------------------- -------------------------------- --------------------------------
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Without Sales Without Sales Without Sales
Charge After Sales Charge After Sales Charge After Sales
Charge Charge Charge
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Class A 4.53% 4.31% 4.89% 4.66% 8.01% 7.62%
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Class B 3.78% N/A 4.14% N/A 6.68% N/A
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
Class C 3.78% N/A 4.14% N/A 6.69% N/A
------------------ ---------------- ---------------- --------------- ---------------- ---------------- ---------------
|X| Total Return Information. There are different types of "total returns" to measure the Fund's
performance. Total return is the change in value of a hypothetical investment in the Fund over a given period,
assuming that all dividends and capital gains distributions are reinvested in additional shares and that the
investment is redeemed at the end of the period. Because of differences in expenses for each class of shares,
the total returns for each class are separately measured. The cumulative total return measures the change in
value over the entire period (for example, ten (10) years). An average annual total return shows the average
rate of return for each year in a period that would produce the cumulative total return over the entire period.
However, average annual total returns do not show actual year-by-year performance. The Fund uses standardized
calculations for its total returns as prescribed by the SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales charge of 4.75% (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 one (1)
year period.
|_| 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") to achieve an Ending Redeemable Value ("ERV" in the formula) of that investment, according to the
following formula:
1/n
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 or Class
C 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 7/31/01
----------------------------------------------------------------------------------------------------------------------
-------------- ------------------------- -----------------------------------------------------------------------------
Cumulative Total Average Annual Total Returns
Returns (10 years or
life of class)
Class of
Shares
-------------- ------------------------- -----------------------------------------------------------------------------
-------------- ------------------------- ------------------------- ------------------------- -------------------------
5-Year 10-Year
1-Year (or life of class) (or life of class)
-------------- ------------------------- ------------------------- ------------------------- -------------------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
After Without After Without After Without After Without
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class A 34.89%1 41.61%1 5.17% 10.42% 3.96% 4.98% 4.12%1 4.80%1
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class B 35.39%2 35.39%2 4.58% 9.58% 3.89% 4.22% 4.17%2 4.17%2
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class C 29.45%3 29.45%3 8.59% 9.59% 4.19%3 4.19%3 4.45%3 4.45%3
-------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1 Inception of Class A: 3/1/94
2 Inception of Class B: 3/1/94
3 Inception of Class C: 8/29/95
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.
|_| Lipper Rankings. From time to time the Fund may publish the ranking of the performance of its
shares by Lipper Analytical Services, Inc. ("Lipper"). Lipper is a widely-recognized independent mutual fund
monitoring service. Lipper monitors the performance of regulated investment companies, including the Fund, and
ranks their performance for various periods based on categories relating to investment objectives. The
performance of the Fund is ranked by Lipper against all other bond funds, other than money market funds, and
other municipal bond funds. The Lipper performance rankings are based on total returns that include the
reinvestment of capital gain distributions and income dividends but do not take sales charges or taxes into
consideration. Lipper also publishes "peer-group" indices of the performance of all mutual funds in a category
that it monitors and averages of the performance of the funds in particular categories.
|_| Morningstar Ratings and 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., ("Morningstar") 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 in the
municipal bond funds category.
Morningstar proprietary star ratings reflect historical risk-adjusted total investment return.
Investment return measures a fund's (or class's) one, three, five and ten-year average annual total returns
(depending on the inception of the fund or class) in excess of ninety (90) day U.S. Treasury xxxx returns after
considering the fund's sales charges and expenses. Risk measures a fund's (or class's) performance below ninety
(90) day U.S. Treasury xxxx returns. Risk and investment return are combined to produce star ratings reflecting
performance relative to the other funds in a fund's category. Five stars is the "highest" rating (top 10% of
funds in a category), four stars is "above average" (next 22.5%), three stars is "average" (next 35%), two stars
is "below average" (next 22.5%) and one star is "lowest" (bottom 10%). The current star rating is the fund's (or
class's) 3-year rating or its combined 3- and 5-year rating (weighted 60%/40% respectively), or its combined 3-,
5-, and 10-year rating (weighted 40%, 30% and 30%, respectively), depending on the inception date of the fund (or
class). Ratings are subject to change monthly.
The Fund may also compare its total return ranking to that of other funds in its Morningstar category,
in addition to its star ratings. Those total return rankings are percentages from one percent to one hundred
percent and are not risk adjusted. For example, if a fund is in the 94th percentile, that means that 94% of the
funds in the same category performed better than it did.
|_| 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 Class A, Class B or Class C 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 Fund's Class A, Class B or Class C returns to the return on
fixed-income investments available from banks and thrift institutions. Those include certificates of deposit,
ordinary interest-paying checking and savings accounts, and other forms of fixed or variable time deposits, and
various other instruments such as Treasury bills. However, the Fund's returns and share price are not guaranteed
or insured by the FDIC or any other agency and will fluctuate daily, while bank depository obligations may be
insured by the FDIC and may provide fixed rates of return. Repayment of principal and payment of interest on
Treasury securities is backed by the full faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager or Transfer Agent, and of the
investor services provided by them to shareholders of the Xxxxxxxxxxx funds, other than performance rankings of
the Xxxxxxxxxxx funds themselves. Those ratings or rankings of shareholder and investor services by third
parties may include comparisons of their services to those provided by other mutual fund families selected by the
rating or ranking services. They may be based upon the opinions of the rating or ranking service itself, using
its research or judgment, or based upon surveys of investors, brokers, shareholders or others.
From time to time the Fund may include in its advertisements and sales literature the total return
performance of a hypothetical investment account that includes shares of the fund and other Xxxxxxxxxxx funds.
The combined account may be part of an illustration of an asset allocation model or similar presentation. The
account performance may combine total return performance of the fund and the total return performance of other
Xxxxxxxxxxx funds included in the account. Additionally, from time to time, the Fund's advertisements and sales
literature may include, for illustrative or comparative purposes, statistical data or other information about
general or specific market and economic conditions. That may include, for example,
o information about the performance of certain securities or commodities markets or segments of those
markets,
o information about the performance of the economies of particular countries or regions,
o the earnings of companies included in segments of particular industries, sectors, securities markets,
countries or regions,
o the availability of different types of securities or offerings of securities,
o information relating to the gross national or gross domestic product of the United States or other
countries or regions,
o comparisons of various market sectors or indices to demonstrate performance, risk, or other
characteristics of the Fund.
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ABOUT YOUR ACCOUNT
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How to Buy Shares
Additional information is presented below about the methods that can be used to buy shares of the Fund.
Appendix C contains more information about the special sales charge arrangements offered by the Fund, and the
circumstances in which sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must be at least $25. Shares will be
purchased on the regular business day the Distributor is instructed to initiate the Automated Clearing House
("ACH") transfer to buy the shares. Dividends will begin to accrue on shares purchased with the proceeds of ACH
transfers on the business day the Fund receives Federal Funds for the purchase through the ACH system before the
close of The New York Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier on certain
days. If Federal Funds are received on a business day after the close of the Exchange, the shares will be
purchased and dividends will begin to accrue on the next regular business day. The proceeds of ACH transfers are
normally received by the Fund three (3) days after the transfers are initiated. 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,
|_| 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, Inc.
Xxxxxxxxxxx Concentrated Growth Fund Xxxxxxxxxxx Quest Global Value Fund, Inc.
Xxxxxxxxxxx Convertible Securities Fund Xxxxxxxxxxx Quest Opportunity Value Fund
Xxxxxxxxxxx Developing Markets Fund Xxxxxxxxxxx Quest Value Fund, Inc.
Xxxxxxxxxxx Disciplined Allocation Fund Xxxxxxxxxxx Real Asset Fund
Xxxxxxxxxxx Discovery Fund Xxxxxxxxxxx Rochester Municipals
Xxxxxxxxxxx Emerging Growth Fund Xxxxxxxxxxx Senior Floating Rate Fund
Xxxxxxxxxxx Emerging Technologies Fund Xxxxxxxxxxx Small Cap Value Fund
Xxxxxxxxxxx Enterprise Fund Xxxxxxxxxxx Special Value Fund
Xxxxxxxxxxx Europe Fund Xxxxxxxxxxx Strategic Income Fund
Xxxxxxxxxxx Global Fund Xxxxxxxxxxx Total Return Fund, Inc.
Xxxxxxxxxxx Global Growth & Income Fund Xxxxxxxxxxx Trinity Core Fund
Xxxxxxxxxxx Gold & Special Minerals Fund Xxxxxxxxxxx Trinity Large Cap Growth Fund
Xxxxxxxxxxx Growth Fund Xxxxxxxxxxx Trinity Value Fund
Xxxxxxxxxxx High Yield Fund Xxxxxxxxxxx U.S. Government Trust
Xxxxxxxxxxx Intermediate Municipal Fund Xxxxxxxxxxx Value Fund
Xxxxxxxxxxx International Bond Fund Limited-Term New York Municipal Fund
Xxxxxxxxxxx International Growth Fund Rochester Fund Municipals
Xxxxxxxxxxx International Small Company Fund OSM1- Gartmore Millennium Growth Fund
Xxxxxxxxxxx Limited-Term Government Fund OSM1 - Xxxxxxxx Growth Fund
Xxxxxxxxxxx Main Street Growth & Income Fund OSM1 - Mercury Advisors S&P 500 Index
Xxxxxxxxxxx Main Street Opportunity Fund OSM1 - Mercury Advisors Focus Growth Fund
Xxxxxxxxxxx Main Street Small Cap Fund OSM1 - QM Active Balanced Fund
Xxxxxxxxxxx MidCap Fund OSM1 - Salomon Brothers Capital Fund
Xxxxxxxxxxx Multiple Strategies Fund
and the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Xxxxxxxxxxx Cash Reserves
Centennial Money Market Trust Xxxxxxxxxxx Money Market Fund, Inc.
1 - "OSM" is Xxxxxxxxxxx Select Managers
There is an initial sales charge on the purchase of Class A shares of each of the Xxxxxxxxxxx funds
except the money market funds. Under certain circumstances described in this Statement of Additional
Information, redemption proceeds of certain money market fund shares may be subject to a contingent deferred
sales charge.
Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or Class A and Class B shares of the
Fund and other Xxxxxxxxxxx funds during a thirteen (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 ninety (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 thirteen (13)
month period (the "Letter of Intent period"). At the investor's request, this may include purchases made up to
ninety (90) days prior to the date of the Letter. The Letter states the investor's intention to make the
aggregate amount of purchases of shares which, when added to the investor's holdings of shares of those funds,
will equal or exceed the amount specified in the Letter. Purchases made by reinvestment of dividends or
distributions of capital gains and purchases made at net asset value without sales charge do not count toward
satisfying the amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares purchased under the Letter to
obtain the reduced sales charge rate on purchases of Class A shares of the Fund (and other Xxxxxxxxxxx funds)
that applies under the Right of Accumulation to current purchases of Class A shares. Each purchase of Class A
shares under the Letter will be made at the public offering price (including the sales charge) that applies to a
single lump-sum purchase of shares in the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase shares. However, if the investor's
purchases of shares within the Letter of Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal or exceed the intended purchase
amount, the investor agrees to pay the additional amount of sales charge applicable to such purchases. That
amount is described in "Terms of Escrow," below (those terms may be amended by the Distributor from time to
time). The investor agrees that shares equal in value to 5% of the intended purchase amount will be held in
escrow by the Transfer Agent subject to the Terms of Escrow. Also, the investor agrees to be bound by the terms
of the Prospectus, this Statement of Additional Information and the Application used for a Letter of Intent. If
those terms are amended, as they may be from time to time by the Fund, the investor agrees to be bound by the
amended terms and that those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do not equal or exceed the
intended purchase amount, the concessions previously paid to the dealer of record for the account and the amount
of sales charge retained by the Distributor will be adjusted to the rates applicable to actual total purchases.
If total eligible purchases during the Letter of Intent period exceed the intended purchase amount and exceed the
amount needed to qualify for the next sales charge rate reduction set forth in the Prospectus, the sales charges
paid will be adjusted to the lower rate. That adjustment will be made only if and when the dealer returns to the
Distributor the excess of the amount of concessions allowed or paid to the dealer over the amount of concessions
that apply to the actual amount of purchases. The excess concessions returned to the Distributor will be used to
purchase additional shares for the investor's account at the net asset value per share in effect on the date of
such purchase, promptly after the Distributor's receipt thereof.
In determining the total amount of purchases made under a Letter, shares redeemed by the investor prior
to the termination of the Letter of Intent period will be deducted. It is the responsibility of the dealer of
record and/or the investor to advise the Distributor about the Letter in placing any purchase orders for the
investor during the Letter of Intent period. All of such purchases must be made through the Distributor.
|X| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made pursuant to a Letter, shares
of the Fund equal in value up to 5% of the intended purchase amount specified in the Letter shall be held in
escrow by the Transfer Agent. For example, if the intended purchase amount is $50,000, the escrow shall be
shares valued in the amount of $2,500 (computed at the offering price adjusted for a $50,000 purchase). Any
dividends and capital gains distributions on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed within the thirteen (13)
month Letter of Intent period, the escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen (13) month Letter of Intent period the total purchases pursuant to
the Letter are less than the intended purchase amount specified in the Letter, the investor must remit to the
Distributor an amount equal to the difference between the dollar amount of sales charges actually paid and the
amount of sales charges which would have been paid if the total amount purchased had been made at a single time.
That sales charge adjustment will apply to any shares redeemed prior to the completion of the Letter. If the
difference in sales charges is not paid within twenty days after a request from the Distributor or the dealer,
the Distributor will, within sixty (60) days of the expiration of the Letter, redeem the number of escrowed
shares necessary to realize such difference in sales charges. Full and fractional shares remaining after such
redemption will be released from escrow. If a request is received to redeem escrowed shares prior to the payment
of such additional sales charge, the sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and appoints the Transfer Agent as
attorney-in-fact to surrender for redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of which may be counted toward
completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a Class A contingent deferred sales
charge,
(b) 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 (the minimum is $25) for the initial purchase with your application. Shares purchased by Asset
Builder Plan payments from bank accounts are subject to the redemption restrictions for recent purchases
described in the Prospectus. Asset Builder Plans are available only if your bank is an ACH member. Asset Builder
Plans may not be used to buy shares for OppenheimerFunds employer-sponsored qualified retirement accounts. Asset
Builder Plans also enable shareholders of Xxxxxxxxxxx Cash Reserves to use their fund account to make monthly
automatic purchases of shares of up to four other Xxxxxxxxxxx funds.
If you make payments from your bank account to purchase shares of the Fund, your bank account will be
debited automatically. Normally the debit will be made two business days prior to the investment dates you
selected on your Application. Neither the Distributor, the Transfer Agent nor the Fund shall be responsible for
any delays in purchasing shares that result from delays in ACH transmission.
Before you establish Asset Builder payments, you should obtain a prospectus of the selected fund(s) from
your financial advisor (or the Distributor) and request an application from the Distributor. Complete the
application and return it. You may change the amount of your Asset Builder payment or you can terminate these
automatic investments at any time by writing to the Transfer Agent. The Transfer Agent requires a reasonable
period (approximately ten (10) days) after receipt of your instructions to implement them. The Fund reserves the
right to amend, suspend, or discontinue offering Asset Builder plans at any time without prior notice.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's shares (for example, when a
purchase check is returned to the Fund unpaid) causes a loss to be incurred when the net asset value of the
Fund's shares on the cancellation date is less than on the purchase date. That loss is equal to the amount of
the decline in the net asset value per share multiplied by the number of shares in the purchase order. The
investor is responsible for that loss. If the investor fails to compensate the Fund for the loss, the
Distributor will do so. The Fund may reimburse the Distributor for that amount by redeeming shares from any
account registered in that investor's name, or the Fund or the Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in the same portfolio of investments
of the Fund. However, each class has different shareholder privileges and features. The net income attributable
to Class B or Class C shares and the dividends payable on Class B or Class C shares will be reduced by
incremental expenses borne solely by that class. Those expenses include the asset-based sales charges to which
Class B and Class C are subject.
The availability of three (3) 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 in general are sold
subject to an initial sales charge. While Class B and Class C shares have no initial sales charge, the purpose
of the deferred sales charge and asset-based sales charge on Class B and Class C 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 B Conversion. The conversion of Class B shares to Class A shares after six (6) years is
subject to the continuing availability of a private letter ruling from the Internal Revenue Service, or an
opinion of counsel or tax adviser, to the effect that the conversion of Class B shares does not constitute a
taxable event for the shareholder under Federal income tax law. If that revenue ruling or opinion is no longer
available, the automatic conversion feature may be suspended. In that event, no further conversions of Class B
shares would occur while the suspension remained in effect. Although Class B shares could then be exchanged for
Class A shares on the basis of relative net asset value of the two classes, without the imposition of a sales
charge or fee, such exchange could constitute a taxable event for the holder, and absent such exchange, Class B
shares might continue to be subject to the asset-based sales charge for longer than six (6) years. Shareholders
should consult their tax advisors regarding the state and local tax consequences of the conversion of Class B
shares into Class A shares, or any other conversion or exchange of shares.
|X| Allocation of Expenses. The Fund pays expenses related to its daily operations, such as custodian
fees, trustees' fees, transfer agency fees, legal fees and auditing costs. Those expenses are paid out of the
Fund's assets and are not paid directly by shareholders. However, those expenses reduce the net asset value of
shares, and therefore are indirectly borne by shareholders through their investment.
The methodology for calculating the net asset value, dividends and distributions of the Fund's share
classes recognizes two types of expenses. General expenses that do not pertain specifically to any one class are
allocated pro rata to the shares of all classes. The allocation is based on the percentage of the Fund's total
assets that is represented by the assets of each class, and then equally to each outstanding share within a given
class. Such general expenses include management fees, legal, bookkeeping and audit fees, printing and mailing
costs of shareholder reports, Prospectuses, Statements of Additional Information and other materials for current
shareholders, fees to unaffiliated Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses, such as litigation costs.
Other expenses that are directly attributable to a particular class are allocated equally to each
outstanding share within that class. Examples of such expenses include distribution and service plan (12b-1)
fees, transfer and shareholder servicing agent fees and expenses, and shareholder meeting expenses (to the extent
that such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of each class of shares of the Fund
are determined as of the close of business of The New York Stock Exchange on each day that the Exchange is open.
It is done by dividing the value of the Fund's net assets attributable to that class by the number of shares of
that class that are outstanding. The Exchange normally closes at 4:00 P.M., New York time, but may close earlier
on some other days (for example, in case of weather emergencies or on days falling before a holiday). The
Exchange's most recent annual announcement (which is subject to change) states that it will close on New Year's
Day, Xxxxxx Xxxxxx Xxxx, Xx. Day, Presidents' 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 municipal securities on days on which the
Exchange is closed (including weekends and U.S. holidays) or after 4:00 P.M. on a regular business day. Because
the Fund's net asset values will not be calculated on those days, the Fund's net asset values per share may be
significantly affected on such days when shareholders may not purchase or redeem shares.
|X| Securities Valuation. The Fund's Board of Trustees has established procedures for the valuation of
the Fund's securities. In general those procedures are as follows:
|_| Long-term debt securities having a remaining maturity in excess of sixty (60) days are valued based
on the mean between the "bid" and "asked" prices determined by a portfolio pricing service approved by the Fund's
Board of Trustees or obtained by the Manager from two active market makers in the security on the basis of
reasonable inquiry.
|_| The following securities are valued at the mean between the "bid" and "asked" prices determined by a
pricing service approved by the Fund's Board of Trustees or obtained by the Manager from two active market makers
in the security on the basis of reasonable inquiry:
(1) debt instruments that have a maturity of more than three hundred ninety-seven (397) days when issued,
(2) debt instruments that had a maturity of three hundred ninety-seven (397) days or less when issued and
have a remaining maturity of more than sixty (60) days, and
(3) non-money market debt instruments that had a maturity of three hundred ninety-seven (397) days or less
when issued and which have a remaining maturity of sixty (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 three
hundred ninety-seven (397) days when issued that have a remaining maturity of sixty (60) days or
less, and
(2) debt instruments held by a money market fund that have a remaining maturity of three hundred
ninety-seven (397) days or less.
|_| 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 municipal securities, when last sale information is not generally available, the Manager
may use pricing services approved by the Board of Trustees. The pricing service may use "matrix" comparisons to
the prices for comparable instruments on the basis of quality, yield, 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.
Puts, calls, Interest Rate Futures and Municipal Bond Index Futures are valued at the last sale price on
the principal exchange on which they are traded or on NASDAQ, as applicable, as determined by a pricing service
approved by the Board of Trustees or by the Manager. If there were no sales that day, they shall be valued at
the last sale price on the preceding trading day if it is within the spread of the closing "bid" and "asked"
prices on the principal exchange or on NASDAQ on the valuation date. If not, the value shall be the closing bid
price on the principal exchange or on NASDAQ on the valuation date. If the put, call or future is not traded on
an exchange or on NASDAQ, it shall be valued by the mean between "bid" and "asked" prices obtained by the Manager
from two active market makers. In certain cases that may be at the "bid" price if no "asked" price is
available.
When the Fund writes an option, an amount equal to the premium received is included in the Fund's
Statement of Assets and Liabilities as an asset. An equivalent credit is included in the liability section. The
credit is adjusted ("marked-to-market") to reflect the current market value of the option. In determining the
Fund's gain on investments, if a call or put written by the Fund is exercised, the proceeds are increased by the
premium received. If a call or put written by the Fund expires, the Fund has a gain in the amount of the
premium. If the Fund enters into a closing purchase transaction, it will have a gain or loss, depending on
whether the premium received was more or less than the cost of the closing transaction. If the Fund exercises a
put it holds, the amount the Fund receives on its sale of the underlying investment is reduced by the amount of
premium paid by the Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming shares set forth in the
Prospectus.
Checkwriting. When a check is presented to the Fund's bank for clearance, the bank will ask the Fund to redeem a
sufficient number of full and fractional shares in the shareholder's account to cover the amount of the check.
This enables the shareholder to continue to receive dividends on those shares until the check is presented to the
Fund. Checks may not be presented for payment at the offices of the bank listed on the check or at the Fund's
custodian bank. That limitation does not affect the use of checks for the payment of bills or to obtain cash at
other banks. The Fund reserves the right to amend, suspend or discontinue offering checkwriting privileges at any
time. The Fund will provide you notice whenever it is required to do so by applicable law.
In choosing to take advantage of the Checkwriting privilege by signing the Account Application or by
completing a Checkwriting card, each individual who signs:
(1) for individual accounts, represents that they are the registered owner(s) of the shares of the Fund in
that account;
(2) for accounts for corporations, partnerships, trusts and other entities, represents that they are an
officer, general partner, trustee or other fiduciary or agent, as applicable, duly authorized to
act on behalf of such registered owner(s);
(3) authorizes the Fund, its Transfer Agent and any bank through which the Fund's drafts (checks) are
payable to pay all checks drawn on the Fund account of such person(s) and to redeem a sufficient
amount of shares from that account to cover payment of each check;
(4) specifically acknowledges that if they choose to permit checks to be honored if there is a single
signature on checks drawn against joint accounts, or accounts for corporations, partnerships,
trusts or other entities, the signature of any one signatory on a check will be sufficient to
authorize payment of that check and redemption from the account, even if that account is registered
in the names of more than one person or more than one authorized signature appears on the
Checkwriting card or the Application, as applicable;
(5) understands that the Checkwriting privilege may be terminated or amended at any time by the Fund and/or
the Fund's bank; and
(6) acknowledges and agrees that neither the Fund nor its bank shall incur any liability for that amendment
or termination of checkwriting privileges or for redeeming shares to pay checks reasonably believed
by them to be genuine, or for returning or not paying checks that have not been accepted for any
reason.
Reinvestment Privilege. Within six (6) months of a redemption, a shareholder may reinvest all or part of the
redemption proceeds of:
|_| Class A shares that you 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 shares. The Fund may amend, suspend or cease offering this reinvestment
privilege at any time as to shares redeemed after the date of such amendment, suspension or cessation.
Any capital gain that was realized when the shares were redeemed is taxable, and reinvestment will not
alter any capital gains tax payable on that gain. If there has been a capital loss on the redemption, some or
all of the loss may not be tax deductible, depending on the timing and amount of the reinvestment. Under the
Internal Revenue Code, if the redemption proceeds of Fund shares on which a sales charge was paid are reinvested
in shares of the Fund or another of the Xxxxxxxxxxx funds within ninety (90) days of payment of the sales charge,
the shareholder's basis in the shares of the Fund that were redeemed may not include the amount of the sales
charge paid. That would reduce the loss or increase the gain recognized from the redemption. However, in that
case the sales charge would be added to the basis of the shares acquired by the reinvestment of the redemption
proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for redemption is ordinarily made in
cash. However, under certain circumstances, the Board of Trustees of the Fund may determine that it would be
detrimental to the best interests of the remaining shareholders of the Fund to make payment of a redemption order
wholly or partly in cash. In that case, the Fund may pay the redemption proceeds in whole or in part by a
distribution "in kind" of liquid securities from the portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the
Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net assets of the
Fund during any 90-day period for any one shareholder. If shares are redeemed in kind, the redeeming shareholder
might incur brokerage or other costs in selling the securities for cash. The Fund will value securities used to
pay redemptions in kind using the same method the Fund uses to value its portfolio securities described above
under "Determination of Net Asset Values Per Share." That valuation will be made as of the time the redemption
price is determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the involuntary redemption of the
shares held in any account if the aggregate net asset value of those shares is less than $200 or such lesser
amount as the Board may fix. The Board of Trustees 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 thirty (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.
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 thirty (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 to the Transfer Agent. Shares are normally redeemed
pursuant to an Automatic Withdrawal Plan three (3) 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 and Class C shareholders should not
establish withdrawal plans, because of the potential imposition of the contingent deferred sales charge on such
withdrawals (except where the Class B and Class C contingent deferred sales charge is waived as described in
Appendix C to this Statement of Additional Information).
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder agrees to the terms and
conditions that apply to such plans, as stated below. These provisions may be amended from time to time by the
Fund and/or the Distributor. When adopted, any amendments will automatically apply to existing Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer Agent to exchange a
pre-determined amount of shares of the Fund for shares (of the same class) of other Xxxxxxxxxxx funds
automatically on a monthly, quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The minimum
amount that may be exchanged to each other fund account is $25. Instructions should be provided on the
OppenheimerFunds Application or signature-guaranteed instructions. Exchanges made under these plans are subject
to the restrictions that apply to exchanges as set forth in "How to Exchange Shares" in the Prospectus and below
in this Statement of Additional Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to meet withdrawal
payments. Shares acquired without a sales charge will be redeemed first. Shares acquired with reinvested
dividends and capital gains distributions will be redeemed next, followed by shares acquired with a sales charge,
to the extent necessary to make withdrawal payments. Depending upon the amount withdrawn, the investor's
principal may be depleted. Payments made under these plans should not be considered as a yield or income on your
investment.
The Transfer Agent will administer the investor's Automatic Withdrawal Plan as agent for the
shareholder(s) (the "Planholder") who executed the Plan authorization and application submitted to the Transfer
Agent. Neither the Fund nor the Transfer Agent shall incur any liability to the Planholder for any action taken
or not taken by the Transfer Agent in good faith to administer the Plan. Share certificates will not be issued
for shares of the Fund purchased for and held under the Plan, but the Transfer Agent will credit all such shares
to the account of the Planholder on the records of the Fund. Any share certificates held by a Planholder may be
surrendered unendorsed to the Transfer Agent with the Plan application so that the shares represented by the
certificate may be held under the Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of capital gains must be reinvested in
shares of the Fund, which will be done at net asset value without a sales charge. Dividends on shares held in
the account may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value per share determined on the
redemption date. Checks or AccountLink payments representing the proceeds of Plan withdrawals will normally be
transmitted three business days prior to the date selected for receipt of the payment, according to the choice
specified in writing by the Planholder. Receipt of payment on the date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to which checks are to be mailed or
AccountLink payments are to be sent may be changed at any time by the Planholder by writing to the Transfer
Agent. The Planholder should allow at least two weeks' time after mailing such notification for the requested
change to be put in effect. The Planholder may, at any time, instruct the Transfer Agent by written notice to
redeem all, or any part of, the shares held under the Plan. That notice must be in proper form in accordance
with the requirements of the then-current Prospectus of the Fund. In that case, the Transfer Agent will redeem
the number of shares requested at the net asset value per share in effect and will mail a check for the proceeds
to the Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer Agent. The Fund may also
give directions to the Transfer Agent to terminate a Plan. The Transfer Agent will also terminate a Plan upon
its receipt of evidence satisfactory to it that the Planholder has died or is legally incapacitated. Upon
termination of a Plan by the Transfer Agent or the Fund, shares that have not been redeemed will be held in
uncertificated form in the name of the Planholder. The account will continue as a dividend-reinvestment,
uncertificated account unless and until proper instructions are received from the Planholder, his or her executor
or guardian, or another authorized person.
To use shares held under the Plan as collateral for a debt, the Planholder may request issuance of a
portion of the shares in certificated form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued without causing the withdrawal checks to
stop. However, should such uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the Planholder will be deemed to
have appointed any successor transfer agent to act as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Xxxxxxxxxxx funds having more than one
class of shares may be exchanged only for shares of the same class of other Xxxxxxxxxxx funds. Shares of
Xxxxxxxxxxx funds that have a single class without a class designation are deemed "Class A" shares for this
purpose. You can obtain a current list showing which funds offer which classes by calling the Distributor at
0.000.000.0000.
|_| All of the Xxxxxxxxxxx funds currently offer Class A, B and C shares except Xxxxxxxxxxx Money Market
Fund, Inc., Centennial Money Market Trust, Centennial Tax Exempt Trust, Centennial Government Trust, Centennial
New York Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America Fund, L.P., which only
offer Class A shares.
|_| Class B, Class C and Class N shares of Xxxxxxxxxxx Cash Reserves are generally available only by
exchange from the same class of shares of other Xxxxxxxxxxx funds or through OppenheimerFunds sponsored 401 (k)
plans.
|_| Only certain Xxxxxxxxxxx funds currently offer Class Y shares. Class Y shares of Xxxxxxxxxxx Real
Asset Fund may not be exchanged for shares of any other fund.
|_| Only certain Xxxxxxxxxxx funds currently offer Class N shares, which are only offered to retirement
plans as described in the Prospectus. Class N shares can be exchanged only for Class N shares of other
Xxxxxxxxxxx funds.
|_| Class M shares of Xxxxxxxxxxx Convertible Securities Fund may be exchanged only for Class A shares of
other Xxxxxxxxxxx funds. They may not be acquired by exchange of shares of any class of any other Xxxxxxxxxxx
funds except Class A shares of Xxxxxxxxxxx Money Market Fund or Xxxxxxxxxxx Cash Reserves acquired by exchange of
Class M shares.
|_| Class X shares of Limited Term New York Municipal Fund can be exchanged only for Class B shares of
other Xxxxxxxxxxx funds and no exchanges may be made to Class X shares.
|_| Shares of Xxxxxxxxxxx Capital Preservation Fund may not be exchanged for shares of Xxxxxxxxxxx Money
Market Fund, Inc., Xxxxxxxxxxx Cash Reserves or Xxxxxxxxxxx Limited-Term Government Fund. Only participants in
certain retirement plans may purchase shares of Xxxxxxxxxxx Capital Preservation Fund, and only those
participants may exchange shares of other Xxxxxxxxxxx funds for shares of Xxxxxxxxxxx Capital Preservation Fund.
|_| 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.
|_| 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 thirty (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 eighteen (18) months of the end of the calendar
month of the initial purchase of the exchanged Class A shares, the Class A contingent deferred sales charge is
imposed on the redeemed shares. The Class B contingent deferred sales charge is imposed on Class B shares
acquired by exchange if they are redeemed within six (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 twelve (12) months of the initial purchase of the exchanged Class C shares.
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. Shareholders owning shares of more than one Class
must specify which class of shares they wish to exchange.
|_| Limits on Multiple Exchange Orders. The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of more than one account. The Fund may accept requests
for exchanges of up to fifty (50) accounts per day from representatives of authorized dealers that qualify for
this privilege.
|_| Telephone Exchange Requests. When exchanging shares by telephone, a shareholder must have an
existing account in the fund to which the exchange is to be made. Otherwise, the investors must obtain a
Prospectus of that fund before the exchange request may be submitted. If all telephone lines are busy (which
might occur, for example, during periods of substantial market fluctuations), shareholders might not be able to
request exchanges by telephone and would have to submit written exchange requests.
|_| Processing Exchange Requests. Shares to be exchanged are redeemed on the regular business day
the Transfer Agent receives an exchange request in proper form (the "Redemption Date"). Normally, shares of the
fund to be acquired are purchased on the Redemption Date, but such purchases may be delayed by either fund up to
five business days if it determines that it would be disadvantaged by an immediate transfer of the redemption
proceeds. The Fund reserves the right, in its discretion, to refuse any exchange request that may disadvantage
it. 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. When you exchange some or all of your shares from one fund to another, any special
account feature such as an Asset Builder Plan or Automatic Withdrawal Plan, will be switched to the new fund
account unless you tell the Transfer Agent not to do so. However, special redemption and exchange features such
as Automatic Exchange Plans and Automatic Withdrawal Plans cannot be switched to an account in Xxxxxxxxxxx Senior
Floating Rate Fund.
In connection with any exchange request, the number of shares exchanged may be less than the number
requested if the exchange or the number requested would include shares subject to a restriction cited in the
Prospectus or this Statement of Additional Information, or would include shares covered by a share certificate
that is not tendered with the request. In those cases, only the shares available for exchange without
restriction will be exchanged.
The different Xxxxxxxxxxx funds available for exchange have different investment objectives, policies
and risks. A shareholder should assure that the fund selected is appropriate for his or her investment and
should be aware of the tax consequences of an exchange. For federal income tax purposes, an exchange transaction
is treated as a redemption of shares of one fund and a purchase of shares of another. "Reinvestment Privilege,"
above, discusses some of the tax consequences of reinvestment of redemption proceeds in such cases. The Fund,
the Distributor, and the Transfer Agent are unable to provide investment, tax or legal advice to a shareholder in
connection with an exchange request or any other investment transaction.
Dividends, Capital Gains and Taxes
Dividends and Distributions. Dividends will be payable on shares held of record at the time of the previous
determination of net asset value, or as otherwise described in "How to Buy Shares." Daily dividends will not be
declared or paid on newly purchased shares until such time as Federal Funds (funds credited to a member bank's
account at the Federal Reserve Bank) are available from the purchase payment for such shares. Normally, purchase
checks received from investors are converted to Federal Funds on the next business day. Shares purchased through
dealers or brokers normally are paid for by the third business day following the placement of the purchase
order.
Shares redeemed through the regular redemption procedure will be paid dividends through and including
the day on which the redemption request is received by the Transfer Agent in proper form. Dividends will be
declared on shares repurchased by a dealer or broker for three (3) business days following the trade date (that
is, up to and including the day prior to settlement of the repurchase). If all shares in an account are
redeemed, all dividends accrued on shares of the same class in the account will be paid together with the
redemption proceeds.
The Fund's practice of attempting to pay dividends on Class A shares at a constant level requires the
Manager to monitor the Fund's portfolio and, if necessary, to select higher-yielding securities when it is deemed
appropriate to seek income at the level needed to meet the target. Those securities must be within the Fund's
investment parameters, however. The Fund expects to pay dividends at a targeted level from its net investment
income and other distributable income without any impact on the net asset values per share.
The amount of a distribution paid on a class of shares may 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 shares of each
class. However, dividends on Class B and Class C shares are expected to be lower than dividends on Class A
shares. That is due to the effect of the asset-based sales charge on Class B and Class C shares. Those
dividends will also differ in amount as a consequence of any difference in net asset value among Class A, Class B
and Class C shares.
Dividends, distributions and the 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 and Distributions. The Fund intends to qualify under the Internal Revenue
Code during each fiscal year to pay "exempt-interest dividends" to its shareholders. Exempt-interest dividends
that are derived from net investment income earned by the Fund on municipal securities will be excludable from
gross income of shareholders for federal income tax purposes.
Net investment income includes the allocation of amounts of income from the municipal securities in the
Fund's portfolio that are excludable from Federal income taxes. This allocation will be made by the use of one
designated percentage applied uniformly to all income dividends paid during the Fund's tax year. That
designation will normally be made following the end of each fiscal year as to income dividends paid in the prior
year. The percentage of income designated as tax-exempt may substantially differ from the percentage of the
Fund's income that was tax-exempt for a given period.
A portion of the exempt-interest dividends paid by the Fund may be an item of tax preference for
shareholders subject to the alternative minimum tax. The amount of any dividends attributable to tax preference
items for purposes of the alternative minimum tax will be identified when tax information is distributed by the
Fund.
A shareholder receiving a dividend from income earned by the Fund from one or more of the following
sources treats the dividend as a receipt of either ordinary income or long-term capital gain in the computation
of gross income, regardless of whether the dividend is reinvested:
(1) certain taxable temporary investments (such as certificates of deposit, repurchase agreements,
commercial paper and obligations of the U.S. government, its agencies and instrumentalities);
(2) income from securities loans; or
(3) an excess of net short-term capital gain over net long-term capital loss from the Fund.
The Fund's dividends will not be eligible for the dividends-received deduction for corporations.
Shareholders receiving Social Security benefits should be aware that exempt-interest dividends are a factor in
determining whether such benefits are subject to federal income tax. Losses realized by shareholders on the
redemption of Fund shares within six months of purchase (which period may be shortened by regulation) will be
disallowed for federal income tax purposes to the extent of exempt-interest dividends received on such shares.
If the Fund qualifies as a "regulated investment company" under the Internal Revenue Code, it will not
be liable for federal income taxes on amounts paid by it as dividends and distributions. 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 the Fund's shares are held in a retirement
account or the shareholder is otherwise exempt from tax). The Fund qualified as a regulated investment company in
its last fiscal year and intends to qualify in future years, but reserves the right not to qualify. The Internal
Revenue Code contains a number of complex tests to determine whether the Fund qualifies. he Fund might not meet
those tests in a particular year. If it does not qualify, the Fund will be treated for tax purposes as an
ordinary corporation and will receive no tax deduction for payments of dividends and distributions made to
shareholders.
To the extent that distributions paid by the Fund are derived from interest on New Jersey municipal
securities and obligations of the U.S. Treasury, those distributions will also be exempt from New Jersey
individual income tax. Distributions from the Fund attributable to income from sources other than those will
generally be subject to New Jersey individual income tax as ordinary income.
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. However, the Fund's Board of Trustees and the Manager might determine in a particular year that it
would be in the best interest of shareholders not to make 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.
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 at net asset value without sales charge. 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 must first obtain a prospectus for that fund and an application from the Transfer Agent
to establish an account. The investment will be made at the net asset value per share in effect at the close of
business on the payable date of the dividend or distribution. Dividends and/or distributions from certain of the
other Xxxxxxxxxxx funds may be invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other financial institutions that have
a sales agreement with OppenheimerFunds Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Xxxxxxxxxxx funds and is sub-distributor for
funds managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a division of the Manager.
It is responsible for maintaining the Fund's shareholder registry and shareholder accounting records, and for
paying dividends and distributions to shareholders. It also handles shareholder servicing and administrative
functions. It serves as the Transfer Agent for an annual per account fee. It also acts as shareholder servicing
agent for the other Xxxxxxxxxxx funds. Shareholders should direct inquiries about their accounts to the Transfer
Agent at the address and toll-free numbers shown on the back cover.
The Custodian. Citibank, 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 may
at times 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 auditors for certain other funds advised
by the Manager and its affiliates.
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
================================================================================
The Board of Trustees and Shareholders of
Xxxxxxxxxxx New Jersey Municipal Fund:
We have audited the accompanying statement of assets and liabilities of
Xxxxxxxxxxx New Jersey Municipal Fund, including the statement of investments,
as of July 31, 2001, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five 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.
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 July 31, 2001, by correspondence with the custodian and
brokers or by other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Xxxxxxxxxxx New Jersey Municipal Fund as of July 31, 2001, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the five 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
August 21, 2001
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS July 31, 2001
--------------------------------------------------------------------------------
Ratings:
Xxxxx'x/ Market
S&P/Fitch Principal Value
(Unaudited) Amount See Note 1
================================================================================================
Municipal Bonds and Notes--97.5%
------------------------------------------------------------------------------------------------
New Jersey--82.8%
Atlantic City, NJ Refunding COP, Public Facilities
Lease Agreement, FGIC Insured, 6%, 3/1/13 Aaa/AAA/AAA $ 2,900,000 $ 3,318,876
------------------------------------------------------------------------------------------------
Delaware River, NJ & PA POAU RB, FSA Insured,
6%, 1/1/18 Aaa/AAA/AAA 3,500,000 3,870,755
------------------------------------------------------------------------------------------------
Xxxxxx Cnty., NJ MUAU System RB, Prerefunded,
11.875%, 7/1/06 Aaa/AAA 510,000 549,836
------------------------------------------------------------------------------------------------
Xxxxxx Cnty., NJ Solid Waste System Improvement
Authority RRB, Series 1, 6%, 1/1/29 NR/BBB- 1,000,000 943,020
------------------------------------------------------------------------------------------------
Lopatcong Township, NJ BOE GOUN, FSA Insured,
5.70%, 7/15/19 Aaa/AAA/AAA 635,000 685,444
------------------------------------------------------------------------------------------------
Middlesex Cnty., NJ Improvement Authority Utility
System RRB, Perth Amboy Franchise Project, Series B,
AMBAC Insured, Zero Coupon, 5.63%, 9/1/21/1/ Aaa/AAA/AAA 4,500,000 1,635,075
------------------------------------------------------------------------------------------------
Middletown Township, NJ BOE REF GOUN,
FSA Insured, 5%, 8/1/22 Aaa/AAA/AAA 1,000,000 1,008,290
------------------------------------------------------------------------------------------------
Newark, NJ GOB, School Qualified Bond Act,
MBIA Insured, 5.30%, 9/1/08 Aaa/AAA 1,000,000 1,070,500
------------------------------------------------------------------------------------------------
NJ EDAU ED RB, United Methodist Homes,
5.75%, 7/1/29 NR/BBB- 1,250,000 1,079,812
------------------------------------------------------------------------------------------------
NJ EDAU GOLB, School Facilities Construction,
Series A, AMBAC Insured, 5.50%, 6/15/13 Aaa/AAA/AAA 1,500,000 1,659,285
------------------------------------------------------------------------------------------------
NJ EDAU PC RB, Public Service Electric &
Gas Co. Project, Series A, MBIA Insured,
6.40%, 5/1/32 Aaa/AAA 500,000 530,605
------------------------------------------------------------------------------------------------
NJ EDAU RB, Masonic Charity Foundation Project,
5.50%, 6/1/31 NR/A+ 1,000,000 1,027,520
------------------------------------------------------------------------------------------------
NJ EDAU RB, Masonic Charity Foundation Project,
6%, 6/1/25 NR/A+ 750,000 818,775
------------------------------------------------------------------------------------------------
NJ EDAU RB, Transportation Project Sublease,
Series A, FSA Insured, 5.75%, 5/1/09 Aaa/AAA/AAA 1,000,000 1,115,920
------------------------------------------------------------------------------------------------
NJ EDAU Retirement Community RB,
Series A, 8%, 11/15/15 NR/NR 2,100,000 2,170,560
------------------------------------------------------------------------------------------------
NJ EDAU RRB, First Mtg. Franciscan Oaks Project,
5.70%, 10/1/17 NR/NR 2,000,000 1,745,240
------------------------------------------------------------------------------------------------
NJ EDAU RRB, United Methodist Homes,
5.125%, 7/1/25 NR/BBB- 1,400,000 1,124,732
------------------------------------------------------------------------------------------------
NJ EDAU SPF RB, Continental Airlines, Inc. Project,
6.25%, 9/15/29 Ba2/BB 3,000,000 2,877,330
------------------------------------------------------------------------------------------------
NJ EDAU Water Facilities RB, American Water Co.,
Inc. Project, Series A, FGIC Insured,
6.875%, 11/1/34 Aaa/AAA/AAA 500,000 549,975
------------------------------------------------------------------------------------------------
NJ Education FA RB, Institute for Advanced Study,
Series A, 5.10%, 7/1/26 Aaa/AAA 1,500,000 1,518,690
------------------------------------------------------------------------------------------------
NJ Education FA RB, Princeton University,
Series E, 5%, 7/1/18/2/ Aaa/AAA 3,460,000 3,520,896
12 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND
Ratings:
Xxxxx'x/ Market
S&P/Fitch Principal Value
(Unaudited) Amount See Note 1
----------------------------------------------------------------------------------------------------------
New Jersey Continued
NJ Education FA RB, Ramapo College, Series D,
AMBAC Insured, 5%, 7/1/31 Aaa/AAA/AAA $ 500,000 $ 500,560
----------------------------------------------------------------------------------------------------------
NJ Education FA RRB, Monmouth University,
Series C, 5.80%, 7/1/22 Baa1/BBB 2,000,000 2,094,000
----------------------------------------------------------------------------------------------------------
NJ Education FA RRB, Princeton University, Series H,
5.25%, 7/1/26 Aaa/AAA 1,000,000 1,029,000
----------------------------------------------------------------------------------------------------------
NJ HCF FA RB, Xxxxxx Xxxx Xxxxxxx University
Hospital, 5.75%, 7/1/25 A1/A+ 1,000,000 1,053,750
----------------------------------------------------------------------------------------------------------
NJ HCF FAU RB, Columbus Hospital, Series A, 7.50%,
7/1/21/3/ B2/B 1,900,000 1,643,424
----------------------------------------------------------------------------------------------------------
NJ HCF FAU RB, St. Joseph's Hospital & Medical Center,
Series A, 6%, 7/1/26 NR/AAA 750,000 802,725
----------------------------------------------------------------------------------------------------------
NJ HCF FAU RRB, Dover General Hospital & Medical
Center, MBIA Insured, 7%, 7/1/03 Aaa/AAA 1,000,000 1,072,870
----------------------------------------------------------------------------------------------------------
NJ HEAA Student Loan RB, Series A, MBIA Insured,
6%, 6/1/15 Aaa/AAA/AAA 1,000,000 1,078,470
----------------------------------------------------------------------------------------------------------
NJ Mtg. & HFA MH RB, Series A, AMBAC Insured,
6.25%, 5/1/28 Aaa/AAA 1,000,000 1,055,540
----------------------------------------------------------------------------------------------------------
NJ Mtg. & HFA RB, Home Buyer, Series J, MBIA Insured,
6.20%, 10/1/25 Aaa/AAA 190,000 197,003
----------------------------------------------------------------------------------------------------------
NJ Mtg. & HFA RRB, Series 1, 6.70%, 11/1/28 NR/A+ 5,000 5,235
----------------------------------------------------------------------------------------------------------
NJ Mtg. XXX XX, Series U, 5.75%, 4/1/18 Aaa/AAA 1,000,000 1,048,340
----------------------------------------------------------------------------------------------------------
NJ North Xxxxxx Sewer Authority RRB, Series A,
MBIA Insured, Zero Coupon, 5.39%, 8/1/20/1/ Aaa/NR/AAA 5,000,000 1,925,850
----------------------------------------------------------------------------------------------------------
NJ Sports & Exposition Authority Convention
Center Luxury Tax RB, Series A, MBIA Insured,
6.25%, 7/1/20 Aaa/AAA 80,000 84,207
----------------------------------------------------------------------------------------------------------
NJ SUEFS RB, Rowan University, Series B,
FGIC Insured, 5.25%, 7/1/14 Aaa/AAA/AAA 1,485,000 1,568,799
----------------------------------------------------------------------------------------------------------
NJ SUEFS RB, Rowan University, Series B,
FGIC Insured, 5.25%, 7/1/15 Aaa/AAA/AAA 1,000,000 1,048,930
----------------------------------------------------------------------------------------------------------
NJ Transportation COP, Series 15, AMBAC Insured,
7.65%, 9/15/14/4/ NR/AAA 2,500,000 3,127,175
----------------------------------------------------------------------------------------------------------
NJ TUAU RRB, Series C, 6.50%, 1/1/16 A3/A-/A 950,000 1,124,809
----------------------------------------------------------------------------------------------------------
NJ TUAU RRB, Series C, MBIA Insured, 6.50%, 1/1/09 Aaa/AAA 1,000,000 1,157,300
----------------------------------------------------------------------------------------------------------
NJ TUAU RRB, Series C, MBIA Insured, 6.50%, 1/1/16 Aaa/AAA 1,500,000 1,798,755
----------------------------------------------------------------------------------------------------------
Passaic Valley, NJ Sewer System Commissioners
GOUN, Series E, AMBAC Insured, 5.625%, 12/1/17 Aaa/NR/AAA 3,095,000 3,336,874
----------------------------------------------------------------------------------------------------------
Paterson, NJ Public SDI COP, 5.75%, 11/1/19 Aaa/NR/AAA 2,000,000 2,163,560
----------------------------------------------------------------------------------------------------------
PAUNYNJ Consolidated RB, 94th Series, 6%, 12/1/14 A1/AA-/AA- 200,000 217,504
----------------------------------------------------------------------------------------------------------
PAUNYNJ SPO RB, JFK International Air Terminal
Project, Series 6, MBIA Insured, 7%, 12/1/12 Aaa/AAA/AAA 2,000,000 2,463,020
----------------------------------------------------------------------------------------------------------
PAUNYNJ SPO RRB, KIAC-4 Project, Fifth Installment,
6.75%, 10/1/19 NR/NR 900,000 939,285
13 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND
--------------------------------------------------------------------------------
STATEMENT OF INVESTMENTS Continued
--------------------------------------------------------------------------------
Ratings:
Xxxxx'x/ Market
S&P/Fitch Principal Value
(Unaudited) Amount See Note 1
---------------------------------------------------------------------------------------------------------
New Jersey Continued
South Brunswick, NJ GOB, FGIC Insured,
5.675%, 12/1/19 Aaa/AAA/AAA $ 2,330,000 $ 2,484,479
---------------------------------------------------------------------------------------------------------
South Brunswick, NJ GOB, FGIC Insured,
5.675%, 12/1/20 Aaa/AAA/AAA 1,385,000 1,475,842
---------------------------------------------------------------------------------------------------------
Xxxx Xxxxxx, XX XXX XXX, XXXX Insured,
5.625%, 10/1/19 Aaa/N/R/AAA 2,500,000 2,676,650
--------------
71,995,092
---------------------------------------------------------------------------------------------------------
U.S. Possessions--14.7%
Guam PAU RB, Prerefunded, Series A, 6.30%, 10/1/22 NR/AAA 185,000 196,431
---------------------------------------------------------------------------------------------------------
PR Childrens Trust Fund Asset Backed RB, 6%, 7/1/26 Aa3/A/A+ 1,000,000 1,060,480
---------------------------------------------------------------------------------------------------------
PR CMWLTH XXXX XX, Xxxxxx X, 0%, 7/1/36 Baa1/A 1,000,000 988,390
---------------------------------------------------------------------------------------------------------
PR Industrial, Tourist, Educational, Medical &
Environmental Control Facilities RB, Cogen Facilities
AES Puerto Rico Project, 6.625%, 6/1/26 Baa2/NR/BBB 965,000 1,049,573
---------------------------------------------------------------------------------------------------------
PR Industrial, Tourist, Educational, Medical &
Environmental Control Facilities RB, Polytechnic
University Project, Series A, 6.50%, 8/1/24 NR/BBB- 395,000 411,452
---------------------------------------------------------------------------------------------------------
PR Municipal FAU GOB, 8.37%, 8/1/15/4,5/ NR/NR 1,000,000 1,230,880
---------------------------------------------------------------------------------------------------------
PR Municipal FAU GOB, Series PA-638A, 8.37%, 8/1/13/4,5/ NR/NR 1,075,000 1,302,578
---------------------------------------------------------------------------------------------------------
University of Virgin Islands XXX XX, Series
A, 5.75%, 12/1/13 NR/A/A 620,000 658,409
---------------------------------------------------------------------------------------------------------
University of Virgin Islands Improvement RRB, Series A,
6%, 12/1/24 NR/A/A 1,000,000 1,051,400
---------------------------------------------------------------------------------------------------------
Virgin Islands Housing FAU SFM RRB, Series A,
6.50%, 3/1/25 NR/AAA 135,000 139,315
---------------------------------------------------------------------------------------------------------
Virgin Islands XXXX XX, Series A, 6.375%, 10/1/19 NR/BBB- 1,515,000 1,636,655
---------------------------------------------------------------------------------------------------------
Virgin Islands XXXX XX, Sub. Lien, Series E, 6%, 10/1/22 NR/NR 1,500,000 1,498,965
---------------------------------------------------------------------------------------------------------
Virgin Islands Water & PAU Electric Systems RRB,
5.375%, 7/1/10 NR/NR/BBB 1,470,000 1,536,400
--------------
12,760,928
--------------
Total Municipal Bonds and Notes (Cost $80,340,866) 84,756,020
=========================================================================================================
Short-Term Tax-Exempt Obligations - 0.9%
PAUNYNJ SPO RRB, Versatile Structure-2,
2.70%, 8/1/01/4/ 600,000 600,000
---------------------------------------------------------------------------------------------------------
PAUNYNJ SPO RRB, Versatile Structure-4,
2.80%, 8/1/01/4/ 200,000 200,000
--------------
Total Short-Term Tax-Exempt Obligations (Cost $800,000) 800,000
---------------------------------------------------------------------------------------------------------
Total Investments, at Value (Cost $81,140,866) 98.4% 85,556,020
---------------------------------------------------------------------------------------------------------
Other Assets Net of Liabilities 1.6 1,414,505
-----------------------------
Net Assets 100.0% $ 86,970,525
=============================
14 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND
Footnotes to Statement of Investments
To simplify the listings of securities, abbreviations are used per the table
below:
BOE Board of Education
CMWLTH Commonwealth
COP Certificates of Participation
ED Economic Development
EDAU Economic Development Authority
FA Facilities Authority
FAU Finance Authority
GOB General Obligation Bonds
GOLB General Obligation Limited Bonds
GOUN General Obligation Unlimited Nts.
HAU Housing Authority
HCF Health Care Facilities
HEAA Higher Education Assistance Agency
HFA Housing Finance Agency
HTAU Highway & Transportation Authority
MH Multifamily Housing
MUAU Municipal Utilities Authority
PAUNYNJ Port Authority of New York & New Jersey
PAU Power Authority
PC Pollution Control
XXXX Public Finance Authority
POAU Port Authority
RB Revenue Bonds
REF Refunding
RRB Revenue Refunding Bonds
SDI School District
SFM Single Family Mtg.
SPF Special Facilities
SPO Special Obligations
SUEFS State University Educational Facilities System
TUAU Turnpike Authority
1. Zero coupon bond reflects the effective yield on the date of purchase.
2. Identifies issues considered to be illiquid--See Note 6 of Notes to Financial
Statements.
3. Securities with an aggregate market value of $864,960 are held in
collateralized accounts to cover initial margin requirements on open futures
sales contracts. See Note 5 of Notes to Financial Statements.
4. Represents the current interest rate for a variable rate security.
5. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities have
been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $2,533,458 or 2.91% of the Fund's net
assets as of July 31, 2001.
As of July 31, 2001, securities subject to the alternative minimum tax amount to
$12,128,456 or 13.95% of the Fund's net assets.
Distribution of investments by industry, as a percentage of total investments at
value, is as follows:
Industry Market Value Percent
--------------------------------------------------------------------------------
Higher Education $ 13,402,135 15.7%
Municipal Leases 12,402,181 14.5
General Obligation 10,917,298 12.8
Highways/Railways 8,940,010 10.4
Adult Living Facilities 7,966,640 9.3
Marine/Aviation Facilities 6,357,853 7.4
Sewer Utilities 5,262,724 6.2
Hospital/Healthcare 4,572,769 5.3
Electric Utilities 3,721,689 4.4
Sales Tax Revenue 3,219,827 3.8
Water Utilities 2,734,886 3.2
Single Family Housing 1,384,658 1.6
Student Loans 1,078,470 1.3
Multifamily Housing 1,060,775 1.2
Special Assessment 1,060,480 1.2
Resource Recovery 943,020 1.1
Pollution Control 530,605 0.6
--------------------------
Total $ 85,556,020 100.0%
==========================
See accompanying Notes to Financial Statements.
15 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES July 31, 2001
--------------------------------------------------------------------------------
=======================================================================================
Assets
Investments, at value (cost $81,140,866)--see accompanying statement $ 85,556,020
---------------------------------------------------------------------------------------
Cash 179,540
---------------------------------------------------------------------------------------
Receivables and other assets:
Interest 1,025,788
Investments sold 402,652
Shares of beneficial interest sold 124,828
Other 1,523
---------------
Total assets 87,290,351
=======================================================================================
Liabilities
Payables and other liabilities:
Dividends 200,602
Trustees' compensation 59,672
Shareholder reports 31,858
Shares of beneficial interest redeemed 14,328
Distribution and service plan fees 10,935
Daily variation on futures contracts 1,290
Transfer and shareholder servicing agent fees 91
Other 1,050
---------------
Total liabilities 319,826
=======================================================================================
Net Assets $ 86,970,525
===============
=======================================================================================
Composition of Net Assets
Paid-in capital $ 91,675,907
---------------------------------------------------------------------------------------
Undistributed (overdistributed) net investment income (59,888)
---------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investment transactions (9,056,398)
---------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments 4,410,904
---------------
Net Assets $ 86,970,525
===============
=======================================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redemption price per share (based on
net assets of 39,184,606 and 3,598,764 shares of beneficial
interest outstanding) $10.89
Maximum offering price per share (net asset value plus
sales charge of 4.75% of offering price) $11.43
---------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price
per share (based on net assets of $39,163,848 and
3,593,355 shares of beneficial interest outstanding) $10.90
---------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price
per share (based on net assets of $8,622,071 and
791,442 shares of beneficial interest outstanding) $10.89
See accompanying Notes to Financial Statements.
16 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Year Ended July 31, 2001
--------------------------------------------------------------------------------
================================================================================
Investment Income
Interest $ 4,548,919
================================================================================
Expenses
Management fees 476,017
--------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 52,362
Class B 328,466
Class C 65,599
--------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees 39,406
--------------------------------------------------------------------------------
Shareholder reports 28,568
--------------------------------------------------------------------------------
Custodian fees and expenses 18,885
--------------------------------------------------------------------------------
Other 5,690
--------------
Total expenses 1,014,993
Less reduction to excess expenses (158,673)
Less reduction to custodian expenses (18,581)
--------------
Net expenses 837,739
================================================================================
Net Investment Income 3,711,180
================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments (1,459,684)
Closing of futures contracts (132,725)
--------------
Net realized gain (loss) (1,592,409)
--------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on
investments 5,484,560
Net realized and unrealized gain (loss) 3,892,151 ================================================================================ Net Increase in Net Assets Resulting from Operations $ 7,603,331 ============== See accompanying Notes to Financial Statements. 17 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND -------------------------------------------------------------------------------- STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
Year Ended July 31, 2001 2000
==========================================================================================
Operations
Net investment income (loss) $ 3,711,180 $ 3,939,411
------------------------------------------------------------------------------------------
Net realized gain (loss) (1,592,409) (7,456,959)
------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) 5,484,560 188,013
--------------------------------
Net increase (decrease) in net assets resulting from
operations 7,603,331 (3,329,535)
==========================================================================================
Dividends and/or Distributions to Shareholders
Dividends from net investment income:
Class A (1,765,488) (1,895,546)
Class B (1,516,793) (1,697,365)
Class C (303,732) (371,483)
-------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A -- (38,325)
Class B -- (38,868)
Class C -- (9,332)
===========================================================================================
Beneficial Interest Transactions
Net increase (decrease) in net assets resulting
from beneficial interest transactions:
Class A 5,441,476 (7,088,220)
Class B 1,989,316 (5,635,459)
Class C 1,105,845 (1,821,590)
===========================================================================================
Net Assets
Total increase (decrease) 12,553,955 (21,925,723)
-------------------------------------------------------------------------------------------
Beginning of period 74,416,570 96,342,293
---------------------------------
End of period [including undistributed (overdistributed)
net investment income of $(59,888) and $(185,055),
respectively] $ 86,970,525 $ 74,416,570
=================================
See accompanying Notes to Financial Statements.
18 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Year
Ended
July 31,
Class A 2001 2000 1999 1998 1997
======================================================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 10.36 $ 11.21 $ 11.58 $ 11.54 $ 11.10
----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .55 .53 .55 .58 .62
Net realized and unrealized gain (loss) .51 (.82) (.36) .09 .45
----------------------------------------------------------------
Total income (loss) from
investment operations 1.06 (.29) .19 .67 1.07
----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.53) (.55) (.55) (.59) (.61)
Distributions from net realized gain -- (.01) (.01) (.04) (.02)
----------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.53) (.56) (.56) (.63) (.63)
----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.89 $ 10.36 $ 11.21 $ 11.58 $ 11.54
================================================================
======================================================================================================================
Total Return, at Net Asset Value/1/ 10.42% (2.47)% 1.57% 5.96% 9.99%
======================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 39,185 $ 31,937 $ 42,289 $ 33,060 $ 19,109
----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 35,710 $ 35,286 $ 38,999 $ 24,909 $ 14,072
----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:/2/
Net investment income 5.08% 5.26% 4.71% 4.94% 5.45%
Expenses 0.87% 1.09% 1.10% 1.14%/3/ 1.08%/3/
Expenses, net of reduction to custodian expenses 0.85% 0.79%/4/ 0.63%/4/ 0.38%/4/ 0.88%/4/
Expenses, net of reduction to excess expenses 0.67% N/A N/A N/A N/A
----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 27% 101% 70% 46% 12%
1. 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.
2. Annualized for periods of less than one full year.
3. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
4. Prior to July 31, 2001, this ratio reflected the combined net effect of
reduction to excess and custodian expenses.
See accompanying Notes to Financial Statements.
19 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS Continued
--------------------------------------------------------------------------------
Year
Ended
July 31,
Class B 2001 2000 1999 1998 1997
======================================================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 10.37 $ 11.21 $ 11.58 $ 11.53 $ 11.09
----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .47 .47 .47 .50 .53
Net realized and unrealized gain (loss) .51 (.83) (.37) .09 .46
------------------------------------------------------------------
Total income (loss) from
investment operations .98 (.36) .10 .59 .99
----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.45) (.47) (.46) (.50) (.53)
Distributions from net realized gain -- (.01) (.01) (.04) (.02)
------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.45) (.48) (.47) (.54) (.55)
----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.90 $ 10.37 $ 11.21 $ 11.58 $ 11.53
==================================================================
======================================================================================================================
Total Return, at Net Asset Value/1/ 9.58% (3.11)% 0.81% 5.25% 9.18%
======================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 39,164 $ 35,338 $ 44,322 $ 33,062 $ 18,647
----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 36,447 $ 38,064 $ 39,842 $ 25,556 $ 13,278
----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:/2/
Net investment income 4.34% 4.50% 3.96% 4.17% 4.70%
Expenses 1.62% 1.85% 1.85% 1.89%/3/ 1.83%/3/
Expenses, net of reduction to custodian expenses 1.60% 1.55%/4/ 1.38%/4/ 1.14%/4/ 1.62%/4/
Expenses, net of reduction to excess expenses 1.42% N/A N/A N/A N/A
----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 27% 101% 70% 46% 12%
1. 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.
2. Annualized for periods of less than one full year.
3. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
4. Prior to July 31, 2001, this ratio reflected the combined net effect of
reduction to excess and custodian expenses.
See accompanying Notes to Financial Statements.
20 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND
Year
Ended
July 31,
Class C 2001 2000 1999 1998 1997
======================================================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 10.36 $ 11.21 $ 11.58 $ 11.53 $ 11.09
----------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .47 .46 .46 .50 .53
Net realized and unrealized gain (loss) .51 (.83) (.36) .09 .45
------------------------------------------------------------------
Total income (loss) from
investment operations .98 (.37) .10 .59 .98
----------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.45) (.47) (.46) (.50) (.52)
Distributions from net realized gain -- (.01) (.01) (.04) (.02)
------------------------------------------------------------------
Total dividends and/or distributions
to shareholders (.45) (.48) (.47) (.54) (.54)
----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.89 $ 10.36 $ 11.21 $ 11.58 $ 11.53
==================================================================
======================================================================================================================
Total Return, at Net Asset Value/1/ 9.59% (3.20)% 0.81% 5.24% 9.11%
======================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 8,622 $ 7,142 $ 9,732 $ 6,463 $ 2,080
----------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $ 7,301 $ 8,198 $ 8,483 $ 3,631 $ 747
----------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:/2/
Net investment income 4.33% 4.51% 3.96% 4.20% 4.56%
Expenses 1.62% 1.85% 1.85% 1.92%/3/ 1.79%/3/
Expenses, net of reduction to custodian expenses 1.60% 1.55%/4/ 1.38%/4/ 1.12%/4/ 1.60%/4/
Expenses, net of reduction to excess expenses 1.42% N/A N/A N/A N/A
----------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 27% 101% 70% 46% 12%
1. 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.
2. Annualized for periods of less than one full year.
3. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
4. Prior to July 31, 2001, this ratio reflected the combined net effect of
reduction to excess and custodian expenses.
See accompanying Notes to Financial Statements.
21 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
================================================================================
1. Significant Accounting Policies
Xxxxxxxxxxx New Jersey Municipal Fund (the Fund) is a separate series of
Xxxxxxxxxxx Multi-State Municipal Trust, as a non-diversified, open-end
management investment company registered under the Investment Company Act of
1940, as amended. The Fund's investment objective is to seek as high a level of
current interest income exempt from federal and New Jersey income taxes for
individual investors as is consistent with preservation of capital. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B and Class C shares. Class A shares are
sold at their offering price, which is normally net asset value plus a front-end
sales charge. Class B and Class C shares are sold without a front-end sales
charge but may be subject to a contingent deferred sales charge (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 and C have separate distribution and/or service plans. Class
B shares will automatically convert to Class A shares six years after the date
of purchase. The following is a summary of significant accounting policies
consistently followed by the Fund.
--------------------------------------------------------------------------------
Securities Valuation. Securities listed or traded on National Stock Exchanges or
other domestic or foreign exchanges are valued based on the last sale price of
the security traded on that exchange prior to the time when the Fund's assets
are valued. In the absence of a sale, the security is valued at the last sale
price on the prior trading day, if it is within the spread of the closing bid
and asked prices, and if not, at the closing bid price. Securities (including
restricted securities) for which quotations are not readily available are valued
primarily using dealer-supplied valuations, a portfolio pricing service
authorized by the Board of Trustees, or at their fair value. Fair value is
determined in good faith under consistently applied procedures under the
supervision of the Board of Trustees. Short-term "money market type" debt
securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).
--------------------------------------------------------------------------------
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.
22 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND
As of July 31, 2001, the Fund had available for federal income tax purposes
unused capital loss carryovers as follows:
Expiring
__________ 2008 $ 1,327,407 2009 6,697,851 ------------ Total $ 8,025,258 ============ -------------------------------------------------------------------------------- Trustees' Compensation. The Fund has adopted an unfunded retirement plan for the Fund's independent Board of Trustees. Benefits are based on years of service and fees paid to each trustee during the years of service. During the year ended July 31, 2001, the Fund's projected benefit obligations were decreased by $46,120, resulting in an accumulated liability of $18,294 as of July 31, 2001. The Board of Trustees has adopted a deferred compensation plan for independent trustees that enables trustees to elect to defer receipt of all or a portion of annual compensation they are entitled to receive from the Fund. Under the plan, the compensation deferred is periodically adjusted as though an equivalent amount had been invested for the Board of Trustees in shares of one or more Xxxxxxxxxxx funds selected by the trustee. The amount paid to the Board of Trustees under the plan will be determined based upon the performance of the selected funds. Deferral of trustees' fees under the plan will not affect the net assets of the Fund, and will not materially affect the Fund's assets, liabilities or net investment income per share. -------------------------------------------------------------------------------- Dividends and Distributions to Shareholders. Dividends and distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date. -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Investment Income. Interest income, which includes accretion of discount and amortization of premium, is accrued as earned. There are certain risks arising from geographic concentration in any state. Certain revenue or tax related events in a state may impair the ability of certain issuers of municipal securities to pay principal and interest on their obligations. -------------------------------------------------------------------------------- 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. 23 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND -------------------------------------------------------------------------------- NOTES TO FINANCIAL STATEMENTS Continued -------------------------------------------------------------------------------- ================================================================================ 1. Significant Accounting Policies Continued 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. ================================================================================ 2. Shares of Beneficial Interest The Fund has authorized an unlimited number of no par value shares of beneficial interest of each class. Transactions in shares of beneficial interest were as follows:
Year Ended July 31, 2001 Year Ended July 31, 2000
Shares Amount Shares Amount
-------------------------------------------------------------------------------------------------
Class A
Sold 1,198,172 $ 12,709,183 920,509 $ 9,619,436
Dividends and/or
distributions reinvested 88,040 933,942 104,515 1,090,118
Redeemed (771,253) (8,201,649) (1,712,137) (17,797,774)
-----------------------------------------------------------
Net increase (decrease) 514,959 $ 5,441,476 (687,113) $ (7,088,220)
===========================================================
-------------------------------------------------------------------------------------------------
Class B
Sold 774,341 $ 8,230,429 560,903 $ 5,829,198
Dividends and/or
distributions reinvested 77,156 819,271 93,374 971,360
Redeemed (667,203) (7,060,384) (1,199,632) (12,436,017)
-----------------------------------------------------------
Net increase (decrease) 184,294 $ 1,989,316 (545,355) $ (5,635,459)
===========================================================
-------------------------------------------------------------------------------------------------
Class C
Sold 335,717 $ 3,577,965 252,337 $ 2,644,095
Dividends and/or
distributions reinvested 17,312 183,702 24,849 259,049
Redeemed (250,869) (2,655,822) (455,982) (4,724,734)
-----------------------------------------------------------
Net increase (decrease) 102,160 $ 1,105,845 (178,796) $ (1,821,590)
===========================================================
================================================================================
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 July 31, 2001, were $27,679,005
and $20,996,015, respectively.
As of July 31, 2001, unrealized appreciation (depreciation) based on cost of
securities for federal income tax purposes of $81,140,866 was:
Gross unrealized appreciation $ 5,291,745
Gross unrealized depreciation (876,591)
Net unrealized appreciation (depreciation) $ 4,415,154 =========== 24 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND ================================================================================ 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 0.60% of the first $200 million of average annual net assets, 0.55% of the next $100 million, 0.50% of the next $200 million, 0.45% of the next $250 million, 0.40% of the next $250 million, and 0.35% of average annual net assets in excess of $1 billion. The Manager has voluntarily undertaken to assume certain Fund expenses. The Manager can withdraw the voluntary waiver at any time. -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Distribution and Service Plan Fees. Under its General Distributor's Agreement with the Manager, the Distributor acts as the Fund's principal underwriter in the continuous public offering of the different classes of shares of the Fund. The compensation paid to (or retained by) the Distributor from the sale of shares or on the redemption of shares is shown in the table below for the period indicated.
Aggregate Class A Commissions Commissions Commissions
Front-End Front-End on Class A on Class B on Class C
Sales Charges Sales Charges Shares Shares Shares
on Class A Retained by Advanced by Advanced by Advanced by
Year Ended Shares Distributor Distributor/1/ Distributor/1/ Distributor/1/
--------------------------------------------------------------------------------------------------------
July 31, 2001 $150,702 $25,811 $579 $284,744 $23,625
1. The Distributor advances commission 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 Class B Class C
Contingent Deferred Contingent Deferred Contingent Deferred
Sales Charges Sales Charges Sales Charges
Year Ended Retained by Distributor Retained by Distributor Retained by Distributor
--------------------------------------------------------------------------------------------------------
July 31, 2001 $422 $132,505 $1,881
The Fund has adopted a Service Plan for Class A shares and Distribution and
Service Plans for Class B and Class C shares under Rule 12b-1 of the Investment
Company Act. Under those plans the Fund pays the Distributor for all or a
portion of its costs incurred in connection with the distribution and/or
servicing of the shares of the particular class.
--------------------------------------------------------------------------------
Class A Service Plan Fees. Under the Class A service plan, the Distributor
currently uses the fees it receives from the Fund to pay brokers, dealers and
other financial institutions. The Class A service plan permits reimbursements to
the Distributor at a rate of up to 0.15% 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 0.15% of the average annual net assets consisting
of Class A shares of the Fund. For the year ended
25 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS Continued
--------------------------------------------------------------------------------
July 31, 2001, payments under the Class A plan totaled $52,362, all of which
were paid by the Distributor to recipients, and included $1,288 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 and Class C 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 and Class C plans provide for the
Distributor to be compensated at a flat rate, whether the Distributor's
distribution expenses are more or less than the amounts paid by the Fund under
the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares. The
Distributor retains the asset-based sales charge on Class C shares during the
first year the shares are outstanding. The asset-based sales charges on Class B
and Class C 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 and Class C shares may
be more than the payments it receives from the contingent deferred sales charges
collected on redeemed shares and asset-based sales charges from the Fund under
the plans. If any plan is terminated by the Fund, the Board of Trustees may
allow the Fund to continue payments of the asset-based sales charge to the
Distributor for distributing shares before the plan was terminated. The plans
allow for the carryforward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
Distribution fees paid to the Distributor for the year ended July 31, 2001, were
as follows:
Distributor's Distributor's
Aggregate Aggregate
Unreimbursed Unreimbursed
Total Payments Amount Retained Expenses Expenses as % of
Under Plan by Distributor Under Plan Net Assets of Class
------------------------------------------------------------------------------------------------
Class B Plan $328,46 $281,627 $1,386,753 3.54%
Class C Plan 65,599 14,058 123,493 1.43
================================================================================
5. Futures Contracts
A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a particular price on a stipulated future
date at a negotiated price. Futures contracts are traded on a commodity
exchange. The Fund may buy and sell futures contracts that relate to broadly
based securities indices "financial futures" or debt securities "interest rate
futures" in order to gain exposure to or to seek to protect against changes in
market value of stock and bonds or interest rates. The Fund may also buy or
write put or call options on these futures contracts.
The Fund generally sells futures contracts to hedge against increases in
interest rates and decreases in market value of portfolio securities. The Fund
may also purchase futures contracts to gain exposure to market changes as it may
be more efficient or cost effective than actually buying fixed income
securities.
26 XXXXXXXXXXX NEW JERSEY MUNICIPAL FUND
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or expires.
Securities held in collateralized accounts to cover initial margin
requirements on open futures contracts are noted in the Statement of
Investments. The Statement of Assets and Liabilities reflects a receivable
and/or payable for the daily xxxx to market for variation margin. Realized gains
and losses are reported on the Statement of Operations as closing and expiration
of futures contracts.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
As of July 31, 2001, the Fund had outstanding futures contracts as follows:
Unrealized
Number Valuation as of Appreciation
Contract Description Expiration Date of Contracts July 31, 2001 (Depreciation)
------------------------------------------------------------------------------------------------------
Contracts to Sell
Municipal Bond 9/19/01 4 $425,625 $(4,250)
================================================================================
6. Illiquid Securities
As of July 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 July 31,
2001 was $3,520,896, which represents 4.05% of the Fund's net assets.
================================================================================
7. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Xxxxxxxxxxx funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of 0.08%
per annum.
The Fund had no borrowings outstanding during the year ended or at July 31,
2001.
Appendix A
>MUNICIPAL BOND RATINGS DEFINITIONS
Below are summaries of the rating definitions used by the nationally-recognized rating agencies listed below for municipal securities. 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.
Moody’s Investors Service, Inc.
------------------------------------------------------------------------------------------------------------------- Long-Term Bond RatingsAaa: 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 the 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. Moody’s 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 - U.S. Tax-Exempt MunicipalsThere are three ratings for short-term obligations that are investment grade. Short-term speculative obligations are designated “SG.” For variable rate demand obligations, a two-component rating is assigned. The first (MIG) element represents an evaluation by Moody’s of the degree of risk associated with scheduled principal and interest payments. The second element (VMIG) represents an evaluation of the degree of risk associated with the demand feature.
MIG 1/VMIG 1: Denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support or demonstrated broad-based access to the market for refinancing..
MIG 2/VMIG 2: Denotes strong credit quality. Margins of protection are ample although not as large as in the preceding group.
MIG 3/VMIG 3: Denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for refinancing is likely to be less well established.
SG: Denotes speculative-grade credit quality. Debt instruments in this category may lack margins of protection.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: 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.
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 “p” symbol indicates that the rating is provisional. The “r” symbol is attached to the ratings of instruments with significant noncredit risks.
Short-Term Issue Credit Ratings SP-1: Strong capacity to pay principal and interest. An issue with a very strong capacity to pay debt service is given a (+) designation. SP-2: Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes. SP-3: Speculative capacity to pay principal and interest.Fitch, Inc.
------------------------------------------------------------------------------------------------------------------- International Long-Term Credit RatingsInvestment 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. B-1Appendix B
MUNICIPAL BOND INDUSTRY CLASSIFICATIONS
Adult Living Facilities Bond Anticipation Notes Education Electric Utilities Gas Utilities General Obligation Higher Education Highways/Railways Hospital/Healthcare Manufacturing, Durable Goods Manufacturing, Non Durable Goods Marine/Aviation Facilities Multi-Family Housing Municipal Leases Non Profit Organization Parking Fee Revenue Pollution Control Resource Recovery Revenue Anticipation Notes Sales Tax Revenue Sewer Utilities Single Family Housing Special Assessment Special Tax Sports Facility Revenue Student Loans Tax Anticipation Notes Tax & Revenue Anticipation Notes Telephone Utilities Water Utilities C-4Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of Class A shares3 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.4 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 plans5 4) Group Retirement Plans6 5) 403(b)(7) custodial plan accounts 6) Individual Retirement Accounts ("IRAs"), including traditional IRAs, Xxxx IRAs, SEP-IRAs, SARSEPs or SIMPLE plansThe 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 CasesPurchases 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 (24 months in the case of Xxxxxxxxxxx Rochester National Municipals and Rochester Fund Municipals) of the beginning 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.”7 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. That included plans (other than XXX or 403(b)(7) Custodial Plans) that: 1) bought shares costing $500,000 or more, 2) had at the time of purchase 100 or more eligible employees or total plan assets of $500,000 or more, or 3) certified to the Distributor that it projects to have annual plan purchases of $200,000 or more. |_| Purchases by an OppenheimerFunds-sponsored Rollover XXX, if the purchases are made: 1) through a broker, dealer, bank or registered investment 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. I. 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.8 5) Under a Qualified Domestic Relations Order, as defined in the Internal Revenue Code, or, in the case of an XXX, a divorce or separation agreement described in Section 71(b) of the Internal Revenue Code. 6) To meet the minimum distribution requirements of the Internal Revenue Code. 7) To make "substantially equal periodic payments" as described in Section 72(t) of the Internal Revenue Code. 8) For loans to participants or beneficiaries. 9) Separation from service.9 10) Participant-directed redemptions to purchase shares of a mutual fund (other than a fund managed by the Manager or a subsidiary of the Manager) if the plan has made special arrangements with the Distributor. 11) Plan termination or “in-service distributions,” if the redemption proceeds are rolled over directly to an OppenheimerFunds-sponsored XXX. |_| For distributions from 401(k) plans sponsored by broker-dealers that have entered into a special agreement with the Distributor allowing this waiver. |_| For distributions from retirement plans that have $10 million or more in plan assets and that have entered into a special agreement with the Distributor. |_| For distributions from retirement plans which are part of a retirement plan product or platform offered by certain banks, broker-dealers, financial advisors, insurance companies or record keepers which have entered into a special agreement with the Distributor. II. 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 $500,000 or more and made more than 12 months after the Retirement Plan’s first purchase of Class C shares, if the redemption proceeds are invested in Class N shares of one or more Xxxxxxxxxxx funds. |_| Distributions10 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.11 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.12 9) On account of the participant's separation from service.13 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) For distributions from a participant’s account under an Automatic Withdrawal Plan after the participant reaches age 59½, as long as the aggregate value of the distributions does not exceed 10% of the account’s value, adjusted annually. 13) 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. 14) 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. III. Special Sales Charge Arrangements for Shareholders of Certain Xxxxxxxxxxx Funds Who Were Shareholders of Former Quest for Value Funds -------------------------------------------------------------------------------------------------------------------The initial and contingent deferred sales charge rates and waivers for Class A, Class B and Class C shares described in the Prospectus or Statement of Additional Information of the Xxxxxxxxxxx funds are modified as described below for certain persons who were shareholders of the former Quest for Value Funds. To be eligible, those persons must have been shareholders on November 24, 1995, when OppenheimerFunds, Inc. became the investment advisor to those former Quest for Value Funds. Those funds include:
Xxxxxxxxxxx Quest Value Fund, Inc. Xxxxxxxxxxx Small Cap Value Fund Xxxxxxxxxxx Quest Balanced Value Fund Xxxxxxxxxxx Quest Global Value Fund, Inc. Xxxxxxxxxxx Quest Opportunity Value Fund These arrangements also apply to shareholders of the following funds when they merged (were reorganized) into various Xxxxxxxxxxx funds on November 24, 1995:
Quest for Value U.S. Government Income Fund Quest for Value New York Tax-Exempt Fund Quest for Value Investment Quality Income Fund Quest for Value National Tax-Exempt Fund Quest for Value Global Income Fund Quest for Value California Tax-Exempt Fund All of the funds listed above are referred to in this Appendix as the “Former Quest for Value Funds.” The waivers of initial and contingent deferred sales charges described in this Appendix apply to shares of an Xxxxxxxxxxx fund that are either:
|_| acquired by such shareholder pursuant to an exchange of shares of an Xxxxxxxxxxx fund that was one of the Former Quest for Value Funds, or |_| purchased by such shareholder by exchange of shares of another Xxxxxxxxxxx fund that were acquired pursuant to the merger of any of the Former Quest for Value Funds into that other Xxxxxxxxxxx fund on November 24, 1995. A. Reductions or Waivers of Class A Sales Charges. |X| Reduced Class A Initial Sales Charge Rates for Certain Former Quest for Value Funds Shareholders.Purchases by Groups and Associations. The following table sets forth the initial sales charge rates for Class A shares purchased by members of “Associations” formed for any purpose other than the purchase of securities. The rates in the table apply if that Association purchased shares of any of the Former Quest for Value Funds or received a proposal to purchase such shares from OCC Distributors prior to November 24, 1995.
-------------------------------- ---------------------------- --------------------------------- --------------------- Number of Eligible Employees Initial Sales Charge as a Initial Sales Charge as a % of Concession as % of or Members % of Offering Price Net Amount Invested Offering Price -------------------------------- ---------------------------- --------------------------------- --------------------- -------------------------------- ---------------------------- --------------------------------- --------------------- 9 or Fewer 2.50% 2.56% 2.00% -------------------------------- ---------------------------- --------------------------------- --------------------- -------------------------------- ---------------------------- --------------------------------- --------------------- At least 10 but not more than 2.00% 2.04% 1.60% 49 -------------------------------- ---------------------------- --------------------------------- --------------------- -------------------------------- ---------------------------- --------------------------------- --------------------- -------------------------------- ---------------------------- --------------------------------- --------------------- ------------------------------------------------------------------------------------------------------------------- For purchases by Associations having 50 or more eligible employees or members, there is no initial sales charge on purchases of Class A shares, but those shares are subject to the Class A contingent deferred sales charge described in the applicable fund’s Prospectus.
Purchases made under this arrangement qualify for the lower of either the sales charge rate in the table based on the number of members of an Association, or the sales charge rate that applies under the Right of Accumulation described in the applicable fund’s Prospectus and Statement of Additional Information. Individuals who qualify under this arrangement for reduced sales charge rates as members of Associations also may purchase shares for their individual or custodial accounts at these reduced sales charge rates, upon request to the Distributor.
|X| Waiver of Class A Sales Charges for Certain Shareholders. Class A shares purchased by the following investors are not subject to any Class A initial or contingent deferred sales charges: o 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. o Shareholders who acquired shares of any Former Quest for Value Fund by merger of any of the portfolios of the Unified Funds.
|X| Waiver of Class A Contingent Deferred Sales Charge in Certain Transactions. The Class A contingent deferred sales charge will not apply to redemptions of Class A shares purchased by the following investors who were shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not permitted to receive a sales load or redemption fee imposed on a shareholder with whom that dealer has a fiduciary relationship, under the Employee Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.|X| Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In the following cases, the contingent deferred sales charge will be waived for redemptions of Class A, Class B or Class C shares of an Xxxxxxxxxxx fund. The shares must have been acquired by the merger of a Former Quest for Value Fund into the fund or by exchange from an Xxxxxxxxxxx fund that was a Former Quest for Value Fund or into which such fund merged. Those shares must have been purchased prior to March 6, 1995 in connection with: o 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 o liquidation of a shareholder’s account if the aggregate net asset value of shares held in the account is less than the required minimum value of such accounts.|X| Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but Prior to November 24, 1995. In the following cases, the contingent deferred sales charge will be waived for redemptions of Class A, Class B or Class C shares of an Xxxxxxxxxxx fund. The shares must have been acquired by the merger of a Former Quest for Value Fund into the fund or by exchange from an Xxxxxxxxxxx fund that was a Former Quest For Value Fund or into which such Former Quest for Value Fund merged. Those shares must have been purchased on or after March 6, 1995, but prior to November 24, 1995:
o 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); o 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 >o 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.
IV. 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 Fundare 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.|X| 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.
|X| Class A Sales Charge Waivers. Additional Class A shares of a Fund may be purchased without a sales charge, by a person who was in one (or more) of the categories below and acquired Class A shares prior to March 18, 1996, and still holds Class A shares:
1) any purchaser, provided the total initial amount invested in the Fund or any one or more of the Former Connecticut Mutual Funds totaled $500,000 or more, including investments made pursuant to the Combined Purchases, Statement of Intention and Rights of Accumulation features available at the time of the initial purchase and such investment is still held in one or more of the Former Connecticut Mutual Funds or a Fund into which such Fund merged; 2) any participant in a qualified plan, provided that the total initial amount invested by the plan in the Fund or any one or more of the Former Connecticut Mutual Funds totaled $500,000 or more; 3) Directors of the Fund or any one or more of the Former Connecticut Mutual Funds and members of their immediate families; 4) employee benefit plans sponsored by Connecticut Mutual Financial Services, L.L.C. ("CMFS"), the prior distributor of the Former Connecticut Mutual Funds, and its affiliated companies; 5) one or more members of a group of at least 1,000 persons (and persons who are retirees from such group) engaged in a common business, profession, civic or charitable endeavor or other activity, and the spouses and minor dependent children of such persons, pursuant to a marketing program between CMFS and such group; and 6) an institution acting as a fiduciary on behalf of an individual or individuals, if such institution was directly compensated by the individual(s) for recommending the purchase of the shares of the Fund or any one or more of the Former Connecticut Mutual Funds, provided the institution had an agreement with CMFS. Purchases of Class A shares made pursuant to (1) and (2) above may be subject to the Class A CDSC of the Former Connecticut Mutual Funds described above. Additionally, Class A shares of a Fund may be purchased without a sales charge by any holder of a variable annuity contract issued in New York State by Connecticut Mutual Life Insurance Company through the Panorama Separate Account which is beyond the applicable surrender charge period and which was used to fund a qualified plan, if that holder exchanges the variable annuity contract proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.In addition to the waivers set forth in the Prospectus and in this Appendix, above, the contingent deferred sales charge will be waived for redemptions of Class A and Class B shares of a Fund and exchanges of Class A or Class B shares of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund provided that the Class A or Class B shares of the Fund to be redeemed or exchanged were (i) acquired prior to March 18, 1996 or (ii) were acquired by exchange from an Xxxxxxxxxxx fund that was a Former Connecticut Mutual Fund. Additionally, the shares of such Former Connecticut Mutual Fund must have been purchased prior to March 18, 1996:
1) by the estate of a deceased shareholder; 2) upon the disability of a shareholder, as defined in Section 72(m)(7) of the Internal Revenue Code; 3) for retirement distributions (or loans) to participants or beneficiaries from retirement plans qualified under Sections 401(a) or 403(b)(7)of the Code, or from IRAs, deferred compensation plans created under Section 457 of the Code, or other employee benefit plans; 4) as tax-free returns of excess contributions to such retirement or employee benefit plans; 5) in whole or in part, in connection with shares sold to any state, county, or city, or any instrumentality, department, authority, or agency thereof, that is prohibited by applicable investment laws from paying a sales charge or concession in connection with the purchase of shares of any registered investment management company; 6) in connection with the redemption of shares of the Fund due to a combination with another investment company by virtue of a merger, acquisition or similar reorganization transaction; 7) in connection with the Fund's right to involuntarily redeem or liquidate the Fund; 8) in connection with automatic redemptions of Class A shares and Class B shares in certain retirement plan accounts pursuant to an Automatic Withdrawal Plan but limited to no more than 12% of the original value annually; or 9) as involuntary redemptions of shares by operation of law, or under procedures set forth in the Fund’s Articles of Incorporation, or as adopted by the Board of Directors of the Fund. V. Special Reduced Sales Charge for Former Shareholders of Advance America Funds, Inc. -------------------------------------------------------------------------------------------------------------------Shareholders of Xxxxxxxxxxx Municipal Bond Fund, Xxxxxxxxxxx U.S. Government Trust, Xxxxxxxxxxx Strategic Income Fund and Xxxxxxxxxxx Capital Income Fund who acquired (and still hold) shares of those funds as a result of the reorganization of series of Advance America Funds, Inc. into those Xxxxxxxxxxx funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on March 30, 1990, may purchase Class A shares of those four Xxxxxxxxxxx funds at a maximum sales charge rate of 4.50%.
VI. Sales Charge Waivers on Purchases of Class M Shares of Xxxxxxxxxxx Convertible Securities Fund -------------------------------------------------------------------------------------------------------------------Xxxxxxxxxxx Convertible Securities Fund (referred to as the “Fund” in this section) may sell Class M shares at net asset value without any initial sales charge to the classes of investors listed below who, prior to March 11, 1996, owned shares of the Fund’s then-existing Class A and were permitted to purchase those shares at net asset value without sales charge:
|_| the Manager and its affiliates, >|_| present or former officers, directors, trustees and employees (and their “immediate families” as defined in the Fund’s Statement of Additional Information) of the Fund, the Manager and its affiliates, and retirement plans established by them or the prior investment advisor of the Fund for their employees, |_| registered management investment companies or separate accounts of insurance companies that had an agreement with the Fund’s prior investment advisor or distributor for that purpose, |_| dealers or brokers that have a sales agreement with the Distributor, if they purchase shares for their own accounts or for retirement plans for their employees, |_| employees and registered representatives (and their spouses) of dealers or brokers described in the preceding section or financial institutions that have entered into sales arrangements with those dealers or brokers (and whose identity is made known to the Distributor) or with the Distributor, but only if the purchaser certifies to the Distributor at the time of purchase that the purchaser meets these qualifications, |_| dealers, brokers, or registered investment advisors that had entered into an agreement with the Distributor or the prior distributor of the Fund specifically providing for the use of Class M shares of the Fund in specific investment products made available to their clients, and dealers, brokers or registered investment advisors that had entered into an agreement with the Distributor or prior distributor of the Fund’s shares to sell shares to defined contribution employee retirement plans for which the dealer, broker, or investment advisor provides administrative services. -------------------------------------------------------------------------------------------------------------------Xxxxxxxxxxx New Jersey Municipal Fund
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XXX.XXXXXXXXXXXXXXXX.XXX ------------------------ Investment Adviser OppenheimerFunds, Inc. 000 Xxxxxxx Xxxxxx Xxx Xxxx, Xxx Xxxx 00000Distributor
OppenheimerFunds Distributor, Inc. 000 Xxxxxxx Xxxxxx Xxx Xxxx, Xxx Xxxx 00000Transfer Agent
OppenheimerFunds Services X.X. Xxx 0000 Xxxxxx, Xxxxxxxx 00000 1-800-525-7048 Custodian Bank Citibank, N.A. 000 Xxxx Xxxxxx Xxx Xxxx, Xxx Xxxx 00000Independent Auditors
KPMG LLP 000 Xxxxxxxxxxx Xxxxxx Xxxxxx, Xxxxxxxx 00000Legal Counsel
Xxxxx, Xxxxx & Xxxxx 0000 Xxxxxxxx Xxx Xxxx, Xxx Xxxx 00000-0000 1234 PX395.1101__________ 1 Messrs. Xxxxxx and Xxxxxxxxx are not Directors of Xxxxxxxxxxx Money Market Fund, Inc. Xx. Xxxxxxxxx is also not a Trustee of Xxxxxxxxxxx Discovery Fund. Xx. Xxxxxx is not a Director of Xxxxxxxxxxx California Municipal Fund.
In accordance with Rule 12b-1 of the Investment Company Act, the term “Independent Trustees” in this Statement of Additional Information refers to those Trustees who are not “interested persons” of the Fund or the Trust and who do not have any direct or indirect financial interest in the operation of the distribution plan or any agreement under the plan.
3 Certain waivers also apply to Class M shares of Xxxxxxxxxxx Convertible Securities Fund. 4 In the case of Xxxxxxxxxxx Senior Floating Rate Fund, a continuously-offered closed-end fund, references to contingent deferred sales charges mean the Fund’s Early Withdrawal Charges and references to “redemptions” mean “repurchases” of shares.
5 An “employee benefit plan” means any plan or arrangement, whether or not it is “qualified” under the Internal Revenue Code, under which Class N shares of an Xxxxxxxxxxx fund or funds are purchased by a fiduciary or other administrator for the account of participants who are employees of a single employer or of affiliated employers. These may include, for example, medical savings accounts, payroll deduction plans or similar plans. The fund accounts must be registered in the name of the fiduciary or administrator purchasing the shares for the benefit of participants in the plan.
6 The term “Group Retirement Plan” means any qualified or non-qualified retirement plan for employees of a corporation or sole proprietorship, members and employees of a partnership or association or other organized group of persons (the members of which may include other groups), if the group has made special arrangements with the Distributor and all members of the group participating in (or who are eligible to participate in) the plan purchase shares of an Xxxxxxxxxxx fund or funds through a single investment dealer, broker or other financial institution designated by the group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and 403(b) plans other than plans for public school employees. The term “Group Retirement Plan” also includes qualified retirement plans and non-qualified deferred compensation plans and IRAs that purchase shares of an Xxxxxxxxxxx fund or funds through a single investment dealer, broker or other financial institution that has made special arrangements with the Distributor.
7 However, that concession will not be paid on purchases of shares in amounts of $1 million or more (including any right of accumulation) by a Retirement Plan that pays for the purchase with the redemption proceeds of Class C shares of one or more Xxxxxxxxxxx funds held by the Plan for more than one year. 8 This provision does not apply to IRAs.
9 This provision does not apply to 403(b)(7) custodial plans if the participant is less than age 55, nor to IRAs. 10 The distribution must be requested prior to Plan termination or the elimination of the Xxxxxxxxxxx funds as an investment option under the Plan.
11 This provision does not apply to IRAs. 12 This provision does not apply to loans from 403(b)(7) custodial plans.13 This provision does not apply to 403(b)(7) custodial plans if the participant is less than age 55, nor to IRAs.
