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Xxxxxxxxxxx Small Cap Value Fund
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0000 Xxxxx Xxxxxx Xxx, Xxxxxxxxx Xxxxxxxx 00000
0.000.000.0000
Statement of Additional Information dated February 28, 2002
This Statement of Additional Information is not a Prospectus. This document contains additional information
about the Fund and supplements information in the Prospectus dated February 28, 2002. It should be read together
with the Prospectus, which may be obtained by writing to the Fund's Transfer Agent, OppenheimerFunds Services, at
X.X. Xxx 0000, Xxxxxx, Xxxxxxxx 00000, or by calling the Transfer Agent at the toll-free number shown above, or by
downloading it from the OppenheimerFunds Internet web site at xxx.xxxxxxxxxxxxxxxx.xxx.
Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks...................................
The Fund's Investment Policies.....................................................................
Other Investment Techniques and Strategies.........................................................
Investment Restrictions............................................................................
How the Fund is Managed ................................................................................
Organization and History...........................................................................
Trustees and Officers of the Fund..................................................................
The Manager........................................................................................
Brokerage Policies of the Fund..........................................................................
Distribution and Service Plans..........................................................................
Performance of the Fund.................................................................................
About Your Account
How To Buy Shares.......................................................................................
How To Sell Shares......................................................................................
How To Exchange Shares..................................................................................
Dividends, Capital Gains and Taxes......................................................................
Additional Information About the Fund...................................................................
Financial Information About the Fund
Independent Auditors Report.............................................................................
Financial Statements....................................................................................
Appendix A: Description of Debt Security Ratings........................................................ A-1
Appendix B: Corporate Industry Classifications.......................................................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers............................................... C-1
ABOUT THE FUND
Additional Information About the Fund's Investment Policies and Risks
The investment objective, the principal investment policies and the main risks of the Fund are described in
the Prospectus. This Statement of Additional Information contains supplemental information about those policies and
risks and the types of securities that the Fund's investment Manager, OppenheimerFunds, Inc., can select for the
Fund. Additional information is also provided about the strategies that the Fund may use to try to achieve its
objective.
The Fund's Investment Policies. The composition of the Fund's portfolio and the techniques and strategies that the
Manager may use in selecting portfolio securities will vary over time. The Fund is not required to use all of the
investment techniques and strategies described below at all times in seeking its goal. It may use some of the
special investment techniques and strategies at some times or not at all.
In selecting securities for the Fund's portfolio, the Manager evaluates the merits of particular securities
primarily through the exercise of its own investment analysis. In the case of corporate issuers, that process may
include, among other things, evaluation of the issuer's historical operations, prospects for the industry of which
the issuer is part, the issuer's financial condition, its pending product developments and business (and those of
competitors), the effect of general market and economic conditions on the issuer's business, and legislative
proposals that might affect the issuer. In the case of foreign securities, the Manager may also consider the
conditions of a particular country's economy in relation to the U.S. economy or other foreign economies, general
political conditions on a country or region, the effect of taxes, the efficiencies and costs of particular markets
and other factors when evaluating the securities of issuers in a particular country.
Investments in Equity Securities. The Fund emphasizes investments in equity securities of small-cap companies.
Equity securities include common stocks, preferred stocks, rights and warrants, and securities convertible into
common stock. The Fund's investments primarily include stocks of companies having a market capitalization under $2.5
billion, but the Fund can purchase securities of issuers having a larger market capitalization.
Current income is not a criterion used to select equity securities, as the Fund does not seek income as
part of its goal. However, certain debt securities can be selected for the Fund's portfolio for liquidity needs or
for defensive purposes (including debt securities that the Manager believes might offer some opportunities for
capital appreciation when stocks are disfavored).
Securities of newer small-cap companies might offer greater opportunities for capital appreciation than
securities of large, more established companies. However, these securities also involve greater risks than
securities of larger companies. Securities of small-capitalization issuers may be subject to greater price
volatility in general than securities of large-cap and mid-cap companies. Therefore, to the degree that the Fund has
investments in smaller capitalization companies at times of market volatility, the Fund's share price may fluctuate
more than that of funds focusing on larger-capitalization issuers.
|X| Value Investing. In using a value approach, the portfolio managers seek stock and other equity
securities that appear to be temporarily undervalued, by various measures, such as price/earnings ratios. This
approach is subject to change and might not necessarily be used in all cases. Value investing seeks stocks having
prices that are low in relation to their real worth or future prospects, in the hope that the Fund will realize
appreciation in the value of its holdings when other investors realize the intrinsic value of the stock.
Using value investing requires research as to the issuer's underlying financial condition and prospects.
Some of the measures that can be used to identify these securities include, among others:
? Price/Earnings ratio, which is the stock's price divided by its earnings per share. A stock having a
price/earnings ratio lower than its historical range, or the market as a whole or that of similar companies may
offer attractive investment opportunities.
? Price/book value ratio, which is the stock price divided by the book value of the company per share,
which measures the company's stock price in relation to its asset value.
? Dividend Yield is measured by dividing the annual dividend by the stock price per share.
? Valuation of Assets, which compares the stock price to the value of the company's underlying assets,
including their projected value in the marketplace and liquidation value.
|X| Preferred Stocks. Preferred stock, unlike common stock, has a stated dividend rate payable from the
corporation's earnings. Preferred stock dividends may be cumulative or non-cumulative. "Cumulative" dividend
provisions require all or a portion of prior unpaid dividends to be paid before dividends can be paid on the
issuer's common stock.
If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of
preferred stocks to decline. Preferred stock may have mandatory sinking fund provisions, as well as provisions
allowing calls or redemptions prior to maturity, which can also have a negative impact on prices when interest rates
decline. Preferred stock generally has a preference over common stock on the distribution of a corporation's assets
in the event of liquidation of the corporation. The rights of preferred stock on distribution of a corporation's
assets in the event of a liquidation are generally subordinate to the rights associated with a corporation's debt
securities. Preferred stock may be "participating" stock, which means that it may be entitled to a dividend
exceeding the stated dividend in certain cases.
|X| Rights and Warrants. The Fund can invest up to 5% of its total assets in warrants and rights. Warrants
basically are options to purchase equity securities at specific prices valid for a specific period of time. Their
prices do not necessarily move parallel to the prices of the underlying securities. Rights are similar to warrants,
but normally have a short duration and are distributed directly by the issuer to its shareholders. Rights and
warrants have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer.
|X| Convertible Securities. Convertible securities are debt securities that are convertible into an
issuer's common stock. Convertible securities rank senior to common stock in a corporation's capital structure and
therefore are subject to less risk of loss than common stock in case of the issuer's bankruptcy or liquidation.
The value of a convertible security is a function of its "investment value" and its "conversion value." If
the investment value exceeds the conversion value, the security will behave more like a debt security, and the
security's price will likely increase when interest rates fall and decrease when interest rates rise. If the
conversion value exceeds the investment value, the security will behave more like an equity security: it will likely
sell at a premium over its conversion value, and its price will tend to fluctuate directly with the price of the
underlying security.
While convertible securities are a form of debt security, in many cases their conversion feature (allowing
conversion into equity securities) may cause them to be regarded more as "equity equivalents." As a result, the
rating assigned to the security has less impact on the Manager's investment decision with respect to convertible
securities than in the case of non-convertible fixed income securities. To determine whether convertible securities
should be regarded as "equity equivalents," the Manager may consider the following factors: (1) whether, at the
option of the investor, the convertible security can be exchanged for a fixed number of shares of common stock of
the issuer, (2) whether the issuer of the convertible securities has restated its earnings per share of common stock
on a fully diluted basis (considering the effect of conversion of the convertible securities), and (3) the extent to
which the convertible security may be a defensive "equity substitute," providing the ability to participate in any
appreciation in the price of the issuer's common stock.
|X| Investments In Debt Securities. While the Fund does not invest for the purpose of seeking current
income, at times the portfolio managers may select certain debt securities (besides convertible debt securities
described above) for investment by the Fund for liquidity or defensive purposes. For example, when the stock market
is volatile, or when the portfolio managers believe that growth opportunities in stocks are not attractive, debt
securities might offer defensive opportunities and also some opportunities for capital appreciation. These
investments could include corporate bonds and notes of foreign or U.S. companies, as well as U.S. and foreign
government securities. It is not expected that this will be a significant portfolio strategy of the Fund under
normal market conditions.
|X| Credit Risk. Debt securities are subject to credit risk. Credit risk relates to the ability of the
issuer of a debt security to make interest or principal payments on the security as they become due. If the issuer
fails to pay interest, the Fund's income may be reduced and if the issuer fails to repay principal, the value of
that bond and of the Fund's shares may be reduced. The Manager may rely to some extent on credit ratings by
nationally recognized rating agencies in evaluating the credit risk of securities selected for the Fund's portfolio.
It may also use its own research and analysis. Many factors affect an issuer's ability to make timely payments, and
the credit risks of a particular security may change over time. The Fund can invest up to 5% of its total assets in
higher-yielding lower-grade debt securities (that is, securities below investment grade).
|X| Special Risks of Lower-Grade Securities. The Fund can invest up to 5% of its total assets in
lower-grade securities. Lower-grade securities (commonly known as "junk bonds") are rated less than "BBB" by
Standard & Poor's Rating Services or less than "Baa" by Xxxxx'x Investors Service, Inc., or have a comparable rating
from another rating organization. If unrated, a security is considered to be below investment grade if the Manager
deems it to be of comparable quality to securities rated less than investment grade. The Fund does not intend to
invest in securities that are in default.
High yield, lower-grade securities, whether rated or unrated, often have speculative characteristics and
special risks that make them riskier investments than investment grade securities. They may be subject to greater
market fluctuations and risk of loss of income and principal than lower yielding, investment-grade securities. There
may be less of a market for them and therefore they may be harder to sell at an acceptable price. There is a
relatively greater possibility that the issuer's earnings may be insufficient to make the payments of interest due
on the bonds. The issuer's low creditworthiness may increase the potential for its insolvency.
These risks mean that the Fund may not achieve the expected income from lower-grade securities, and that
the Fund's net asset value per share may be affected by declines in value of these securities. However, the Fund's
limitations on investments in these types of securities may reduce some of the risk, as will the Fund's policy of
diversifying its investments.
|X| Interest Rate Risk. In addition to credit risks, debt securities are subject to changes in value when
prevailing interest rates change. When interest rates fall, the values of outstanding debt securities generally
rise, and the bonds may sell for more than their face amount. When interest rates rise, the values of outstanding
debt securities generally decline, and the bonds may sell at a discount from their face amount. The magnitude of
these price changes is generally greater for bonds with longer maturities. Therefore, when the average maturity of
the Fund's debt securities is longer, its share price may fluctuate more when interest rates change.
|X| U.S. Government Securities. These are securities issued or guaranteed by the U.S. Treasury or other
U.S. government agencies or federally-chartered corporate entities referred to as "instrumentalities." The
obligations of U.S. government agencies or instrumentalities in which the Fund may invest may or may not be
guaranteed or supported by the "full faith and credit" of the United States. "Full faith and credit" means generally
that the taxing power of the U.S. government is pledged to the payment of interest and repayment of principal on a
security. If a security is not backed by the full faith and credit of the United States, the owner of the security
must look principally to the agency issuing the obligation for repayment. The owner might not be able to assert a
claim against the United States if the issuing agency or instrumentality does not meet its commitment. The Fund will
invest in securities of U.S. government agencies and instrumentalities only if the Manager is satisfied that the
credit risk with respect to such instrumentality is minimal. While U.S. government securities have little credit
risk, prior to their maturity they are subject to price fluctuations from changes in interest rates.
|X| Money Market Instruments. The following is a brief description of the types of money market securities
the Fund can invest in. Those money market securities include high-quality, short-term debt instruments that are
issued by the U.S. government, corporations, banks or other entities. They may have fixed, variable or floating
interest rates.
|X| U.S. Government Securities. These include obligations issued or guaranteed by the U.S. government or
any of its agencies or instrumentalities.
|X| Bank Obligations. The Fund can buy time deposits, certificates of deposit and bankers' acceptances.
Time deposits, other than overnight deposits, may be subject to withdrawal penalties and, if so, they are deemed
"illiquid" investments.
The Fund can purchase bank obligations that are fully insured by the Federal Deposit Insurance Corporation.
The FDIC insures the deposits of member banks up to $100,000 per account. Insured bank obligations may have a
limited market and a particular investment of this type may be deemed "illiquid" unless the Board of Trustees of the
Fund determines that a readily-available market exists for that particular obligation, or unless the obligation is
payable at principal amount plus accrued interest on demand or within seven days after demand.
|X| Commercial Paper. The Fund can invest in commercial paper if it is rated within the top two rating
categories of Standard & Poor's and Moody's. If the paper is not rated, it may be purchased if issued by a company
having a credit rating of at least "AA" by Standard & Poor's or "Aa" by Moody's.
The Fund can buy commercial paper, including U.S. dollar-denominated securities of foreign branches of U.S.
banks, issued by other entities if the commercial paper is guaranteed as to principal and interest by a bank,
government or corporation whose certificates of deposit or commercial paper may otherwise be purchased by the Fund.
|X| Variable Amount Master Demand Notes. Master demand notes are corporate obligations that permit the
investment of fluctuating amounts by the Fund at varying rates of interest under direct arrangements between the
Fund, as lender, and the borrower. They permit daily changes in the amounts borrowed. The Fund has the right to
increase the amount under the note at any time up to the full amount provided by the note agreement, or to decrease
the amount. The borrower may prepay up to the full amount of the note without penalty. These notes may or may not be
backed by bank letters of credit.
Because these notes are direct lending arrangements between the lender and borrower, it is not expected
that there will be a trading market for them. There is no secondary market for these notes, although they are
redeemable (and thus are immediately repayable by the borrower) at principal amount, plus accrued interest, at any
time. Accordingly, the Fund's right to redeem such notes is dependent upon the ability of the borrower to pay
principal and interest on demand.
The Fund has no limitations on the type of issuer from whom these notes will be purchased. However, in
connection with such purchases and on an ongoing basis, the Manager will consider the earning power, cash flow and
other liquidity ratios of the issuer, and its ability to pay principal and interest on demand, including a situation
in which all holders of such notes made demand simultaneously. Investments in master demand notes are subject to the
limitation on investments by the Fund in illiquid securities, described in the Prospectus. The Fund does not intend
that its investments in variable amount master demand notes will exceed 5% of its total assets.
|X| Foreign Securities. The Fund can purchase equity and debt securities issued by foreign companies or
foreign governments or their agencies. "Foreign securities" include equity and debt securities of companies
organized under the laws of countries other than the United States and debt securities of foreign governments and
their agencies and instrumentalities. Those securities may be traded on foreign securities exchanges or in the
foreign over-the-counter markets.
Securities of foreign issuers that are represented by American Depository Receipts or that are listed on a
U.S. securities exchange or traded in the U.S. over-the-counter markets are considered "foreign securities" for the
purpose of the Fund's investment allocations. That is because they are subject to some of the special considerations
and risks, discussed below, that apply to foreign securities traded and held abroad.
Because the Fund can purchase securities denominated in foreign currencies, a change in the value of a
foreign currency against the U.S. dollar could result in a change in the amount of income the Fund has available for
distribution. Because a portion of the Fund's investment income may be received in foreign currencies, the Fund will
be required to compute its income in U.S. dollars for distribution to shareholders, and therefore the Fund will
absorb the cost of currency fluctuations. After the Fund has distributed income, subsequent foreign currency losses
may result in the Fund's having distributed more income in a particular fiscal period than was available from
investment income, which could result in a return of capital to shareholders.
Investing in foreign securities offers potential benefits not available from investing solely in securities
of domestic issuers. They include the opportunity to invest in foreign issuers that appear to offer growth
potential, or in foreign countries with economic policies or business cycles different from those of the U.S., or to
reduce fluctuations in portfolio value by taking advantage of foreign stock markets that do not move in a manner
parallel to U.S. markets. The Fund will hold foreign currency only in connection with the purchase or sale of
foreign securities.
|X| Foreign Debt Obligations. The debt obligations of foreign governments and their agencies and
instrumentalities may or may not be supported by the full faith and credit of the foreign government. The Fund can
buy securities issued by certain "supra-national" entities, which include entities designated or supported by
governments to promote economic reconstruction or development, international banking organizations and related
government agencies. Examples are the International Bank for Reconstruction and Development (commonly called the
"World Bank"), the Asian Development bank and the Inter-American Development Bank.
The governmental members of these supra-national entities are "stockholders" that typically make capital
contributions and may be committed to make additional capital contributions if the entity is unable to repay its
borrowings. A supra-national entity's lending activities may be limited to a percentage of its total capital,
reserves and net income. There can be no assurance that the constituent foreign governments will continue to be able
or willing to honor their capitalization commitments for those entities.
|X| Risks of Foreign Investing. Investments in foreign securities may offer special opportunities for
investing but also present special additional risks and considerations not typically associated with investments in
domestic securities. Some of these additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency
rates or currency control regulations (for example, currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards
in foreign countries comparable to those applicable to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the
U.S.;
o less governmental regulation of foreign issuers, stock exchanges and
brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or
loss of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory taxation,
political, financial or social instability or adverse diplomatic developments; and
o unfavorable differences between the U.S. economy and foreign economies.
In the past, U.S. government policies have discouraged certain investments abroad by U.S. investors,
through taxation or other restrictions, and it is possible that such restrictions could be re-imposed.
|X| Special Risks of Emerging Markets. Emerging and developing markets abroad may also offer special
opportunities for growth investing but have greater risks than more developed foreign markets, such as those in
Europe, Canada, Australia, New Zealand and Japan. There may be even less liquidity in their securities markets, and
settlements of purchases and sales of securities may be subject to additional delays. They are subject to greater
risks of limitations on the repatriation of income and profits because of currency restrictions imposed by local
governments. Those countries may also be subject to the risk of greater political and economic instability, which
can greatly affect the volatility of prices of securities in those countries. The Manager will consider these
factors when evaluating securities in these markets. The Fund currently limits these investments to not more than 5%
of its total assets.
|X| Portfolio Turnover. "Portfolio turnover" describes the rate at which the Fund traded its portfolio
securities during its last fiscal year. For example, if a fund sold all of its securities during the year, its
portfolio turnover rate would have been 100% annually. The Fund's portfolio turnover rate will fluctuate from year
to year. Although the Fund does not generally expect to have a portfolio turnover rate of 100% or more, during its
past fiscal year its portfolio turnover rate exceeded 160%. Increased portfolio turnover creates higher brokerage
and transaction costs for the Fund, which may reduce its overall performance. Additionally, the realization of
capital gains from selling portfolio securities may result in distributions of taxable long-term capital gains to
shareholders, since the Fund will normally distribute all of its capital gains realized each year, to avoid excise
taxes under the Internal Revenue Code.
Other Investment Techniques and Strategies. In seeking its objective, the Fund may from time to time use the types
of investment strategies and investments described below. It is not required to use all of these strategies at all
times, and at times may not use them.
|X| Investing in Small, Unseasoned Companies. The Fund can invest in securities of small, unseasoned
companies. These are companies that have been in operation for less than three years, including the operations of
any predecessors. Securities of these companies may be subject to volatility in their prices. They may have a
limited trading market, which may adversely affect the Fund's ability to dispose of them and can reduce the price
the Fund might be able to obtain for them. Other investors that own a security issued by a small, unseasoned issuer
for which there is limited liquidity might trade the security when the Fund is attempting to dispose of its holdings
of that security. In that case the Fund might receive a lower price for its holdings than might otherwise be
obtained.
|X| Investing in Other Investment Companies. The Fund can invest up to 10% of its total assets in shares of
other investment companies. It can invest up to 5% of its total assets in any one investment company (but cannot own
more than 3% of the outstanding voting stock of that company). These limits do not apply to shares acquired in a
merger, consolidation, reorganization or acquisition of another investment company. Because the Fund would be
subject to its ratable share of the other investment company's expenses, the Fund will not make these investments
unless the Manager believes that the potential investment benefits justify the added costs and expenses.
|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund may invest in securities on a "when-issued"
basis and may purchase or sell securities on a "delayed-delivery" or "forward commitment" basis. When-issued and
delayed-delivery are terms that refer to securities whose terms and indenture are available and for which a market
exists, but which are not available for immediate delivery.
When these transactions are negotiated, the price (which is generally expressed in yield terms) is fixed at
the time the commitment is made. Delivery and payment for the securities take place at a later date (generally
within 45 days of the date the offer is accepted). The securities are subject to change in value from market
fluctuations during the period until settlement. The value at delivery may be less than the purchase price. For
example, changes in interest rates in a direction other than that expected by the Manager before settlement will
affect the value of such securities and may cause a loss to the Fund. During the period between purchase and
settlement, no payment is made by the Fund to the issuer and no interest accrues to the Fund from the investment. No
income begins to accrue to the Fund on a when-issued security until the Fund receives the security at the settlement
of the trade.
The Fund can engage in when-issued transactions to secure what the Manager considers to be an advantageous
price and yield at the time of entering into the obligation. When the Fund enters into a when-issued or
delayed-delivery transaction, it relies on the other party to complete the transaction. Its failure to do so may
cause the Fund to lose the opportunity to obtain the security at a price and yield the Manager considers to be
advantageous.
When the Fund engages in when-issued and delayed-delivery transactions, it does so for the purpose of
acquiring or selling securities consistent with its investment objective and policies for its portfolio or for
delivery pursuant to options contracts it has entered into, and not for the purpose of investment leverage. Although
the Fund will enter into delayed-delivery or when-issued purchase transactions to acquire securities, it may dispose
of a commitment prior to settlement. If the Fund chooses to dispose of the right to acquire a when-issued security
prior to its acquisition or to dispose of its right to delivery or receive against a forward commitment, it may
incur a gain or loss.
At the time the Fund makes the commitment to purchase or sell a security on a when-issued or
delayed-delivery basis, it records the transaction on its books and reflects the value of the security purchased in
determining the Fund's net asset value. In a sale transaction, it records the proceeds to be received. The Fund will
identify on its books liquid assets at least equal in value to the value of the Fund's purchase commitments until
the Fund pays for the investment. The Fund will not enter into when-issued commitments if more than 15% of the
Fund's net assets would be committed under these transactions.
When-issued and delayed-delivery transactions can be used by the Fund as a defensive technique to hedge
against anticipated changes in interest rates and prices. For instance, in periods of rising interest rates and
falling prices, the Fund might sell securities in its portfolio on a forward commitment basis to attempt to limit
its exposure to anticipated falling prices. In periods of falling interest rates and rising prices, the Fund might
sell portfolio securities and purchase the same or similar securities on a when-issued or delayed-delivery basis to
obtain the benefit of currently higher cash yields.
|X| Repurchase Agreements. The Fund can acquire securities subject to repurchase agreements. It might do so
for liquidity purposes to meet anticipated redemptions of Fund shares, or pending the investment of the proceeds
from sales of Fund shares, or pending the settlement of portfolio securities transactions, or for temporary
defensive purposes.
In a repurchase transaction, the Fund buys a security from, and simultaneously resells it to, an approved
vendor for delivery on an agreed-upon future date. The resale price exceeds the purchase price by an amount that
reflects an agreed-upon interest rate effective for the period during which the repurchase agreement is in effect.
Approved vendors include U.S. commercial banks, U.S. branches of foreign banks, or broker-dealers that have been
designated as primary dealers in government securities. They must meet credit requirements set by the Manager from
time to time.
The majority of these transactions run from day to day, and delivery pursuant to the resale typically
occurs within one to five days of the purchase. Repurchase agreements having a maturity beyond seven days are
subject to the Fund's limits on holding illiquid investments. There is no limit on the amount of the Fund's net
assets that may be subject to repurchase agreements having maturities of seven days or less.
Repurchase agreements, considered "loans" under the Investment Company Act, are collateralized by the
underlying security. The Fund's repurchase agreements require that at all times while the repurchase agreement is in
effect, the value of the collateral must equal or exceed the repurchase price to fully collateralize the repayment
obligation. However, if the vendor fails to pay the resale price on the delivery date, the Fund may incur costs in
disposing of the collateral and may experience losses if there is any delay in its ability to do so. The Manager
will monitor the vendor's creditworthiness to confirm that the vendor is financially sound and will continuously
monitor the collateral's value.
|X| Illiquid and Restricted Securities. To enable the Fund to sell its holdings of a restricted security
not registered under the Securities Act of 1933, the Fund may have to cause those securities to be registered. The
expenses of registering restricted securities may be negotiated by the Fund with the issuer at the time the Fund
buys the securities. When the Fund must arrange registration because the Fund wishes to sell the security, a
considerable period may elapse between the time the decision is made to sell the security and the time the security
is registered so that the Fund could sell it. The Fund would bear the risks of any downward price fluctuation during
that period.
The Fund may also acquire restricted securities through private placements. Those securities have
contractual restrictions on their public resale. Those restrictions might limit the Fund's ability to dispose of the
securities and might lower the amount the Fund could realize upon the sale.
The Fund has limitations that apply to purchases of restricted securities, as stated in the Prospectus.
Those percentage restrictions do not limit purchases of restricted securities that are eligible for sale to
qualified institutional purchasers under Rule 144A of the Securities Act of 1933, if those securities have been
determined to be liquid by the Manager under Board-approved Guidelines. Those guidelines take into account the
trading activity for such securities and the availability of reliable pricing information, among other factors. If
there is a lack of trading interest in a particular Rule 144A security, the Fund's holdings of that security may be
considered to be illiquid.
|X| Loans of Portfolio Securities. The Fund can lend its portfolio securities to certain types of eligible
borrowers approved by the Board of Trustees. It might do so to try to provide income or to raise cash or income for
liquidity purposes. These loans are limited to not more than 10% of the value of the Fund's total assets. There are
some risks in connection with securities lending. The Fund might experience a delay in receiving additional
collateral to secure a loan, or a delay in recovery of the loaned securities. The Fund presently does not intend to
engage in loans of securities.
The Fund must receive collateral for a loan. Under current applicable regulatory requirements (which are
subject to change), on each business day the loan collateral must be at least equal to the value of the loaned
securities. It must consist of cash, bank letters of credit, securities of the U.S. government or its agencies or
instrumentalities, or other cash equivalents in which the Fund is permitted to invest. To be acceptable as
collateral, letters of credit must obligate a bank to pay amounts demanded by the Fund if the demand meets the terms
of the letter. The terms of the letter of credit and the issuing bank must both be satisfactory to the Fund.
When it lends securities, the Fund receives amounts equal to the dividends or interest on loaned
securities. It also receives one or more of (a) negotiated loan fees, (b) interest on securities used as collateral,
and (c) interest on any short-term debt securities purchased with such loan collateral. Either type of interest may
be shared with the borrower. The Fund may also pay reasonable finders, custodian and administrative fees in
connection with these loans. The terms of the Fund's loans must meet applicable tests under the Internal Revenue
Code and must permit the Fund to reacquire loaned securities on five days' notice or in time to vote on any
important matter.
|X| Borrowing. As a fundamental policy, the Fund cannot borrow money except as a temporary measure for
extraordinary or emergency purposes. Loans may not exceed 33 1/3% of the value of the Fund's total assets.
Additionally, as part of that fundamental policy, the Fund will not purchase securities at times when loans exceed
5% of its total assets.
The Fund may borrow only from banks. Under current regulatory requirements, borrowings can be made only to
the extent that the value of the Fund's assets, less its liabilities other than borrowings, is equal to at least
300% of all borrowings (including the proposed borrowing). If the value of the Fund's assets fails to meet this 300%
asset coverage requirement, the Fund will reduce its bank debt within three days to meet the requirement. To do so,
the Fund might have to sell a portion of its investments at a disadvantageous time.
The Fund will pay interest on these loans, and that interest expense will raise the overall expenses of the
Fund and reduce its returns. If it does borrow, its expenses will be greater than comparable funds that do not
borrow. Additionally, the Fund's net asset value per share might fluctuate more than that of funds that do not
borrow.
|X| Hedging. Although the Fund can use hedging instruments, it is not obligated to use them in seeking its
objective. It does not currently contemplate using them to any significant degree. To attempt to protect against
declines in the market value of the Fund's portfolio, to permit the Fund to retain unrealized gains in the value of
portfolio securities that have appreciated, or to facilitate selling securities for investment reasons, the Fund
could:
|_| sell futures contracts,
|_| buy puts on futures or on securities, or
|_| write covered calls on securities or futures.
The Fund can use hedging to establish a position in the securities market as a temporary substitute for
purchasing particular securities. In that case the Fund would normally seek to purchase the securities and then
terminate that hedging position. The Fund might also use this type of hedge to attempt to protect against the
possibility that its portfolio securities would not be fully included in a rise in value of the market. To do so,
the Fund could:
|_| buy futures, or
|_| buy calls on futures or on securities.
The Fund's strategy of hedging with futures and options on futures will be incidental to the Fund's
activities in the underlying cash market. The particular hedging instruments the Fund can use are described below.
The Fund may employ new hedging instruments and strategies when they are developed, if those investment methods are
consistent with the Fund's investment objective and are permissible under applicable regulations governing the Fund.
|X| Futures. The Fund can buy and sell futures contracts that relate to broadly-based stock indices (these
are referred to as "stock index futures"), foreign currencies (these are referred to as "forward contracts"), and
financial futures.
A broadly-based stock index is used as the basis for trading stock index futures. These indices may in some
cases be based on stocks of issuers in a particular industry or group of industries. A stock index assigns relative
values to the common stocks included in the index and its value fluctuates in response to the changes in value of
the underlying stocks. A stock index cannot be purchased or sold directly. These contracts obligate the seller to
deliver, and the purchaser to take, cash to settle the futures transaction. There is no delivery made of the
underlying securities to settle the futures obligation. Either party may also settle the transaction by entering
into an offsetting contract.
The Fund can invest a portion of its assets in commodity futures contracts. Commodity futures may be based
upon commodities within five main commodity groups: (1) energy, which includes crude oil, natural gas, gasoline and
heating oil; (2) livestock, which includes cattle and hogs; (3) agriculture, which includes wheat, corn, soybeans,
cotton, coffee, sugar and cocoa; (4) industrial metals, which includes aluminum, copper, lead, nickel, tin and zinc;
and (5) precious metals, which includes gold, platinum and silver. The Fund may purchase and sell commodity futures
contracts, options on futures contracts and options and futures on commodity indices with respect to these five main
commodity groups and the individual commodities within each group, as well as other types of commodities.
The Trustees have adopted a non-fundamental policy that the Fund may write covered call options or write
covered put options with respect to not more than 25% of the value of its net assets. Similarly, the Fund may
purchase call or put options only if, after purchase, the value of all call and put options held by the Fund will
not exceed 50% of the fund's total assets.
At any time prior to expiration of the future, the Fund may elect to close out its position by taking an
opposite position, at which time a final determination of variation margin is made and any additional cash must be
paid by or released to the Fund. Any loss or gain on the future is then realized by the Fund for tax purposes. All
futures transactions (except forward contracts) are effected through a clearinghouse associated with the exchange on
which the contracts are traded.
|X| Put and Call Options. The Fund can buy and sell certain kinds of put options ("puts") and call options
("calls"). The Fund can buy and sell exchange-traded and over-the-counter put and call options, including options on
broadly-based indices, securities, and stock index futures. The Trustees have adopted a non-fundamental policy that
the Fund may write covered call options or write covered put options with respect to not more than 25% of the value
of its net assets. Similarly, the Fund may purchase call or put options only if, after the purchase, the value of
all call and put options held by the Fund will not exceed 50% of the Fund's total assets.
|X| Writing Covered Call Options. The Fund can write (that is, sell) covered calls. If the Fund sells a call
option, it must be covered. For options on securities, that means the Fund must own the security subject to the call
while the call is outstanding. For stock index options, that means the call must be covered by segregating liquid
assets to enable the Fund to satisfy its obligations if the call is exercised.
When the Fund writes a call on a security, it receives cash (a premium). For calls on securities, the Fund
agrees to sell the underlying security to a purchaser of a corresponding call on the same security during the call
period at a fixed exercise price regardless of market price changes during the call period. The call period is
usually not more than nine months. The exercise price may differ from the market price of the underlying security.
The Fund has the risk of loss that the price of the underlying security may decline during the call period. That
risk may be offset to some extent by the premium the Fund receives. If the value of the investment does not rise
above the call price, it is likely that the call will lapse without being exercised. In that case, the Fund would
keep the cash premium and the investment.
When the Fund writes a call on an index, it receives cash (a premium). If the buyer of the call exercises it,
the Fund will pay amount of cash equal to the difference between the closing price of the call and the exercise
price, multiplied by a specified multiple that determines the total value of the call for each point of difference.
If the value of the underlying investment does not rise above the call price, it is likely that the call will lapse
without being exercised in that case, the Fund would keep the cash premium.
If the buyer of a call on a stock index exercises it, the Fund will pay an amount of cash equal to the
difference between the closing price of the call and the exercise price, multiplied by a specified multiple that
determines the total value of the call for each point of difference. If the value of the underlying investment does
not rise above the call price, it is likely that the call will lapse without being exercised. In that case the Fund
would keep the cash premium.
Settlement of puts and calls on broadly-based stock indices is in cash. Gain or loss on options on stock
indices depends on changes in the index in question (and thus on price movements in the stock market generally).
The Fund's custodian bank, or a securities depository acting for the custodian, will act as the Fund's escrow
agent, through the facilities of the Options Clearing Corporation ("OCC"), as to the investments on which the Fund
has written calls traded on exchanges or as to other acceptable escrow securities. In that way, no margin will be
required for such transactions. OCC will release the securities on the expiration of the option or when the Fund
enters into a closing transaction.
When the Fund writes an over-the-counter ("OTC") option, it will enter into an arrangement 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 will generally be based on a multiple of the premium received
for the option, plus the amount by which the option is exercisable below the market price of the underlying security
(that is, the option is "in the money"). When the Fund writes an OTC option, it will treat as illiquid (for purposes
of its restriction on holding illiquid securities) the xxxx-to-market value of any OTC option it holds, unless the
option is subject to a buy-back agreement by the executing broker.
To terminate its obligation on a call it has written, the Fund may purchase a corresponding call in a
"closing purchase transaction." The Fund will then realize a profit or loss, depending upon whether the net of the
amount of the option transaction costs and the premium received on the call the fund wrote is more or less than the
price of the call the Fund purchases to close out the transaction. The Fund may realize a profit if the call expires
unexercised, because the Fund will retain the premium it received when it wrote the call. Any such profits are
considered short-term capital gains for Federal income tax purposes, as are the premiums on lapsed calls. When
distributed by the Fund they are taxable as ordinary income. If the Fund cannot effect a closing purchase
transaction due to the lack of a market, it will have to hold the escrowed assets in escrow until the call expires
or is exercised.
The Fund may also write calls on a futures contract without owning the futures contract or securities
deliverable under the contract. To do so, at the time the call is written, the Fund must cover the call by
segregating an equivalent dollar amount of liquid assets. The Fund will segregate additional liquid assets if the
value of the segregated assets drops below 100% of the current value of the future. Because of this segregation
requirement, in no circumstances would the Fund's receipt of an exercise notice as to that future require the Fund
to deliver a futures contract. It would simply put the Fund in a short futures position, which is permitted by the
Fund's hedging policies.
|X| Writing Put Options. The Fund can sell put options on broadly-based stock indices or stock index futures.
A put option on securities gives the purchaser the right to sell, and the writer the obligation to buy, the
underlying investment at the exercise price during the option period. If the Fund writes a put, the put must be
covered by liquid assets identified on the Fund's books in an amount at least equal to the exercise price of the
underlying securities. The Fund therefore foregoes the opportunity of investing the segregated assets or writing
calls against those assets.
The premium the Fund receives from writing a put represents a profit, as long as the price of the underlying
investment remains equal to or above the exercise price of the put. However, the Fund also assumes the obligation
during the option period to settle the transaction in cash with the buyer of the put at the exercise price, even if
the value of the underlying investment falls below the exercise price. If a put the Fund has written expires
unexercised, the Fund realizes a gain in the amount of the premium less the transaction costs incurred. If the put
is exercised, the Fund must fulfill its obligation to settle in cash at the exercise price. That price will usually
exceed the market value of the investment at that time. In that case, the Fund might incur a loss if it sells the
underlying investment. That loss will be equal to the sum of the sale price of the underlying investment and the
premium recovered minus the sum of the exercise price and any transaction costs the Fund incurred.
As long as the Fund's obligation as the put writer continues, it may be assigned an exercise notice by the
broker-dealer through which the put was sold. That notice will require the Fund to settle the transaction in cash at
the exercise price. The Fund has no control over when it may be required to settle the transaction, since it may be
assigned an exercise notice at any time prior to the termination of its obligation as the writer of the put. That
obligation terminates upon expiration of the put. It may also terminate if, before it receives an exercise notice,
the Fund effects a closing purchase transaction by purchasing a put of the same series as it sold. Once the Fund has
been assigned an exercise notice, it cannot effect a closing purchase transaction.
The Fund may decide to effect a closing purchase transaction to realize a profit on an outstanding put option
it has written or to prevent the underlying security from being put. The Fund will realize a profit or loss from a
closing purchase transaction depending on whether the cost of the transaction is less or more than the premium
received from writing the put option. Any profits from writing puts are considered short-term capital gains for
Federal tax purposes, and when distributed by the Fund, are taxable as ordinary income.
|X| Purchasing Calls and Puts. The Fund can buy calls to protect against the possibility that the Fund's
portfolio will not participate in an anticipated rise in the securities market. When the Fund buys a call (other
than in a closing purchase transaction), it pays a premium. Buying a call on a security or future gives the Fund the
right to buy the underlying investment from a seller of a corresponding call on the same investment during the call
period at a fixed exercise price. The Fund benefits only if it sells the call at a profit or if, during the call
period, the market price of the underlying investment is above the sum of the call price plus the transaction costs
and the premium paid for the call and the Fund exercises the call. If the Fund does not exercise the call or sell it
(whether or not at a profit), the call will become worthless at its expiration date. In that case the Fund will have
paid the premium but lost the right to purchase the underlying investment.
In the case of a purchase of a call on a stock index, if the Fund exercises the call during the call period,
a seller of a corresponding call on the same index will pay the Fund an amount of cash to settle the call if the
closing level of the stock index upon which the call is based is greater than the exercise price of the call. That
cash payment is equal to the difference between the closing price of the call and the exercise price of the call
times a specified multiple (the "multiplier") which determines the total dollar value for each point of difference.
When the Fund buys a put, it pays a premium. It has the right during the put period to require a seller of a
corresponding put, upon the Fund's exercise of its put, to buy the underlying security (in the case of puts on
securities or futures) or in the case of puts on stock indices, to deliver cash to the Fund to settle the put if the
closing level of the stock index upon which the put is based is less than the exercise price of the put. That cash
payment is determined by the multiplier, in the same manner as described above as to calls.
Buying a put on a security or future enables the Fund 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. Buying a put on securities
or futures the Fund owns enables the Fund to attempt to protect itself during the put period against a decline in
the value of the underlying investment below the exercise price by selling the underlying investment at the exercise
price to a seller of a corresponding put. If the market price of the underlying investment is equal to or above the
exercise price and, as a result, the put is not exercised or resold, the put will become worthless at its expiration
date. In that case the Fund will have paid the premium but lost the right to sell the underlying investment.
However, the Fund may sell the put prior to its expiration. That sale may or may not be at a profit.
Buying a put on an investment the Fund does not own (such as an index or future) permits the Fund either to
resell the put or to buy the underlying investment and sell it at the exercise price. The resale price will vary
inversely to the price of the underlying investment. If the market price of the underlying investment is above the
exercise price and, as a result, the put is not exercised, the put will become worthless on its expiration date.
When the Fund purchases a put on a stock index, the put protects the Fund to the extent that the index moves
in a similar pattern to the securities the Fund holds. The Fund can resell the put. The resale price of the put will
vary inversely with the price of the underlying investment. If the market price of the underlying investment is
above the exercise price, and as a result the put is not exercised, the put will become worthless on the expiration
date. In the event of a decline in price of the underlying investment, the Fund could exercise or sell the put at a
profit to attempt to offset some or all of its loss on its portfolio securities.
|X| Buying and Selling Options on Foreign Currencies. The Fund can buy and sell calls and puts on foreign
currencies. They include puts and calls that trade on a securities or commodities exchange or in the
over-the-counter markets or are quoted by major recognized dealers in such options. The Fund could use these calls
and puts to try to protect against declines in the dollar value of foreign securities and increases in the dollar
cost of foreign securities the Fund wants to acquire.
If the Manager anticipates a rise in the dollar value of a foreign currency in which securities to be
acquired are denominated, the increased cost of those securities may be partially offset by purchasing calls or
writing puts on that foreign currency. If the Manager anticipates a decline in the dollar value of a foreign
currency, the decline in the dollar value of portfolio securities denominated in that currency might be partially
offset by writing calls or purchasing puts on that foreign currency. However, the currency rates could fluctuate in
a direction adverse to the Fund's position. The Fund will then have incurred option premium payments and transaction
costs without a corresponding benefit.
A call the Fund writes on a foreign currency is "covered" if the Fund owns the underlying foreign currency
covered by the call or has an absolute and immediate right to acquire that foreign currency without additional cash
consideration (or it can do so for additional cash consideration held in a segregated account by its custodian bank)
upon conversion or exchange of other foreign currency held in its portfolio.
|X| Risks of Hedging with Options and Futures. The use of hedging instruments requires special skills and
knowledge of investment techniques that are different than what is required for normal portfolio management. If the
Manager uses a hedging instrument at the wrong time or judges market conditions incorrectly, hedging strategies may
reduce the Fund's return. The Fund could also experience losses if the prices of its futures and options positions
were not correlated with its other investments. The Fund's option activities may affect its costs.
The Fund's option activities could affect its portfolio turnover rate and brokerage commissions. The
exercise of calls written by the Fund might cause the Fund to sell related portfolio securities, thus increasing its
turnover rate. The exercise by the Fund of puts on securities will cause the sale of underlying investments,
increasing portfolio turnover. Although the decision whether to exercise a put it holds is within the Fund's
control, holding a put might cause the Fund to sell the related investments for reasons that would not exist in the
absence of the put.
The Fund could pay a brokerage commission each time it buys a call or put, sells a call or put, or buys or
sells an underlying investment in connection with the exercise of a call or put. Those commissions could be higher
on a relative basis than the commissions for direct purchases or sales of the underlying investments. Premiums paid
for options are small in relation to the market value of the underlying investments. Consequently, put and call
options offer large amounts of leverage. The leverage offered by trading in options could result in the Fund's net
asset value being more sensitive to changes in the value of the underlying investment.
If a covered call written by the Fund is exercised on an investment that has increased in value, the Fund
will be required to sell the investment at the call price. It will not be able to realize any profit if the
investment has increased in value above the call price.
An option position may be closed out only on a market that provides secondary trading for options of the
same series, and there is no assurance that a liquid secondary market will exist for any particular option. The Fund
might experience losses if it could not close out a position because of an illiquid market for the future or option.
There is a risk in using short hedging by selling futures or purchasing puts on broadly-based indices or
futures to attempt to protect against declines in the value of the Fund's portfolio securities. The risk is that the
prices of the futures or the applicable index will correlate imperfectly with the behavior of the cash prices of the
Fund's securities. For example, it is possible that while the Fund has used hedging instruments in a short hedge,
the market may advance and the value of the securities held in the Fund's portfolio might decline. If that occurred,
the Fund would lose money on the hedging instruments and also experience a decline in the value of its portfolio
securities. However, while this could occur for a very brief period or to a very small degree, over time the value
of a diversified portfolio of securities will tend to move in the same direction as the indices upon which the
hedging instruments are based.
The risk of imperfect correlation increases as the composition of the Fund's portfolio diverges from the
securities included in the applicable index. To compensate for the imperfect correlation of movements in the price
of the portfolio securities being hedged and movements in the price of the hedging instruments, the Fund might use
hedging instruments in a greater dollar amount than the dollar amount of portfolio securities being hedged. It might
do so if the historical volatility of the prices of the portfolio securities being hedged is more than the
historical volatility of the applicable index.
The ordinary spreads between prices in the cash and futures markets are subject to distortions, due to
differences in the nature of those markets. First, all participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may
close futures contracts through offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, the liquidity of the futures market depends on participants entering into
offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view
of speculators, the deposit requirements in the futures market are less onerous than margin requirements in the
securities markets. Therefore, increased participation by speculators in the futures market may cause temporary
price distortions.
The Fund can use hedging instruments to establish a position in the securities markets as a temporary
substitute for the purchase of individual securities (long hedging) by buying futures and/or calls on such futures,
broadly-based indices or on securities. It is possible that when the Fund does so the market might decline. If the
Fund then concludes not to invest in securities because of concerns that the market might decline further or for
other reasons, the Fund will realize a loss on the hedging instruments that is not offset by a reduction in the
price of the securities purchased.
|X| Forward Contracts. Forward contracts are foreign currency exchange contracts. They are used to buy or
sell foreign currency for future delivery at a fixed price. The Fund uses them to "lock in" the U.S. dollar price of
a security denominated in a foreign currency that the Fund has bought or sold, or to protect against possible losses
from changes in the relative values of the U.S. dollar and a foreign currency. The Fund limits its exposure in
foreign currency exchange contracts in a particular foreign currency to the amount of its assets denominated in that
currency or a closely-correlated currency. The Fund may also use "cross-hedging" where the Fund xxxxxx against
changes in currencies other than the currency in which a security it holds is denominated.
Under a forward contract, one party agrees to purchase, and another party agrees to sell, a specific
currency at a future date. That date may be any fixed number of days from the date of the contract agreed upon by
the parties. The transaction price is set at the time the contract is entered into. These contracts are traded in
the inter-bank market conducted directly among currency traders (usually large commercial banks) and their customers.
The Fund may use forward contracts to protect against uncertainty in the level of future exchange rates.
The use of forward contracts does not eliminate the risk of fluctuations in the prices of the underlying securities
the Fund owns or intends to acquire, but it does fix a rate of exchange in advance. Although forward contracts may
reduce the risk of loss from a decline in the value of the hedged currency, at the same time they limit any
potential gain if the value of the hedged currency increases.
When the Fund enters into a contract for the purchase or sale of a security denominated in a foreign
currency, or when it anticipates receiving dividend payments in a foreign currency, the Fund might desire to
"lock-in" the U.S. dollar price of the security or the U.S. dollar equivalent of the dividend payments. To do so,
the Fund could enter into a forward contract for the purchase or sale of the amount of foreign currency involved in
the underlying transaction, in a fixed amount of U.S. dollars per unit of the foreign currency. This is called a
"transaction hedge." The transaction hedge will protect the Fund against a loss from an adverse change in the
currency exchange rates during the period between the date on which the security is purchased or sold or on which
the payment is declared, and the date on which the payments are made or received.
The Fund could also use forward contracts to lock in the U.S. dollar value of portfolio positions. This is
called a "position hedge." When the Fund believes that foreign currency might suffer a substantial decline against
the U.S. dollar, it could enter into a forward contract to sell an amount of that foreign currency approximating the
value of some or all of the Fund's portfolio securities denominated in that foreign currency. When the Fund believes
that the U.S. dollar might suffer a substantial decline against a foreign currency, it could enter into a forward
contract to buy that foreign currency for a fixed dollar amount. Alternatively, the Fund could enter into a forward
contract to sell a different foreign currency for a fixed U.S. dollar amount if the Fund believes that the U.S.
dollar value of the foreign currency to be sold pursuant to its forward contract will fall whenever there is a
decline in the U.S. dollar value of the currency in which portfolio securities of the Fund are denominated. That is
referred to as a "cross hedge."
The Fund will cover its short positions in these cases by identifying to its custodian bank assets having a
value equal to the aggregate amount of the Fund's commitment under forward contracts. The Fund will not enter into
forward contracts or maintain a net exposure to such contracts if the consummation of the contracts would obligate
the Fund to deliver an amount of foreign currency in excess of the value of the Fund's portfolio securities or other
assets denominated in that currency or another currency that is the subject of the hedge. However, to avoid excess
transactions and transaction costs, the Fund may maintain a net exposure to forward contracts in excess of the value
of the Fund's portfolio securities or other assets denominated in foreign currencies if the excess amount is
"covered" by liquid securities denominated in any currency. The cover must be at least equal at all times to the
amount of that excess.
As one alternative, the Fund may purchase a call option permitting the Fund to purchase the amount of
foreign currency being hedged by a forward sale contract at a price no higher than the forward contract price. As
another alternative, the Fund may purchase a put option permitting the Fund to sell the amount of foreign currency
subject to a forward purchase contract at a price as high or higher than the forward contact price.
The precise matching of the amounts under forward contracts and the value of the securities involved
generally will not be possible because the future value of securities denominated in foreign currencies will change
as a consequence of market movements between the date the forward contract is entered into and the date it is sold.
In some cases, the Manager might decide to sell the security and deliver foreign currency to settle the original
purchase obligation. If the market value of the security is less than the amount of foreign currency the Fund is
obligated to deliver, the Fund might have to purchase additional foreign currency on the "spot" (that is, cash)
market to settle the security trade. If the market value of the security instead exceeds the amount of foreign
currency the Fund is obligated to deliver to settle the trade, the Fund might have to sell on the spot market some
of the foreign currency received upon the sale of the security. There will be additional transaction costs on the
spot market in those cases.
The projection of short-term currency market movements is extremely difficult, and the successful execution
of a short-term hedging strategy is highly uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses on these contracts and to pay
additional transactions costs. The use of forward contracts in this manner might reduce the Fund's performance if
there are unanticipated changes in currency prices to a greater degree than if the Fund had not entered into such
contracts.
At or before the maturity of a forward contract requiring the Fund to sell a currency, the Fund might sell
a portfolio security and use the sale proceeds to make delivery of the currency. In the alternative the Fund might
retain the security and offset its contractual obligation to deliver the currency by purchasing a second contract.
Under that contract the Fund will obtain, on the same maturity date, the same amount of the currency that it is
obligated to deliver. Similarly, the Fund might close out a forward contract requiring it to purchase a specified
currency by entering into a second contract entitling it to sell the same amount of the same currency on the
maturity date of the first contract. The Fund would realize a gain or loss as a result of entering into such an
offsetting forward contract under either circumstance. The gain or loss will depend on the extent to which the
exchange rate or rates between the currencies involved moved between the execution dates of the first contract and
offsetting contract.
The costs to the Fund of engaging in forward contracts varies with factors such as the currencies involved,
the length of the contract period and the market conditions then prevailing. Because forward contracts are usually
entered into on a principal basis, no brokerage fees or commissions are involved. Because these contracts are not
traded on an exchange, the Fund must evaluate the credit and performance risk of the counterparty under each forward
contract.
Although the Fund values its assets daily in terms of U.S. dollars, it does not intend to convert its
holdings of foreign currencies into U.S. dollars on a daily basis. The Fund may convert foreign currency from time
to time, and will incur costs in doing so. Foreign exchange dealers do not charge a fee for conversion, but they do
seek to realize a profit based on the difference between the prices at which they buy and sell various currencies.
Thus, a dealer might offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of
exchange if the Fund desires to resell that currency to the dealer.
|X| Regulatory Aspects of Hedging Instruments. When using futures and options on futures, the Fund is
required to operate within certain guidelines and restrictions with respect to the use of futures as established by
the Commodities Futures Trading Commission (the "CFTC"). In particular, the Fund is exempted from registration with
the CFTC as a "commodity pool operator" if the Fund complies with the requirements of Rule 4.5 adopted by the CFTC.
The Rule does not limit the percentage of the Fund's assets that may be used for futures margin and related options
premiums for a bona fide hedging position. However, under the Rule, the Fund must limit its aggregate initial
futures margin and related options premiums to not more than 5% of the Fund's net assets for hedging strategies
that are not considered bona fide hedging strategies under the Rule. Under the Rule, the Fund must also use short
futures and options on futures solely for bona fide hedging purposes within the meaning and intent of the applicable
provisions of the Commodity Exchange Act.
Transactions in options by the Fund are subject to limitations established by the option exchanges. The
exchanges limit the maximum number of options that may be written or held by a single investor or group of investors
acting in concert. Those limits apply regardless of whether the options were written or purchased on the same or
different exchanges or are held in one or more accounts or through one or more different exchanges or through one or
more brokers. Thus, the number of options that the Fund may write or hold may be affected by options written or held
by other entities, including other investment companies having the same advisor as the Fund (or an advisor that is
an affiliate of the Fund's advisor or Manager). The exchanges also impose position limits on futures transactions.
An exchange may order the liquidation of positions found to be in violation of those limits and may impose certain
other sanctions.
Under the Investment Company Act, when the Fund purchases a future, it must maintain cash or readily
marketable short-term debt instruments in an amount equal to the market value of the securities underlying the
future, less the margin deposit applicable to it. The account must be a segregated account or accounts held by the
Fund's custodian bank.
|X| Tax Aspects of Certain Hedging Instruments. Certain foreign currency exchange contracts in which the
Fund may invest are treated as "Section 1256 contracts" under the Internal Revenue Code. In general, gains or losses
relating to Section 1256 contracts are characterized as 60% long-term and 40% short-term capital gains or losses
under the Code. However, foreign currency gains or losses arising from Section 1256 contracts that are forward
contracts generally are treated as ordinary income or loss. In addition, Section 1256 contracts held by the Fund at
the end of each taxable year are "marked-to-market," and unrealized gains or losses are treated as though they were
realized. These contracts also may be marked-to-market for purposes of determining the excise tax applicable to
investment company distributions and for other purposes under rules prescribed pursuant to the Internal Revenue
Code. An election can be made by the Fund to exempt those transactions from this marked-to-market treatment.
Certain forward contracts the Fund enters into may result in "straddles" for federal income tax purposes.
The straddle rules may affect the character and timing of gains (or losses) recognized by the Fund on straddle
positions. Generally, a loss sustained on the disposition of a position making up a straddle is allowed only to the
extent that the loss exceeds any unrecognized gain in the offsetting positions making up the straddle. Disallowed
loss is generally allowed at the point where there is no unrecognized gain in the offsetting positions making up the
straddle, or the offsetting position is disposed of Under the Internal Revenue Code, the following gains or losses
are treated as ordinary income or loss:
(1) gains or losses attributable to fluctuations in exchange rates that occur between the time the Fund
accrues interest or other receivables or accrues expenses or other liabilities denominated in a foreign currency and
the time the Fund actually collects such receivables or pays such liabilities, and
(2) gains or losses attributable to fluctuations in the value of a foreign currency between the date of
acquisition of a debt security denominated in a foreign currency or foreign currency forward contracts and the date
of disposition.
Currency gains and losses are offset against market gains and losses on each trade before determining a net
"Section 988" gain or loss under the Internal Revenue Code for that trade, which may increase or decrease the amount
of the Fund's investment income available for distribution to its shareholders.
Investment Restrictions
|X| What Are "Fundamental Policies"? Fundamental policies are those policies that the Fund has adopted to
govern its investments that can be changed only by the vote of a "majority" of the Fund's outstanding voting
securities. Under the Investment Company Act, a "majority" vote is defined as the vote of the holders of the lesser
of:
? 67% or more of the shares present or represented by proxy at a shareholder meeting, if the holders of
more than 50% of the outstanding shares are present or represented by proxy, or
? more than 50% of the outstanding shares.
The Fund's investment objective is a fundamental policy. Other policies described in the Prospectus or this
Statement of Additional Information are "fundamental" only if they are identified as such. The Fund's Board of
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 invest more than 5% of the value of its total assets in the securities of any one issuer.
This limitation applies to 75% of the Fund's total assets.
? The Fund cannot purchase more than 10% of any class of security of any issuer. All outstanding debt
securities and all preferred stock of an issuer are considered as one class. This restriction does not apply to
securities issued by the U.S. government or any of its agencies or instrumentalities.
? The Fund cannot concentrate its investments. That means it cannot invest 25% or more of its total assets
in any industry. If deemed appropriate for attaining its investment objective, the Fund may invest less than but up
to 25% of its total assets in any one industry classification used by the Fund for investment purposes. For this
purpose, a foreign government is considered an industry.
? The Fund cannot borrow money in excess of 33 1/3% of the value of the Fund's total assets. The Fund may
borrow only from banks and only as a temporary measure for extraordinary or emergency purposes. The Fund will make
no additional investments while borrowings exceed 5% of the Fund's total assets. The Fund can borrow only if it
maintains a 300% ratio of assets to borrowings at all times in the manner set forth in the Investment Company Act of
1940.
? The Fund cannot invest in physical commodities or physical commodity contracts. However, the Fund may buy
and sell hedging instruments to the extent specified in its Prospectus or Statement of Additional Information from
time to time. The Fund can also buy and sell options, futures, securities or other instruments backed by, or the
investment return from which is linked to, changes in the price of physical commodities.
? The Fund cannot invest in real estate or real estate limited partnerships (direct participation
programs). However, the Fund may purchase securities of issuers that engage in real estate operations and securities
which 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 invest in securities of any issuer if, to the knowledge of the Trust, officers, directors
or trustees of the Trust, or the Manager who owns more than 1/2 of 1% of the outstanding securities of such issuer
together own more than 5% of the outstanding securities of such issuer.
? The Fund cannot pledge its assets or assign or otherwise encumber its assets in excess of 10% of its net
assets. It can pledge, assign or encumber its assets only to secure borrowings effected within the limitations set
forth in the Prospectus.
? The Fund cannot invest for the purpose of exercising control or management of another company.
? The Fund cannot issue senior securities (as defined in the Investment Company Act of 1940). However, the
Fund can enter into any repurchase agreement, borrow money in accordance with restrictions described above and lend
its portfolio securities.
? The Fund cannot make loans to any person or individual. However, the Fund may loan portfolio securities
within the limitations set forth in the Prospectus.
Unless the Prospectus or this Statement of Additional Information states that a percentage restriction
applies on an ongoing basis, it applies only at the time the Fund makes an investment. The Fund need not sell
securities to meet the percentage limits if the value of the investment increases in proportion to the size of the
Fund.
For purposes of the Fund's policy not to concentrate its investments as described above, the Fund has
adopted the industry classifications set forth in Appendix B to this Statement of Additional Information. This is
not a fundamental policy.
|X| Does the Fund Have Any Restrictions That Are Not Fundamental? The Fund
has other investment restrictions that are not fundamental policies, which means that they can be changed by the
Board of Trustees without shareholder approval.
? The Fund cannot make short sales or purchase securities on margin. However, the Fund can make short-term
borrowings when necessary for the clearance of purchases of portfolio securities. Collateral arrangements in
connection with futures and options are not deemed to be margin transactions under this restriction.
? The Fund cannot invest in interests in oil, gas or other mineral exploration or development programs or
leases.
How the Fund is Managed
Organization and History. The Fund is an open-end, diversified management investment company. The Fund is one of
three series of Xxxxxxxxxxx Quest For Value Funds, an open-end management investment company organized as a
Massachusetts business trust in April 1987 (and which is referred to as the "Trust").
|X| Classes of Shares. The Trustees are authorized, without shareholder approval, to create new series and
classes of shares. The Trustees may reclassify unissued shares of the Fund into additional series or classes of
shares. The Trustees also may divide or combine the shares of a class into a greater or lesser number of shares
without changing the proportionate beneficial interest of a shareholder in the Fund. Shares do not have cumulative
voting rights or preemptive or subscription rights. Shares may be voted in person or by proxy at shareholder
meetings.
The Fund currently has four classes of shares: Class A, Class B, Class C and Class N. All classes invest in
the same investment portfolio. Only retirement plans may purchase Class N shares. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes,
o may have a different net asset value,
o may have separate voting rights on matters in which interests of one class are different from interests of
another class, and
o votes as a class on matters that affect that class alone.
Shares are freely transferable, and each share of each class has one vote at shareholder meetings, with
fractional shares voting proportionally on matters submitted to the vote of shareholders. Each share of the Fund
represents an interest in the Fund proportionately equal to the interest of each other share of the same class.
|X| Meetings of Shareholders. As a Massachusetts business trust, the Fund is not required to
hold, and does not plan to hold, regular annual meetings of shareholders. The Fund will hold meetings when required
to do so by the Investment Company Act or other applicable law. It will also do so when a shareholder meeting is
called by the Trustees or upon proper request of the shareholders.
Shareholders have the right, upon the declaration in writing or vote of two-thirds of the outstanding
shares of the Fund, to remove a Trustee. The Trustees will call a meeting of shareholders to vote on the removal of
a Trustee upon the written request of the record holders of 10% of its outstanding shares. If the Trustees receive
a request from at least 10 shareholders stating that they wish to communicate with other shareholders to request a
meeting to remove a Trustee, the Trustees will then either make the Fund's shareholder list available to the
applicants or mail their communication to all other shareholders at the applicants' expense. The shareholders making
the request must have been shareholders for at least six months and must hold shares of the Fund valued at $25,000
or more or constituting at least 1% of the Fund's outstanding shares, whichever is less. The Trustees may also take
other action as permitted by the Investment Company Act.
|X| Shareholder and Trustee Liability. The Trust's Declaration of Trust contains an express disclaimer of
shareholder or Trustee liability for the Fund's obligations. It also provides for indemnification and reimbursement
of expenses out of the Fund's property for any shareholder held personally liable for its obligations. The
Declaration of Trust also states that upon request, the Fund shall assume the defense of any claim made against a
shareholder for any act or obligation of the Fund and shall satisfy any judgment on that claim. Massachusetts law
permits a shareholder of a business trust (such as the Fund) to be held personally liable as a "partner" under
certain circumstances. However, the risk that a Fund shareholder will incur financial loss from being held liable as
a "partner" of the Fund is limited to the relatively remote circumstances in which the Fund would be unable to meet
its obligations.
The Fund's contractual arrangements state that any person doing business with the Fund (and each
shareholder of the Fund) agrees under its Declaration of Trust to look solely to the assets of the Fund for
satisfaction of any claim or demand that may arise out of any dealings with the Fund. The contracts further state
that the Trustees shall have no personal liability to any such person, to the extent permitted by law.
Board of Trustees. The Fund is governed by a Board of Trustees, which is responsible for protecting the interests
of shareholders under Massachusetts law. The Trustees meet periodically throughout the year to oversee the Fund's
activities, review its performance, and review the actions of the Manager. Although the Fund will not normally hold
annual meetings of its shareholders, it may hold shareholder meetings from time to time on important matters, and
shareholders have the right to call a meeting to remove a Trustee or to take other action described in the Funds'
Declaration of Trust.
The Board of Trustees has an Audit Committee. The Audit Committee provides the Board with recommendations
regarding the selection of the Fund's independent auditor. The Audit Committee also reviews the scope and results
of audits and the audit fees charged, reviews reports from the Fund's independent auditors concerning the Fund's
internal accounting procedures and controls, and reviews reports of the Manager's internal auditor. The members of
the Audit Committee are Xxxx Xxxxxxx (Chairman), Xxxxxx Xxxxxxxx, Xxxxxx Xxxxx, Xxxx Xxxxxxxx and Xxxxx Xxxxxx. The
Audit Committee met three times during the Fund's fiscal year ended October 31, 2001.
Trustees and Officers of the Fund. The Fund's Trustees and officers and their positions held with the Fund and
length of service in such position(s) and the principal occupations and business affiliations during the past five
years are listed below. Each of the Trustees are independent trustees, which means that they have no affiliation
with the Manager as defined in the Investment Company Act. The information for the Trustees also includes the
dollar range of shares of the Fund as well as the aggregate dollar range of shares of the Board III Funds
beneficially owned by the Trustee. All information is as of December 31, 2001. All of the Trustees are also
trustees or directors of the following Xxxxxxxxxxx funds (referred to as "Board III Funds"):
Xxxxxxxxxxx Quest For Value Funds, a series fund having Rochester Portfolio Series, a series fund having one series:
the following series: Limited-Term New York Municipal Fund
Xxxxxxxxxxx Small Cap Value Fund, Bond Fund Series, a series fund having one series:
Xxxxxxxxxxx Quest Balanced Value Fund and Xxxxxxxxxxx Convertible Securities Fund
Xxxxxxxxxxx Quest Opportunity Value Fund Rochester Fund Municipals
Xxxxxxxxxxx Quest Global Value Fund, Inc. Xxxxxxxxxxx XxxXxx Fund
Xxxxxxxxxxx Quest Capital Value Fund, Inc.
Xxxxxxxxxxx Quest Value Fund, Inc.
In addition to being a director or trustee of the Board III Funds, Xx. Xxxxx is also a director or trustee
of 33 other portfolios in the Xxxxxxxxxxx Funds complex.
Messrs. Murphy, Bishop, Farrar, Molleur, Xxxxxx, Xxxx, Xxxxx and Xxxxxx, and Mses. Xxxx and Ives who are
officers of the Fund, respectively hold the same offices of the other Board III Funds. As of January 15, 2002, the
Trustees and officers of the Fund as a group owned of record or beneficially less than 1% of each class of shares of
the Fund. The foregoing statement does not reflect ownership of shares of the Fund held of record by an employee
benefit plan for employees of the Manager, other than the shares beneficially owned under the plan by officers of
the Fund listed above. In addition, each Independent Trustee, and his or her family members, do not own securities
of either the Manager or Distributor of the Board III funds or any person directly or indirectly controlling,
controlled by or under common control with the Manager or Distributor.
Independent Trustees
-------------------------- ------------------------------------------------------ ----------------- -------------------
Aggregate Dollar
Name, Address,1 Age, Range of Shares
Position(s) Held with Principal Occupation(s) During Past 5 Years / Other Dollar Range of Owned in any of
Fund and Length of Time Trusteeships Held by Trustee / Number of Portfolios Shares Owned in the Board III
Served2 in Fund Complex Overseen by Trustee the Fund Funds
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxxxx X. Xxxxxxxx, Principal of Xxxxxxxx Associates, Inc. (venture $0 $10,001 - $50,000
Chairman of the capital firm); former General Partner of Trivest
Board of Trustees, Venture Fund (private venture capital fund); former
Trustee since April, 1987 President of Investment Counseling Federated
Age: 68 Investors, Inc.; Trustee of Cash Assets Trust, a
money market fund; Director of OCC Cash Reserves,
Inc., and Trustee of OCC Accumulation Trust, both of
which are open-end investment companies; Trustee of
Hawaiian Tax-Free Trust and Tax Free Trust of
Arizona, tax-exempt bond funds; former Director of
Financial Analysts Federation. Director/trustee of
10 investment companies in the OppenheimerFunds
complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxx X. Xxxxxxx, Principal of Clinton Management Associates, a $10,001 - Over $100,000
Trustee, since April, financial and venture capital consulting firm;
1987 Trustee of Capital Cash Management Trust, a
Age: 70. money-market fund and Narragansett Tax-Free Fund, a
tax-exempt bond fund; Director of OCC Cash Reserves,
Inc. and Trustee of OCC Accumulation Trust, both of
which are open-end investment companies. Formerly:
Director, External Affairs, Kravco Corporation, a
national real estate owner and property management
corporation; President of Essex Management
Corporation, a management consulting company; a $50,000
general partner of Capital Growth Fund, a venture
capital partnership; a general partner of Essex
Limited Partnership, an investment partnership;
President of Geneve Corp., a venture capital fund;
Chairman of Woodland Capital Corp., a small business
investment company; and Vice President of X.X. Xxxxx
& Co. Director/trustee of 10 investment companies in
the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxxxx X. Xxxxx, A Trustee or Director of other Xxxxxxxxxxx funds. Over $100,000 Over $100,0003
Trustee since June, 1998 Formerly Vice Chairman of the Manager (October 1995
Age: 68 - December 1997). Director/trustee of 41 investment
companies in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxx X. Xxxxxxxx, Chairman and Chief Executive Officer of Aquila $0 $10,001 - $50,000
Trustee since April, 1987 Management Corporation, the sponsoring organization
Age: 72 and manager, administrator and/or sub-Adviser to the
following open-end investment companies, and
Chairman of the Board of Trustees and President of
each: Xxxxxxxxx Cash Reserves Trust, Aquila -
Cascadia Equity Fund, Pacific Capital Cash Assets
Trust, Pacific Capital U.S. Treasuries Cash Assets
Trust, Pacific Capital Tax-Free Cash Assets Trust,
Prime Cash Fund, Narragansett Insured Tax-Free
Income Fund, Tax-Free Fund For Utah, Xxxxxxxxx
Tax-Free Fund of Kentucky, Tax-Free Fund of
Colorado, Tax-Free Trust of Oregon, Tax-Free Trust
of Arizona, Hawaiian Tax-Free Trust, and Aquila
Rocky Mountain Equity Fund; Vice President,
Director, Secretary, and formerly Treasurer of
Aquila Distributors, Inc., distributor of the above
funds; President and Chairman of the Board of
Trustees of Capital Cash Management Trust ("CCMT"),
and an Officer and Trustee/Director of its
predecessors; President and Director of STCM
Management Company, Inc., sponsor and adviser to
CCMT; Chairman, President and a Director of InCap
Management Corporation, formerly sub-adviser and
administrator of Prime Cash Fund and Short Term
Asset Reserves; Director of OCC Cash Reserves, Inc.,
and Trustee of OCC Accumulation Trust, both of which
are open-end investment companies; Trustee Emeritus
of Xxxxx University. Director/trustee of 10
investment companies in the OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
-------------------------- ------------------------------------------------------ ----------------- -------------------
Xxxxx Xxxxxx, Trustee Special Limited Partner (since January 1999) of $10,001 - $50,001 - $100,000
since April, 2001 Odyssey Investment Partners, LLC (private equity
Age: 58 investment); General Partner (since September 1996)
of Odyssey Partners, L.P. (hedge fund in
distribution since 1/1/97); Director (since May
2000) of Ray & Berendston, Inc. (executive search);
Board of Incorporators (since August 1990) The
Xxxxxxx Laboratory; Trustee (since May 1992) of
Institute for Advanced Study (educational $50,000
institute); Trustee (since May 2000) of Research
Foundation of AIMR (investment research); Governor,
Xxxxxx Xxxx Economics Institute of Bard College
(August 1990 - September 2001) (economics research).
Director/trustee of 10 investment companies in the
OppenheimerFunds complex.
-------------------------- ------------------------------------------------------ ----------------- -------------------
Officers of the Fund
----------------------------------------------- ----------------------------------------------------------------------
Name, Address,4 Age, Position(s) Held with Principal Occupation(s) During Past 5 Years
Fund and Length of Time Served
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxx Xxxxxx, Vice President and Portfolio Vice President of the Manager (since March 2000). Prior to joining
Manager (since September 2001) the manager he was a Senior Vice President and Chief Emerging
Age: 33 Markets Debt and Currency Strategist of ING Barings, a global
investment bank (July 1998 - March 2000); before that he was a Vice
President, head of emerging markets trading strategies at Citicorp
Securities, after having run the bank's proprietary trading activity
on international fixed income and foreign exchange derivative (May
1995 - July 1998).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxxxxxxxx Xxxxx, Vice President and Senior Vice President (since September 2000) of the Manger; prior to
Portfolio Manager (since September 2001) Age: joining the Manager in September 2000, he was a portfolio manager of
30 Xxxxxx Xxxxxxx Xxxx Xxxxxx Investment Management (from 1997) prior
to which he was a portfolio manager and equity analyst of Crestar
Asset Management (from 1995).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxx X. Xxxxxx, Chairman, Chief Executive Officer and director (since June 30, 2001)
President (since October 2001) and President (since September 2000) of the Manager; President and a
Age: 52 trustee of other Xxxxxxxxxxx funds; President and a director (since
July 2001) of Xxxxxxxxxxx Acquisition Corp., the Manager's parent
holding company, and of Xxxxxxxxxxx Partnership Holdings, Inc.
(since July 2001), a holding company subsidiary of the Manager;
Chairman and a director (since July 2001) of Shareholder Services,
Inc. and of Shareholder Financial Services, Inc., transfer agent
subsidiaries of the Manager; President (since November 1, 2001) and
a director (since July 2001) of Xxxxxxxxxxx Real Asset Management,
Inc., an investment advisor subsidiary of the Manager; President and
a director (since July 2001) of OppenheimerFunds Legacy Program, a
charitable trust program established by the Manager; a director
(since November 2001) of Trinity Investment Management Corp. and
Tremont Advisers, Inc., investment advisory affiliates of the
Manager, and of OAM Institutional, Inc. (since November 2001), an
investment advisory subsidiary of the Manager, and of HarbourView
Asset Management Corporation and OFI Private Investments, Inc.
(since July 2001), investment advisor subsidiaries of the Manager;
formerly President and trustee (from November 1999 to November 2001)
of MML Series Investment Fund and MassMutual Institutional Funds,
open-end investment companies; Chief Operating Officer (from
September 2000 to July 2001) of the Manager; Executive Vice
President of Massachusetts Mutual Life Insurance Company (from
February 1997 to August 2000); a director (from 1999 to 2000) of
C.M. Life Insurance Company; President, Chief Executive Officer and
a director (from 1999 to 2000) of MML Bay State Life Insurance
Company; Executive Vice President, director and Chief Operating
Officer (from 1995 to 1997) of Xxxxx X. Xxxxxx & Company, Inc., an
investment advisor; Senior Vice President and director (from 1995 to
1997) of Potomac Babson Inc., an investment advisor subsidiary of
Xxxxx X. Xxxxxx & Company, Inc.; Senior Vice President (from 1995 to
1997) and director (from 1995 to 1999) of DBL Acquisition
Corporation, a holding company for investment advisers; a director
(from 1989 to 1998) of Emerald Isle Bancorp and Hibernia Savings
Bank, wholly-owned subsidiary of Emerald Isle Bancorp; and Chief
Operating Officer (from 1993 to 1996) of Concert Capital Management,
Inc., an investment advisor.
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxx, Treasurer, Principal Senior Vice President and Treasurer (since March 1999) of the
Financial and Accounting Officer (since March Manager; Treasurer (since March 1999) of HarbourView Asset
1999) Management Corporation, Shareholder Services, Inc., Oppenheimer Real
Age: 42 Asset Management Corporation, Shareholder Financial Services, Inc.
and Oppenheimer Partnership Holdings, Inc., of OFI Private
Investments, Inc. (since March 2000) and of OppenheimerFunds
International Ltd. and 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. Xxxxxx, Assistant Treasurer Vice President of the Manager/Mutual Fund Accounting (since May
(since May 1996) 1996); an officer of other
Age: 42 Xxxxxxxxxxx funds; formerly an Assistant Vice President of the
Manager/Mutual Fund Accounting (April 1994 - May 1996) and a Fund
Controller of the Manager.
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxxxx, Assistant Treasurer Assistant Vice President of the Manager (1996-Present); Formerly
(since 1996) Assistant Vice President of Rochester Fund Services, Inc. (1994 -
Age: 38 1996).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxx, Assistant Treasurer Vice President of the Manager/Mutual Fund Accounting (since May
(since May 1996) 1996); Assistant Treasurer of Xxxxxxxxxxx Millennium Funds plc
Age: 36 (since October 1997); an officer of other Xxxxxxxxxxx Funds;
formerly an Assistant Vice President of the Manager/Mutual Fund
Accounting (April 1994 - May 1996), and a Fund Controller of the
Manager.
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxxx X. Xxxx, Secretary (since October 2001) Senior Vice President (since May 1985) and Acting General Counsel
Age: 53 (since November 2001) of the Manager; Assistant Secretary of
Shareholder Services, Inc. (since May 1985), Shareholder Financial
Services, Inc. (since November 1989); OppenheimerFunds International
Ltd. and Oppenheimer Millennium Funds plc (since October 1997); an
officer of other Xxxxxxxxxxx funds.
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxx X. Xxxxxxx, Assistant Secretary Vice President and Senior Counsel of the Manager (since July 1999);
(since October 2001) an officer of other Xxxxxxxxxxx funds; formerly a Vice President and
Age: 44 Associate Counsel of the Manager (September 1995 - July 1999).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxxxxxx X. Xxxx, Assistant Secretary Vice President and Senior Counsel of the Manager (since July 1999);
(since October 2001) an officer of other Xxxxxxxxxxx funds; formerly a Vice President and
Age: 43 Associate Counsel of the Manager (June 1990 - July 1999).
----------------------------------------------- ----------------------------------------------------------------------
----------------------------------------------- ----------------------------------------------------------------------
Xxxxxxxx X. Xxxx, Assistant Secretary Vice President and Assistant Counsel of the Manager (since June
(since October 2001) 1998); an officer of other Xxxxxxxxxxx funds; formerly an Assistant
Age: 36 Vice President and Assistant Counsel of the Manager (August 1997 -
June 1998); and Assistant Counsel of the Manager (August 1994-August
1997).
----------------------------------------------- ----------------------------------------------------------------------
|X| Remuneration of Trustees. The officers of the Fund are affiliated with the Manager and receive no
salary or fee from the Fund. The Trustees received the compensation shown below. The compensation from the Fund was
paid during its fiscal year ended October 31, 2001. The table below also shows the total compensation from all of
the Xxxxxxxxxxx funds listed above, including the compensation from the Fund, and from two other funds that are not
Xxxxxxxxxxx funds but for which the Fund's former sub-advisor acts as investment advisor. That amount represents
compensation received as a director, trustee, or member of a committee of the Board during the calendar year 2001.
--------------------------- ----------------------------------------------------------------------------------------
Aggregate Compensation Retirement Benefits Total Compensation
Trustee's Name From Fund1 Accrued as Part of Fund From all Board III Funds
Expenses (10 Funds)2
--------------------------- ----------------------------------------------------------------------------------------
--------------------------- ----------------------------------------------------------------------------------------
Xxxx X. Clinton4 $5,056 $1,017 $157,3263
--------------------------- ----------------------------------------------------------------------------------------
--------------------------- ----------------------------------------------------------------------------------------
Xxxxxx X. Courtney4 $4,969 $930 $157,3263
--------------------------- ----------------------------------------------------------------------------------------
--------------------------- ----------------------------------------------------------------------------------------
Xxxxxx X. Galli3 $4,284 $245 $202,8863
--------------------------- ----------------------------------------------------------------------------------------
--------------------------- ----------------------------------------------------------------------------------------
Xxxx X. Herrmann4 $5,348 $1,309 $157,3263
--------------------------- ----------------------------------------------------------------------------------------
--------------------------- ------------------------- --------------------------- ----------------------------
Xxxxx Wruble5 $2,386 $46 $59,250
--------------------------- ------------------------- --------------------------- ----------------------------
1. Aggregate Compensation includes fees and retirement plan benefits accrued for a Trustee. For the fiscal
year ended 10/31/01.
2. For the 2001 calendar year.
1. Total compensation for the 2001 calendar year includes 3. $105,760 compensation received for serving as
a Trustee or Director of 33 other Xxxxxxxxxxx funds.
4. Total compensation for the 2001 calendar year also includes $60,200 compensation paid by two funds (OCC
Cash Reserve and OCC Accumulated Trust) for which the Sub-Advisor acts as the investment advisor.
5. Elected to the board on 4/01/01
|X| Retirement Plan for Trustees. The Fund has adopted a retirement plan that provides for payments to
retired Trustees. Payments are up to 80% of the average compensation paid during a Trustee's five years of service
in which the highest compensation was received. A Trustee must serve as Trustee for any of the Board III Funds
listed above for at least 15 years to be eligible for the maximum payment. Each Trustee's retirement benefits will
depend on the amount of the Trustee's future compensation and length of service. Therefore the amount of those
benefits cannot be determined at this time, nor can we estimate the number of years of credited service that will be
used to determine those benefits.
|X| Major Shareholders. As of February 1, 2002, the only persons who owned of record or were known by the
Fund to own beneficially 5% or more of any class of the Fund's outstanding shares were:
Xxxxxxx Xxxxxx & Co, Inc., Attn: Mutual Funds, 000 Xxxxxxxxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxxxxxxx 00000-0000,
which owned for the benefit of its customers 708,493.184 Class A shares (representing 7.30% of the Class A shares
then outstanding);
Geohr X. Xxxxxxxx & X. Xxxxxxxxx TR, 00 Xxxxxx Xxxx, Xxxxx 000, Xxxxxxxxxx, XX 00000-0000, which owned for
the benefit of its customers 26,192.137 Class N shares (representing 37.80% of the Class N shares then outstanding);
RPSS TR XXX, 000 Xxxxxxxxxx Xxxx, Xxx Xxxxx, XX 00000-0000, which owned for the benefit of Xxxxxx X.
Xxxxxxxx 8,996.042 Class N shares (representing 12.98% of the Class N shares then outstanding);
Sterling Trust Company TR, 0000 Xxxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, XX 00000-0000, which owned for the
benefit of its customers 6,376.724 Class N shares (representing 9.20% of the Class N shares then outstanding);
RPSS TR Rollover XXX, 000 Xxxx Xxxxxx, Xxxxxx, XX 00000-0000 which owned for the benefit of Columbus Xxxxxx
4,264.720 Class N shares (representing 6.15% of the Class N shares then outstanding); and
Health First Services Inc., Attn: Xxxxx Xxxxxxxx, 0000 Xxxx Xxxx Xxxx, Xxxxx 000, Xxxx Xxxxx, XX 00000-0000
which owned for the benefit of its customers 3,762.819 Class N shares (representing 5.43% of the Class N shares then
outstanding).
The Manager. The Manager is wholly-owned by Xxxxxxxxxxx Acquisition Corp., a holding company controlled by
Massachusetts Mutual Life Insurance Company.
|X| Code of Ethics The Fund, the Manager and the Distributor have a Code of Ethics. It is designed to
detect and prevent improper personal trading by certain employees, including portfolio managers, that would compete
with or take advantage of the Fund's portfolio transactions. Covered persons include persons with knowledge of the
investments and investment intentions of the Fund and other funds advised by the Manager. The Code of Ethics does
permit personnel subject to the Code to invest in securities, including securities that may be purchased or held by
the Fund, subject to a number of restrictions and controls. Compliance with the Code of Ethics is carefully
monitored and enforced by the Manager.
The Code of Ethics is an exhibit to the Fund's registration statement filed with the Securities and
Exchange Commission and can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. You can
obtain information about the hours of operation of the Public Reference Room by calling the SEC at 0.000.000.0000.
The Code of Ethics can also be viewed as part of the Fund's registration statement on the SEC's XXXXX database at
the SEC's Internet website at XXXX://XXX.XXX.XXX. Copies may be obtained, after paying a duplicating fee, by
------------------
electronic request at the following E-mail address: XXXXXXXXXX@XXX.XXX., or by writing to the SEC's Public Reference
-------------------
Section, Xxxxxxxxxx, X.X. 00000-0000.
|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's parent Trust. The Manager selects
securities for the Fund's portfolio and handles the Fund's day-to-day business. The portfolio managers of the Fund
are employed by the Manager and are the persons who are principally responsible for the day to day management of the
Fund's portfolio. From November 22, 1995 to April 28, 2000, pursuant to the terms of a Sub-Advisory Agreement with
the Manager, OpCap Advisors acted as the Manager to the Fund and in such capacity selected securities for the Fund's
portfolio.
The investment advisory agreement between the Fund and the Manager requires the Manager, at its expense, to
provide the Fund with adequate office space, facilities and equipment. It also requires the Manager to provide and
supervise the activities of all administrative and clerical personnel required to provide effective administration
for the Fund. Those responsibilities include the compilation and maintenance of records with respect to its
operations, the preparation and filing of specified reports, and composition of proxy materials and registration
statements for continuous public sale of shares of the Fund.
The Fund pays expenses not expressly assumed by the Manager under the advisory agreement. Expenses for the
Trust's three series are allocated to the series in proportion to their net assets, unless allocations of expenses
can be made directly to a series. The advisory agreement lists examples of expenses paid by the Fund. The major
categories relate to calculation of the Fund's net asset values per share, interest, taxes, brokerage commissions,
fees to certain Trustees, legal and audit expenses, custodian and transfer agent expenses, share issuance costs,
certain printing and registration costs and non-recurring expenses, including litigation costs. The management fees
paid by the Fund to the Manager are calculated at the rates described in the Prospectus, which are applied to the
assets of the Fund as a whole. The fees are allocated to each class of shares based upon the relative proportion of
the Fund's net assets represented by that class.
------------------------------------------------------ ----------------------------------------------
Management Fees Paid to OppenheimerFunds,
Inc.
Fiscal Year ended 10/31:
------------------------------------------------------ ----------------------------------------------
------------------------------------------------------ ----------------------------------------------
1999 $2,901,782
------------------------------------------------------ ----------------------------------------------
------------------------------------------------------ ----------------------------------------------
2000 $2,480,877
------------------------------------------------------ ----------------------------------------------
------------------------------------------------------ ----------------------------------------------
2001 $2,752,474
------------------------------------------------------ ----------------------------------------------
The investment advisory agreement states that in the absence of willful misfeasance, bad faith, gross
negligence in the performance of its duties or reckless disregard of its obligations and duties under the investment
advisory agreement, the Manager is not liable for any loss resulting from a good faith error or omission on its part
with respect to any of its duties under the agreement.
The agreement permits the Manager to act as investment advisor for any other person, firm or corporation
and to use the names "Xxxxxxxxxxx" and "Quest for Value" in connection with other investment companies for which it
may act as investment advisor or general distributor. If the Manager shall no longer act as investment advisor to
the Fund, the Manager may withdraw the right of the Fund to use the names "Xxxxxxxxxxx" or "Quest for Value" as part
of its name.
|X| Annual Approval of Investment Advisory Agreement. Each year, the Board of Trustees, including a
majority of the Independent Trustees, is required to approve the renewal of the Investment Advisory Agreement. The
Investment Company Act requires that the Board request and evaluate and the Manager provide such information as may
be reasonably necessary to evaluate the terms of the investment advisory agreement. The board employs an
independent consultant to prepare a report that provides such information as the Board requests for this purpose.
The Board also receives information about the 12b-1 distribution fees the Fund pays. These distribution
fees are reviewed and approved at a different time of the year.
The Board reviewed the foregoing information in arriving at its decision to renew the investment advisory
agreement. Among other factors, the Board considered:
o The nature, cost, and quality of the services provided to the Fund and its shareholders;
o The profitability of the Fund to the Manager;
o The investment performance of the Fund in comparison to regular market indices
o Economies of scale that may be available to the Fund from the Manager;
o Fees paid by other mutual funds for similar services;
o The value and quality of any other benefits or services received by the Fund from its relationship with the
Manager, and
o The direct and indirect benefits the Manager received from its relationship with the Fund. These include
services provided by the General Distributor and the Transfer Agent, and brokerage and soft dollar
arrangements permissible under Section 28(e) of the Securities Exchange Act.
The Board considered that the Manager must be able to pay and retain high quality personnel at competitive
rates to provide services to the Fund. The Board also considered that maintaining the financial viability of the
Manager is important so that the Manager will be able to continue to provide quality services to the Fund and its
shareholders in adverse times. The Board also considered the investment performance of other mutual funds advised
by the Manager. The Board is aware that there are alternatives to the use of the Manager.
These matters were also considered by the Independent Trustees meeting separately from the full Board with
experienced Counsel to the Fund who assisted the Board in its deliberations. The Fund's Counsel is independent of
the Manager within the meaning and intent of the SEC Rules regarding the independence of counsel. After
deliberating, the Board determined that the addition of breakpoints to the management fee schedule was warranted.
In arriving at a decision, the Board did not single out any one factor or group of factors as being more
important than other factors, but considered all factors together. The Board judged the terms and conditions of the
Agreement, including the investment advisory fee, in light of all of the surrounding circumstances.
Brokerage Policies of the Fund
Brokerage Provisions of the Investment Advisory Agreement. One of the duties of the Manager under the investment
advisory agreement is to arrange the portfolio transactions for the Fund. The Fund's investment advisory agreement
with the Manager contain provisions relating to the employment of broker-dealers to effect the Fund's portfolio
transactions. The Manager is authorized by the advisory agreement to employ broker-dealers, including "affiliated"
brokers, as that term is defined in the Investment Company Act. The Manager may employ broker-dealers that, in its
best judgment based on all relevant factors, will implement the policy of the Fund to obtain, at reasonable expense,
the "best execution" of the Fund's portfolio transactions. "Best execution" means prompt and reliable execution at
the most favorable price obtainable. The Manager need not seek competitive concession bidding. However, the Manager
is expected to be aware of the current rates of eligible brokers and to minimize the concessions paid to the extent
consistent with the interests and policies of the Fund as established by its Board of Trustees.
The Manager may select brokers (other than affiliates) that provide brokerage and/or research services for
the Fund and/or the other accounts over which the Manager or their respective affiliates have investment discretion.
The concessions paid to such brokers may be higher than another qualified broker would charge, if the Manager makes
a good faith determination that the concession is fair and reasonable in relation to the services provided. Subject
to those considerations, as a factor in selecting brokers for the Fund's portfolio transactions, the Manager may
also consider sales of shares of the Fund and other investment companies for which the Manager or an affiliate
serves as investment advisor.
Brokerage Practices Followed by the Manager. Brokerage for the Fund is allocated subject to the provisions of the
investment advisory agreement and the procedures and rules described above. Generally, the Manager's portfolio
traders allocate brokerage based upon recommendations from the Fund's portfolio manager. In certain instances,
portfolio managers may directly place trades and allocate brokerage. In either case, the Manager's executive
officers supervise the allocation of brokerage.
Transactions in securities other than those for which an exchange is the primary market are generally done with
principals or market makers. In transactions on foreign exchanges, the Fund may be required to pay fixed brokerage
concessions and therefore would not have the benefit of negotiated concessions available in U.S. markets. Brokerage
concessions are paid primarily for transactions in listed securities or for certain fixed-income agency transactions
in the secondary market. Otherwise brokerage concessions are paid only if it appears likely that a better price or
execution can be obtained by doing so.
Other funds advised by the Manager have investment policies similar to those of the Fund. Those other funds may
purchase or sell the same securities as the Fund at the same time as the Fund, which could affect the supply and
price of the securities. If two or more funds advised by the Manager purchase the same security on the same day
from the same dealer, the transactions under those combined orders are averaged as to price and allocated in
accordance with the purchase or sale orders actually placed for each account.
Most purchases of debt obligations are principal transactions at net prices. Instead of using a broker for those
transactions, the Fund normally deals directly with the selling or purchasing principal or market maker unless the
Manager determines that a better price or execution can be obtained by using the services of a broker. Purchases of
portfolio securities from underwriters include a commission or concession paid by the issuer to the underwriter.
Purchases from dealers include a spread between the bid and asked prices. The Fund seeks to obtain prompt execution
of these orders at the most favorable net price.
The investment advisory agreement permits the Manager to allocate brokerage for research services. The research
services provided by a particular broker may be useful only to one or more of the advisory accounts of the Manager
and its affiliates. The investment research received for the commissions of those other accounts may be useful both
to the Fund and one or more of the Manager's other accounts. Investment research may be supplied to the Manager by a
third party at the instance of a broker through which trades are placed.
Investment research services include information and analysis on particular companies and industries as well as
market or economic trends and portfolio strategy, market quotations for portfolio evaluations, information systems,
computer hardware and similar products and services. If a research service also assists the Manager in a
non-research capacity (such as bookkeeping or other administrative functions), then only the percentage or component
that provides assistance to the Manager in the investment decision-making process may be paid in concessions dollars.
The research services provided by brokers broadens the scope and supplements the research activities of the Manager.
That research provides additional views and comparisons for consideration, and helps the Manager to obtain market
information for the valuation of securities that are either held in the Fund's portfolio or are being considered for
purchase. The Manager provides information to the Board about the concessions paid to brokers furnishing such
services, together with the Manager's representation that the amount of such concessions was reasonably related to
the value or benefit of such services."
---------------------------------------------------- -------------------------------------------------------------
Fiscal Year Ended: Total Brokerage Commissions Paid by the Fund1
---------------------------------------------------- -------------------------------------------------------------
---------------------------------------------------- -------------------------------------------------------------
---------------------------------------------------- -------------------------------------------------------------
---------------------------------------------------- -------------------------------------------------------------
10/31/99 $960,169
---------------------------------------------------- -------------------------------------------------------------
---------------------------------------------------- -------------------------------------------------------------
10/31/00 $1,046,059
---------------------------------------------------- -------------------------------------------------------------
---------------------------------------------------- -------------------------------------------------------------
10/31/01 $1,038,4402
---------------------------------------------------- -------------------------------------------------------------
1. Amounts do not include spreads or commissions on principal transactions on a net trade basis.
2. In the fiscal year ended 10/31/01, the amount of transactions directed to brokers for research services was
$10,155,699 and the amount of the concessions paid to broker-dealers for those services was $25,096.
Distribution and Service Plans
The Distributor. Under its General Distributor's Agreement with the Trust, the Distributor acts as the Fund's
principal underwriter in the continuous public offering of shares of the Fund's classes of shares. The Distributor
bears the expenses normally attributable to sales, including advertising and the cost of printing and mailing
prospectuses, other than those furnished to existing shareholders. The Distributor is not obligated to sell a
specific number of shares. Expenses normally attributable to sales are borne by the Distributor.
The sales charges and concessions paid to, or retained by, the Distributor from the sale of shares during the Fund's
three most recent fiscal years, and the contingent deferred sales charges retained by the Distributor on the
redemption of shares for the most recent fiscal year are shown in the table below.
------------------------------------------------------- --------------------- ------------------ -------------------
Aggregate Class A Front-End
Fiscal Year Front-End Sales Sales Charges
Ended 10/31: Charges on Class Retained by
A Shares Distributor
------------------------------------------------------- --------------------- ------------------ -------------------
------------- ------------------ ------------------
1999 $641,725 $152,193
------------- ------------------ ------------------
------------- ------------------ ------------------
2000 $349,046 $93,524
------------- ------------------ ------------------
------------- ------------------ ------------------
2001 $559,325 $154,880
------------- ------------------ ------------------
--------------- ------------------------- ------------------ ------------------- -------------------
Fiscal Year Concessions on Class A Concessions on Concessions on Concessions on
Ended 10/31: Shares Advanced by Class B Shares Class C Shares Class N Shares
Distributor1 Advanced by Advanced by Advanced by
Distributor1 Distributor1 Distributor1
--------------- ------------------------- ------------------ ------------------- -------------------
--------------- ----------------------------------------------------------------------------------------------------
1999 $147,940 $779,449 $67,942 N/A
--------------- ----------------------------------------------------------------------------------------------------
--------------- ----------------------------------------------------------------------------------------------------
2000 $67,555 $438,019 $48,485 N/A
--------------- ----------------------------------------------------------------------------------------------------
--------------- ------------------------- ------------------ ------------------- -------------------
2001 $79,900 $725,731 $73,490 $3,543
--------------- ------------------------- ------------------ ------------------- -------------------
1. The Distributor advances concession payments to dealers for certain sales of Class A shares and for sales
of Class B, Class C and Class N shares from its own resources at the time of sale.
----------------- ----------------------------------------------------------------------------------------------------------
Class A Contingent Deferred Class B Contingent Deferred Class C Contingent Deferred Class N Contingent Deferred Sales Charges Retained by Distributor
Fiscal Year Sales Charges Retained by Sales Charges Retained by Sales Charges Retained by
Ended 10/31 Distributor Distributor Distributor
----------------- ----------------------------------------------------------------------------------------------------------
----------------- ------------------------- -------------------------- ------------------------- ---------------------------
2001 $3,693 $161,522 $4,587 $0
----------------- ------------------------- -------------------------- ------------------------- ---------------------------
Distribution and Service Plans. The Fund has adopted Distribution and Service Plans for Class A, Class B, Class C
and Class N shares under Rule 12b-1 of the Investment Company Act. Under those plans the Fund compensates the
Distributor for all or a portion of its costs incurred in connection with the distribution and/or servicing of the
shares of the particular class. Each plan has been approved by a vote of the Board of Trustees, including a majority
of the Independent Trustees, cast in person at a meeting called for the purpose of voting on that plan, and by
shareholders of a majority of each class of shares of the Fund.
Under the plans, the Manager and the Distributor, may make payments to affiliates and in their sole
discretion, from time to time, may use their own resources (at no direct cost to the Fund) to make payments to
brokers, dealers or other financial institutions for distribution and administrative services they perform. The
Manager may use its profits from the advisory fee it receives from the Fund. In their sole discretion, the
Distributor and the Manager may increase or decrease the amount of payments they make from their own resources to
plan recipients.
Unless a plan is terminated as described below, the plan continues in effect from year to year but only if
the Fund's Board of Trustees and its Independent Trustees specifically vote annually to approve its continuance.
Approval must be by a vote cast in person at a meeting called for the purpose of voting on continuing the plan. A
plan may be terminated at any time by the vote of a majority of the Independent Trustees or by the vote of the
holders of a "majority" (as defined in the Investment Company Act) of the outstanding shares of that class.
The Board of Trustees and the Independent Trustees must approve all material amendments to a plan. An
amendment to increase materially the amount of payments to be made under a plan must be approved by shareholders of
the class affected by the amendment. Because Class B shares of the Fund automatically convert into Class A shares
after six years, the Fund must obtain the approval of both Class A and Class B shareholders for a proposed material
amendment to the Class A plan that would materially increase payments under the plan. That approval must be by a
"majority" (as defined in the Investment Company Act) of the shares of each class, voting separately by class.
While the plans are in effect, the Treasurer of the Fund shall provide separate written reports on the
plans to the Board of Trustees at least quarterly for its review. The reports shall detail the amount of all
payments made under a plan and the purpose for which the payments were made. The reports on the Class B plan and
Class C plan shall also include the Distributor's distribution costs for that quarter and such costs for previous
fiscal periods that have been carried forward. Those reports are subject to the review and approval of the
Independent Trustees.
Each plan states that while it is in effect, the selection and nomination of those Trustees of the Fund who
are not "interested persons" of the Fund is committed to the discretion of the Independent Trustees. This does not
prevent the involvement of others in the selection and nomination process as long as the final decision as to
selection or nomination is approved by a majority of the Independent Trustees.
Under the plans for a class, no payment will be made to any recipient in any quarter in which the aggregate
net asset value of all Fund shares of that class held by the recipient for itself and its customers does not exceed
a minimum amount, if any, that may be set from time to time by a majority of the Independent Trustees. The Board of
Trustees has set no minimum amount of assets to qualify for payments under the plans.
|X| Service Plans. Under the service plans, the Distributor currently uses the fees it receives from the
Fund to pay brokers, dealers and other financial institutions (they are referred to as "recipients") for personal
services and account maintenance services they provide for their customers who hold shares of a particular Class, A,
B, C or N. The services include, among others, answering customer inquiries about the Fund, assisting in
establishing and maintaining accounts in the Fund, making the Fund's investment plans available and providing other
services at the request of the Fund or the Distributor. The service plans permit compensation to the Distributor at
a rate of up to 0.25% of average annual net assets of the applicable class. The Board has set the rate at that
level. While the plans permit the Board to authorize payments to the Distributor to reimburse itself for services
under the plan, the Board has not yet done so. The Distributor makes payments to plan recipients quarterly at an
annual rate not to exceed 0.25% of the average annual net assets consisting of shares of the applicable class held
in the accounts of the recipients or their customers.
|X| Service and Distribution Plan Fees. Under each plan, service fees and distribution fees are computed on
the average of the net asset value of shares in the respective class, determined as of the close of each regular
business day during the period. The plans compensate the Distributor at a flat rate for its services and costs in
distributing shares and servicing accounts, whether the Distributor's expenses are more or less than the amounts
paid by the Fund under the plans during the period for which the fee is paid. The types of services that recipients
provide are similar to the services provided under the service plan described above.
The plans permit the Distributor to retain both the asset-based sales charges and the service fees or to
pay recipients the service fee on a quarterly basis, without payment in advance. However, the Distributor currently
intends to pay the service fee to recipients in advance for the first year after the shares are purchased. After the
first year shares are outstanding, the Distributor makes service fee payments quarterly on those shares. The advance
payment is based on the net asset value of shares sold. Shares purchased by exchange do not qualify for the advance
service fee payment. If shares are redeemed during the first year after their purchase, the recipient of the service
fees on those shares will be obligated to repay the Distributor a pro rata portion of the advance payment of the
service fee made on those shares.
Under the Class A plan, the Distributor pays the asset-based sales charge to brokers, dealers and financial
institutions. The Distributor retains the asset-based sales charge on Class B and Class N shares. The Distributor
retains the asset-based sales charge on Class C shares during the first year the shares are outstanding. It pays the
asset-based sales charge it receives on Class C shares as an ongoing commission to the recipient on Class C shares
outstanding for a year or more. If a dealer has a special agreement with the Distributor, the Distributor will pay
the Class B, Class C and/or Class N service fee and the asset-based sales charge to the dealer quarterly in lieu of
paying the sales commissions and service fee in advance at the time of purchase.
The asset-based sales charges on Class B, Class C and Class N shares allow investors to buy shares without a
front-end sales charge while allowing the Distributor to compensate dealers that sell those shares. The Fund pays
the asset-based sales charges to the Distributor for its services rendered in distributing Class A, Class B, Class C
and Class N shares. The payments are made to the Distributor in recognition that the Distributor:
o pays sales commissions to authorized brokers and dealers at the time of sale and pays service fees as
described above,
o may finance payment of sales commissions and/or the advance of the service fee payment to recipients under
the plans, or may provide such financing from its own resources or from the resources of an affiliate,
o employs personnel to support distribution of shares, and
o bears the costs of sales literature, advertising and prospectuses (other than those furnished to current
shareholders) and state "blue sky" registration fees and certain other distribution expenses.
o may not be able to adequately compensate dealers that sell Class B, Class C and Class N shares without
receiving payment under the plans and therefore may not be able to offer such Classes for sale absent the plans,
o receives payments under the plans consistent with the service fees and asset-based sales charges paid by
other non-proprietary funds that change 12b-1 fees,
o may use the payment under the plan to include the Fund in various third-party distribution programs that
may increase sales of Fund shares,
o may experience increased difficulty selling the Fund's shares if payments under the plan are discontinued
because most competitor funds have plans that pay dealers for rendering distribution services as much or more
than the amounts currently being paid by the Fund, and
o may not be able to continue providing, at the same or at lesser cost, the same quality distribution sales
efforts and services, or to obtain such services from brokers and dealers, if the plan payments were to be
discontinued.
When Class B, Class C or Class N shares are sold without the designation of a broker-dealer, the Distributor is
automatically designated as the broker-dealer of record. In those cases, the Distributor retains the service fee and
asset-based sales charge paid on Class B, Class C and Class N shares.
--------------------------------------------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor in the Fiscal Year Ended 10/31/01
--------------------------------------------------------------------------------------------------------------------
------------------- --------------------- ------------------------ ------------------------ -------------------------
Class: Total Payments Amount Retained by Distributor's Distributor's
Under Plan1 Distributor Aggregate Unreimbursed Unreimbursed Expenses
Expenses Under Plan as % of Net Assets of
Class
------------------- --------------------- ------------------------ ------------------------ -------------------------
------------------- --------------------- ------------------------ ------------------------ -------------------------
Class A Plan $664,116 $96,451 N/A N/A
------------------- --------------------- ------------------------ ------------------------ -------------------------
------------------- --------------------- ------------------------ ------------------------ -------------------------
Class B Plan $881,672 $695,603 $2,077,469 2.18%
------------------- --------------------- ------------------------ ------------------------ -------------------------
------------------- --------------------- ------------------------ ------------------------ -------------------------
Class C Plan $241,123 $54,236 $404,667 1.52%
------------------- --------------------- ------------------------ ------------------------ -------------------------
------------------- --------------------- ------------------------ ------------------------ -------------------------
Class N $352 $297 $6,169 1.51%
Plan
------------------- --------------------- ------------------------ ------------------------ -------------------------
1. Includes amounts paid to an affiliate of the Distributor's parent company: $25,477 (Class A), $10,605 (Class B)
and $3,402 (Class C), $0 (Class N).
All payments under the plans are subject to the limitations imposed by the Conduct Rules of the National
Association of Securities Dealers, Inc. on payments of asset-based sales charges and service fees.
Performance of the Fund
Explanation of Performance Terminology. The Fund uses a variety of terms to illustrate its investment performance.
Those terms include "cumulative total return," "average annual total return," "average annual total return at net
asset value" and "total return at net asset value." An explanation of how total returns are calculated is set forth
below. The charts below show the Fund's performance as of the Fund's most recent fiscal year end. You can obtain
current performance information by calling the Fund's Transfer Agent at 0.000.000.0000 or by visiting the
OppenheimerFunds Internet web site at xxxx://xxx.xxxxxxxxxxxxxxxx.xxx.
The Fund's illustrations of its performance data in advertisements must comply with rules of the Securities
and Exchange Commission. Those rules describe the types of performance data that may be used and how it is to be
calculated. In general, any advertisement by the Fund of its performance data must include the average annual total
returns for the advertised class of shares of the Fund. Those returns must be shown for the 1, 5 and 10-year periods
(or the life of the class, if less) ending as of the most recently ended calendar quarter prior to the publication
of the advertisement (or its submission for publication).
Use of standardized performance calculations enable an investor to compare the Fund's performance to the
performance of other funds for the same periods. However, a number of factors should be considered before using the
Fund's performance information as a basis for comparison with other investments:
? Total returns measure the performance of a hypothetical account in the Fund over various periods and do
not show the performance of each shareholder's account. Your account's performance will vary from the model
performance data if your dividends are received in cash, or you buy or sell shares during the period, or you bought
your shares at a different time and price than the shares used in the model.
? The Fund's performance returns do not reflect the effect of taxes on dividends and capital gains
distributions.
? An investment in the Fund is not insured by the FDIC or any other government agency.
? The principal value of the Fund's shares and total returns are not guaranteed and normally will fluctuate
on a daily basis.
? When an investor's shares are redeemed, they may be worth more or less than their original cost.
? Total returns for any given past period represent historical performance information and are not, and
should not be considered, a prediction of future returns.
The performance of each class of shares is shown separately, because the performance of each class of
shares will usually be different. That is because of the different kinds of expenses each class bears. The total
returns of each class of shares of the Fund are affected by market conditions, the quality of the Fund's
investments, the maturity of debt investments, the types of investments the Fund holds, and its operating expenses
that are allocated to the particular class.
|X| Total Return Information. There are different types of "total returns" to measure the Fund's
performance. Total return is the change in value of a hypothetical investment in the Fund over a given period,
assuming that all dividends and capital gains distributions are reinvested in additional shares and that the
investment is redeemed at the end of the period. Because of differences in expenses for each class of shares, the
total returns for each class are separately measured. The cumulative total return measures the change in value over
the entire period (for example, ten years). An average annual total return shows the average rate of return for each
year in a period that would produce the cumulative total return over the entire period. However, average annual
total returns do not show actual year-by-year performance. The Fund uses standardized calculations for its total
returns as prescribed by the SEC. The methodology is discussed below.
In calculating total returns for Class A shares, the current maximum sales charge of 5.75% (as a percentage
of the offering price) is deducted from the initial investment ("P") (unless the return is shown without sales
charge, as described below). For Class B shares, payment of the applicable contingent deferred sales charge is
applied, depending on the period for which the return is shown: 5.0% in the first year, 4.0% in the second year,
3.0% in the third and fourth years, 2.0% in the fifth year, 1.0% in the sixth year and none thereafter. For Class C
shares, the 1% contingent deferred sales charge is deducted for returns for the 1-year period. For Class N shares,
the 1% contingent deferred sales charge is deducted for returns for the life-of-class periods as applicable.
|_| Average Annual Total Return. The "average annual total return" of each class is an average
annual compounded rate of return for each year in a specified number of years. It is the rate of return based on
the change in value of a hypothetical initial investment of $1,000 ("P" in the formula below) held for a number of
years ("n" in the formula) to achieve an Ending Redeemable Value ("ERV" in the formula) of that investment,
according to the following formula:
ERV - 1 = AVERAGE ANNUAL TOTAL RETURN
-----
P
|_| Cumulative Total Return. The "cumulative total return" calculation measures the change in
value of a hypothetical investment of $1,000 over an entire period of years. Its calculation uses some of the same
factors as average annual total return, but it does not average the rate of return on an annual basis. Cumulative
total return is determined as follows:
ERV - P = TOTAL RETURN
--------
P
|_| Total Returns at Net Asset Value. From time to time the Fund may also quote a cumulative or
an average annual total return "at net asset value" (without deducting sales charges) for Class A, Class B, Class C
or Class N shares. Each is based on the difference in net asset value per share at the beginning and the end of the
period for a hypothetical investment in that class of shares (without considering front-end or contingent deferred
sales charges) and takes into consideration the reinvestment of dividends and capital gains distributions.
----------------------------------------------------------------------------------------------------------------------
The Fund's Total Returns for the Periods Ended 10/31/01
----------------------------------------------------------------------------------------------------------------------
-------------- -------------------------- -----------------------------------------------------------------------------
Cumulative Total Returns Average Annual Total Returns
(10 years or Life of
Class of Class)
Shares
-------------- -------------------------- -----------------------------------------------------------------------------
-------------- -------------------------- ------------------------- ------------------------- -------------------------
5-Year 10-Year
1-Year (or life-of-class) (or life-of-class)
-------------- -------------------------- ------------------------- ------------------------- -------------------------
-------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
After Sales Without After Without After Without After Without
Charge Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge
-------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
-------------- --------------------------------------------------------------------------------------------------------
Class A1 142.35% 157.13% -8.60% -3.02% 5.51% 6.77% 9.26% 9.90%
-------------- --------------------------------------------------------------------------------------------------------
-------------- --------------------------------------------------------------------------------------------------------
Class B2 76.44% 76.44% -8.16% -3.60% 5.89% 6.20% 7.20% 7.20%
-------------- --------------------------------------------------------------------------------------------------------
-------------- --------------------------------------------------------------------------------------------------------
Class C3 74.37% 74.37% -4.52% -3.61% 6.21% 6.21% 7.05% 7.05%
-------------- --------------------------------------------------------------------------------------------------------
-------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
Class N4 -1.35% -0.36% X/X X/X X/X X/X X/X X/X
-------------- ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
1. Inception of Class A: 1/3/89
2. Inception of Class B: 9/1/93
3. Inception of Class C: 9/1/93
4. Inception of Class N: 3/01/01
Other Performance Comparisons. The Fund compares its performance annually to that of an appropriate broadly-based
market index in its Annual Report to shareholders. You can obtain that information by contacting the Transfer Agent
at the addresses or telephone numbers shown on the cover of this Statement of Additional Information. The Fund may
also compare its performance to that of other investments, including other mutual funds, or use rankings of its
performance by independent ranking entities. Examples of these performance comparisons are set forth below.
|X| Lipper Rankings. From time to time the Fund may publish the ranking of the performance of its classes
of shares by Lipper, Inc. ("Lipper"). Lipper is a widely-recognized independent mutual fund monitoring service.
Lipper monitors the performance of regulated investment companies, including the Fund, and ranks their performance
for various periods based on stated fund classifications. Lipper currently ranks the Fund's performance against all
other small-cap value funds. The Lipper performance rankings are based on total returns that include the
reinvestment of capital gain distributions and income dividends but do not take sales charges or taxes into
consideration.
|X| Morningstar Rankings. From time to time the Fund may publish the ranking and/or star rating of the
performance of its classes of shares by Morningstar, Inc., an independent mutual fund monitoring service.
Morningstar ranks mutual funds in broad investment categories: domestic stock funds, international stock funds,
taxable bond funds and municipal bond funds. The Fund is ranked among domestic stock funds.
Morningstar proprietary star rankings reflect historical risk-adjusted total investment return. For each
fund with at least a three-year history, Morningstar calculates a Morningstar RatingTM metric each month by
subtracting the return on a 90-day U.S. Treasury Xxxx from the fund's load-adjusted return for the same period, and
then adjusting this excess return for risk. The top 10% of funds in each broad asset class receive 5 stars, the
next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars and the bottom 10% receive
1 star. The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures
associated with its three-, five- and ten-year (if applicable) Morningstar Ratings metrics.
The Fund may also compare its performance to that of other funds in its Morningstar category. In addition
to its star rankings, Morningstar also categorizes and compares a fund's 3-year performance based on Morningstar's
classification of the fund's investments and investment style, rather than how a fund defines its investment
objective. Morningstar's four broad categories (domestic equity, international equity, municipal bond and taxable
bond) are each further subdivided into categories based on types of investments and investment styles. Those
comparisons by Morningstar are based on the same risk and return measurements as its star rankings but do not
consider the effect of sales charges.
|X| Performance Rankings and Comparisons by Other Entities and Publications. From time to time the Fund
may include in its advertisements and sales literature performance information about the Fund cited in newspapers
and other periodicals such as The New York Times, The Wall Street Journal, Xxxxxx'x, or similar publications. That
information may include performance quotations from other sources, including Lipper and Morningstar. The performance
of the Fund's classes of shares may be compared in publications to the performance of various market indices or
other investments, and averages, performance rankings or other benchmarks prepared by recognized mutual fund
statistical services.
Investors may also wish to compare the returns on the Fund's share classes to the return on fixed-income
investments available from banks and thrift institutions. Those include certificates of deposit, ordinary
interest-paying checking and savings accounts, and other forms of fixed or variable time deposits, and various other
instruments such as Treasury bills. However, the Fund's returns and share price are not guaranteed or insured by the
FDIC or any other agency and will fluctuate daily, while bank depository obligations may be insured by the FDIC and
may provide fixed rates of return. Repayment of principal and payment of interest on Treasury securities is backed
by the full faith and credit of the U.S. government.
From time to time, the Fund may publish rankings or ratings of the Manager or Transfer Agent, and of the
investor services provided by them to shareholders of the Xxxxxxxxxxx funds, other than performance rankings of the
Xxxxxxxxxxx funds themselves. Those ratings or rankings of shareholder and investor services by third parties may
include comparisons of their services to those provided by other mutual fund families selected by the rating or
ranking services. They may be based upon the opinions of the rating or ranking service itself, using its research or
judgment, or based upon surveys of investors, brokers, shareholders or others.
From time to time the Fund may include in its advertisements and sales literature the total return performance
of a hypothetical investment account that includes shares of the Fund and other Xxxxxxxxxxx funds. The combined
account may be part of an illustration of an asset allocation model or similar presentation. The account performance
may combine total return performance of the Fund and the total return performance of other Xxxxxxxxxxx funds
included in the account. Additionally, from time to time, the Fund's advertisements and sales literature may
include, for illustrative or comparative purposes, statistical data or other information about general or specific
market and economic conditions. That may include, for example:
o information about the performance of certain securities or commodities markets or segments of those
markets,
o information about the performance of the economies of particular countries or regions,
o the earnings of companies included in segments of particular industries, sectors, securities markets,
countries or regions,
o the availability of different types of securities or offerings of securities,
o information relating to the gross national or gross domestic product of the United States or other
countries or regions,
o comparisons of various market sectors or indices to demonstrate performance, risk, or other characteristics
of the Fund.
ABOUT YOUR ACCOUNT
How to Buy Shares
Additional information is presented below about the methods that can be used to buy shares of the Fund. Appendix C
contains more information about the special sales charge arrangements offered by the Fund, and the circumstances in
which sales charges may be reduced or waived for certain classes of investors.
AccountLink. When shares are purchased through AccountLink, each purchase must be at least $25. Shares will be
purchased on the regular business day the Distributor is instructed to initiate the Automated Clearing House ("ACH")
transfer to buy the shares. Dividends will begin to accrue on shares purchased with the proceeds of ACH transfers on
the business day the Fund receives Federal Funds for the purchase through the ACH system before the close of The New
York Stock Exchange. The Exchange normally closes at 4:00 P.M., but may close earlier on certain days. If Federal
Funds are received on a business day after the close of the Exchange, the shares will be purchased and dividends
will begin to accrue on the next regular business day. The proceeds of ACH transfers are normally received by the
Fund 3 days after the transfers are initiated. The Distributor and the Fund are not responsible for any delays in
purchasing shares resulting from delays in ACH transmissions.
Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge rate may be obtained for Class A
shares under Right of Accumulation and Letters of Intent because of the economies of sales efforts and reduction in
expenses realized by the Distributor, dealers and brokers making such sales. No sales charge is imposed in certain
other circumstances described in Appendix C to this Statement of Additional Information because the Distributor or
dealer or broker incurs little or no selling expenses.
|X| Right of Accumulation. To qualify for the lower sales charge rates that apply to larger purchases of Class
A shares, you and your spouse can add together:
o Class A and Class B shares you purchase for your individual accounts (including IRAs and 403(b) plans), or
-
for your joint accounts, or for trust or custodial accounts on behalf of your children who are
minors, and
o Current purchases of Class A and Class B shares of the Fund and other Xxxxxxxxxxx funds to reduce the sales
charge rate that applies to current purchases of Class A shares, and
o Class A and Class B shares of Xxxxxxxxxxx funds you previously purchased subject to an initial or
contingent deferred sales charge to reduce the sales charge rate for current purchases of Class A
shares, provided that you still hold your investment in one of the Xxxxxxxxxxx funds.
A fiduciary can count all shares purchased for a trust, estate or other fiduciary account (including one or
more employee benefit plans of the same employer) that has multiple accounts. The Distributor will add the value, at
current offering price, of the shares you previously purchased and currently own to the value of current purchases
to determine the sales charge rate that applies. The reduced sales charge will apply only to current purchases. You
must request it when you buy shares.
|X| The Xxxxxxxxxxx Funds. The Xxxxxxxxxxx funds are those mutual funds for which the Distributor acts as
the distributor or the sub-distributor and currently include the following:
Xxxxxxxxxxx Bond Fund Xxxxxxxxxxx Municipal Bond Fund
Xxxxxxxxxxx California Municipal Fund Xxxxxxxxxxx New York Municipal Fund
Xxxxxxxxxxx Capital Appreciation Fund Xxxxxxxxxxx New Jersey Municipal Fund
Xxxxxxxxxxx Capital Preservation Fund Xxxxxxxxxxx Pennsylvania Municipal Fund
Xxxxxxxxxxx Capital Income Fund Xxxxxxxxxxx Quest Balanced Value Fund
Xxxxxxxxxxx Champion Income Fund Xxxxxxxxxxx Quest Capital Value Fund, Inc.
Xxxxxxxxxxx Concentrated Growth Fund Xxxxxxxxxxx Quest Global Value Fund, Inc.
Xxxxxxxxxxx Convertible Securities Fund Xxxxxxxxxxx Quest Opportunity Value Fund
Xxxxxxxxxxx Developing Markets Fund Xxxxxxxxxxx Quest Value Fund, Inc.
Xxxxxxxxxxx Disciplined Allocation Fund Xxxxxxxxxxx Real Asset Fund
Xxxxxxxxxxx Discovery Fund Xxxxxxxxxxx Rochester National Municipals
Xxxxxxxxxxx Emerging Growth Fund Xxxxxxxxxxx Senior Floating Rate Fund
Xxxxxxxxxxx Emerging Technologies Fund Xxxxxxxxxxx Small Cap Value Fund
Xxxxxxxxxxx Enterprise Fund Xxxxxxxxxxx Special Value Fund
Xxxxxxxxxxx Europe Fund Xxxxxxxxxxx Strategic Income Fund
Xxxxxxxxxxx Global Fund Xxxxxxxxxxx Total Return Fund, Inc.
Xxxxxxxxxxx Global Growth & Income Fund Xxxxxxxxxxx Trinity Core Fund
Xxxxxxxxxxx Gold & Special Minerals Fund Xxxxxxxxxxx Trinity Large Cap Growth Fund
Xxxxxxxxxxx Growth Fund Xxxxxxxxxxx Trinity Value Fund
Xxxxxxxxxxx High Yield Fund Xxxxxxxxxxx U.S. Government Trust
Xxxxxxxxxxx Intermediate Municipal Fund Xxxxxxxxxxx Value Fund
Xxxxxxxxxxx International Bond Fund Limited-Term New York Municipal Fund
Xxxxxxxxxxx International Growth Fund Rochester Fund Municipals
Xxxxxxxxxxx International Small Company Fund OSM1- Gartmore Millennium Growth Fund
Xxxxxxxxxxx Limited Term Government Fund OSM1 - Xxxxxxxx Growth Fund
Xxxxxxxxxxx Main Street Growth & Income Fund OSM1 - Mercury Advisors S&P 500 Index
Xxxxxxxxxxx Main Street Opportunity Fund OSM1 - Mercury Advisors Focus Growth Fund
Xxxxxxxxxxx Main Street Small Cap Fund OSM1 - QM Active Balanced Fund
Xxxxxxxxxxx MidCap Fund OSM1 - Salomon Brothers Capital Fund
Xxxxxxxxxxx Multiple Strategies Fund
And the following money market funds:
Centennial America Fund, L. P. Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust Centennial Tax Exempt Trust
Centennial Government Trust Xxxxxxxxxxx Cash Reserves
Centennial Money Market Trust Xxxxxxxxxxx Money Market Fund, Inc.
1 - "OSM" stands for Xxxxxxxxxxx Select Managers
There is an initial sales charge on the purchase of Class A shares of each of the Xxxxxxxxxxx funds except
the money market funds. Under certain circumstances described in this Statement of Additional Information,
redemption proceeds of certain money market fund shares may be subject to a contingent deferred sales charge.
|X| Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or Class A and Class B
shares of the Fund and other Xxxxxxxxxxx funds during a 13-month period, you can reduce the sales charge rate that
applies to your purchases of Class A shares. The total amount of your intended purchases of both Class A and Class B
shares will determine the reduced sales charge rate for the Class A shares purchased during that period. You can
include purchases made up to 90 days before the date of the Letter.
A Letter of Intent is an investor's statement in writing to the Distributor of the intention to purchase
Class A shares or Class A and Class B shares of the Fund (and other Xxxxxxxxxxx funds) during a 13-month period (the
"Letter of Intent period"). At the investor's request, this may include purchases made up to 90 days prior to the
date of the Letter. The Letter states the investor's intention to make the aggregate amount of purchases of shares
which, when added to the investor's holdings of shares of those funds, will equal or exceed the amount specified in
the Letter. Purchases made by reinvestment of dividends or distributions of capital gains and purchases made at net
asset value without sales charge do not count toward satisfying the amount of the Letter.
A Letter enables an investor to count the Class A and Class B shares purchased under the Letter to obtain
the reduced sales charge rate on purchases of Class A shares of the Fund (and other Xxxxxxxxxxx funds) that applies
under the Right of Accumulation to current purchases of Class A shares. Each purchase of Class A shares under the
Letter will be made at the offering price (including the sales charge) that applies to a single lump-sum purchase of
shares in the amount intended to be purchased under the Letter.
In submitting a Letter, the investor makes no commitment to purchase shares. However, if the investor's
purchases of shares within the Letter of Intent period, when added to the value (at offering price) of the
investor's holdings of shares on the last day of that period, do not equal or exceed the intended purchase amount,
the investor agrees to pay the additional amount of sales charge applicable to such purchases. That amount is
described in "Terms of Escrow," below (those terms may be amended by the Distributor from time to time). The
investor agrees that shares equal in value to 5% of the intended purchase amount will be held in escrow by the
Transfer Agent subject to the Terms of Escrow. Also, the investor agrees to be bound by the terms of the Prospectus,
this Statement of Additional Information and the Application used for a Letter of Intent. If those terms are
amended, as they may be from time to time by the Fund, the investor agrees to be bound by the amended terms and that
those amendments will apply automatically to existing Letters of Intent.
If the total eligible purchases made during the Letter of Intent period do not equal or exceed the intended
purchase amount, the commissions previously paid to the dealer of record for the account and the amount of sales
charge retained by the Distributor will be adjusted to the rates applicable to actual total purchases. If total
eligible purchases during the Letter of Intent period exceed the intended purchase amount and exceed the amount
needed to qualify for the next sales charge rate reduction set forth in the Prospectus, the sales charges paid will
be adjusted to the lower rate. That adjustment will be made only if and when the dealer returns to the Distributor
the excess of the amount of commissions allowed or paid to the dealer over the amount of commissions that apply to
the actual amount of purchases. The excess commissions returned to the Distributor will be used to purchase
additional shares for the investor's account at the net asset value per share in effect on the date of such
purchase, promptly after the Distributor's receipt thereof.
The Transfer Agent will not hold shares in escrow for purchases of shares of the Fund and other Xxxxxxxxxxx
funds by OppenheimerFunds prototype 401(k) plans under a Letter of Intent. If the intended purchase amount under a
Letter of Intent entered into by an OppenheimerFunds prototype 401(k) plan is not purchased by the plan by the end
of the Letter of Intent period, there will be no adjustment of commissions paid to the broker-dealer or financial
institution of record for accounts held in the name of that plan.
In determining the total amount of purchases made under a Letter, shares redeemed by the investor prior to
the termination of the Letter of Intent period will be deducted. It is the responsibility of the dealer of record
and/or the investor to advise the Distributor about the Letter in placing any purchase orders for the investor
during the Letter of Intent period. All of such purchases must be made through the Distributor.
|X| Terms of Escrow That Apply to Letters of Intent.
1. Out of the initial purchase (or subsequent purchases if necessary) made pursuant to a Letter, shares of
the Fund equal in value up to 5% of the intended purchase amount specified in the Letter shall be held in escrow by
the Transfer Agent. For example, if the intended purchase amount is $50,000, the escrow shall be shares valued in
the amount of $2,500 (computed at the offering price adjusted for a $50,000 purchase). Any dividends and capital
gains distributions on the escrowed shares will be credited to the investor's account.
2. If the total minimum investment specified under the Letter is completed within the thirteen-month Letter
of Intent period, the escrowed shares will be promptly released to the investor.
3. If, at the end of the thirteen-month Letter of Intent period the total purchases pursuant to the Letter
are less than the intended purchase amount specified in the Letter, the investor must remit to the Distributor an
amount equal to the difference between the dollar amount of sales charges actually paid and the amount of sales
charges which would have been paid if the total amount purchased had been made at a single time. That sales charge
adjustment will apply to any shares redeemed prior to the completion of the Letter. If the difference in sales
charges is not paid within twenty days after a request from the Distributor or the dealer, the Distributor will,
within sixty days of the expiration of the Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Full and fractional shares remaining after such redemption will be released from
escrow. If a request is received to redeem escrowed shares prior to the payment of such additional sales charge, the
sales charge will be withheld from the redemption proceeds.
4. By signing the Letter, the investor irrevocably constitutes and appoints the Transfer Agent as
attorney-in-fact to surrender for redemption any or all escrowed shares.
5. The shares eligible for purchase under the Letter (or the holding of which may be counted toward
completion of a Letter) include:
(a) Class A shares sold with a front-end sales charge or subject to a Class A contingent deferred sales
charge,
(b) Class B shares of other Xxxxxxxxxxx funds acquired subject to a contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class A shares of one of the other
Xxxxxxxxxxx funds that were acquired subject to a Class A initial or contingent deferred sales charge or (2) Class B
shares of one of the other Xxxxxxxxxxx funds that were acquired subject to a contingent deferred sales charge.
6. Shares held in escrow hereunder will automatically be exchanged for shares of another fund to which an
exchange is requested, as described in the section of the Prospectus entitled "How to Exchange Shares" and the
escrow will be transferred to that other fund.
Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly from a bank account, you must enclose
a check (minimum $25) for the initial purchase with your application. Shares purchased by Asset Builder Plan
payments from bank accounts are subject to the redemption restrictions for recent purchases described in the
Prospectus. Asset Builder Plans also enable shareholders of Xxxxxxxxxxx Cash Reserves to use their fund account to
make monthly automatic purchases of shares of up to four other Xxxxxxxxxxx funds.
If you make payments from your bank account to purchase shares of the Fund, your bank account will be
automatically debited, normally four to five business days prior to the investment dates selected in the
Application. Neither the Distributor, the Transfer Agent nor the Fund shall be responsible for any delays in
purchasing shares resulting from delays in ACH transmissions.
Before initiating Asset Builder payments, obtain a prospectus of the selected fund(s) from the Distributor
or your financial advisor and request an application from the Distributor, complete it and return it. The amount of
the Asset Builder investment may be changed or the automatic investments may be terminated at any time by writing to
the Transfer Agent. The Transfer Agent requires a reasonable period (approximately 15 days) after receipt of such
instructions to implement them. The Fund reserves the right to amend, suspend, or discontinue offering Asset Builder
plans at any time without prior notice.
Retirement Plans. Certain types of retirement plans are entitled to purchase shares of the Fund without sales charge
or at reduced sales charge rates, as described in Appendix C to this Statement of Additional Information. Certain
special sales charge arrangements described in that Appendix apply to retirement plans whose records are maintained
on a daily valuation basis by Xxxxxxx Xxxxx Xxxxxx Xxxxxx & Xxxxx, Inc. ("Xxxxxxx Xxxxx") or an independent record
keeper that has a contract or special arrangement with Xxxxxxx Xxxxx. If on the date the plan sponsor signed the
Xxxxxxx Xxxxx record keeping service agreement the plan has less than $3 million in assets (other than assets
invested in money market funds) invested in applicable investments, then the retirement plan may purchase only Class
B shares of the Xxxxxxxxxxx funds. Any retirement plans in that category that currently invest in Class B shares of
the Fund will have their Class B shares converted to Class A shares of the Fund when the plan's applicable
investments reach $5 million.
Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's shares (for example, when a purchase
check is returned to the Fund unpaid) causes a loss to be incurred when the net asset value of the Fund's shares on
the cancellation date is less than on the purchase date. That loss is equal to the amount of the decline in the net
asset value per share multiplied by the number of shares in the purchase order. The investor is responsible for that
loss. If the investor fails to compensate the Fund for the loss, the Distributor will do so. The Fund may reimburse
the Distributor for that amount by redeeming shares from any account registered in that investor's name, or the Fund
or the Distributor may seek other redress.
Classes of Shares. Each class of shares of the Fund represents an interest in the same portfolio of investments of
the Fund. However, each class has different shareholder privileges and features. The net income attributable to a
class of shares and the dividends payable on a class of shares will be reduced by incremental expenses borne solely
by that class. Those expenses include the asset-based sales charges to which Class A, Class B, Class C and Class N
are subject.
The availability of different classes of shares permits an investor to choose the method of purchasing
shares that is more appropriate for the investor. That may depend on the amount of the purchase, the length of time
the investor expects to hold shares, and other relevant circumstances. Class A shares normally are sold subject to
an initial sales charge. While Class B, Class C and Class N shares have no initial sales charge, the purpose of the
deferred sales charge and asset-based sales charge on Class B, Class C and Class N shares is the same as that of the
initial sales charge on Class A shares to compensate the Distributor and brokers, dealers and financial institutions
that sell shares of the Fund. A salesperson who is entitled to receive compensation from his or her firm for selling
Fund shares may receive different levels of compensation for selling one class of shares rather than another.
The Distributor will not accept any order in the amount of $500,000 or more for Class B shares or $1
million or more for Class C shares on behalf of a single investor (not including dealer "street name" or omnibus
accounts). That is because generally it will be more advantageous for that investor to purchase Class A shares of
the Fund.
|X| Class A Shares Subject to a Contingent Deferred Sales Charge. For purchases of Class A shares subject
to a contingent deferred sales charge as described in the Prospectus, no sales concessions will be paid to the
broker-dealer of record, as described in the Prospectus, on sales of Class A shares purchased with the redemption
proceeds of shares of another mutual fund offered as an investment option in a retirement plan in which Xxxxxxxxxxx
funds are also offered as investment options under a special arrangement with the Distributor, if the purchase
occurs more than 30 days after the Xxxxxxxxxxx funds are added as an investment option under that plan.
Additionally, that concession will not be paid on purchases of shares by a retirement plan made with the redemption
proceeds of Class N shares of one or more Xxxxxxxxxxx funds held by the plan for more than 18 months.
|X| Class B Conversion. Under current interpretations of applicable federal income tax law by the Internal
Revenue Service, the conversion of Class B shares to Class A shares after six years is not treated as a taxable
event for the shareholder. If those laws or the IRS interpretation of those laws should change, the automatic
conversion feature may be suspended. In that event, no further conversions of Class B shares would occur while that
suspension remained in effect. Although Class B shares could then be exchanged for Class A shares on the basis of
relative net asset value of the two classes, without the imposition of a sales charge or fee, such exchange could
constitute a taxable event for the shareholder, and absent such exchange, Class B shares might continue to be
subject to the asset-based sales charge for longer than six years.
|X| Availability of Class N Shares. to certain customers of broker-dealers and financial advisors that are
identified in a special agreement between the broker-dealer or financial advisor and the Distributor for that
purpose.
The sales concession and the advance of the service fee, as described in the Prospectus, will not be
paid to dealers of record on sales of Class N shares on:
o purchases of Class N shares in amounts of $500,000 or more by a retirement plan that pays for the purchase
with the redemption proceeds of Class A shares of one or more Xxxxxxxxxxx funds (other than
rollovers from an OppenheimerFunds-sponsored Pinnacle or Ascender 401(k) plan to any XXX invested
in the Xxxxxxxxxxx funds),
o purchases of Class N shares in amounts of $500,000 or more by a retirement plan that pays for the purchase
with the redemption proceeds of Class C shares of one or more Xxxxxxxxxxx funds held by the plan
for more than one year (other than rollovers from an OppenheimerFunds-sponsored Pinnacle or
Ascender 401(k) plan to any XXX invested in the Xxxxxxxxxxx funds), and
o on purchases of Class N shares by an OppenheimerFunds-sponsored Pinnacle or Ascender 401(k) plan made with
the redemption proceeds of Class A shares of one or more Xxxxxxxxxxx funds.
|X| Allocation of Expenses. The Fund pays expenses related to its daily operations, such as custodian fees,
Trustees' fees, transfer agency fees, legal fees and auditing costs. Those expenses are paid out of the Fund's
assets and are not paid directly by shareholders. However, those expenses reduce the net asset value of shares, and
therefore are indirectly borne by shareholders through their investment.
The methodology for calculating the net asset value, dividends and distributions of the Fund's share
classes recognizes two types of expenses. General expenses that do not pertain specifically to any one class are
allocated pro rata to the shares of all classes. The allocation is based on the percentage of the Fund's total
assets that is represented by the assets of each class, and then equally to each outstanding share within a given
class. Such general expenses include management fees, legal, bookkeeping and audit fees, printing and mailing costs
of shareholder reports, Prospectuses, Statements of Additional Information and other materials for current
shareholders, fees to unaffiliated Trustees, custodian expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses, such as litigation costs.
Other expenses that are directly attributable to a particular class are allocated equally to each
outstanding share within that class. Examples of such expenses include distribution and service plan (12b-1) fees,
transfer and shareholder servicing agent fees and expenses, and shareholder meeting expenses (to the extent that
such expenses pertain only to a specific class).
Determination of Net Asset Values Per Share. The net asset values per share of each class of shares of the Fund are
determined as of the close of business of The New York Stock Exchange on each day that the Exchange is open. The
calculation is done by dividing the value of the Fund's net assets attributable to a class by the number of shares
of that class that are outstanding. The Exchange normally closes at 4:00 P.M., New York time, but may close earlier
on some other days (for example, in case of weather emergencies or on days falling before a holiday). The Exchange's
most recent annual announcement (which is subject to change) states that it will close on New Year's Day,
Presidents' Day, Xxxxxx Xxxxxx Xxxx, Xx. Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day. It may also close on other days.
Dealers other than Exchange members may conduct trading in certain securities on days on which the Exchange
is closed (including weekends and U.S. holidays) or after 4:00 P.M. on a regular business day. Because the Fund's
net asset values will not be calculated on those days, and the Fund's values of some of the portfolio securities may
change significantly on those days when shareholders may not purchase or redeem shares. Additionally, trading on
European and Asian stock exchanges and over-the-counter markets normally is completed before the close of The New
York Stock Exchange.
Changes in the values of securities traded on foreign exchanges or markets as a result of events that occur
after the prices of those securities are determined, but before the close of The New York Stock Exchange, will not
be reflected in the Fund's calculation of its net asset values that day unless the Manager determines that the event
is likely to effect a material change in the value of the security. If such determination is made, the Manager,
acting through an internal valuation committee, will establish a valuation for such security subject to approval,
ratification and confirmation by the Board at its next ensuing meeting.
|X| Securities Valuation. The Fund's Board of Trustees has established procedures for the valuation of the
Fund's securities. In general those procedures are as follows:
? Equity securities traded on a U.S. securities exchange or on NASDAQ are valued as follows:
(1) if last sale information is regularly reported, they are valued at the last reported sale price on the principal
exchange on which they are traded or on NASDAQ, as applicable, on that day, or
(2) if last sale information is not available on a valuation date, they are valued at the last reported sale price
preceding the valuation date if it is within the spread of the closing "bid" and "asked" prices on the valuation
date or, if not, at the closing "bid" price on the valuation date.
? Equity securities traded on a foreign securities exchange generally are valued in one of the following
ways:
(1) at the last sale price available to the pricing service approved by the Board of Trustees,
(2) at the last sale price obtained by the Manager from the report of the principal the security is traded
at its last trading session on or immediately before the valuation date, or
(3) at the mean between the "bid" and "asked" prices obtained from the principal exchange on which the
security is traded or, on the basis of reasonable inquiry, from two market makers in the security.
? Long-term debt securities having a remaining maturity in excess of 60 days are valued based on the mean
between the "bid" and "asked" prices determined by a portfolio pricing service approved by the Fund's Board of
Trustees or obtained by the Manager from two active market makers in the security on the basis of reasonable inquiry.
? The following securities are valued at the mean between the "bid" and "asked" prices determined by a
pricing service approved by the Fund's Board of Trustees or obtained by the Manager from two active market makers in
the security on the basis of reasonable inquiry: (1) debt instruments that have a maturity of more than 397 days
when issued, (2) debt instruments that had a maturity of 397 days or less when issued and have a remaining maturity
of more than 60 days, and (3) non-money market debt instruments that had a maturity of 397 days or less when issued
and which have a remaining maturity of 60 days or less.
? The following securities are valued at cost, adjusted for amortization of premiums and accretion of
discounts:
(1) money market debt securities held by a non-money market fund that had a maturity of less than 397 days
when issued that have a remaining maturity of 60 days or less, and (2) debt instruments held by a money
market fund that have a remaining maturity of 397 days or less.
? Securities (including restricted securities) not having readily available market quotations are valued at
fair value determined under the Board's procedures. If the Manager is unable to locate two market makers willing to
give quotes, a security may be priced at the mean between the "bid" and "asked" prices provided by a single active
market maker (which in certain cases may be the "bid" price if no "asked" price is available).
In the case of U.S. government securities, mortgage-backed securities, corporate bonds and foreign
government securities, when last sale information is not generally available, the Manager may use pricing services
approved by the Board of Trustees. The pricing service may use "matrix" comparisons to the prices for comparable
instruments on the basis of quality, yield, and maturity. Other special factors may be involved (such as the
tax-exempt status of the interest paid by municipal securities). The Manager will monitor the accuracy of the
pricing services. That monitoring may include comparing prices used for portfolio valuation to actual sales prices
of selected securities.
The closing prices in the London foreign exchange market on a particular business day that are provided to
the Manager by a bank, dealer or pricing service that the Manager has determined to be reliable are used to value
foreign currency, including forward contracts, and to convert to U.S. dollars securities that are denominated in
foreign currency.
Puts, calls, and futures are valued at the last sale price on the principal exchange on which they are
traded or on NASDAQ, as applicable, as determined by a pricing service approved by the Board of Trustees or by the
Manager. If there were no sales that day, they shall be valued at the last sale price on the preceding trading day
if it is within the spread of the closing "bid" and "asked" prices on the principal exchange or on NASDAQ on the
valuation date. If not, the value shall be the closing bid price on the principal exchange or on NASDAQ on the
valuation date. If the put, call or future is not traded on an exchange or on NASDAQ, it shall be valued by the mean
between "bid" and "asked" prices obtained by the Manager from two active market makers. In certain cases that may be
at the "bid" price if no "asked" price is available.
When the Fund writes an option, an amount equal to the premium received is included in the Fund's Statement
of Assets and Liabilities as an asset. An equivalent credit is included in the liability section. The credit is
adjusted ("marked-to-market") to reflect the current market value of the option. In determining the Fund's gain on
investments, if a call or put written by the Fund is exercised, the proceeds are increased by the premium received.
If a call or put written by the Fund expires, the Fund has a gain in the amount of the premium. If the Fund enters
into a closing purchase transaction, it will have a gain or loss, depending on whether the premium received was more
or less than the cost of the closing transaction. If the Fund exercises a put it holds, the amount the Fund receives
on its sale of the underlying investment is reduced by the amount of premium paid by the Fund.
How to Sell Shares
The information below supplements the terms and conditions for redeeming shares set forth in the Prospectus.
Reinvestment Privilege. Within six months of a redemption, a shareholder may reinvest all or part of the redemption
proceeds of:
? Class A shares purchased subject to an initial sales charge or Class A shares on which a contingent
deferred sales charge was paid, or
? Class B shares that were subject to the Class B contingent deferred sales charge when redeemed.
The reinvestment may be made without sales charge only in Class A shares of the Fund or any of the other
Xxxxxxxxxxx funds into which shares of the Fund are exchangeable as described in "How to Exchange Shares" below.
Reinvestment will be at the net asset value next computed after the Transfer Agent receives the reinvestment order.
The shareholder must ask the Transfer Agent for that privilege at the time of reinvestment. This privilege does not
apply to Class C shares. The Fund may amend, suspend or cease offering this reinvestment privilege at any time as to
shares redeemed after the date of such amendment, suspension or cessation.
Any capital gain that was realized when the shares were redeemed is taxable, and reinvestment will not
alter any capital gains tax payable on that gain. If there has been a capital loss on the redemption, some or all of
the loss may not be tax deductible, depending on the timing and amount of the reinvestment. Under the Internal
Revenue Code, if the redemption proceeds of Fund shares on which a sales charge was paid are reinvested in shares of
the Fund or another of the Xxxxxxxxxxx funds within 90 days of payment of the sales charge, the shareholder's basis
in the shares of the Fund that were redeemed may not include the amount of the sales charge paid. That would reduce
the loss or increase the gain recognized from the redemption. However, in that case the sales charge would be added
to the basis of the shares acquired by the reinvestment of the redemption proceeds.
Payments "In Kind". The Prospectus states that payment for shares tendered for redemption is ordinarily made in
cash. However, under certain circumstances the Board of Trustees of the Fund may determine that it would be
detrimental to the best interests of the remaining shareholders of the Fund to make payment of a redemption order
wholly or partly in cash. In that case, the Fund may pay the redemption proceeds in whole or in part by a
distribution "in kind" of liquid securities from the portfolio of the Fund, in lieu of cash.
The Fund has elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the
Fund is obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net assets of the Fund
during any 90-day period for any one shareholder. If shares are redeemed in kind, the redeeming shareholder might
incur brokerage or other costs in selling the securities for cash. The Fund will value securities used to pay
redemptions in kind using the same method the Fund uses to value its portfolio securities described above under
"Determination of Net Asset Values Per Share." That valuation will be made as of the time the redemption price is
determined.
Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the involuntary redemption of the
shares held in any account if the aggregate net asset value of those shares is less than $500 or such lesser amount
as the Board may fix. The Board will not cause the involuntary redemption of shares in an account if the aggregate
net asset value of such shares has fallen below the stated minimum solely as a result of market fluctuations. If the
Board exercises this right, it may also fix the requirements for any notice to be given to the shareholders in
question (not less than 30 days). The Board may alternatively set requirements for the shareholder to increase the
investment, or set other terms and conditions so that the shares would not be involuntarily redeemed.
Transfers of Shares. A transfer of shares to a different registration is not an event that triggers the payment of
sales charges. Therefore, shares are not subject to the payment of a contingent deferred sales charge of any class
at the time of transfer to the name of another person or entity. It does not matter whether the transfer occurs by
absolute assignment, gift or bequest, as long as it does not involve, directly or indirectly, a public sale of the
shares. When shares subject to a contingent deferred sales charge are transferred, the transferred shares will
remain subject to the contingent deferred sales charge. It will be calculated as if the transferee shareholder had
acquired the transferred shares in the same manner and at the same time as the transferring shareholder.
If less than all shares held in an account are transferred, and some but not all shares in the account
would be subject to a contingent deferred sales charge if redeemed at the time of transfer, the priorities described
in the Prospectus under "How to Buy Shares" for the imposition of the Class B or Class C contingent deferred sales
charge will be followed in determining the order in which shares are transferred.
Selling Shares by Wire. The wire of redemption proceeds may be delayed if the Fund's custodian bank is not open for
business on a day when the Fund would normally authorize the wire to be made, which is usually the Fund's next
regular business day following the redemption. In those circumstances, the wire will not be transmitted until the
next bank business day on which the Fund is open for business. No dividends will be paid on the proceeds of redeemed
shares awaiting transfer by wire.
Distribution from Retirement Plans. Requests for distributions from OppenheimerFunds sponsored IRAs, 403(b)(7)
custodial plans, 401(k) plans or pension or profit-sharing plans should be addressed to "Trustee, OppenheimerFunds
Retirement Plans," c/o the Transfer Agent at its address listed in "How To Sell Shares" in the Prospectus or on the
back cover of this Statement of Additional Information. The request must:
(1) state the reason for the distribution;
(2) state the owner's awareness of tax penalties if the distribution is premature; and
(3) conform to the requirements of the plan and the Fund's other redemption requirements.
Participants (other than self-employed persons) in OppenheimerFunds-sponsored pension or profit-sharing
plans with shares of the Fund held in the name of the plan or its fiduciary may not directly request redemption of
their accounts. The plan administrator or fiduciary must sign the request.
Distributions from pension and profit sharing plans are subject to special requirements under the Internal
Revenue Code and certain documents (available from the Transfer Agent) must be completed and submitted to the
Transfer Agent before the distribution may be made. Distributions from retirement plans are subject to withholding
requirements under the Internal Revenue Code, and IRS Form W-4P (available from the Transfer Agent) must be
submitted to the Transfer Agent with the distribution request, or the distribution may be delayed. Unless the
shareholder has provided the Transfer Agent with a certified tax identification number, the Internal Revenue Code
requires that tax be withheld from any distribution even if the shareholder elects not to have tax withheld.
The Fund, the Manager, the Distributor, and the Transfer Agent assume no responsibility to determine
whether a distribution satisfies the conditions of applicable tax laws and will not be responsible for any tax
penalties assessed in connection with a distribution.
Special Arrangements for Repurchase of Shares from Dealers and Brokers. The Distributor is the Fund's agent to
repurchase its shares from authorized dealers or brokers on behalf of their customers. Shareholders should contact
their broker or dealer to arrange this type of redemption. The repurchase price per share will be the net asset
value next computed after the Distributor receives an order placed by the dealer or broker. However, if the
Distributor receives a repurchase order from a dealer or broker after the close of The New York Stock Exchange on a
regular business day, it will be processed at that day's net asset value if the order was received by the dealer or
broker from its customers prior to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but may
do so earlier on some days. Additionally, the order must have been transmitted to and received by the Distributor
prior to its close of business that day (normally 5:00 P.M.).
Ordinarily, for accounts redeemed by a broker-dealer under this procedure, payment will be made within
three business days after the shares have been redeemed upon the Distributor's receipt of the required redemption
documents in proper form. The signature(s) of the registered owners on the redemption documents must be guaranteed
as described in the Prospectus.
Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund valued at $5,000 or more can authorize
the Transfer Agent to redeem shares (having a value of at least $50) automatically on a monthly, quarterly,
semi-annual or annual basis under an Automatic Withdrawal Plan. Shares will be redeemed three business days prior to
the date requested by the shareholder for receipt of the payment. Automatic withdrawals of up to $1,500 per month
may be requested by telephone if payments are to be made by check payable to all shareholders of record. Payments
must also be sent to the address of record for the account and the address must not have been changed within the
prior 30 days. Required minimum distributions from OppenheimerFunds-sponsored retirement plans may not be arranged
on this basis.
Payments are normally made by check, but shareholders having AccountLink privileges (see "How To Buy
Shares") may arrange to have Automatic WithdrawalPlan payments transferred to the bank account designated on the
Account Application or by signature-guaranteed instructions sent to the Transfer Agent. Shares are normally redeemed
pursuant to an Automatic Withdrawal Plan three business days before the payment transmittal date you select in the
Account Application. If a contingent deferred sales charge applies to the redemption, the amount of the check or
payment will be reduced accordingly.
The Fund cannot guarantee receipt of a payment on the date requested. The Fund reserves the right to amend,
suspend or discontinue offering these plans at any time without prior notice. Because of the sales charge assessed
on Class A share purchases, shareholders should not make regular additional Class A share purchases while
participating in an Automatic Withdrawal Plan. Class B, Class C and Class N shareholders should not establish
withdrawal plans, because of the imposition of the contingent deferred sales charge on such withdrawals (except
where the contingent deferred sales charge is waived as described in Appendix C to this Statement of Additional
Information.
By requesting an Automatic Withdrawal or Exchange Plan, the shareholder agrees to the terms and conditions
that apply to such plans, as stated below. These provisions may be amended from time to time by the Fund and/or the
Distributor. When adopted, any amendments will automatically apply to existing Plans.
|X| Automatic Exchange Plans. Shareholders can authorize the Transfer Agent to exchange a pre-determined
amount of shares of the Fund for shares (of the same class) of other Xxxxxxxxxxx funds automatically on a monthly,
quarterly, semi-annual or annual basis under an Automatic Exchange Plan. The minimum amount that may be exchanged to
each other fund account is $25. Instructions should be provided on the OppenheimerFunds Application or
signature-guaranteed instructions. Exchanges made under these plans are subject to the restrictions that apply to
exchanges as set forth in "How to Exchange Shares" in the Prospectus and below in this Statement of Additional
Information.
|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to meet withdrawal payments.
Shares acquired without a sales charge will be redeemed first. Shares acquired with reinvested dividends and capital
gains distributions will be redeemed next, followed by shares acquired with a sales charge, to the extent necessary
to make withdrawal payments. Depending upon the amount withdrawn, the investor's principal may be depleted. Payments
made under these plans should not be considered as a yield or income on your investment.
The Transfer Agent will administer the investor's Automatic Withdrawal Plan as agent for the shareholder(s)
(the "Planholder") who executed the Plan authorization and application submitted to the Transfer Agent. Neither the
Fund nor the Transfer Agent shall incur any liability to the Planholder for any action taken or not taken by the
Transfer Agent in good faith to administer the Plan. Share certificates will not be issued for shares of the Fund
purchased for and held under the Plan, but the Transfer Agent will credit all such shares to the account of the
Planholder on the records of the Fund. Any share certificates held by a Planholder may be surrendered unendorsed to
the Transfer Agent with the Plan application so that the shares represented by the certificate may be held under the
Plan.
For accounts subject to Automatic Withdrawal Plans, distributions of capital gains must be reinvested in
shares of the Fund, which will be done at net asset value without a sales charge. Dividends on shares held in the
account may be paid in cash or reinvested.
Shares will be redeemed to make withdrawal payments at the net asset value per share determined on the
redemption date. Checks or AccountLink payments representing the proceeds of Plan withdrawals will normally be
transmitted three business days prior to the date selected for receipt of the payment, according to the choice
specified in writing by the Planholder. Receipt of payment on the date selected cannot be guaranteed.
The amount and the interval of disbursement payments and the address to which checks are to be mailed or
AccountLink payments are to be sent may be changed at any time by the Planholder by writing to the Transfer Agent.
The Planholder should allow at least two weeks' time after mailing such notification for the requested change to be
put in effect. The Planholder may, at any time, instruct the Transfer Agent by written notice to redeem all, or any
part of, the shares held under the Plan. That notice must be in proper form in accordance with the requirements of
the then-current Prospectus of the Fund. In that case, the Transfer Agent will redeem the number of shares
requested at the net asset value per share in effect and will mail a check for the proceeds to the Planholder.
The Planholder may terminate a Plan at any time by writing to the Transfer Agent. The Fund may also give
directions to the Transfer Agent to terminate a Plan. The Transfer Agent will also terminate a Plan upon its receipt
of evidence satisfactory to it that the Planholder has died or is legally incapacitated. Upon termination of a Plan
by the Transfer Agent or the Fund, shares that have not been redeemed will be held in uncertificated form in the
name of the Planholder. The account will continue as a dividend-reinvestment, uncertificated account unless and
until proper instructions are received from the Planholder, his or her executor or guardian, or another authorized
person.
To use shares held under the Plan as collateral for a debt, the Planholder may request issuance of a
portion of the shares in certificated form. Upon written request from the Planholder, the Transfer Agent will
determine the number of shares for which a certificate may be issued without causing the withdrawal checks to stop.
However, should such uncertificated shares become exhausted, Plan withdrawals will terminate.
If the Transfer Agent ceases to act as transfer agent for the Fund, the Planholder will be deemed to have
appointed any successor transfer agent to act as agent in administering the Plan.
How to Exchange Shares
As stated in the Prospectus, shares of a particular class of Xxxxxxxxxxx funds having more than one class
of shares may be exchanged only for shares of the same class of other Xxxxxxxxxxx funds. Shares of Xxxxxxxxxxx
funds that have a single class without a class designation are deemed "Class A" shares for this purpose. You can
obtain a current list showing which funds offer which classes by calling the Distributor at 0.000.000.0000.
o All of the Xxxxxxxxxxx funds currently offer Class A, B and C shares except Xxxxxxxxxxx Money Market Fund,
Inc., Centennial Money Market Trust, Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New
York Tax Exempt Trust, Centennial California Tax Exempt Trust, and Centennial America Fund, L.P., which only
offer Class A shares.
o Class B, Class C and Class N shares of Xxxxxxxxxxx Cash Reserves are generally available only by exchange
from the same class of shares of other Xxxxxxxxxxx funds or through OppenheimerFunds-sponsored 401(k) plans.
o Only certain Xxxxxxxxxxx funds currently offer Class Y shares. Class Y shares of Xxxxxxxxxxx Real Asset
Fund may not be exchanged for shares of any other fund.
o Only certain Xxxxxxxxxxx funds currently offer Class N shares, which are only offered to retirement plans
as described in the Prospectus. Class N shares can be exchanged only for Class N shares of other Xxxxxxxxxxx
funds.
o Class M shares of Xxxxxxxxxxx Convertible Securities Fund may be exchanged only for Class A shares of other
Xxxxxxxxxxx funds. They may not be acquired by exchange of shares of any class of any other Xxxxxxxxxxx funds
except Class A shares of Xxxxxxxxxxx Money Market Fund or Xxxxxxxxxxx Cash Reserves acquired by exchange of
Class M shares.
o Class X shares of Limited Term New York Municipal Fund can be exchanged only for Class B shares of other
Xxxxxxxxxxx funds and no exchanges may be made to Class X shares.
o Shares of Xxxxxxxxxxx Capital Preservation Fund may not be exchanged for shares of Xxxxxxxxxxx Money Market
Fund, Inc., Xxxxxxxxxxx Cash Reserves or Xxxxxxxxxxx Limited-Term Government Fund. Only participants in
certain retirement plans may purchase shares of Xxxxxxxxxxx Capital Preservation Fund, and only those
participants may exchange shares of other Xxxxxxxxxxx funds for shares of Xxxxxxxxxxx Capital Preservation Fund.
o Class A shares of Xxxxxxxxxxx Senior Floating Rate Fund are not available by exchange of shares of
Xxxxxxxxxxx Money Market Fund or Class A shares of Xxxxxxxxxxx Cash Reserves. If any Class A shares of another
Xxxxxxxxxxx fund that are exchanged for Class A shares of Xxxxxxxxxxx Senior Floating Rate Fund are subject to
the Class A contingent deferred sales charge of the other Xxxxxxxxxxx fund at the time of exchange, the holding
period for that Class A contingent deferred sales charge will carry over to the Class A shares of Xxxxxxxxxxx
Senior Floating Rate Fund acquired in the exchange. The Class A shares of Xxxxxxxxxxx Senior Floating Rate Fund
acquired in that exchange will be subject to the Class A Early Withdrawal Charge of Xxxxxxxxxxx Senior Floating
Rate Fund if they are repurchased before the expiration of the holding period.
o Class A, Class B, Class C and Class Y Shares of Xxxxxxxxxxx Select Managers Mercury Advisors S&P Index Fund
and Xxxxxxxxxxx Select Managers QM Active Balanced Fund are only available to retirement plans and are
available only by exchange from the same class of shares of other Xxxxxxxxxxx funds held by retirement plans.
Class A shares of Xxxxxxxxxxx funds may be exchanged at net asset value for shares of any money market fund offered
by the Distributor. Shares of any money market fund purchased without a sales charge may be exchanged for shares of
Xxxxxxxxxxx funds offered with a sales charge upon payment of the sales charge. They may also be used to purchase
shares of Xxxxxxxxxxx funds subject to an early withdrawal charge or contingent deferred sales charge.
Shares of Xxxxxxxxxxx Money Market Fund, Inc. purchased with the redemption proceeds of shares of other
mutual funds (other than funds managed by the Manager or its subsidiaries) redeemed within the 30 days prior to that
purchase may subsequently be exchanged for shares of other Xxxxxxxxxxx funds without being subject to an initial
sales charge or contingent deferred sales charge. To qualify for that privilege, the investor or the investor's
dealer must notify the Distributor of eligibility for this privilege at the time the shares of Xxxxxxxxxxx Money
Market Fund, Inc. are purchased. If requested, they must supply proof of entitlement to this privilege.
Shares of the Fund acquired by reinvestment of dividends or distributions from any of the other Xxxxxxxxxxx
funds or from any unit investment trust for which reinvestment arrangements have been made with the Distributor may
be exchanged at net asset value for shares of any of the Xxxxxxxxxxx funds.
The Fund may amend, suspend or terminate the exchange privilege at any time. Although the Fund may impose
these changes at any time, it will provide you with notice of those changes whenever it is required to do so by
applicable law. It may be required to provide 60 days notice prior to materially amending or terminating the
exchange privilege. That 60 day notice is not required in extraordinary circumstances.
|X| How Exchanges Affect Contingent Deferred Sales Charges. No contingent deferred sales charge is imposed
on exchanges of shares of any class purchased subject to a contingent deferred sales charge. However, when Class A
shares acquired by exchange of Class A shares of other Xxxxxxxxxxx funds purchased subject to a Class A contingent
deferred sales charge are redeemed within 18 months of the end of the calendar month of the initial purchase of the
exchanged Class A shares, the Class A contingent deferred sales charge is imposed on the redeemed shares. The Class
B contingent deferred sales charge is imposed on Class B shares acquired by exchange if they are redeemed within 6
years of the initial purchase of the exchanged Class B shares. The Class C contingent deferred sales charge is
imposed on Class C shares acquired by exchange if they are redeemed within 12 months of the initial purchase of the
exchanged Class C shares. With respect to Class N shares, a 1% contingent deferred sales charge will be imposed if
the retirement plan (not including IRAs and 403(b) plans) is terminated or Class N shares of all Xxxxxxxxxxx funds
are terminated as an investment option of the plan and Class N shares are redeemed within 18 months after the plan's
first purchase of Class N shares of any Xxxxxxxxxxx fund or with respect to an individual retirement plan or 403(b)
plan, Class N shares are redeemed within 18 months of the plan's first purchase of Class N shares of any Xxxxxxxxxxx
fund.
When Class B or Class C shares are redeemed to effect an exchange, the priorities described in "How To Buy Shares"
in the Prospectus for the imposition of the Class B or the Class C contingent deferred sales charge will be followed
in determining the order in which the shares are exchanged. Before exchanging shares, shareholders should take into
account how the exchange may affect any contingent deferred sales charge that might be imposed in the subsequent
redemption of remaining shares. If Class B shares of an Xxxxxxxxxxx fund are exchanged for Class B shares of
Xxxxxxxxxxx Limited-Term Government Fund or Limited-Term New York Municipal Fund and those shares acquired by
exchange are subsequently redeemed, they will be subject to the contingent deferred sales charge of the Xxxxxxxxxxx
fund from which they were exchanged. The contingent deferred sales charge rates of Class B shares of other
Xxxxxxxxxxx funds are typically higher for the same holding period than for Class B shares of Xxxxxxxxxxx
Limited-Term Government Fund and Limited-Term New York Municipal Fund. They will not be subject to the contingent
deferred sales charge of Xxxxxxxxxxx Limited-Term Government Fund or Limited-Term New York Municipal Fund.
Shareholders owning shares of more than one class must specify which class of shares they wish to exchange.
|X| Limits on Multiple Exchange Orders. The Fund reserves the right to reject telephone or written
exchange requests submitted in bulk by anyone on behalf of more than one account. The Fund may accept requests for
exchanges of up to 50 accounts per day from representatives of authorized dealers that qualify for this privilege.
|X| Telephone Exchange Requests. When exchanging shares by telephone, a shareholder must have an existing
account in the fund to which the exchange is to be made. Otherwise, the investors must obtain a Prospectus of that
fund before the exchange request may be submitted. When you exchange some or all of your shares from one fund to
another, any special account features such as an Asset Builder Plan or Automatic Withdrawal Plan, will be switched
to the new fund account unless you tell the Transfer Agent not to do so. However, special redemption and exchange
features such as Automatic Exchange Plans and Automatic Withdrawal Plans cannot be switched to an account in
Xxxxxxxxxxx Senior Floating Rate Fund. If all telephone lines are busy (which might occur, for example, during
periods of substantial market fluctuations), shareholders might not be able to request exchanges by telephone and
would have to submit written exchange requests.
|X| Processing Exchange Requests. Shares to be exchanged are redeemed on the regular business day the
Transfer Agent receives an exchange request in proper form (the "Redemption Date"). Normally, shares of the fund to
be acquired are purchased on the Redemption Date, but such purchases may be delayed by either fund up to five
business days if it determines that it would be disadvantaged by an immediate transfer of the redemption proceeds.
The Fund reserves the right, in its discretion, to refuse any exchange request that may disadvantage it. For
example, if the receipt of multiple exchange requests from a dealer might require the disposition of portfolio
securities at a time or at a price that might be disadvantageous to the Fund, the Fund may refuse the request. For
full or partial exchanges of an account made by telephone, any special account features such as Asset Builder Plans
and Automatic Withdrawal Plans will be switched to the new account unless the Transfer Agent is instructed otherwise.
Dividends, Capital Gains and Taxes
Dividends and Distributions. The Fund has no fixed dividend rate and there can be no assurance as to the payment of
any dividends or the realization of any capital gains. The dividends and distributions paid by a class of shares
will vary from time to time depending on market conditions, the composition of the Fund's portfolio, and expenses
borne by the Fund or borne separately by a class. Dividends are calculated in the same manner, at the same time,
and on the same day for each class of shares. However, dividends on Class B, Class C and Class N shares are expected
to be lower than dividends on Class A shares. That is because of the effect of the higher asset-based sales charge
on Class B, Class C and Class N shares. Those dividends will also differ in amount as a consequence of any
difference in the net asset values of each class of shares.
Dividends, distributions and proceeds of the redemption of Fund shares represented by checks returned to
the Transfer Agent by the Postal Service as undeliverable will be invested in shares of Xxxxxxxxxxx Money Market
Fund, Inc. Reinvestment will be made as promptly as possible after the return of such checks to the Transfer Agent,
to enable the investor to earn a return on otherwise idle funds. Unclaimed accounts may be subject to state
escheatment laws, and the Fund and the Transfer Agent will not be liable to shareholders or their representatives
for compliance with those laws in good faith.
Tax Status of the Fund's Dividends, Distributions and Redemptions of Shares. The federal tax treatment of the
Fund's dividends and capital gains distributions is briefly highlighted in the Prospectus. The following is only a
summary of certain additional tax considerations generally affecting the Fund and its shareholders.
The tax discussion in the Prospectus and this Statement of Additional Information is based on tax law in
effect on the date of the Prospectus and this Statement of Additional Information. Those laws and regulations may be
changed by legislative, judicial, or administrative action, sometimes with retroactive effect. State and local tax
treatment of ordinary income dividends and capital gain dividends from regulated investment companies may differ
from the treatment under the Internal Revenue Code described below. Potential purchasers of shares of the Fund are
urged to consult their tax advisers with specific reference to their own tax circumstances as well as the
consequences of federal, state and local tax rules affecting an investment in the Fund.
Qualification as a Regulated Investment Company. The Fund has elected to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. As a regulated investment
company, the Fund is not subject to federal income tax on the portion of its investment company taxable income (that
is, taxable interest, dividends, other taxable ordinary income net of expenses, and net short-term capital gain in
excess of long-term capital loss) and capital gain net income (that is, the excess of net long-term capital gains
over net short-term capital losses) that it distributes to shareholders. That qualification enables the Fund to
"pass through" its income and realized capital gains to shareholders without having to pay tax on them. This avoids a
"double tax" on that income and capital gains, since shareholders normally will be taxed on the dividends and
capital gains they receive from the Fund (unless their Fund shares are held in a retirement account or the
shareholder is otherwise exempt from tax). The Internal Revenue Code contains a number of complex tests relating to
qualification that the Fund might not meet in a particular year. If it did not qualify as a regulated investment
company, the Fund would be treated for tax purposes as an ordinary corporation and would receive no tax deduction
for payments made to shareholders.
To qualify as a regulated investment company, the Fund must distribute at least 90% of its investment
company taxable income (in brief, net investment income and the excess of net short-term capital gain over net
long-term capital loss) for the taxable year. The Fund must also satisfy certain other requirements of the Internal
Revenue Code, some of which are described below. Distributions by the Fund made during the taxable year or, under
specified circumstances, within twelve months after the close of the taxable year, will be considered distributions
of income and gains for the taxable year and will therefore count toward satisfaction of the above-mentioned
requirement.
To qualify as a regulated investment company, the Fund must derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of
stock or securities or foreign currencies (to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and certain other income.
In addition to satisfying the requirements described above, the Fund must satisfy an asset diversification
test in order to qualify as a regulated investment company. Under that test, at the close of each quarter of the
Fund's taxable year, at least 50% of the value of the Fund's assets must consist of cash and cash items, U.S.
government securities, securities of other regulated investment companies, and securities of other issuers. As to
each of those issuers, the Fund must not have invested more than 5% of the value of the Fund's total assets in
securities of each such issuer and the Fund must not hold more than 10% of the outstanding voting securities of each
such issuer. No more than 25% of the value of its total assets may be invested in the securities of any one issuer
(other than U.S. government securities and securities of other regulated investment companies), or in two or more
issuers which the Fund controls and which are engaged in the same or similar trades or businesses. For purposes of
this test, obligations issued or guaranteed by certain agencies or instrumentalities of the U.S. government are
treated as U.S. government securities.
? Excise Tax on Regulated Investment Companies. Under the Internal Revenue Code, by December 31 each
year, the Fund must distribute 98% of its taxable investment income earned from January 1 through December 31 of
that year and 98% of its capital gains realized in the period from November 1 of the prior year through October 31
of the current year. If it does not, the Fund must pay an excise tax on the amounts not distributed. It is presently
anticipated that the Fund will meet those requirements. To meet this requirement, in certain circumstances the Fund
might be required to liquidate portfolio investments to make sufficient distributions to avoid excise tax liability.
However, the Board of Trustees and the Manager might determine in a particular year that it would be in the best
interests of shareholders for the Fund not to make such distributions at the required levels and to pay the excise
tax on the undistributed amounts. That would reduce the amount of income or capital gains available for distribution
to shareholders.
? Taxation of Fund Distributions. The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Those distributions will be taxable to shareholders as ordinary
income and treated as dividends for federal income tax purposes.
Special provisions of the Internal Revenue Code govern the eligibility of the Fund's dividends for the
dividends-received deduction for corporate shareholders. Long-term capital gains distributions are not eligible for
the deduction. The amount of dividends paid by the Fund that may qualify for the deduction is limited to the
aggregate amount of qualifying dividends that the Fund derives from portfolio investments that the Fund has held for
a minimum period, usually 46 days. A corporate shareholder will not be eligible for the deduction on dividends paid
on Fund shares held for 45 days or less. To the extent the Fund's dividends are derived from gross income from
option premiums, interest income or short-term gains from the sale of securities or dividends from foreign
corporations, those dividends will not qualify for the deduction. Since it is anticipated that most of the Fund's
income will be derived from interest it receives on its investments, the Fund does not anticipate that its
distributions will qualify for this deduction.
The Fund may either retain or distribute to shareholders its net capital gain for each taxable year. The
Fund currently intends to distribute any such amounts. If net long term capital gains are distributed and
designated as a capital gain distribution, it will be taxable to shareholders as long-term capital gain. It does not
matter how long the shareholder has held his or her shares or whether that gain was recognized by the Fund before
the shareholder acquired his or her shares.
If the Fund elects to retain its net capital gain, the Fund will be subject to tax on it at the 35%
corporate tax rate. If the Fund elects to retain its net capital gain, it is expected that the Fund also will elect
to have shareholders of record on the last day of its taxable year treated as if each received a distribution of
their pro rata share of such gain. As a result, each shareholder will be required to report his or her pro rata
share of such gain on their tax return as long-term capital gain, will receive a refundable tax credit for his/her
pro rata share of tax paid by the Fund on the gain, and will increase the tax basis for his/her shares by an amount
equal to the deemed distribution less the tax credit.
Investment income that may be received by the Fund from sources within foreign countries may be subject to
foreign taxes withheld at the source. The United States has entered into tax treaties with many foreign countries
which entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
Distributions by the Fund that do not constitute ordinary income dividends or capital gain
distributions will be treated as a return of capital to the extent of the shareholder's tax basis in their shares.
Any excess will be treated as gain from the sale of those shares, as discussed below. Shareholders will be advised
annually as to the U.S. federal income tax consequences of distributions made (or deemed made) during the year. If
prior distributions made by the Fund must be re-characterized as a non-taxable return of capital at the end of the
fiscal year as a result of the effect of the Fund's investment policies, they will be identified as such in notices
sent to shareholders.
Distributions by the Fund will be treated in the manner described above regardless of whether the
distributions are paid in cash or reinvested in additional shares of the Fund (or of another fund). Shareholders
receiving a distribution in the form of additional shares will be treated as receiving a distribution in an amount
equal to the fair market value of the shares received, determined as of the reinvestment date.
The Fund will be required in certain cases to withhold and remit to the U.S. Treasury 31% of ordinary
income dividends and capital gains distributions and the proceeds of the redemption of shares, paid to any
shareholder (1) who has failed to provide a correct, certified taxpayer identification number, (2) who is subject to
backup withholding for failure to report the receipt of interest or dividend income properly, or (3) who has failed
to certify to the Fund that the shareholder is not subject to backup withholding or is an "exempt recipient" (such
as a corporation).
? Tax Effects of Redemptions of Shares. If a shareholder redeems all or a portion of his/her shares, the
-
shareholder will recognize a gain or loss on the redeemed shares in an amount equal to the difference between the
proceeds of the redeemed shares and the shareholder's adjusted tax basis in the shares. All or a portion of any
loss recognized in that manner may be disallowed if the shareholder purchases other shares of the Fund within 30
days before or after the redemption.
In general, any gain or loss arising from the redemption of shares of the Fund will be considered capital
gain or loss, if the shares were held as a capital asset. It will be long-term capital gain or loss if the shares
were held for more than one year. However, any capital loss arising from the redemption of shares held for six
months or less will be treated as a long-term capital loss to the extent of the amount of capital gain dividends
received on those shares. Special holding period rules under the Internal Revenue Code apply in this case to
determine the holding period of shares and there are limits on the deductibility of capital losses in any year.
? Foreign Shareholders. Taxation of a shareholder who under United States law is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership depends on whether the
shareholder's income from the Fund is effectively connected with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S. trade or business carried on by a
foreign shareholder, ordinary income dividends paid to such foreign shareholder will be subject to U.S. withholding
tax. The rate of the tax depends on a number of factors. If the income from the Fund is effectively connected with a
U.S. trade or business carried on by a foreign shareholder, then ordinary income dividends, capital gain dividends,
and any gains realized upon the sale of shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of a foreign non-corporate shareholder, the Fund may be required to withhold U.S. federal
income tax at a rate of 31% on distributions that are otherwise exempt from withholding tax (or taxable at a reduced
treaty rate) unless the shareholder furnishes the Fund with proper notification of their foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of an applicable tax treaty
may be different from those described herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the Fund, including the applicability of
foreign taxes.
Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to reinvest all dividends and/or capital
gains distributions in shares of the same class of any of the other Xxxxxxxxxxx funds listed above. Reinvestment
will be made without sales charge at the net asset value per share in effect at the close of business on the payable
date of the dividend or distribution. To elect this option, the shareholder must notify the Transfer Agent in
writing and must have an existing account in the fund selected for reinvestment. Otherwise the shareholder first
must obtain a prospectus for that fund and an application from the Distributor to establish an account. Dividends
and/or distributions from shares of certain other Xxxxxxxxxxx funds (other than Xxxxxxxxxxx Cash Reserves) may be
invested in shares of this Fund on the same basis.
Additional Information About the Fund
The Distributor. The Fund's shares are sold through dealers, brokers and other financial institutions that have a
sales agreement with OppenheimerFunds Distributor, Inc., a subsidiary of the Manager that acts as the Fund's
Distributor. The Distributor also distributes shares of the other Xxxxxxxxxxx funds and is sub-distributor for funds
managed by a subsidiary of the Manager.
The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a division of the Manager. It is
responsible for maintaining the Fund's shareholder registry and shareholder accounting records, and for paying
dividends and distributions to shareholders. It also handles shareholder servicing and administrative functions. It
serves as the Transfer Agent for an annual per account fee. It also acts as shareholder servicing agent for the
other Xxxxxxxxxxx funds. Shareholders should direct inquiries about their accounts to the Transfer Agent at the
address and toll-free numbers shown on the back cover.
|X| Shareholder Servicing Agent for Certain Shareholders. Unified Management Corporation (0.000.000.0000)
is the shareholder servicing agent for shareholders of the Fund who were former shareholders of the AMA Family of
Funds and clients of AMA Investment Advisors, Inc. (which had been the investment advisor of AMA Family of Funds).
It is also the servicing agent for Fund shareholders who are:
(i) former shareholders of the Unified Funds and Liquid Green Trusts,
(ii) accounts that participated or participate in a retirement plan for which Unified Investment Advisors, Inc.
or an affiliate acts as custodian or trustee,
(iii) accounts that have a Money Manager brokerage account, and
(iv) other accounts for which Unified Management Corporation is the dealer of record.
The Custodian. Citibank, N.A. is the custodian of the Fund's assets. The custodian's responsibilities include
safeguarding and controlling the Fund's portfolio securities and handling the delivery of such securities to and
from the Fund. It will be the practice of the Fund to deal with the custodian in a manner uninfluenced by any
banking relationship the custodian may have with the Manager and its affiliates. The Fund's cash balances with the
custodian in excess of $100,000 are not protected by Federal deposit insurance. Those uninsured balances at times
may be substantial.
Independent Auditors. KPMG LLP are the independent auditors of the Fund. They audit the Fund's financial statements
and perform other related audit services. They also act as independent auditors for certain other funds advised by
the Manager.
INDEPENDENT AUDITORS' REPORT
================================================================================
The Board of Trustees and Shareholders of
Xxxxxxxxxxx Small Cap Value Fund:
We have audited the accompanying statement of assets and liabilities of
Xxxxxxxxxxx Small Cap Value Fund (formerly Xxxxxxxxxxx Quest Small Cap
Fund/(SM)/, including the statement of investments, as of October 31, 2001, and
the related statement of operations for the year then ended, the statements of
changes in net assets and the financial highlights for each of the two years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for each of the three years in the period ended
October 31, 1999, were audited by other auditors whose report dated November 19,
1999, expressed an unqualified opinion on this information.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of October 31, 2001, by
correspondence with the custodian 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 Small Cap Value Fund as of October 31, 2001, the results of its
operations for the year then ended, the changes in its net assets and the
financial highlights for each of the two years in the period then ended, in
conformity with accounting principles generally accepted in the United States
of America.
/s/ KPMG LLP
--------------
KPMG LLP
Denver, Colorado
November 21, 2001
XXXXXXXXXXX SMALL CAP VALUE FUND
STATEMENT OF INVESTMENTS October 31, 2001
Market Value
Shares See Note 1
=========================================================================================
Common Stocks--89.2%
-----------------------------------------------------------------------------------------
Basic Materials--6.6%
-----------------------------------------------------------------------------------------
Chemicals--3.1%
Airgas, Inc./1/ 30,000 $ 403,500
-----------------------------------------------------------------------------------------
Arch Chemicals, Inc. 16,000 319,840
-----------------------------------------------------------------------------------------
Cabot Corp. 9,000 301,500
-----------------------------------------------------------------------------------------
Calgon Carbon Corp. 9,000 83,160
-----------------------------------------------------------------------------------------
Cambrex Corp. 4,000 148,000
-----------------------------------------------------------------------------------------
Ferro Corp. 100,000 2,200,000
-----------------------------------------------------------------------------------------
X.X. Xxxxxx Co. 11,800 606,874
-----------------------------------------------------------------------------------------
Hercules, Inc./1/ 200,000 1,512,000
-----------------------------------------------------------------------------------------
Lubrizol Corp. (The) 10,000 281,400
-----------------------------------------------------------------------------------------
Lyondell Chemical Co. 78,000 1,038,180
-----------------------------------------------------------------------------------------
Minerals Technologies, Inc. 12,500 511,250
-----------------------------------------------------------------------------------------
Octel Corp./1/ 12,000 230,040
-----------------------------------------------------------------------------------------
OM Group, Inc. 6,000 363,300
-----------------------------------------------------------------------------------------
SCP Pool Corp./1/ 31,500 732,060
-----------------------------------------------------------------------------------------
Universal Corp. 8,000 258,720
-----------
8,989,824
-----------------------------------------------------------------------------------------
Metals--1.6%
Aviall, Inc/1/ 38,700 186,534
-----------------------------------------------------------------------------------------
Century Aluminum Co. 26,000 253,500
-----------------------------------------------------------------------------------------
Chicago Bridge & Iron Co. NV 10,000 217,500
-----------------------------------------------------------------------------------------
CIRCOR International, Inc. 83,000 1,464,950
-----------------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc., Cl. A/1/ 14,700 147,147
-----------------------------------------------------------------------------------------
Freeport-McMoRan Copper & Gold, Inc., Cl. B/1/ 32,300 358,530
-----------------------------------------------------------------------------------------
NS Group, Inc./1/ 19,000 130,150
-----------------------------------------------------------------------------------------
Stillwater Mining Co./1/ 20,000 311,800
-----------------------------------------------------------------------------------------
Titanium Metals Corp./1/ 54,500 171,675
-----------------------------------------------------------------------------------------
UCAR International, Inc./1/ 151,500 1,101,405
-----------------------------------------------------------------------------------------
Xxxxxx Industries, Inc. 40,000 419,600
-----------
4,762,791
-----------------------------------------------------------------------------------------
Paper--1.9%
Glatfelter 33,600 504,000
-----------------------------------------------------------------------------------------
Pactiv Corp./1/ 82,000 1,328,400
-----------------------------------------------------------------------------------------
Rayonier, Inc. 12,800 547,584
-----------------------------------------------------------------------------------------
Sappi Ltd., Sponsored ADR 350,000 3,339,000
-----------
5,718,984
12 | XXXXXXXXXXX SMALL CAP VALUE FUND
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------------
Capital Goods--10.7%
-----------------------------------------------------------------------------------------
Aerospace/Defense--0.9%
American Axle & Manufacturing Holdings, Inc./1/ 5,600 $ 94,640
-----------------------------------------------------------------------------------------
DRS Technologies, Inc./1/ 28,000 1,129,800
-----------------------------------------------------------------------------------------
Intermagnetics General Corp. 14,280 411,692
-----------------------------------------------------------------------------------------
Moog, Inc., Cl. A/1/ 33,750 733,725
-----------------------------------------------------------------------------------------
Precision Castparts Corp. 17,500 397,950
-----------
2,767,807
-----------------------------------------------------------------------------------------
Electrical Equipment--1.2%
AMETEK, Inc. 5,000 135,000
-----------------------------------------------------------------------------------------
CLARCOR, Inc. 5,000 123,000
-----------------------------------------------------------------------------------------
EMCOR Group, Inc./1/ 25,000 978,000
-----------------------------------------------------------------------------------------
Encore Wire Corp./1/ 5,000 57,750
-----------------------------------------------------------------------------------------
Genlyte Group, Inc. (The)/1/ 6,000 160,800
-----------------------------------------------------------------------------------------
Interlogix, Inc./1/ 6,400 167,104
-----------------------------------------------------------------------------------------
LTX Corp./1/ 106,700 1,756,282
-----------
3,377,936
-----------------------------------------------------------------------------------------
Industrial Services--4.4%
Coinstar, Inc/1/ 40,000 738,800
-----------------------------------------------------------------------------------------
Graco, Inc. 28,750 934,375
-----------------------------------------------------------------------------------------
Granite Construction, Inc. 17,550 436,995
-----------------------------------------------------------------------------------------
ICT Group, Inc./1/ 10,600 148,400
-----------------------------------------------------------------------------------------
Lincoln Electric Holdings, Inc. 25,500 539,580
-----------------------------------------------------------------------------------------
XxXxxxxxx International, Inc/1/ 38,600 409,160
-----------------------------------------------------------------------------------------
Mobile Mini, Inc./1/ 11,000 342,980
-----------------------------------------------------------------------------------------
National Data Corp. 25,000 880,000
-----------------------------------------------------------------------------------------
National Processing, Inc./1/ 31,300 818,495
-----------------------------------------------------------------------------------------
Navigant Consulting, Inc./1/ 34,000 122,740
-----------------------------------------------------------------------------------------
New England Business Service, Inc. 3,000 52,410
-----------------------------------------------------------------------------------------
Oil States International, Inc./1/ 5,200 46,540
-----------------------------------------------------------------------------------------
Xxxxx Systems, Inc./1/ 40,000 220,597
-----------------------------------------------------------------------------------------
Pittston Brink's Group 132,000 2,541,000
-----------------------------------------------------------------------------------------
Right Management Consultants, Inc/1/ 11,550 401,593
-----------------------------------------------------------------------------------------
Stericycle, Inc./1/ 19,000 912,000
-----------------------------------------------------------------------------------------
Sylvan Learning Systems, Inc/1/ 40,000 896,000
-----------------------------------------------------------------------------------------
Teekay Shipping Corp. 22,000 608,080
-----------------------------------------------------------------------------------------
Tetra Technologies, Inc./1/ 26,000 442,520
-----------------------------------------------------------------------------------------
TRC Cos., Inc./1/ 5,200 218,816
-----------------------------------------------------------------------------------------
URS Corp./(1)/ 22,000 492,800
-----------------------------------------------------------------------------------------
Wackenhut Corrections Corp/1/ 28,700 430,500
-----------------------------------------------------------------------------------------
Waste Connections, Inc./1/ 7,000 204,540
-----------
12,838,921
13 | XXXXXXXXXXX SMALL CAP VALUE FUND
STATEMENT OF INVESTMENTS Continued
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------------
Manufacturing--4.2%
AEP Industries, Inc./1/ 10,400 $ 208,520
-----------------------------------------------------------------------------------------
Albany International Corp. Cl. A/1/ 20,000 390,000
-----------------------------------------------------------------------------------------
American Woodmark Corp. 5,900 203,904
-----------------------------------------------------------------------------------------
Ameron International Corp. 4,800 314,880
-----------------------------------------------------------------------------------------
AptarGroup, Inc. 23,000 692,300
-----------------------------------------------------------------------------------------
Astronics Corp./1/ 17,200 232,200
-----------------------------------------------------------------------------------------
Ball Corp. 18,000 1,107,720
-----------------------------------------------------------------------------------------
Xxxxxxxxx Co., Inc. 22,000 694,100
-----------------------------------------------------------------------------------------
Flowserve Corp./1/ 20,600 481,628
-----------------------------------------------------------------------------------------
Interpool, Inc. 5,500 66,550
-----------------------------------------------------------------------------------------
Ivex Packaging Corp./1/ 36,000 657,000
-----------------------------------------------------------------------------------------
Knight Transportation, Inc./1/ 29,500 719,505
-----------------------------------------------------------------------------------------
Xxxxxxxx International Corp., Cl. A 28,000 645,400
-----------------------------------------------------------------------------------------
Maverick Tube Corp./1/ 11,000 133,100
-----------------------------------------------------------------------------------------
NACCO Industries, Inc., Cl. A 8,900 465,470
-----------------------------------------------------------------------------------------
NCH Corp. 3,500 162,575
-----------------------------------------------------------------------------------------
Oakley, Inc./1/ 40,000 427,200
-----------------------------------------------------------------------------------------
Paxar Corp./1/ 9,000 99,450
-----------------------------------------------------------------------------------------
Penn Engineering & Manufacturing Corp. 22,000 380,380
-----------------------------------------------------------------------------------------
Xxxxx Industries, Inc. 5,000 212,000
-----------------------------------------------------------------------------------------
Silgan Holdings, Inc./1/ 6,000 120,900
-----------------------------------------------------------------------------------------
SPS Technologies, Inc./1/ 3,000 89,700
-----------------------------------------------------------------------------------------
Xxxxxxx & Xxxxxxxxx Services, Inc. 28,500 421,230
-----------------------------------------------------------------------------------------
Tecumseh Products Co., Cl. A 4,900 224,175
-----------------------------------------------------------------------------------------
Xxxxxxx Co. 7,000 244,300
-----------------------------------------------------------------------------------------
Titan Corp. (The)/1/ 81,400 2,126,982
-----------------------------------------------------------------------------------------
Xxxxx Industries, Inc., Cl. A 6,500 90,025
-----------------------------------------------------------------------------------------
Xxxxxxxx Governor Co. 16,500 778,140
-----------
12,389,334
-----------------------------------------------------------------------------------------
Communication Services--2.1%
-----------------------------------------------------------------------------------------
Telecommunications-Long Distance--1.0%
Boston Communications Group, Inc./1/ 20,000 185,000
-----------------------------------------------------------------------------------------
General Cable Corp. 53,500 604,550
-----------------------------------------------------------------------------------------
General Communication, Inc., Cl. A/1/ 45,800 532,196
-----------------------------------------------------------------------------------------
Illuminet Holdings, Inc./1/ 30,000 1,072,800
-----------------------------------------------------------------------------------------
Lightbridge, Inc./1/ 29,579 272,127
-----------------------------------------------------------------------------------------
SymmetriCom, Inc./1/ 52,900 296,240
-----------
2,962,913
-----------------------------------------------------------------------------------------
Telephone Utilities--0.1%
Commonwealth Telephone Enterprises, Inc./1/ 8,000 342,640
14 | XXXXXXXXXXX SMALL CAP VALUE FUND
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------------
Telecommunications-Wireless--1.0%
Leap Wireless International, Inc./1/ 116,100 $ 1,726,407
-----------------------------------------------------------------------------------------
Metro One Telecommunication, Inc./1/ 9,900 298,485
-----------------------------------------------------------------------------------------
Millicom International Cellular SA/1/ 80,000 884,000
-----------
2,908,892
-----------------------------------------------------------------------------------------
Consumer Cyclicals--17.3%
-----------------------------------------------------------------------------------------
Autos & Housing--4.0%
Apogee Enterprises, Inc. 9,400 131,224
-----------------------------------------------------------------------------------------
Applica, Inc./1/ 29,000 214,600
-----------------------------------------------------------------------------------------
Beazer Homes USA, Inc./1/ 4,500 205,515
-----------------------------------------------------------------------------------------
Centex Corp. 3,500 133,910
-----------------------------------------------------------------------------------------
Crossmann Communities, Inc. 8,000 220,000
-----------------------------------------------------------------------------------------
Dal-Tile International, Inc./1/ 48,000 778,080
-----------------------------------------------------------------------------------------
Direct Focus, Inc./1/ 38,250 930,240
-----------------------------------------------------------------------------------------
Ethan Xxxxx Interiors, Inc. 28,000 896,280
-----------------------------------------------------------------------------------------
Florida Rock Industries, Inc. 18,600 524,520
-----------------------------------------------------------------------------------------
Group 1 Automotive, Inc./1/ 11,700 313,560
-----------------------------------------------------------------------------------------
Hovnanian Enterprises, Inc., Cl. A/1/ 9,000 105,300
-----------------------------------------------------------------------------------------
Kennametal, Inc. 19,000 668,420
-----------------------------------------------------------------------------------------
Lancaster Colony Corp. 19,000 592,040
-----------------------------------------------------------------------------------------
M.D.C. Holdings, Inc. 15,000 400,050
-----------------------------------------------------------------------------------------
NVR, Inc./1/ 3,000 474,900
-----------------------------------------------------------------------------------------
Pep Boys-Manny, Moe & Xxxx 14,000 164,500
-----------------------------------------------------------------------------------------
Polaris Industries, Inc. 6,500 292,240
-----------------------------------------------------------------------------------------
Pulte Homes, Inc. 11,000 357,500
-----------------------------------------------------------------------------------------
Xxxxxxx, Inc. 10,500 170,625
-----------------------------------------------------------------------------------------
Xxxxxx Group, Inc. (The) 20,000 1,070,000
-----------------------------------------------------------------------------------------
Security Capital Group, Inc., Cl. B/1/ 6,000 112,200
-----------------------------------------------------------------------------------------
Selective Insurance Group, Inc. 5,000 107,400
-----------------------------------------------------------------------------------------
St. Xxx Co. (The) 21,000 540,540
-----------------------------------------------------------------------------------------
Stratus Properties, Inc./1/ 10,833 99,664
-----------------------------------------------------------------------------------------
Toro Co. (The) 20,500 879,450
-----------------------------------------------------------------------------------------
Universal Forest Products, Inc. 9,000 152,910
-----------------------------------------------------------------------------------------
Watsco, Inc. 10,600 137,694
-----------------------------------------------------------------------------------------
York International Corp. 32,000 980,480
-----------
11,653,842
-----------------------------------------------------------------------------------------
Consumer Services--1.3%
Ambassadors International, Inc. 13,400 194,970
-----------------------------------------------------------------------------------------
AmeriPath, Inc./1/ 30,400 854,544
-----------------------------------------------------------------------------------------
Cendant Corp./1/ 42,496 550,748
-----------------------------------------------------------------------------------------
Dun & Bradstreet Corp./1/ 21,000 656,460
15 | XXXXXXXXXXX SMALL CAP VALUE FUND
STATEMENT OF INVESTMENTS Continued
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------------
Consumer Services Continued
FTI Consulting, Inc./1/ 14,000 $ 415,100
-----------------------------------------------------------------------------------------
Midas, Inc. 7,000 71,750
-----------------------------------------------------------------------------------------
Rent-A-Center, Inc./1/ 4,000 109,000
-----------------------------------------------------------------------------------------
Rightchoice Managed Care, Inc./1/ 10,600 709,140
-----------------------------------------------------------------------------------------
Xxxxxx Xxxxx & Co. Holdings/1/ 18,600 328,104
-----------
3,889,816
-----------------------------------------------------------------------------------------
Leisure & Entertainment--3.8%
ABM Industries, Inc. 14,500 395,850
-----------------------------------------------------------------------------------------
Action Performance Cos., Inc./1/ 22,200 581,862
-----------------------------------------------------------------------------------------
Activision, Inc./1/ 16,000 578,400
-----------------------------------------------------------------------------------------
Alliance Gaming Corp./1/ 16,000 316,800
-----------------------------------------------------------------------------------------
Anchor Gaming/1/ 17,000 864,110
-----------------------------------------------------------------------------------------
Arctic Cat, Inc. 7,000 113,400
-----------------------------------------------------------------------------------------
Argosy Gaming Co./1/ 28,000 812,840
-----------------------------------------------------------------------------------------
Bally Total Fitness Holding Corp./1/ 115,000 2,122,900
-----------------------------------------------------------------------------------------
Xxxx Gaming Corp./1/ 24,000 103,200
-----------------------------------------------------------------------------------------
Callaway Golf Co. 22,000 314,380
-----------------------------------------------------------------------------------------
Choice Hotels International, Inc./1/ 36,300 635,250
-----------------------------------------------------------------------------------------
Crestline Capital Corp./1/ 14,000 404,600
-----------------------------------------------------------------------------------------
Extended Stay America, Inc./1/ 33,000 445,500
-----------------------------------------------------------------------------------------
GTech Holdings Corp./1/ 18,000 718,200
-----------------------------------------------------------------------------------------
Xxxxxxxxx Co./1/ 30,000 369,000
-----------------------------------------------------------------------------------------
JAKKS Pacific, Inc./1/ 13,000 245,050
-----------------------------------------------------------------------------------------
MTR Gaming Group, Inc./1/ 34,700 367,820
-----------------------------------------------------------------------------------------
Pegasus Solutions, Inc./1/ 11,000 112,750
-----------------------------------------------------------------------------------------
Penn National Gaming, Inc./1/ 29,000 593,920
-----------------------------------------------------------------------------------------
Prime Hospitality Corp./1/ 16,000 146,880
-----------------------------------------------------------------------------------------
ResortQuest International, Inc./1/ 23,000 106,950
-----------------------------------------------------------------------------------------
Shuffle Master, Inc./1/ 40,000 500,800
-----------------------------------------------------------------------------------------
WMS Industries, Inc./1/ 23,100 414,645
-----------
11,265,107
-----------------------------------------------------------------------------------------
Media--1.3%
Xxxxx Corp. 31,500 915,075
-----------------------------------------------------------------------------------------
Deluxe Corp. 27,000 945,000
-----------------------------------------------------------------------------------------
Xxxxxxx (Xxxx X.) Co. 31,700 614,029
-----------------------------------------------------------------------------------------
Xxx Enterprises, Inc. 10,600 365,170
-----------------------------------------------------------------------------------------
X.X. Xxxxxxxxx Corp./1/ 31,500 831,600
-----------
3,670,874
-----------------------------------------------------------------------------------------
Retail: General--0.1%
Dress Barn, Inc. (The)/1/ 13,500 305,640
16 | XXXXXXXXXXX SMALL CAP VALUE FUND
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------------
Retail: Specialty--4.9%
Burlington Coat Factory Warehouse Corp. 18,600 $ 278,070
-----------------------------------------------------------------------------------------
Cato Corp., Cl. A 40,000 678,000
-----------------------------------------------------------------------------------------
Xxxxxxxxx Xxxxx Holding, Inc./1/ 2,500 35,500
-----------------------------------------------------------------------------------------
Chico's FAS, Inc./1/ 16,000 416,000
-----------------------------------------------------------------------------------------
Xxxxxxxxxxx & Banks Corp./1/ 16,000 527,200
-----------------------------------------------------------------------------------------
Circuit City Stores, Inc./CarMax Group./1/ 58,000 1,061,400
-----------------------------------------------------------------------------------------
Copart, Inc./1/ 33,100 971,485
-----------------------------------------------------------------------------------------
Xxxxxxxxx Xxxxx, Inc./1/ 13,000 171,470
-----------------------------------------------------------------------------------------
Fossil, Inc./1/ 37,000 671,180
-----------------------------------------------------------------------------------------
Fred's, Inc. 26,250 859,687
-----------------------------------------------------------------------------------------
Genesco, Inc./1/ 81,300 1,483,725
-----------------------------------------------------------------------------------------
Hibbett Sporting Goods, Inc./1/ 22,000 594,000
-----------------------------------------------------------------------------------------
Hot Topic, Inc./1/ 20,000 505,600
-----------------------------------------------------------------------------------------
J. Xxxx Group, Inc./1/ 24,000 366,720
-----------------------------------------------------------------------------------------
Lands' End, Inc./1/ 9,000 288,360
-----------------------------------------------------------------------------------------
Michaels Stores, Inc./1/ 13,000 667,810
-----------------------------------------------------------------------------------------
Movado Group, Inc. 7,700 125,510
-----------------------------------------------------------------------------------------
X'Xxxxxx Automotive, Inc./1/ 29,700 839,322
-----------------------------------------------------------------------------------------
Pacific Sunwear of California, Inc./1/ 80,000 1,100,000
-----------------------------------------------------------------------------------------
Reebok International Ltd./1/ 69,700 1,446,972
-----------------------------------------------------------------------------------------
Regis Corp. of Minnesota 21,000 446,460
-----------------------------------------------------------------------------------------
Xxxx Stores, Inc. 9,100 284,830
-----------------------------------------------------------------------------------------
Smart & Final, Inc./1/ 17,000 160,650
-----------------------------------------------------------------------------------------
UniFirst Corp. 21,500 377,325
-----------
14,357,276
-----------------------------------------------------------------------------------------
Textile/Apparel & Home Furnishings--1.9%
bebe stores, inc./1/ 92,200 1,537,896
-----------------------------------------------------------------------------------------
Coach, Inc./1/ 7,000 195,300
-----------------------------------------------------------------------------------------
Xxx Shops, Inc. 25,000 599,500
-----------------------------------------------------------------------------------------
Xxxxx Apparel Group, Inc./1/ 6,316 174,322
-----------------------------------------------------------------------------------------
Nautica Enterprises, Inc./1/ 14,000 169,680
-----------------------------------------------------------------------------------------
OshKosh B'Gosh, Inc., Cl. A 5,000 173,700
-----------------------------------------------------------------------------------------
Xxxxxxxx-Van Heusen Corp. 48,000 409,920
-----------------------------------------------------------------------------------------
Xxxx Xxxxx Lauren Corp./1/ 19,000 418,380
-----------------------------------------------------------------------------------------
Quaker Fabric Corp./1/ 73,000 489,830
-----------------------------------------------------------------------------------------
Quicksilver, Inc./1/ 12,300 161,991
-----------------------------------------------------------------------------------------
Xxxxx Xxxxxxxx Corp./1/ 86,700 996,183
-----------------------------------------------------------------------------------------
Too, Inc./1/ 10,300 274,083
-----------
5,600,785
17 | XXXXXXXXXXX SMALL CAP VALUE FUND
STATEMENT OF INVESTMENTS Continued
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------------
Consumer Staples--7.9%
-----------------------------------------------------------------------------------------
Beverages--0.4%
Constellation Brands, Inc., Cl. A./1/ 14,000 $ 574,560
-----------------------------------------------------------------------------------------
Cott Corp./1/ 48,000 673,920
-----------
1,248,480
-----------------------------------------------------------------------------------------
Broadcasting--0.9%
Crown Media Holdings, Inc., Cl. A./1/ 29,000 298,120
-----------------------------------------------------------------------------------------
Emmis Communications Corp., Cl. A./1/ 110,000 1,490,500
-----------------------------------------------------------------------------------------
Saga Communications, Inc., Cl. A./1/ 8,000 160,000
-----------------------------------------------------------------------------------------
Salem Communications Corp., Cl. A./1/ 28,500 549,765
-----------
2,498,385
-----------------------------------------------------------------------------------------
Education--0.4%
Corinthian Colleges, Inc./1/ 6,000 219,180
-----------------------------------------------------------------------------------------
ITT Educational Services, Inc./1/ 18,000 685,080
-----------------------------------------------------------------------------------------
New Horizons Worldwide, Inc./1/ 7,000 73,500
-----------------------------------------------------------------------------------------
PLATO Learning, Inc./1/ 21,733 308,609
-----------
1,286,369
-----------------------------------------------------------------------------------------
Entertainment--3.2%
AFC Enterprises, Inc./1/ 18,000 454,500
-----------------------------------------------------------------------------------------
Xxxxxxxx'x International, Inc. 22,500 677,250
-----------------------------------------------------------------------------------------
Aztar Corp./1/ 9,000 129,150
-----------------------------------------------------------------------------------------
Xxxxxxx International, Inc./1/ 24,250 615,950
-----------------------------------------------------------------------------------------
Buca, Inc./1/ 119,200 1,618,736
-----------------------------------------------------------------------------------------
CBRL Group, Inc. 18,000 451,980
-----------------------------------------------------------------------------------------
Xxxxxx'x Restaurants, Inc. 21,500 377,325
-----------------------------------------------------------------------------------------
LodgeNet Entertainment Corp./1/ 8,000 120,880
-----------------------------------------------------------------------------------------
Rare Hospitality International, Inc./1/ 79,200 1,443,816
-----------------------------------------------------------------------------------------
Ruby Tuesday, Inc. 172,600 2,975,624
-----------------------------------------------------------------------------------------
THQ, Inc./1/ 13,400 667,320
-----------
9,532,531
-----------------------------------------------------------------------------------------
Food--1.9%
American Italian Pasta Co./1/ 20,000 814,600
-----------------------------------------------------------------------------------------
Xxxxx Ltd./1/ 146,800 2,586,616
-----------------------------------------------------------------------------------------
Xxxxxx'x Grand Ice Cream, Inc. 5,900 192,930
-----------------------------------------------------------------------------------------
Fresh Del Monte Produce, Inc./1/ 37,000 486,550
-----------------------------------------------------------------------------------------
J & J Snack Foods Corp./1/ 3,000 66,420
-----------------------------------------------------------------------------------------
Xxxxx, Inc. 50,000 667,500
-----------------------------------------------------------------------------------------
Xxxx Xxxxx Co. 20,000 461,000
-----------------------------------------------------------------------------------------
Nature's Sunshine Products, Inc. 11,000 127,050
-----------------------------------------------------------------------------------------
Triarc Cos./1/ 11,500 265,650
-----------
5,668,316
18 | XXXXXXXXXXX SMALL CAP VALUE FUND
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------------
Food & Drug Retailers--0.3%
Xxxxx Xxxxx, Inc./1/ 5,000 $ 149,600
-----------------------------------------------------------------------------------------
Xxxxxxx Cos., Inc. 19,000 457,900
-----------------------------------------------------------------------------------------
Pathmark Stores, Inc./1/ 15,000 353,700
----------
961,200
-----------------------------------------------------------------------------------------
Household Goods--0.7%
Church & Xxxxxx Co., Inc. 29,000 754,000
-----------------------------------------------------------------------------------------
Dial Corp. (The) 53,000 884,040
-----------------------------------------------------------------------------------------
Nu Skin Asia Pacific, Inc., Cl. A 40,200 298,686
-----------------------------------------------------------------------------------------
Xxxxxxx Corp. 13,000 198,250
----------
2,134,976
-----------------------------------------------------------------------------------------
Tobacco--0.1%
DIMON, Inc. 45,000 281,250
-----------------------------------------------------------------------------------------
Standard Commercial Corp. 6,500 120,900
----------
402,150
-----------------------------------------------------------------------------------------
Energy--6.7%
-----------------------------------------------------------------------------------------
Energy Services--2.6%
Cal Dive International, Inc./1/ 25,400 530,606
-----------------------------------------------------------------------------------------
Carbo Ceramics, Inc. 14,000 509,320
-----------------------------------------------------------------------------------------
Core Laboratories NV./1/ 105,000 1,711,500
-----------------------------------------------------------------------------------------
Ensign Resource Service Group, Inc. 114,000 941,258
-----------------------------------------------------------------------------------------
Global Industries Ltd./1/ 37,000 261,590
-----------------------------------------------------------------------------------------
Helmerich & Xxxxx, Inc. 30,000 909,900
-----------------------------------------------------------------------------------------
Lufkin Industries, Inc. 6,000 162,300
-----------------------------------------------------------------------------------------
Oceaneering International, Inc./1/ 29,000 565,500
-----------------------------------------------------------------------------------------
Superior Energy Services, Inc./1/ 73,000 576,700
-----------------------------------------------------------------------------------------
Tesco Corp./1/ 41,200 255,780
-----------------------------------------------------------------------------------------
Torch Offshore, Inc./1/ 30,200 166,402
-----------------------------------------------------------------------------------------
Trican Well Service Ltd./1/ 74,300 690,738
-----------------------------------------------------------------------------------------
Varco International, Inc./1/ 24,500 367,500
--------------
7,649,094
-----------------------------------------------------------------------------------------
Oil: Domestic--2.2%
Xxxxxx Petroleum Co./1/ 50,000 339,000
-----------------------------------------------------------------------------------------
Denbury Resources, Inc./1/ 8,600 73,960
-----------------------------------------------------------------------------------------
Frontier Oil Corp. 80,500 1,529,500
-----------------------------------------------------------------------------------------
Xxxx/XxXxx Corp. 3,544 204,134
-----------------------------------------------------------------------------------------
Ocean Energy, Inc. 17,000 310,250
-----------------------------------------------------------------------------------------
Patina Oil & Gas Corp. 11,100 299,145
-----------------------------------------------------------------------------------------
Prize Energy Corp., New (formerly known as
Vista Energy Resources, Inc.) /1/ 22,700 389,305
19 | XXXXXXXXXXX SMALL CAP VALUE FUND
STATEMENT OF INVESTMENTS Continued
Market Value
Shares See Note 1
---------------------------------------------------------------------------------------
Oil: Domestic Continued
Quicksilver Resources, Inc./1/ 23,000 $ 334,650
---------------------------------------------------------------------------------------
Spinnaker Exploration Co./1/ 12,000 526,560
---------------------------------------------------------------------------------------
Sunoco, Inc. 21,000 786,030
---------------------------------------------------------------------------------------
Swift Energy Co./1/ 10,000 236,500
---------------------------------------------------------------------------------------
Ultramar Diamond Shamrock Corp. 21,000 1,051,050
---------------------------------------------------------------------------------------
Westport Resources Corp./1/ 30,000 518,100
-----------
6,598,184
---------------------------------------------------------------------------------------
Oil: International--1.9%
Canadian 88 Energy Corp./1/ 254,700 333,906
---------------------------------------------------------------------------------------
Canadian Hunter Exploration Ltd./1/ 40,000 1,326,106
---------------------------------------------------------------------------------------
Xxxxxxx Petroleum Corp./1/ 280,000 820,623
---------------------------------------------------------------------------------------
Paramount Resources Ltd./1/ 75,000 683,537
---------------------------------------------------------------------------------------
Penn West Petroleum Ltd./1/ 13,000 325,287
---------------------------------------------------------------------------------------
Rio Alto Exploration Ltd./1/ 33,620 528,478
---------------------------------------------------------------------------------------
Ventus Energy Ltd./1/ 118,300 272,151
---------------------------------------------------------------------------------------
Vermilion Resources Ltd./1/ 200,000 1,342,493
-----------
5,632,581
---------------------------------------------------------------------------------------
Financial--17.7%
---------------------------------------------------------------------------------------
Banks--9.0%
1st Source Corp. 17,600 367,664
---------------------------------------------------------------------------------------
American Financial Holdings, Inc. 52,600 1,334,988
---------------------------------------------------------------------------------------
Andover Bancorp, Inc. 3,000 148,950
---------------------------------------------------------------------------------------
Area Bancshares Corp. 8,000 135,200
---------------------------------------------------------------------------------------
Arrow Financial Corp. 420 11,861
---------------------------------------------------------------------------------------
Associated Banc-Corp. 10,000 344,200
---------------------------------------------------------------------------------------
BancFirst Corp. 3,000 104,250
---------------------------------------------------------------------------------------
BancorpSouth, Inc. 17,000 260,100
---------------------------------------------------------------------------------------
Banner Corp. 19,500 338,715
---------------------------------------------------------------------------------------
BOK Financial Corp. 14,785 458,335
---------------------------------------------------------------------------------------
Boston Private Financial Holdings, Inc. 9,900 201,069
---------------------------------------------------------------------------------------
City National Corp. 10,000 410,000
---------------------------------------------------------------------------------------
Coastal Bancorp, Inc. 14,000 416,500
---------------------------------------------------------------------------------------
Commerce Bancshares, Inc. 21,800 790,686
---------------------------------------------------------------------------------------
Commercial Federal Corp. 8,000 199,680
---------------------------------------------------------------------------------------
Community First Bankshares, Inc. 18,000 432,360
---------------------------------------------------------------------------------------
Connecticut Bancshares, Inc. 6,000 139,680
---------------------------------------------------------------------------------------
Corus Bankshares, Inc. 3,000 125,700
20 | XXXXXXXXXXX SMALL CAP VALUE FUND
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------------
Banks Continued
Cullen/Frost Bankers, Inc. 40,000 $ 1,078,400
-----------------------------------------------------------------------------------------
Dime Community Bancshares, Inc. 37,500 909,375
-----------------------------------------------------------------------------------------
Xxxxxx Financial Corp. 3,000 105,420
-----------------------------------------------------------------------------------------
F.N.B. Corp. 24,150 588,294
-----------------------------------------------------------------------------------------
First BanCorp 23,000 631,810
-----------------------------------------------------------------------------------------
First Citizens BancShares, Inc., Cl. A 7,000 658,000
-----------------------------------------------------------------------------------------
First Commonwealth Financial Corp. 18,000 201,600
-----------------------------------------------------------------------------------------
First Federal Capital Corp. 600 8,832
-----------------------------------------------------------------------------------------
First Financial Bankshares, Inc. 3,250 97,045
-----------------------------------------------------------------------------------------
First Indiana Corp. 11,000 267,190
-----------------------------------------------------------------------------------------
First Midwest Bancorp, Inc. 3,000 100,260
-----------------------------------------------------------------------------------------
First Republic Bank/1/ 24,000 483,600
-----------------------------------------------------------------------------------------
First Sentinel Bancorp, Inc. 39,000 469,950
-----------------------------------------------------------------------------------------
First Xxxxxxxx Xxxxx, Inc. 3,500 158,130
-----------------------------------------------------------------------------------------
Frontier Financial Corp. 5,000 137,050
-----------------------------------------------------------------------------------------
Glacier Bancorp, Inc. 19,000 307,610
-----------------------------------------------------------------------------------------
Xxxxxxx Holding Co. 3,000 116,700
-----------------------------------------------------------------------------------------
Harbor Florida Bancshares, Inc. 29,900 500,825
-----------------------------------------------------------------------------------------
Hibernia Corp., Cl. A 46,800 711,360
-----------------------------------------------------------------------------------------
Independence Community Bank Corp. 35,000 851,200
-----------------------------------------------------------------------------------------
Independent Bank Corp.-Massachusetts 27,300 530,985
-----------------------------------------------------------------------------------------
Independent Bank Corp.-Michigan 25,200 685,944
-----------------------------------------------------------------------------------------
Integra Bank Corp. 6,000 131,160
-----------------------------------------------------------------------------------------
International Bancshares Corp. 3,750 139,613
-----------------------------------------------------------------------------------------
Xxxxx Financial Corp. 23,500 364,250
-----------------------------------------------------------------------------------------
MAF Bancorp, Inc. 33,400 935,200
-----------------------------------------------------------------------------------------
Main Street Banks, Inc. 7,000 115,500
-----------------------------------------------------------------------------------------
Mississippi Valley Bancshares, Inc. 16,000 606,720
-----------------------------------------------------------------------------------------
NBT Bancorp, Inc. 35,000 464,450
-----------------------------------------------------------------------------------------
Pacific Northwest Bancorp 27,000 545,524
-----------------------------------------------------------------------------------------
Prosperity Bancshares, Inc. 22,000 603,240
-----------------------------------------------------------------------------------------
Provident Bankshares Corp. 33,600 739,872
-----------------------------------------------------------------------------------------
R & G Financial Corp., Cl. B 18,000 333,540
-----------------------------------------------------------------------------------------
Republic Bancorp, Inc. 34,000 501,500
-----------------------------------------------------------------------------------------
Xxxxx National Corp. 9,000 127,350
-----------------------------------------------------------------------------------------
Xxxxxx Bancorp, Inc. 25,500 462,825
-----------------------------------------------------------------------------------------
S&T Bancorp, Inc. 28,000 651,840
-----------------------------------------------------------------------------------------
Xxxxx Spring Bancorp, Inc. 5,000 202,050
-----------------------------------------------------------------------------------------
Seacoast Financial Services Corp. 42,600 639,000
-----------------------------------------------------------------------------------------
Second Bancorp, Inc. 6,000 130,140
-----------------------------------------------------------------------------------------
Sky Financial Group, Inc. 7,000 139,510
21 | XXXXXXXXXXX SMALL CAP VALUE FUND
STATEMENT OF INVESTMENTS Continued
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------------
Banks Continued
South Financial Group, Inc. (The) 11,000 $ 175,450
-----------------------------------------------------------------------------------------
St. Xxxxxxx Capital Corp. 1,900 38,475
-----------------------------------------------------------------------------------------
Staten Island Bancorp, Inc. 21,800 630,892
-----------------------------------------------------------------------------------------
Sterling Bancorp 6,100 163,480
-----------------------------------------------------------------------------------------
Sterling Bancshares, Inc. 51,600 614,556
-----------------------------------------------------------------------------------------
UCBH Holdings, Inc. 12,000 348,000
-----------------------------------------------------------------------------------------
Umpqua Holdings Corp. 2,100 25,914
-----------------------------------------------------------------------------------------
United Bankshares, Inc. 24,000 652,800
-----------------------------------------------------------------------------------------
United National Bancorp 3,000 73,290
-----------
26,375,659
-----------------------------------------------------------------------------------------
Diversified Financial--2.5%
Actrade Financial Technologies Ltd./1/ 29,000 726,450
-----------------------------------------------------------------------------------------
Allied Capital Corp. 10,000 225,200
-----------------------------------------------------------------------------------------
American Capital Strategies Ltd. 23,900 592,003
-----------------------------------------------------------------------------------------
Doral Financial Corp. 28,000 976,360
-----------------------------------------------------------------------------------------
Federal Agricultural Mortgage Corp., Non-Vtg./1/ 19,500 854,100
-----------------------------------------------------------------------------------------
Financial Federal Corp./1/ 31,500 787,500
-----------------------------------------------------------------------------------------
First American Corp. (The) 14,400 239,760
-----------------------------------------------------------------------------------------
Global Payments, Inc. 36,600 1,096,170
-----------------------------------------------------------------------------------------
IBERIABANK Corp. 13,600 377,128
-----------------------------------------------------------------------------------------
Xxxxxxxxx Group, Inc. 16,000 530,720
-----------------------------------------------------------------------------------------
Xxxxx Xxxx LaSalle, Inc./1/ 18,000 269,100
-----------------------------------------------------------------------------------------
PMI Group, Inc. (The) 5,500 304,975
-----------------------------------------------------------------------------------------
Resource Bancshares Mortgage Group, Inc. 9,000 78,390
-----------------------------------------------------------------------------------------
WFS Financial, Inc./1/ 20,777 423,851
-----------
7,481,707
-----------------------------------------------------------------------------------------
Insurance--3.8%
Alfa Corp. 4,000 85,200
-----------------------------------------------------------------------------------------
AmerUs Group Co. 28,000 847,560
-----------------------------------------------------------------------------------------
Annuity & Life RE Holdings Ltd. 10,000 232,400
-----------------------------------------------------------------------------------------
Commerce Group, Inc. (The) 23,000 838,350
-----------------------------------------------------------------------------------------
Fidelity National Financial, Inc. 12,100 278,421
-----------------------------------------------------------------------------------------
First Health Group Corp./1/ 17,000 459,000
-----------------------------------------------------------------------------------------
Xxxxxxxxx (Xxxxxx X.) & Co. 13,000 475,020
-----------------------------------------------------------------------------------------
Harleysville Group, Inc. 14,000 336,560
-----------------------------------------------------------------------------------------
HCC Insurance Holdings, Inc. 9,400 258,406
-----------------------------------------------------------------------------------------
HealthExtras, Inc./1/ 12,000 69,960
-----------------------------------------------------------------------------------------
Hilb, Xxxxx & Xxxxxxxx Co. 12,100 700,953
-----------------------------------------------------------------------------------------
Kansas City Life Insurance Co. 4,000 148,760
-----------------------------------------------------------------------------------------
LandAmerica Financial Group, Inc. 10,300 269,757
22 | XXXXXXXXXXX SMALL CAP VALUE FUND
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------------
Insurance Continued
Leucadia National Corp. 4,000 $ 115,920
-----------------------------------------------------------------------------------------
Old Republic International Corp. 20,000 507,400
-----------------------------------------------------------------------------------------
RenaissanceRe Holdings Ltd. 37,500 3,618,000
-----------------------------------------------------------------------------------------
StanCorp Financial Group, Inc. 13,500 599,400
-----------------------------------------------------------------------------------------
Trenwick Group Ltd. 28,000 217,280
-----------------------------------------------------------------------------------------
Triad Guaranty, Inc./1/ 14,000 461,300
-----------------------------------------------------------------------------------------
Vesta Insurance Group, Inc. 10,000 127,400
-----------------------------------------------------------------------------------------
Xxxxxx Group Holdings Ltd./1/ 24,500 570,605
-----------
11,217,652
-----------------------------------------------------------------------------------------
Real Estate Investment Trusts--0.2%
Indymac Mortgage Holdings, Inc./1/ 20,000 513,600
-----------------------------------------------------------------------------------------
Savings & Loans--2.2%
BankAtlantic Bancorp, Inc. 43,000 348,300
-----------------------------------------------------------------------------------------
BankUnited Financial Corp., Cl. A./1/ 18,500 270,100
-----------------------------------------------------------------------------------------
CFS Bancorp, Inc. 17,000 228,480
-----------------------------------------------------------------------------------------
Commonwealth Bancorp, Inc. 12,000 253,440
-----------------------------------------------------------------------------------------
First Essex Bancorp, Inc. 9,200 241,960
-----------------------------------------------------------------------------------------
First Financial Holdings, Inc. 24,000 596,160
-----------------------------------------------------------------------------------------
First Niagara Financial Group, Inc. 6,000 99,240
-----------------------------------------------------------------------------------------
FirstFed Financial Corp./1/ 16,000 355,840
-----------------------------------------------------------------------------------------
Flagstar Bancorp, Inc. 34,500 864,225
-----------------------------------------------------------------------------------------
Flushing Financial Corp. 16,200 289,980
-----------------------------------------------------------------------------------------
Xxxxxx River Bancorp, Inc. 23,200 477,920
-----------------------------------------------------------------------------------------
Local Financial Corp./1/ 25,000 308,750
-----------------------------------------------------------------------------------------
OceanFirst Financial Corp. 3,000 73,290
-----------------------------------------------------------------------------------------
Sovereign Bancorp, Inc. 89,000 881,100
-----------------------------------------------------------------------------------------
Washington Federal, Inc. 26,800 607,020
-----------------------------------------------------------------------------------------
Xxxxxxx Financial Corp. 21,700 658,595
-----------
6,554,400
-----------------------------------------------------------------------------------------
Healthcare--8.7%
-----------------------------------------------------------------------------------------
Healthcare/Drugs--2.2%
Adolor Corp./1/ 28,500 437,475
-----------------------------------------------------------------------------------------
Advanced Neuromodulation Systems, Inc./1/ 1,500 37,950
-----------------------------------------------------------------------------------------
CIMA Labs, Inc./1/ 7,600 410,780
-----------------------------------------------------------------------------------------
Diagnostic Products Corp. 12,600 555,660
-----------------------------------------------------------------------------------------
Xxxxxxx Lifesciences Corp./1/ 29,000 736,600
-----------------------------------------------------------------------------------------
Idexx Laboratories, Inc./1/ 15,000 378,000
-----------------------------------------------------------------------------------------
LifePoint Hospitals, Inc./1/ 1,500 46,770
-----------------------------------------------------------------------------------------
Xxxxx & Minor, Inc. 15,000 264,150
23 | XXXXXXXXXXX SMALL CAP VALUE FUND
STATEMENT OF INVESTMENTS Continued
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------------
Healthcare/Drugs Continued
Xxxxxxx Co./1/ 72,000 $ 1,064,880
-----------------------------------------------------------------------------------------
SangStat Medical Corp./1/ 12,000 271,680
-----------------------------------------------------------------------------------------
Sicor, Inc./1/ 26,000 487,500
-----------------------------------------------------------------------------------------
Syncor International Corp./1/ 10,000 290,000
-----------------------------------------------------------------------------------------
Taro Pharmaceutical Industries Ltd./1/ 8,600 362,060
-----------------------------------------------------------------------------------------
Telik, Inc./1/ 45,900 360,315
-----------------------------------------------------------------------------------------
U.S. Physical Therapy, Inc./1/ 36,000 633,600
-----------------------------------------------------------------------------------------
XOMA Ltd./1/ 27,000 201,690
-----------
6,539,110
-----------------------------------------------------------------------------------------
Healthcare/Supplies & Services--6.5%
Accredo Health, Inc./1/ 15,500 528,860
-----------------------------------------------------------------------------------------
AdvancePCS, Inc./1/ 15,500 941,935
-----------------------------------------------------------------------------------------
Aksys Ltd./1/ 59,000 301,490
-----------------------------------------------------------------------------------------
Xxxxxxx-Xxxxxx Co., Cl. A 12,000 435,600
-----------------------------------------------------------------------------------------
Xxxxxxx Enterprises, Inc./1/ 88,000 659,120
-----------------------------------------------------------------------------------------
Xxxxx & Xxxxx, Inc. 10,000 574,000
-----------------------------------------------------------------------------------------
Cantel Medical Corp./1/ 20,800 466,960
-----------------------------------------------------------------------------------------
CONMED Corp./1/ 28,200 475,734
-----------------------------------------------------------------------------------------
Xxxxxx Cos., Inc. (The) 21,000 1,008,000
-----------------------------------------------------------------------------------------
CorVel Corp./1/ 62,700 1,881,000
-----------------------------------------------------------------------------------------
Cytyc Corp./1/ 3,000 78,660
-----------------------------------------------------------------------------------------
Datascope Corp. 17,700 592,773
-----------------------------------------------------------------------------------------
Dynacare, Inc./1/ 39,000 510,900
-----------------------------------------------------------------------------------------
Dynacq International, Inc./1/ 23,500 414,310
-----------------------------------------------------------------------------------------
Gentiva Health Services, Inc./1/ 64,000 1,088,000
-----------------------------------------------------------------------------------------
Haemonetics Corp./1/ 20,500 781,050
-----------------------------------------------------------------------------------------
ICU Medical, Inc./1/ 14,900 655,451
-----------------------------------------------------------------------------------------
Invacare Corp. 24,500 820,750
-----------------------------------------------------------------------------------------
Inverness Medical Technology, Inc./1/ 1,400 53,550
-----------------------------------------------------------------------------------------
Xxxxxx Co., Inc./1/ 18,000 156,420
-----------------------------------------------------------------------------------------
Xxxxxxxx, Inc. 2,300 70,150
-----------------------------------------------------------------------------------------
Manor Care, Inc./1/ 29,000 677,440
-----------------------------------------------------------------------------------------
Mid Atlantic Medical Services, Inc./1/ 31,000 575,050
-----------------------------------------------------------------------------------------
Ocular Sciences, Inc./1/ 19,000 438,330
-----------------------------------------------------------------------------------------
Oxford Health Plans, Inc./1/ 16,500 388,740
-----------------------------------------------------------------------------------------
Pharmaceutical Product Development, Inc./1/ 22,500 600,075
-----------------------------------------------------------------------------------------
ResMed, Inc./1/ 10,500 585,900
-----------------------------------------------------------------------------------------
Sola International, Inc./1/ 44,000 703,120
-----------------------------------------------------------------------------------------
SRI/Surgical Express, Inc./1/ 13,300 326,914
24 | XXXXXXXXXXX SMALL CAP VALUE FUND
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------------
Healthcare/Supplies & Services Continued
Steris Corp./1/ 31,000 $ 694,400
-----------------------------------------------------------------------------------------
Sybron Dental Specialities, Inc./1/ 32,800 672,400
-----------------------------------------------------------------------------------------
Triad Hospitals, Inc./1/ 5,000 134,500
-----------------------------------------------------------------------------------------
Unilab Corp./1/ 7,700 182,336
-----------------------------------------------------------------------------------------
United Surgical Partners International, Inc./1/ 13,600 244,800
-----------------------------------------------------------------------------------------
Universal Health Services, Inc., Cl. B./1/ 6,000 242,340
-----------------------------------------------------------------------------------------
Xxxxx Xxxxx, Inc. 12,000 324,600
----------
19,285,658
-----------------------------------------------------------------------------------------
Technology--7.5%
Computer Hardware--2.0%
-----------------------------------------------------------------------------------------
3D Systems Corp./1/ 7,800 86,346
-----------------------------------------------------------------------------------------
Maxtor Corp./1/ 600,000 2,940,000
-----------------------------------------------------------------------------------------
Mentor Graphics Corp./1/ 144,500 2,739,720
----------
5,766,066
-----------------------------------------------------------------------------------------
Computer Services--1.0%
Bel Fuse, Inc., Cl. A./1/ 6,000 117,000
-----------------------------------------------------------------------------------------
F.Y.I., Inc./1/ 12,900 463,755
-----------------------------------------------------------------------------------------
FactSet Research Systems, Inc. 12,000 297,000
-----------------------------------------------------------------------------------------
HNC Software, Inc./1/ 71,000 1,228,300
-----------------------------------------------------------------------------------------
MedQuist, Inc./1/ 31,000 753,300
-----------------------------------------------------------------------------------------
SkillSoft Corp./1/ 7,000 160,650
----------
3,020,005
-----------------------------------------------------------------------------------------
Computer Software--1.7%
Axcelis Technologies, Inc./1/ 137,200 1,798,692
-----------------------------------------------------------------------------------------
Catapult Communications Corp./1/ 37,000 838,050
-----------------------------------------------------------------------------------------
Century Business Services, Inc./1/ 72,000 128,160
-----------------------------------------------------------------------------------------
Deltek Systems, Inc./1/ 31,300 146,797
-----------------------------------------------------------------------------------------
Fair, Xxxxx & Co., Inc. 14,700 698,985
-----------------------------------------------------------------------------------------
Innodata Corp./1/ 35,000 120,750
-----------------------------------------------------------------------------------------
Open Text Corp./1/ 32,000 825,920
-----------------------------------------------------------------------------------------
ProQuest Co./1/ 5,000 171,000
-----------------------------------------------------------------------------------------
Renaissance Learning, Inc./1/ 6,000 196,260
----------
4,924,614
-----------------------------------------------------------------------------------------
Communications Equipment--1.3%
Enterasys Networks, Inc./1/ 386,800 3,078,928
-----------------------------------------------------------------------------------------
ESCO Technologies, Inc./1/ 25,000 694,000
-----------------------------------------------------------------------------------------
Opticnet, Inc. /1,2/ 9,350 --
----------
3,772,928
25 | XXXXXXXXXXX SMALL CAP VALUE FUND
STATEMENT OF INVESTMENTS Continued
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------------
Electronics--1.5%
Bio-Rad Laboratories, Inc., Cl. A./1/ 5,600 $ 347,200
-----------------------------------------------------------------------------------------
Checkpoint Systems, Inc./1/ 19,000 198,740
-----------------------------------------------------------------------------------------
Engineered Support Systems, Inc. 8,300 413,257
-----------------------------------------------------------------------------------------
InterCept Group, Inc. (The)/1/ 22,000 785,400
-----------------------------------------------------------------------------------------
Itron, Inc./1/ 13,600 381,616
-----------------------------------------------------------------------------------------
Monolithic System Technology, Inc./1/ 48,200 527,308
-----------------------------------------------------------------------------------------
Ultratech Stepper, Inc./1/ 113,100 1,521,195
-----------------------------------------------------------------------------------------
Universal Electronics, Inc./1/ 21,000 309,540
----------
4,484,256
-----------------------------------------------------------------------------------------
Transportation--1.9%
-----------------------------------------------------------------------------------------
Air Transportation--0.1%
Atlantic Coast Airlines Holdings, Inc./1/ 17,000 319,260
-----------------------------------------------------------------------------------------
Railroads & Truckers--1.3%
Xxxxxx Industries, Inc. 46,500 1,005,330
-----------------------------------------------------------------------------------------
Genesee & Wyoming, Inc., Cl. A./1/ 26,700 719,565
-----------------------------------------------------------------------------------------
Heartland Express, Inc./1/ 25,000 587,500
-----------------------------------------------------------------------------------------
Quixote Corp. 26,600 589,190
-----------------------------------------------------------------------------------------
RailAmerica, Inc./1/ 50,700 590,655
-----------------------------------------------------------------------------------------
Yellow Corp/1/ 15,000 330,000
----------
3,822,240
-----------------------------------------------------------------------------------------
Shipping--0.5%
OMI Corp./1/ 72,000 290,880
-----------------------------------------------------------------------------------------
Overseas Shipholding Group, Inc. 43,000 1,070,270
----------
1,361,150
-----------------------------------------------------------------------------------------
Utilities--2.1%
-----------------------------------------------------------------------------------------
Electric Utilities--0.7%
AGL Resources, Inc. 1,300 26,845
-----------------------------------------------------------------------------------------
Black Hills Corp. 6,000 164,760
-----------------------------------------------------------------------------------------
Conectiv, Inc. 19,800 467,280
-----------------------------------------------------------------------------------------
Covanta Energy Corp./1/ 49,000 637,980
-----------------------------------------------------------------------------------------
Energen Corp. 10,000 245,000
-----------------------------------------------------------------------------------------
NorthWestern Corp. 7,000 134,750
-----------------------------------------------------------------------------------------
South Jersey Industries, Inc. 4,000 132,200
-----------------------------------------------------------------------------------------
UniSource Energy Corp. 15,000 236,400
----------
2,045,215
26 | XXXXXXXXXXX SMALL CAP VALUE FUND
Market Value
Shares See Note 1
-----------------------------------------------------------------------------------------
Gas Utilities--1.4%
Cascade Natural Gas Corp. 6,000 $ 121,200
-----------------------------------------------------------------------------------------
Equitable Resources, Inc. 22,000 724,020
-----------------------------------------------------------------------------------------
NICOR, Inc. 6,000 233,340
-----------------------------------------------------------------------------------------
Piedmont Natural Gas Co., Inc. 7,000 222,600
-----------------------------------------------------------------------------------------
Questar Corp. 17,000 374,000
-----------------------------------------------------------------------------------------
Southwestern Energy Co./1/ 61,000 719,800
-----------------------------------------------------------------------------------------
UGI Corp. 4,000 115,600
-----------------------------------------------------------------------------------------
Western Gas Resources, Inc. 50,000 1,611,000
------------
4,121,560
------------
Total Common Stocks (Cost $253,877,569) 263,020,728
Principal
Amount
=========================================================================================
Repurchase Agreements--10.9%
Repurchase agreement with Banc One Capital
Markets, Inc., 2.54%, dated 10/31/01, to
be repurchased at $32,104,265 on 11/1/01,
collateralized by U.S. Treasury Nts.,
7.875%, 11/15/04, with a value of
$22,833,562 and U.S. Treasury Bills,
1/3/02, with a value of $9,913,327
(Cost $32,102,000) $32,102,000 32,102,000
-----------------------------------------------------------------------------------------
Total Investments, at Value (Cost $285,979,569) 100.1% 295,122,728
-----------------------------------------------------------------------------------------
Liabilities in Excess of Other Assets (0.1) (296,280)
---------------------------
Net Assets 100.0% $294,826,448
===========================
Footnotes to Statement of Investments
1. Non-income-producing security.
2. Identifies issues considered to be illiquid or restricted--See Note 6 of
Notes to Financial Statements.
See accompanying Notes to Financial Statements.
27 | XXXXXXXXXXX SMALL CAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES October 31, 2001
=======================================================================================
Assets
Investments, at value (including repurchase agreements
of $32,102,000) (cost $285,979,569)--see accompanying statement $ 295,122,728
---------------------------------------------------------------------------------------
Cash 904,786
---------------------------------------------------------------------------------------
Receivables and other assets:
Investment sold 6,457,961
Interest and dividends 83,139
Other 46,396
---------------
Total assets 302,615,010
=======================================================================================
Liabilities
Payables and other liabilities:
Investments purchased 7,005,072
Shares of beneficial interest redeemed 540,894
Shareholder reports 110,961
Distribution and service plan fees 61,461
Trustees' compensation 30,571
Transfer and shareholder servicing agent fees 1,421
Other 38,182
---------------
Total liabilities 7,788,562
=======================================================================================
Net Assets $ 294,826,448
===============
=======================================================================================
Composition of Net Assets
Par value of shares of beneficial interest $ 153,933
---------------------------------------------------------------------------------------
Additional paid-in capital 284,966,191
---------------------------------------------------------------------------------------
Accumulated net investment loss (25,521)
---------------------------------------------------------------------------------------
Accumulated net realized gain (loss) on investments and foreign
currency transactions 588,686
---------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investments and
translation of assets and liabilities denominated in foreign
currencies 9,143,159
---------------
Net Assets $ 294,826,448
===============
28 | XXXXXXXXXXX SMALL CAP VALUE FUND
===============================================================================
Net Asset Value Per Share
Class A Shares:
Net asset value and redempton price per share (based on net
assets of $172,394,949 and 8,827,758 shares of beneficial
interest outstanding) $19.53
Maximum offering price per share (net asset value plus sales
charge of 5.75% of offering price) $20.72
-------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per
share (based on net assets of $95,417,929 and 5,115,790
shares of beneficial interest outstanding) $18.65
-------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per
share (based on net assets of $26,604,376 and 1,428,751 shares
of beneficial interest outstanding) $18.62
-------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable
contingent deferred sales charge) and offering price per share
(based on net assets of $409,194 and 20,976 shares of beneficial
interest outstanding) $19.51
See accompanying Notes to Financial Statements.
29 | XXXXXXXXXXX SMALL CAP VALUE FUND
STATEMENT OF OPERATIONS For the Year Ended October 31, 2001
=======================================================================================
Investment Income
Dividends (net of foreign withholding taxes of $9,409) $ 1,677,512
---------------------------------------------------------------------------------------
Interest 511,368
============
Total income 2,188,880
=======================================================================================
Expenses
Management fees 2,752,474
---------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 664,116
Class B 881,672
Class C 241,123
Class N 352
---------------------------------------------------------------------------------------
Transfer and shareholder servicing agent:
Class A 477,436
Class B 258,961
Class C 71,306
Class N 253
---------------------------------------------------------------------------------------
Shareholder reports 196,391
---------------------------------------------------------------------------------------
Trustees' compensation 24,567
---------------------------------------------------------------------------------------
Custodian fees and expenses 14,591
---------------------------------------------------------------------------------------
Other 197,793
------------
Total expenses 5,781,035
Less voluntary waiver of transfer and shareholder servicing agent fees - (9,563)
Classes A, B, C and N
Less reduction to custodian expenses (8,754)
------------
Net expenses 5,762,718
=======================================================================================
Net Investment Loss (3,573,838)
=======================================================================================
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 2,204,057
Foreign currency transactions (286,979)
------------
Net relized gain (loss) 1,917,078
---------------------------------------------------------------------------------------
Net change in unrealized appreciation
(depreciation) on:
Investments (8,984,598)
Translation of assets and liabilities denominated in foreign currencies 1,105
------------
Net change (8,983,493)
------------
Net realized and unrealized gain (loss) (7,066,415)
=======================================================================================
Net Decrease in Net Assets Resulting from Operations $(10,640,253)
============
See accompanying Notes to Financial Statements.
30 | XXXXXXXXXXX SMALL CAP VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended October 31, 2001 2000
=======================================================================================
Operations
Net investment income (loss) $ (3,573,838) $ (2,892,727)
---------------------------------------------------------------------------------------
Net realized gain (loss) 1,917,078 27,159,296
---------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) (8,983,493) 31,805,185
-----------------------------
Net increase (decrease) in net assets resulting from
operations (10,640,253) 56,071,754
=======================================================================================
Dividends and/or Distributions to Shareholders
Distributions from net realized gain:
Class A (7,643,347) (5,138)
Class B (4,245,696) (2,912)
Class C (1,096,851) (1,931)
Class N -- --
=======================================================================================
Beneficial Interest Transactions
Net increase (decrease) in net assets
resulting from beneficial interest transactions:
Class A 28,136,903 (27,102,389)
Class B 19,515,640 (16,832,955)
Class C 6,597,307 (3,301,267)
Class N 410,857 --
=======================================================================================
Net Assets
Total increase 31,034,560 8,825,162
---------------------------------------------------------------------------------------
Beginning of period 263,791,888 254,966,726
-----------------------------
End of period (including accumulated net investment
loss of $25,521 and $21,710, respectively) $ 294,826,448 $ 263,791,888
=============================
See accompanying Notes to Financial Statements.
31 | XXXXXXXXXXX SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS
Class A Year Ended October 31, 2001 2000 1999 1998 1997
====================================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 21.26 $ 16.82 $ 17.29 $ 22.26 $ 19.03
----------------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment loss (.23) (.16) (.10) (.09) (.07)
Net realized and unrealized gain
(loss) (.47) 4.60 .18 (3.02) 5.66
--------------------------------------------------------------
Total income (loss) from
investment operations (.70) 4.44 .08 (3.11) 5.59
----------------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Distributions from net realized gain (1.03) --/1/ (.54) (1.86) (2.36)
Distributions in excess of net
realized gain -- -- (.01) -- --
--------------------------------------------------------------
Total dividends and/or distributions
to shareholders (1.03) -- (.55) (1.86) (2.36)
----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 19.53 $ 21.26 $ 16.82 $ 17.29 $ 22.26
==============================================================
====================================================================================================
Total Return, at Net Asset Value/2/ (3.02)% 26.40% 0.38% (15.05)% 32.72%
=====================================================================================================
Ratios/Supplemental Data
Net assets, end of period
(in thousands) $172,395 $157,759 $151,059 $183,567 $ 181,973
----------------------------------------------------------------------------------------------------
Average net assets (in thousands) $163,007 $147,952 $170,205 $201,952 $ 131,503
----------------------------------------------------------------------------------------------------
Ratios to average net assets:/3/
Net investment loss (1.06)% (0.95)% (0.60)% (0.42)% (0.32)%
Expenses 1.86% 1.90% 1.96% 1.80%/4/ 1.78%/4/
----------------------------------------------------------------------------------------------------
Portfolio turnover rate 162% 166% 87% 65% 82%
1. Less than $0.005 per share.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested shares on the reinvestment date, and redemption at the net asset
value calculated on the last business day of the fiscal period. Sales charges
are not reflected in the total returns. Total returns are not annualized for
periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
32 | XXXXXXXXXXX SMALL CAP VALUE FUND
Class B Year Ended October 31, 2001 2000 1999 1998 1997
====================================================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 20.47 $ 16.28 $ 16.84 $ 21.83 $ 18.79
--------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.23) (.33) (.22) (.12) (.05)
Net realized and unrealized gain (loss) (.56) 4.52 .21 (3.01) 5.45
----------------------------------------------------
Total income (loss) from
investment operations (.79) 4.19 (.01) (3.13) 5.40
--------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain (1.03) --/1/ (.54) (1.86) (2.36)
Distributions in excess of net realized gain -- -- (.01) -- --
----------------------------------------------------
Total dividends and/or distributions
to shareholders (1.03) -- (.55) (1.86) (2.36)
--------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.65 $ 20.47 $ 16.28 $ 16.84 $ 21.83
====================================================
====================================================================================================================
Total Return, at Net Asset Value/2/ (3.60)% 25.74% (0.16)% (15.47)% 32.05%
====================================================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $95,418 $83,859 $82,949 $98,041 $79,754
--------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $88,235 $79,526 $94,863 $97,818 $47,462
--------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:/3/
Net investment loss (1.65)% (1.48)% (1.10)% (0.92)% (0.80)%
Expenses 2.45% 2.44% 2.45% 2.31%/4/
2.27%/4/
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 162% 66% 87% 65% 82%
1. Less than $0.005 per share.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Sales
charges are not reflected in the total xxxxxxx.Xxxxx returns are not annualized
for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements.
33 | XXXXXXXXXXX SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS Continued
Class C Year Ended October 31, 2001 2000 1999 1998 1997
============================================================================================
Per Share Operating Data
Net asset value, beginning of period $ 20.44 $ 16.25 $ 16.81 $ 21.79 $ 18.76
--------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment loss (.19) (.33) (.25) (.13) (.08)
Net realized and unrealized gain (loss) (.60) 4.52 .24 (2.99) 5.47
-----------------------------------------------------
Total income (loss) from
investment operations (.79) 4.19 (.01) (3.12) 5.39
--------------------------------------------------------------------------------------------
Dividends and/or distributions to
shareholders:
Distributions from net realized gain (1.03) --/1/ (.54) (1.86) (2.36)
Distributions in excess of net
realized gain -- -- (.01) -- --
-----------------------------------------------------
Total dividends and/or distributions
to shareholders (1.03) -- (.55) (1.86) (2.36)
--------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.62 $ 20.44 $ 16.25 $ 16.81 $ 21.79
=====================================================
============================================================================================
Total Return, at Net Asset Value/2/ (3.61)% 25.79% (0.16)% (15.45)% 32.05%
============================================================================================
Ratios/Supplemental Data
Net assets, end of period (in
thousands) $26,604 $22,173 $20,959 $26,707 $24,512
--------------------------------------------------------------------------------------------
Average net assets (in thousands) $24,134 $20,521 $24,964 $28,647 $17,401
--------------------------------------------------------------------------------------------
Ratios to average net assets:/3/
Net investment loss (1.64)% (1.49)% (1.10)% (0.92)% (0.81)%
Expenses 2.45% 2.44% 2.45% 2.31%/4/ 2.28%/4/
--------------------------------------------------------------------------------------------
Portfolio turnover rate 162% 166% 87% 65% 82%
1. Less than $0.005 per share.
2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period, with all dividends and distributions
reinvested in additional shares on the reinvestment date, and redemption at the
net asset value calculated on the last business day of the fiscal period. Sales
charges are not reflected in the total xxxxxxx.Xxxxx returns are not annualized
for periods of less than one full year.
3. Annualized for periods of less than one full year.
4. Expense ratio has been calculated without adjustment for the reduction to
custodian expenses.
See accompanying Notes to Financial Statements
34 | XXXXXXXXXXX SMALL CAP VALUE FUND
Period Ended
October 31,
Class N 2001/1/
================================================================================
Per Share Operating Data
Net asset value, beginning of period $19.58
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment loss (.04)
Net realized and unrealized gain (loss) (.03)
-------------
Total income (loss) from investment operations (.07)
--------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Distributions from net realized gain --
Distributions in excess of net realized gain --
-------------
Total dividends and/or distributions
to shareholders --
--------------------------------------------------------------------------------
Net asset value, end of period $19.51
=============
================================================================================
Total Return, at Net Asset Value/2/ (0.36)%
================================================================================
Ratios/Supplemental Data
Net assets, end of period (in thousands) $ 409
--------------------------------------------------------------------------------
Average net assets (in thousands) $ 106
--------------------------------------------------------------------------------
Ratios to average net assets:/3/
Net investment loss (1.14)%
Expenses 2.01%
--------------------------------------------------------------------------------
Portfolio turnover rate 162%
1. For the period from March 1, 2001 (inception of offering) to October 31,
2001.
2. Assumes a $1,000 hypothetical initial investment on the business day
before the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the reinvestment
date, and redemption at the net asset value calculated on the last business day
of the fiscal period. Sales charges are not reflected in the total xxxxxxx.Xxxxx
returns are not annualized for periods of less than one full year.
3. Annualized for periods of less than one full year.
See accompanying Notes to Financial Statements.
35 | XXXXXXXXXXX SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
================================================================================
1. Significant Accounting Policies
Xxxxxxxxxxx Small Cap Value Fund (the Fund), a series of Xxxxxxxxxxx Quest For
Value Funds, operated under the name of Xxxxxxxxxxx Quest Small Cap FundSM
through February 28, 2001, is an open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Fund's
investment objective is to seek capital appreciation. The Fund's investment
advisor is OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B, Class C and Class N shares. Class A shares
are sold at their offering price, which is normally net asset value plus a
front-end sales charge. Class B, Class C and Class N shares are sold without a
front-end sales charge but may be subject to a contingent deferred sales charge
(CDSC). Class N shares are sold only through retirement plans. Retirement plans
that offer Class N shares may impose charges on those accounts. All classes of
shares have identical rights to earnings, assets and voting privileges, except
that each class has its own expenses directly attributable to that class and
exclusive voting rights with respect to matters affecting that class. Classes A,
B, C and N have separate distribution and/or service plans. 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).
--------------------------------------------------------------------------------
Foreign Currency Translation. The accounting records of the Fund are maintained
in U.S. dollars. Prices of securities denominated in foreign currencies are
translated into U.S. dollars at the closing rates of exchange. Amounts related
to the purchase and sale of foreign securities and investment income are
translated at the rates of exchange prevailing on the respective dates of such
transactions.
36 | XXXXXXXXXXX SMALL CAP VALUE FUND
The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
--------------------------------------------------------------------------------
Repurchase Agreements. The Fund requires its custodian bank to take possession,
to have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is required
to be at least 102% of the resale price at the time of purchase. If the seller
of the agreement defaults and the value of the collateral declines, or if the
seller enters an insolvency proceeding, realization of the value of the
collateral by the Fund may be delayed or limited.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
Trustees' Compensation. The Fund has adopted an unfunded retirement plan for the
Fund's independent Board of Trustees. Benefits are based on years of service and
fees paid to each trustee during the years of service. During the year ended
October 31, 2001, the Fund's projected benefit obligations were increased by
$4,370 and payments of $558 were made to retired trustees, resulting in an
accumulated liability of $25,523 as of October 31, 2001.
The Board of Trustees has adopted a deferred compensation plan for
independent trustees that enables trustees to elect to defer receipt of all or a
portion of annual compensation they are entitled to receive from the Fund. Under
the plan, the compensation deferred is periodically adjusted as though an
equivalent amount had been invested for the Board of Trustees in shares of one
or more Xxxxxxxxxxx funds selected by the trustee. The amount paid to the Board
of Trustees under the plan will be determined based upon the performance of the
selected funds. Deferral of trustees' fees under the plan will not affect the
net assets of the Fund, and will not materially affect the Fund's assets,
liabilities or net investment income per share.
37 | XXXXXXXXXXX SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
1. Significant Accounting Policies Continued
Dividends and Distributions to Shareholders. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.
--------------------------------------------------------------------------------
Classification of Dividends and Distributions to Shareholders. Net investment
income (loss) and net realized gain (loss) may differ for financial statement
and tax purposes. The character of dividends and distributions made during the
fiscal year from net investment income or net realized gains may differ from
their ultimate characterization for federal income tax purposes. Also, due to
timing of dividends and distributions, the fiscal year in which amounts are
distributed may differ from the fiscal year in which the income or realized gain
was recorded by the Fund.
The Fund adjusts the classification of distributions to shareholders to
reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended October 31, 2001, amounts have been reclassified to reflect a
decrease in paid-in capital of $2,820,317, a decrease in accumulated net
investment loss of $3,570,027, and a decrease in accumulated net realized gain
on investments of $749,710. This reclassification includes $741,425 distributed
in connection with Fund share redemptions which increased paid-in capital and
reduced accumulated net realized gain. Net assets of the Fund were unaffected by
the reclassifications.
--------------------------------------------------------------------------------
Investment Income. Dividend income is recorded on the ex-dividend date or upon
ex-dividend notification in the case of certain foreign dividends where the ex-
dividend date may have passed. Non-cash dividends included in dividend income,
if any, are recorded at the fair market value of the securities received.
Interest income, which includes accretion of discount and amortization of
premium, is accrued as earned.
--------------------------------------------------------------------------------
Security Transactions. Security transactions are accounted for as of trade date.
Gains and losses on securities sold are determined on the basis of identified
cost.
--------------------------------------------------------------------------------
Other. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
38 | XXXXXXXXXXX SMALL CAP VALUE FUND
================================================================================
2. Shares of Beneficial Interest
The Fund has authorized an unlimited number of $.01 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:
Year Ended October 31, 2001/1/ Year Ended October 31, 2000
Shares Amount Shares Amount
------------------------------------------------------------------------------------------
Class A
Sold 4,958,465 $ 99,631,224 3,669,954 $ 70,880,054
Dividends and/or
distributions reinvested 396,702 7,346,840 291 4,948
Redeemed (3,947,339) (78,841,161) (5,231,325) (97,987,391)
-----------------------------------------------------------
Net increase (decrease) 1,407,828 $ 28,136,903 (1,561,080) $(27,102,389)
===========================================================
-----------------------------------------------------------------------------------------
Class B
Sold 2,108,217 $ 40,683,055 1,329,640 $ 24,355,495
Dividends and/or
distributions reinvested 223,956 3,981,950 170 2,801
Redeemed (1,312,971) (25,149,365) (2,328,281) (41,191,251)
-----------------------------------------------------------
Net increase (decrease) 1,019,202 $ 19,515,640 (998,471) $(16,832,955)
===========================================================
-----------------------------------------------------------------------------------------
Class C
Sold 911,099 $ 17,673,282 487,151 $ 8,886,448
Dividends and/or
distributions reinvested 56,599 1,004,647 114 1,903
Redeemed (623,819) (12,080,622) (691,896) (12,189,618)
-----------------------------------------------------------
Net increase (decrease) 343,879 $ 6,597,307 (204,631) $ (3,301,267)
===========================================================
-----------------------------------------------------------------------------------------
Class N
Sold 21,089 $ 413,033 -- --
Dividends and/or
distributions reinvested -- -- -- --
Redeemed (113) (2,176) -- --
-----------------------------------------------------------
Net increase (decrease) 20,976 $ 410,857 -- --
===========================================================
1. For the year ended October 2001, for Class A, B and C shares and for the
period from March 1, 2001(inception of offering) to October 31, 2001, for Class
N shares.
39 | XXXXXXXXXXX SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
3. Purchases and Sales of Securities
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations, for the year ended October 31, 2001, were
$439,069,385 and $425,392,200, respectively.
As of October 31, 2001, unrealized appreciation (depreciation) based on cost of
securities for federal income tax purposes of $286,564,242 was:
Gross unrealized appreciation $ 34,326,088
Gross unrealized depreciation (25,767,602)
-------------
Net unrealized appreciation $ 8,558,486
=============
================================================================================
4. Fees and Other Transactions with Affiliates
Management Fees. Management fees paid to the Manager were in accordance with
the investment advisory agreement with the Fund which provides for a fee of
1.00% of the first $400 million of average annual net assets of the Fund, 0.90%
of the next $400 million, and 0.85% of average annual net assets in excess of
$800 million. The Fund's management fee for the year ended October 31, 2001,
was an annualized rate of 1.00%.
--------------------------------------------------------------------------------
Transfer Agent Fees. OppenheimerFunds Services (OFS), a division of the
Manager, acts as the transfer and shareholder servicing agent for the Fund. The
Fund pays OFS an agreed upon per account fee. OFS has voluntarily undertaken to
waive a portion of its transfer agent fee for Classes A, B, C and N shares.
This voluntary waiver of expenses limits transfer agent fees to 0.35% of
average net assets for Classes A, B, C and N shares effective October 1, 2001.
--------------------------------------------------------------------------------
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
Front-End Front-End Commissions Commissions Commissions
Commissions
Sales Sales on Class A on Class B on Class C on Class
N
Charges Charges Shares Shares Shares
Shares
on Class A Retained by Advanced by Advanced by Advanced by Advanced
by
Year Ended Shares Distributor Distributor/1/ Distributor/1/ Distributor/1
Distributor/1/
----------------------------------------------------------------------------------------------------------------
October 31, 2001 $559,325 $154,880 $79,900 $725,731 $73,490 $3,543
1. The Distributor advances commission payments to dealers for certain
sales of Class A shares and for sales of Class B, Class C and Class N shares
from its own resources at the time of sale.
Class A Class B
Contingent Contingent Class C
Deferred Deferred Contingent Class C
Sales Sales Deferred Contingent Deferred
Charges Charges Sales Charges Sales Charges
Retained by Retained by Retained by Retained by
Year Ended Distributor Distributor Distributor Distributor
-------------------------------------------------------------------------------------------------
October 31, 2001 $3,693 $161,522 $4,587 $--
40 | XXXXXXXXXXX SMALL CAP VALUE FUND
The Fund has adopted Distribution and Service Plans for Class A, Class B, Class
C and Class N shares under Rule 12b-1 of the Investment Company Act. Under those
plans the Fund pays the Distributor for all or a portion of its costs incurred
in connection with the distribution and/or servicing of the shares of the
particular class.
--------------------------------------------------------------------------------
Class A Distribution and Service Plan Fees. Under the plan the Fund pays an
asset-based sales charge to the Distributor at an annual rate of 0.15% of
average annual net assets of Class A shares of the Fund (the Board of Trustees
can set this rate up to 0.25%). Effective January 1, 2001, the asset-based sales
charge rate for Class A shares was reduced from 0.20% to 0.15% of average annual
net assets representing Class A shares. Under the Class A service plan, the
Distributor currently uses the fees it receives from the Fund to pay brokers,
dealers and other financial institutions. The Class A service plan permits
compensation to the Distributor at a rate up to a specified percent of average
annual net assets of Class A shares purchased. The Distributor makes payments to
plan recipients quarterly at an annual rate not to exceed a specified percent of
the average annual net assets consisting of Class A shares of the Fund. For the
year ended October 31, 2001, payments under the Class A Plan totaled $664,116,
all of which was paid by the Distributor to recipients. That included $25,477
paid to an affiliate of the Manager. Any unreimbursed expenses the Distributor
incurs with respect to Class A shares in any fiscal year cannot be recovered in
subsequent years.
--------------------------------------------------------------------------------
Class B, Class C and Class N Distribution and Service Plan Fees. Under each
plan, service fees and distribution fees are computed on the average of the net
asset value of shares in the respective class, determined as of the close of
each regular business day during the period. The Class B, Class C and Class N
plans provide for the Distributor to be compensated at a flat rate, whether the
Distributor's distribution expenses are more or less than the amounts paid by
the Fund under the plan during the period for which the fee is paid.
The Distributor retains the asset-based sales charge on Class B shares. The
Distributor retains the asset-based sales charge on Class C shares during the
first year the shares are outstanding. The Distributor retains the asset-based
sales charge on Class N shares. The asset-based sales charges on Class B, Class
C and Class N shares allow investors to buy shares without a front-end sales
charge while allowing the Distributor to compensate dealers that sell those
shares.
The Distributor's actual expenses in selling Class B, Class C and Class N
shares may be more than the payments it receives from the contingent deferred
sales charges collected on redeemed shares and asset-based sales charges from
the Fund under the plans. If any plan is terminated by the Fund, the Board of
Trustees may allow the Fund to continue payments of the asset-based sales charge
to the Distributor for distributing shares before the plan was terminated. The
plans allow for the carryforward of distribution expenses, to be recovered from
asset-based sales charges in subsequent fiscal periods.
41 | XXXXXXXXXXX SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS Continued
================================================================================
4. Fees and Other Transactions with Affiliates Continued
Distribution fees paid to the Distributor for the year ended October 31, 2001,
were as follows:
Distributor's
Distributor's Aggregate
Aggregate Unreimbursed
Unreimbursed Expenses as %
Total Payments Amount Retained Expenses of Net Assets
Under Plan by Distributor Under Plan of Class
----------------------------------------------------------------------------------------
Class B Plan $881,672 $695,603 $2,077,469 2.18%
Class C Plan 241,123 54,236 404,667 1.52
Class N Plan 352 297 6,169 1.51
================================================================================
5. Foreign Currency Contracts
A foreign currency contract is a commitment to purchase or sell a foreign
currency at a future date, at a negotiated rate. The Fund may enter into foreign
currency contracts for operational purposes and to seek to protect against
adverse exchange rate fluctuations. Risks to the Fund include the potential
inability of the counterparty to meet the terms of the contract.
The net U.S. dollar value of foreign currency underlying all contractual
commitments held by the Fund and the resulting unrealized appreciation or
depreciation are determined using foreign currency exchange rates as provided by
a reliable bank, dealer or pricing service. Unrealized appreciation and
depreciation on foreign currency contracts are reported in the Statement of
Assets and Liabilities as a receivable or payable and in the Statement of
Operations with the change in unrealized appreciation or depreciation.
The Fund may realize a gain or loss upon the closing or settlement of the
foreign currency transactions. Such realized gains and losses are reported with
all other foreign currency gains and losses in the Statement of Operations.
================================================================================
6. Illiquid or Restricted Securities
As of October 31, 2001, investments in securities included issues that are
illiquid or restricted. Restricted securities are often purchased in private
placement transactions, are not registered under the Securities Act of 1933, may
have contractual restrictions on resale, and are valued under methods approved
by the Board of Trustees as reflecting fair value. A security may also be
considered illiquid if it lacks a readily available market or if its valuation
has not changed for a certain period of time. The Fund intends to invest no more
than 15% of its net assets (determined at the time of purchase and reviewed
periodically) in illiquid or restricted securities. Certain restricted
securities, eligible for resale to
42 | XXXXXXXXXXX SMALL CAP VALUE FUND
qualified institutional investors, are not subject to that limitation. The
aggregate value of illiquid or restricted securities subject to this limitation
as of October 31, 2001 was zero. Information concerning restricted securities is
as follows:
Unrealized
Acquisition Valuation as of
Appreciation
Security Date Cost October 31, 2001 (Depreciation)
--------------------------------------------------------------------------------------------------------
Stocks and/or Warrants
Opticnet, Inc. 10/26/00 $-- $-- $--
================================================================================
7. Bank Borrowings
The Fund may borrow from a bank for temporary or emergency purposes including,
without limitation, funding of shareholder redemptions provided asset coverage
for borrowings exceeds 300%. The Fund has entered into an agreement which
enables it to participate with other Xxxxxxxxxxx funds in an unsecured line of
credit with a bank, which permits borrowings up to $400 million, collectively.
Interest is charged to each fund, based on its borrowings, at a rate equal to
the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such
loan is executed. The Fund also pays a commitment fee equal to its pro rata
share of the average unutilized amount of the credit facility at a rate of 0.08%
per annum.
The Fund had no borrowings outstanding during the year ended or at October
31, 2001.
43 | XXXXXXXXXXX SMALL CAP VALUE FUND
Appendix A
RATINGS DEFINITIONS
Below are summaries of the rating definitions used by the nationally-recognized rating agencies listed below. Those
ratings represent the opinion of the agency as to the credit quality of issues that they rate. The summaries below
are based upon publicly-available information provided by the rating organizations.
Xxxxx'x Investors Service, Inc.
----------------------------------------------------------------------------------------------------------------------
Long-Term (Taxable) Bond Ratings
Aaa: Bonds rated "Aaa" are judged to be the best quality. They carry the smallest degree of investment risk.
Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, the changes that can be expected are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group, they comprise
what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as with "Aaa" securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term risk appear somewhat larger than that of
"Aaa" securities.
A: Bonds rated "A" possess many favorable investment attributes and are to be considered as upper-medium grade
obligations. Factors giving security to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa: Bonds rated "Baa" are considered medium-grade obligations; that is, they are neither highly protected nor
poorly secured. Interest payments and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and have speculative characteristics as well.
Ba: Bonds rated "Ba" are judged to have speculative elements. Their future cannot be considered well-assured. Often
the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B: Bonds rated "B" generally lack characteristics of the desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa: Bonds rated "Caa" are of poor standing. Such issues may be in default or there may be present elements of
danger with respect to principal or interest.
Ca: Bonds rated "Ca" represent obligations which are speculative in a high degree. Such issues are often in default
or have other marked shortcomings.
C: Bonds rated "C" are the lowest class of rated bonds and can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Con. (...): Bonds for which the security depends on the completion of some act or the fulfillment of some condition
are rated conditionally. These bonds are secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals that begin when facilities are completed, or (d) payments
to which some other limiting condition attaches. The parenthetical rating denotes probable credit stature upon
completion of construction or elimination of the basis of the condition.
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 - Taxable Debt
These ratings apply to the ability of issuers to honor senior debt obligations having an original maturity not
exceeding one year:
Prime-1: Issuer has a superior ability for repayment of senior short-term debt obligations.
Prime-2: Issuer has a strong ability for repayment of senior short-term debt obligations. Earnings trends and
coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while appropriate,
may be more affected by external conditions. Ample alternate liquidity is maintained.
Prime-3: Issuer has an acceptable ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result
in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
Not Prime: Issuer does not fall within any Prime rating category.
Standard & Poor's Rating Services
----------------------------------------------------------------------------------------------------------------------
Long-Term Credit Ratings
AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its
financial commitment on the obligation is extremely strong.
AA: Bonds rated "AA" differ from the highest rated obligations only in small degree. The obligor's capacity to meet
its financial commitment on the obligation is very strong.
A: Bonds rated "A" are somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB: Bonds rated "BBB" exhibit adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC, and C
Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having significant speculative characteristics. "BB"
indicates the least degree of speculation, and "C" the highest. While such obligations will likely have some quality
and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Bonds rated "BB" are less vulnerable to nonpayment than other speculative issues. However, these face major
ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the
obligor's inadequate capacity to meet its financial commitment on the obligation.
B: Bonds rated "B" are more vulnerable to nonpayment than obligations rated "BB", but the obligor currently has the
capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC: Bonds rated "CCC" are currently vulnerable to nonpayment, and are dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse
business, financial or economic conditions, the obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC: Bonds rated "CC" are currently highly vulnerable to nonpayment.
C: A subordinated debt or preferred stock obligation rated "C" is currently highly vulnerable to nonpayment. The "C"
rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken,
but payments on this obligation are being continued. A "C" also will be assigned to a preferred stock issue in
arrears on dividends or sinking fund payments, but that is currently paying.
D: Bonds rated "D" are in default. Payments on the obligation are not being made on the date due even if the
applicable grace period has not expired, unless Standard and Poor's believes that such payments will be made during
such grace period. The "D" rating will also be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories. The "r" symbol is attached to the ratings of instruments with
significant noncredit risks.
Short-Term Issue Credit Ratings
A-1: Obligation is rated in the highest category. The obligor's capacity to meet its financial commitment on the
obligation is strong. Within this category, a plus (+) sign designation indicates the obligor's capacity to meet its
financial obligation is extremely strong.
A-2: Obligation is somewhat more susceptible to the adverse effects of changes in circumstances and economic
conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial
commitment on the obligation is satisfactory.
A-3: Obligation exhibits adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the
obligation.
B: Obligation is regarded as having significant speculative characteristics. The obligor currently has the capacity
to meet its financial commitment on the obligation. However, it faces major ongoing uncertainties which could lead
to the obligor's inadequate capacity to meet its financial commitment on the obligation.
C: Obligation is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and
economic conditions for the obligor to meet its financial commitment on the obligation.
D: Obligation is in payment default. Payments on the obligation have not been made on the due date even if the
applicable grace period has not expired, unless Standard and Poor's believes that such payments will be made during
such grace period. The "D" rating will also be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
Fitch, Inc.
----------------------------------------------------------------------------------------------------------------------
International Long-Term Credit Ratings
Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of credit risk. They are assigned only in
the case of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly
unlikely to be adversely affected by foreseeable events.
AA: Very High Credit Quality. "AA" ratings denote a very low expectation of credit risk. They indicate a very strong
capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable
events.
A: High Credit Quality. "A" ratings denote a low expectation of credit risk. The capacity for timely payment of
financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a low expectation of credit risk. The
capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances
and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category.
Speculative Grade:
BB: Speculative. "BB" ratings indicate that there is a possibility of credit risk developing, particularly as the
result of adverse economic change over time. However, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not investment grade.
B: Highly Speculative. "B" ratings indicate that significant credit risk is present, but a limited margin of safety
remains. Financial commitments are currently being met. However, capacity for continued payment is contingent upon a
sustained, favorable business and economic environment.
CCC, CC C: High Default Risk. Default is a real possibility. Capacity for meeting financial commitments is solely
reliant upon sustained, favorable business or economic developments. A "CC" rating indicates that default of some
kind appears probable. "C" ratings signal imminent default.
DDD, DD, and D: Default. The ratings of obligations in this category are based on their prospects for achieving
partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are
highly speculative and cannot be estimated with any precision, the following serve as general guidelines. "DDD"
obligations have the highest potential for recovery, around 90%-100% of outstanding amounts and accrued interest.
"DD" indicates potential recoveries in the range of 50%-90%, and "D" the lowest recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their obligations. Entities rated "DDD" have the
highest prospect for resumption of performance or continued operation with or without a formal reorganization
process. Entities rated "DD" and "D" are generally undergoing a formal reorganization or liquidation process; those
rated "DD" are likely to satisfy a higher portion of their outstanding obligations, while entities rated "D" have a
poor prospect for repaying all obligations.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote relative status within the major rating
categories. Plus and minus signs are not added to the "AAA" category or to categories below "CCC," nor to
short-term ratings other than "F1" (see below).
International Short-Term Credit Ratings
F1: Highest credit quality. Strongest capacity for timely payment of financial commitments. May have an added "+"
to denote any exceptionally strong credit feature.
F2: Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of
safety is not as great as in the case of higher ratings.
F3: Fair credit quality. Capacity for timely payment of financial commitments is adequate. However, near-term
adverse changes could result in a reduction to non-investment grade.
B: Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term
adverse changes in financial and economic conditions.
C: High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely
reliant upon a sustained, favorable business and economic environment.
D: Default. Denotes actual or imminent payment default
Appendix B
----------------------------------------------------------------------------------------------------------------------
Industry Classifications
----------------------------------------------------------------------------------------------------------------------
Aerospace/Defense Food and Drug Retailers
Air Transportation Gas Utilities
Asset-Backed Health Care/Drugs
Auto Parts and Equipment Health Care/Supplies & Services
Automotive Homebuilders/Real Estate
Bank Holding Companies Hotel/Gaming
Banks Industrial Services
Beverages Information Technology
Broadcasting Insurance
Broker-Dealers Leasing & Factoring
Building Materials Leisure
Cable Television Manufacturing
Chemicals Metals/Mining
Commercial Finance Nondurable Household Goods
Communication Equipment Office Equipment
Computer Hardware Oil - Domestic
Computer Software Oil - International
Conglomerates Paper
Consumer Finance Photography
Consumer Services Publishing
Containers Railroads & Truckers
Convenience Stores Restaurants
Department Stores Savings & Loans
Diversified Financial Shipping
Diversified Media Special Purpose Financial
Drug Wholesalers Specialty Printing
Durable Household Goods Specialty Retailing
Education Steel
Electric Utilities Telecommunications - Long Distance
Electrical Equipment Telephone - Utility
Electronics Textile, Apparel & Home Furnishings
Energy Services Tobacco
Entertainment/Film Trucks and Parts
Environmental Wireless Services
Food
Appendix C
OppenheimerFunds Special Sales Charge Arrangements and Waivers
In certain cases, the initial sales charge that applies to purchases of Class A shares5 of the Xxxxxxxxxxx funds or
the contingent deferred sales charge that may apply to Class A, Class B or Class C shares may be waived.6 That is
because of the economies of sales efforts realized by OppenheimerFunds Distributor, Inc., (referred to in this
document as the "Distributor"), or by dealers or other financial institutions that offer those shares to certain
classes of investors.
Not all waivers apply to all funds. For example, waivers relating to Retirement Plans do not apply to Xxxxxxxxxxx
municipal funds, because shares of those funds are not available for purchase by or on behalf of retirement plans.
Other waivers apply only to shareholders of certain funds.
For the purposes of some of the waivers described below and in the Prospectus and Statement of Additional
Information of the applicable Xxxxxxxxxxx funds, the term "Retirement Plan" refers to the following types of plans:
(1) plans qualified under Sections 401(a) or 401(k) of the Internal Revenue Code,
(2) non-qualified deferred compensation plans,
(3) employee benefit plans7
(4) Group Retirement Plans8
(5) 403(b)(7) custodial plan accounts
(6) Individual Retirement Accounts ("IRAs"), including traditional IRAs, Xxxx IRAs, SEP-IRAs, SARSEPs or SIMPLE
plans
The interpretation of these provisions as to the applicability of a special arrangement or waiver in a particular
case is in the sole discretion of the Distributor or the transfer agent (referred to in this document as the
"Transfer Agent") of the particular Xxxxxxxxxxx fund. These waivers and special arrangements may be amended or
terminated at any time by a particular fund, the Distributor, and/or OppenheimerFunds, Inc. (referred to in this
document as the "Manager").
Waivers that apply at the time shares are redeemed must be requested by the shareholder and/or dealer in the
redemption request.
I. Applicability of Class A Contingent Deferred Sales Charges in Certain Cases
Purchases of Class A Shares of Xxxxxxxxxxx Funds That Are Not Subject to Initial Sales Charge but May Be Subject to
the Class A Contingent Deferred Sales Charge (unless a waiver applies).
There is no initial sales charge on purchases of Class A shares of any of the Xxxxxxxxxxx funds in the
cases listed below. However, these purchases may be subject to the Class A contingent deferred sales charge if
redeemed within 18 months of the end of the calendar month of their purchase, as described in the Prospectus (unless
a waiver described elsewhere in this Appendix applies to the redemption). Additionally, on shares purchased under
these waivers that are subject to the Class A contingent deferred sales charge, the Distributor will pay the
applicable concession described in the Prospectus under "Class A Contingent Deferred Sales Charge."9 This waiver
provision applies to:
- Purchases of Class A shares aggregating $1 million or more.
- Purchases of Class A shares by a Retirement Plan that was permitted to purchase such shares at net asset
value but subject to a contingent deferred sales charge prior to March 1, 2001.
- Purchases by an OppenheimerFunds-sponsored Rollover XXX, if the purchases are made:
(1) through a broker, dealer, bank or registered investment adviser that has made special arrangements with the
Distributor for those purchases, or
(2) by a direct rollover of a distribution from a qualified Retirement Plan if the administrator of that Plan
has made special arrangements with the Distributor for those purchases.
- Purchases of Class A shares by Retirement Plans that have any of the following record-keeping arrangements:
(1) The record keeping is performed by Xxxxxxx Xxxxx Xxxxxx Xxxxxx & Xxxxx, Inc. ("Xxxxxxx Xxxxx") on a daily
valuation basis for the Retirement Plan. On the date the plan sponsor signs the record-keeping service
agreement with Xxxxxxx Xxxxx, the Plan must have $3 million or more of its assets invested in (a)
mutual funds, other than those advised or managed by Xxxxxxx Xxxxx Investment Management, L.P.
("MLIM"), that are made available under a Service Agreement between Xxxxxxx Xxxxx and the mutual fund's
principal underwriter or distributor, and (b) funds advised or managed by MLIM (the funds described
in (a) and (b) are referred to as "Applicable Investments").
(2) The record keeping for the Retirement Plan is performed on a daily valuation basis by a record keeper whose
services are provided under a contract or arrangement between the Retirement Plan and Xxxxxxx Xxxxx.
On the date the plan sponsor signs the record keeping service agreement with Xxxxxxx Xxxxx, the Plan
must have $3 million or more of its assets (excluding assets invested in money market funds) invested
in Applicable Investments.
(3) The record keeping for a Retirement Plan is handled under a service agreement with Xxxxxxx Xxxxx and on the
date the plan sponsor signs that agreement, the Plan has 500 or more eligible employees (as determined
by the Xxxxxxx Xxxxx plan conversion manager).
- Purchases by a Retirement Plan whose record keeper had a cost-allocation agreement with the Transfer Agent
on or before March 1, 2001.
II. Waivers of Class A Sales Charges of Xxxxxxxxxxx Funds
A. Waivers of Initial and Contingent Deferred Sales Charges for Certain Purchasers.
Class A shares purchased by the following investors are not subject to any Class A sales charges (and no concessions
are paid by the Distributor on such purchases):
- The Manager or its affiliates.
- Present or former officers, directors, trustees and employees (and their "immediate families") of the Fund,
the Manager and its affiliates, and retirement plans established by them for their employees. The term
"immediate family" refers to one's spouse, children, grandchildren, grandparents, parents, parents-in-law,
brothers and sisters, sons- and daughters-in-law, a sibling's spouse, a spouse's siblings, aunts, uncles,
nieces and nephews; relatives by virtue of a remarriage (step-children, step-parents, etc.) are included.
- Registered management investment companies, or separate accounts of insurance companies having an agreement
with the Manager or the Distributor for that purpose.
- Dealers or brokers that have a sales agreement with the Distributor, if they purchase shares for their own
accounts or for retirement plans for their employees.
- Employees and registered representatives (and their spouses) of dealers or brokers described above or
financial institutions that have entered into sales arrangements with such dealers or brokers (and which
are identified as such to the Distributor) or with the Distributor. The purchaser must certify to the
Distributor at the time of purchase that the purchase is for the purchaser's own account (or for the
benefit of such employee's spouse or minor children).
- Dealers, brokers, banks or registered investment advisors that have entered into an agreement with the
Distributor providing specifically for the use of shares of the Fund in particular investment products made
available to their clients. Those clients may be charged a transaction fee by their dealer, broker, bank or
advisor for the purchase or sale of Fund shares.
- Investment advisors and financial planners who have entered into an agreement for this purpose with the
Distributor and who charge an advisory, consulting or other fee for their services and buy shares for their
own accounts or the accounts of their clients.
- "Rabbi trusts" that buy shares for their own accounts, if the purchases are made through a broker or agent
or other financial intermediary that has made special arrangements with the Distributor for those purchases.
- Clients of investment advisors or financial planners (that have entered into an agreement for this purpose
with the Distributor) who buy shares for their own accounts may also purchase shares without sales charge
but only if their accounts are linked to a master account of their investment advisor or financial planner
on the books and records of the broker, agent or financial intermediary with which the Distributor has made
such special arrangements . Each of these investors may be charged a fee by the broker, agent or financial
intermediary for purchasing shares.
- Directors, trustees, officers or full-time employees of OpCap Advisors or its affiliates, their relatives
or any trust, pension, profit sharing or other benefit plan which beneficially owns shares for those
persons.
- Accounts for which Xxxxxxxxxxx Capital (or its successor) is the investment advisor (the Distributor must
be advised of this arrangement) and persons who are directors or trustees of the company or trust which is
the beneficial owner of such accounts.
- A unit investment trust that has entered into an appropriate agreement with the Distributor.
- Dealers, brokers, banks, or registered investment advisers that have entered into an agreement with the
Distributor to sell shares to defined contribution employee retirement plans for which the dealer, broker
or investment adviser provides administration services.
- Retirement Plans and deferred compensation plans and trusts used to fund those plans (including, for
example, plans qualified or created under sections 401(a), 401(k), 403(b) or 457 of the Internal Revenue
Code), in each case if those purchases are made through a broker, agent or other financial intermediary
that has made special arrangements with the Distributor for those purchases.
- A TRAC-2000 401(k) plan (sponsored by the former Quest for Value Advisors) whose Class B or Class C shares
of a Former Quest for Value Fund were exchanged for Class A shares of that Fund due to the termination of
the Class B and Class C TRAC-2000 program on November 24, 1995.
- A qualified Retirement Plan that had agreed with the former Quest for Value Advisors to purchase shares of
any of the Former Quest for Value Funds at net asset value, with such shares to be held through DCXchange,
a sub-transfer agency mutual fund clearinghouse, if that arrangement was consummated and share purchases
commenced by December 31, 1996.
B. Waivers of Initial and Contingent Deferred Sales Charges in Certain Transactions.
Class A shares issued or purchased in the following transactions are not subject to sales charges (and no
concessions are paid by the Distributor on such purchases):
- Shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which
the Fund is a party.
- Shares purchased by the reinvestment of dividends or other distributions reinvested from the Fund or other
Xxxxxxxxxxx funds (other than Xxxxxxxxxxx Cash Reserves) or unit investment trusts for which reinvestment
arrangements have been made with the Distributor.
- Shares purchased through a broker-dealer that has entered into a special agreement with the Distributor to
allow the broker's customers to purchase and pay for shares of Xxxxxxxxxxx funds using the proceeds of
shares redeemed in the prior 30 days from a mutual fund (other than a fund managed by the Manager or any of
its subsidiaries) on which an initial sales charge or contingent deferred sales charge was paid. This
waiver also applies to shares purchased by exchange of shares of Xxxxxxxxxxx Money Market Fund, Inc. that
were purchased and paid for in this manner. This waiver must be requested when the purchase order is placed
for shares of the Fund, and the Distributor may require evidence of qualification for this waiver.
- Shares purchased with the proceeds of maturing principal units of any Qualified Unit Investment Liquid
Trust Series.
- Shares purchased by the reinvestment of loan repayments by a participant in a Retirement Plan for which the
Manager or an affiliate acts as sponsor.
C. Waivers of the Class A Contingent Deferred Sales Charge for Certain Redemptions.
The Class A contingent deferred sales charge is also waived if shares that would otherwise be subject to the
contingent deferred sales charge are redeemed in the following cases:
- To make Automatic Withdrawal Plan payments that are limited annually to no more than 12% of the account
value adjusted annually.
- Involuntary redemptions of shares by operation of law or involuntary redemptions of small accounts (please
refer to "Shareholder Account Rules and Policies," in the applicable fund Prospectus).
- For distributions from Retirement Plans, deferred compensation plans or other employee benefit plans for
any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue Code) of the participant or
beneficiary. The death or disability must occur after the participant's account was established.
(2) To return excess contributions.
(3) To return contributions made due to a mistake of fact.
(4) Hardship withdrawals, as defined in the plan.10
(5) Under a Qualified Domestic Relations Order, as defined in the Internal Revenue Code, or, in the case of an
XXX, a divorce or separation agreement described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue Code.
(7) To make "substantially equal periodic payments" as described in Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.
(9) Separation from service.11
(10) Participant-directed redemptions to purchase shares of a mutual fund (other than a fund managed by the
Manager or a subsidiary of the Manager) if the plan has made special arrangements with the
Distributor.
(11) Plan termination or "in-service distributions," if the redemption proceeds are rolled over directly to an
OppenheimerFunds-sponsored XXX.
- For distributions from Retirement Plans having 500 or more eligible employees, except distributions due to
termination of all of the Xxxxxxxxxxx funds as an investment option under the Plan.
- For distributions from 401(k) plans sponsored by broker-dealers that have entered into a special agreement
with the Distributor allowing this waiver.
III. Waivers of Class B, Class C and Class N Sales Charges of Xxxxxxxxxxx Funds
The Class B, Class C and Class N contingent deferred sales charges will not be applied to shares purchased in
certain types of transactions or redeemed in certain circumstances described below.
A. Waivers for Redemptions in Certain Cases.
The Class B, Class C and Class N contingent deferred sales charges will be waived for redemptions of shares in the
following cases:
- Shares redeemed involuntarily, as described in "Shareholder Account Rules and Policies," in the applicable
Prospectus.
- Redemptions from accounts other than Retirement Plans following the death or disability of the last
surviving shareholder, including a trustee of a grantor trust or revocable living trust for which the
trustee is also the sole beneficiary. The death or disability must have occurred after the account was
established, and for disability you must provide evidence of a determination of disability by the Social
Security Administration.
- Distributions from accounts for which the broker-dealer of record has entered into a special agreement with
the Distributor allowing this waiver.
- Redemptions of Class B shares held by Retirement Plans whose records are maintained on a daily valuation
basis by Xxxxxxx Xxxxx or an independent record keeper under a contract with Xxxxxxx Xxxxx.
- Redemptions of Class C shares of Xxxxxxxxxxx U.S. Government Trust from accounts of clients of financial
institutions that have entered into a special arrangement with the Distributor for this purpose.
- Redemptions requested in writing by a Retirement Plan sponsor of Class C shares of an Xxxxxxxxxxx fund in
amounts of $1 million or more held by the Retirement Plan for more than one year, if the redemption
proceeds are invested in Class A shares of one or more Xxxxxxxxxxx funds.
- Distributions12 from Retirement Plans or other employee benefit plans for any of the following purposes:
(1) Following the death or disability (as defined in the Internal Revenue Code) of the participant or
beneficiary. The death or disability must occur after the participant's account was established in
an Xxxxxxxxxxx fund.
(2) To return excess contributions made to a participant's account.
(3) To return contributions made due to a mistake of fact.
(4) To make hardship withdrawals, as defined in the plan.13
(5) To make distributions required under a Qualified Domestic Relations Order or, in the case of an XXX, a
divorce or separation agreement described in Section 71(b) of the Internal Revenue Code.
(6) To meet the minimum distribution requirements of the Internal Revenue Code.
(7) To make "substantially equal periodic payments" as described in Section 72(t) of the Internal Revenue Code.
(8) For loans to participants or beneficiaries.14
(9) On account of the participant's separation from service.15
(10) Participant-directed redemptions to purchase shares of a mutual fund (other than a fund managed by the
Manager or a subsidiary of the Manager) offered as an investment option in a Retirement Plan if the
plan has made special arrangements with the Distributor.
(11) Distributions made on account of a plan termination or "in-service" distributions, if the redemption
proceeds are rolled over directly to an OppenheimerFunds-sponsored XXX.
(12) Distributions from Retirement Plans having 500 or more eligible employees, except distributions made
because of the elimination of all of the Xxxxxxxxxxx funds as an investment option under the Plan.
(13) For distributions from a participant's account under an Automatic Withdrawal Plan after the participant
reaches age 59 1/2, as long as the aggregate value of the distributions does not exceed 10% of the
account's value, adjusted annually.
(14) Redemptions of Class B shares under an Automatic Withdrawal Plan for an account other than a
Retirement Plan, if the aggregate value of the redeemed shares does not exceed 10% of the account's
value, adjusted annually.
(15) For distributions from 401(k) plans sponsored by broker-dealers that have entered into a special
arrangement with the Distributor allowing this waiver.
- Redemptions of Class B shares or Class C shares under an Automatic Withdrawal Plan from an account
other than a Retirement Plan if the aggregate value of the redeemed shares does not exceed 10% of the account's
value annually.
B. Waivers for Shares Sold or Issued in Certain Transactions.
The contingent deferred sales charge is also waived on Class B and Class C shares sold or issued in the following
cases:
- Shares sold to the Manager or its affiliates.
- Shares sold to registered management investment companies or separate accounts of insurance companies
having an agreement with the Manager or the Distributor for that purpose.
- Shares issued in plans of reorganization to which the Fund is a party.
- Shares sold to present or former officers, directors, trustees or employees (and their "immediate families"
as defined above in Section I.A.) of the Fund, the Manager and its affiliates and retirement plans
established by them for their employees.
IV. Special Sales Charge Arrangements for Shareholders of Certain Xxxxxxxxxxx Funds Who Were Shareholders of
Former Quest for Value Funds
The initial and contingent deferred sales charge rates and waivers for Class A, Class B and Class C shares described
in the Prospectus or Statement of Additional Information of the Xxxxxxxxxxx funds are modified as described below
for certain persons who were shareholders of the former Quest for Value Funds. To be eligible, those persons must
have been shareholders on November 24, 1995, when OppenheimerFunds, Inc. became the investment advisor to those
former Quest for Value Funds. Those funds include:
Xxxxxxxxxxx Quest Value Fund, Inc. Xxxxxxxxxxx Small Cap Value Fund
Xxxxxxxxxxx Quest Balanced Value Fund Xxxxxxxxxxx Quest Global Value Fund, Inc.
Xxxxxxxxxxx Quest Opportunity Value Fund
These arrangements also apply to shareholders of the following funds when they merged (were reorganized)
into various Xxxxxxxxxxx funds on November 24, 1995:
Quest for Value U.S. Government Income Fund Quest for Value New York Tax-Exempt Fund
Quest for Value Investment Quality Income Fund Quest for Value National Tax-Exempt Fund
Quest for Value Global Income Fund Quest for Value California Tax-Exempt Fund
All of the funds listed above are referred to in this Appendix as the "Former Quest for Value Funds." The
waivers of initial and contingent deferred sales charges described in this Appendix apply to shares of an
Xxxxxxxxxxx fund that are either:
- acquired by such shareholder pursuant to an exchange of shares of an Xxxxxxxxxxx fund that was one of the
Former Quest for Value Funds, or
- purchased by such shareholder by exchange of shares of another Xxxxxxxxxxx fund that were acquired
pursuant to the merger of any of the Former Quest for Value Funds into that other Xxxxxxxxxxx fund on November 24,
1995.
A. Reductions or Waivers of Class A Sales Charges.
- - Reduced Class A Initial Sales Charge Rates for Certain Former Quest for Value Funds Shareholders.
Purchases by Groups and Associations. The following table sets forth the initial sales charge rates for Class A
shares purchased by members of "Associations" formed for any purpose other than the purchase of securities. The
rates in the table apply if that Association purchased shares of any of the Former Quest for Value Funds or received
a proposal to purchase such shares from OCC Distributors prior to November 24, 1995.
------------------------------ ---------------------------- ---------------------------- ----------------------------
Number of Eligible Employees Initial Sales Charge as a Initial Sales Charge as a Concession as % of
or Members % of Offering Price % of Net Amount Invested Offering Price
------------------------------ ---------------------------- ---------------------------- ----------------------------
------------------------------ ---------------------------- ---------------------------- ----------------------------
9 or Fewer 2.50% 2.56% 2.00%
------------------------------ ---------------------------- ---------------------------- ----------------------------
------------------------------ ---------------------------- ---------------------------- ----------------------------
At least 10 but not more 2.00% 2.04% 1.60%
than 49
------------------------------ ---------------------------- ---------------------------- ----------------------------
For purchases by Associations having 50 or more eligible employees or members, there is no initial sales
charge on purchases of Class A shares, but those shares are subject to the Class A contingent deferred sales charge
described in the applicable fund's Prospectus.
Purchases made under this arrangement qualify for the lower of either the sales charge rate in the table
based on the number of members of an Association, or the sales charge rate that applies under the Right of
Accumulation described in the applicable fund's Prospectus and Statement of Additional Information. Individuals who
qualify under this arrangement for reduced sales charge rates as members of Associations also may purchase shares
for their individual or custodial accounts at these reduced sales charge rates, upon request to the Distributor.
- - Waiver of Class A Sales Charges for Certain Shareholders. Class A shares purchased by the following
investors are not subject to any Class A initial or contingent deferred sales charges:
- Shareholders who were shareholders of the AMA Family of Funds on February 28, 1991 and who
acquired shares of any of the Former Quest for Value Funds by merger of a portfolio of the AMA
Family of Funds.
- Shareholders who acquired shares of any Former Quest for Value Fund by merger of any of the portfolios of
the Unified Funds.
- - Waiver of Class A Contingent Deferred Sales Charge in Certain Transactions. The Class A contingent
deferred sales charge will not apply to redemptions of Class A shares purchased by the following investors who were
shareholders of any Former Quest for Value Fund:
Investors who purchased Class A shares from a dealer that is or was not permitted to receive a sales load
or redemption fee imposed on a shareholder with whom that dealer has a fiduciary relationship, under the Employee
Retirement Income Security Act of 1974 and regulations adopted under that law.
B. Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.
- - Waivers for Redemptions of Shares Purchased Prior to March 6, 1995. In the following cases, the
contingent deferred sales charge will be waived for redemptions of Class A, Class B or Class C shares of an
Xxxxxxxxxxx fund. The shares must have been acquired by the merger of a Former Quest for Value Fund into the fund or
by exchange from an Xxxxxxxxxxx fund that was a Former Quest for Value Fund or into which such fund merged. Those
shares must have been purchased prior to March 6, 1995 in connection with:
- withdrawals under an automatic withdrawal plan holding only either Class B or Class C
shares if the annual withdrawal does not exceed 10% of the initial value of the account value,
adjusted annually, and
- liquidation of a shareholder's account if the aggregate net asset value of shares held in
the account is less than the required minimum value of such accounts.
- - Waivers for Redemptions of Shares Purchased on or After March 6, 1995 but Prior to November 24, 1995.
In the following cases, the contingent deferred sales charge will be waived for redemptions of Class A, Class B or
Class C shares of an Xxxxxxxxxxx fund. The shares must have been acquired by the merger of a Former Quest for Value
Fund into the fund or by exchange from an Xxxxxxxxxxx fund that was a Former Quest For Value Fund or into which such
Former Quest for Value Fund merged. Those shares must have been purchased on or after March 6, 1995, but prior to
November 24, 1995:
- redemptions following the death or disability of the shareholder(s) (as evidenced by a determination of
total disability by the U.S. Social Security Administration);
- withdrawals under an automatic withdrawal plan (but only for Class B or Class C shares) where the annual
withdrawals do not exceed 10% of the initial value of the account value; adjusted annually, and
- liquidation of a shareholder's account if the aggregate net asset value of shares held in
the account is less than the required minimum account value.
A shareholder's account will be credited with the amount of any contingent deferred sales charge paid on
the redemption of any Class A, Class B or Class C shares of the Xxxxxxxxxxx fund described in this section if the
proceeds are invested in the same Class of shares in that fund or another Xxxxxxxxxxx fund within 90 days after
redemption.
V. Special Sales Charge Arrangements for Shareholders of Certain Xxxxxxxxxxx Funds Who Were Shareholders of
Connecticut Mutual Investment Accounts, Inc.
The initial and contingent deferred sale charge rates and waivers for Class A and Class B shares described in the
respective Prospectus (or this Appendix) of the following Xxxxxxxxxxx funds (each is referred to as a "Fund" in this
section):
Xxxxxxxxxxx U. S. Government Trust,
Xxxxxxxxxxx Bond Fund,
Xxxxxxxxxxx Value Fund and
Xxxxxxxxxxx Disciplined Allocation Fund
are modified as described below for those Fund shareholders who were shareholders of the following funds (referred
to as the "Former Connecticut Mutual Funds") on March 1, 1996, when OppenheimerFunds, Inc. became the investment
adviser to the Former Connecticut Mutual Funds:
Connecticut Mutual Liquid Account Connecticut Mutual Total Return Account
Connecticut Mutual Government Securities Account CMIA LifeSpan Capital Appreciation Account
Connecticut Mutual Income Account CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account CMIA Diversified Income Account
A. Prior Class A CDSC and Class A Sales Charge Waivers.
- Class A Contingent Deferred Sales Charge. Certain shareholders of a Fund and the other Former
Connecticut Mutual Funds are entitled to continue to make additional purchases of Class A shares at net asset value
without a Class A initial sales charge, but subject to the Class A contingent deferred sales charge that was in
effect prior to March 18, 1996 (the "prior Class A CDSC"). Under the prior Class A CDSC, if any of those shares are
redeemed within one year of purchase, they will be assessed a 1% contingent deferred sales charge on an amount equal
to the current market value or the original purchase price of the shares sold, whichever is smaller (in such
redemptions, any shares not subject to the prior Class A CDSC will be redeemed first).
Those shareholders who are eligible for the prior Class A CDSC are:
(1) persons whose purchases of Class A shares of a Fund and other Former Connecticut Mutual Funds were $500,000
prior to March 18, 1996, as a result of direct purchases or purchases pursuant to the Fund's
policies on Combined Purchases or Rights of Accumulation, who still hold those shares in that Fund
or other Former Connecticut Mutual Funds, and
(2) persons whose intended purchases under a Statement of Intention entered into prior to March 18, 1996, with
the former general distributor of the Former Connecticut Mutual Funds to purchase shares valued at
$500,000 or more over a 13-month period entitled those persons to purchase shares at net asset value
without being subject to the Class A initial sales charge.
Any of the Class A shares of a Fund and the other Former Connecticut Mutual Funds that were purchased at
net asset value prior to March 18, 1996, remain subject to the prior Class A CDSC, or if any additional shares are
purchased by those shareholders at net asset value pursuant to this arrangement they will be subject to the prior
Class A CDSC.
- Class A Sales Charge Waivers. Additional Class A shares of a Fund may be purchased without a sales
charge, by a person who was in one (or more) of the categories below and acquired Class A shares prior to March 18,
1996, and still holds Class A shares:
(1) any purchaser, provided the total initial amount invested in the Fund or any one or more of the Former
Connecticut Mutual Funds totaled $500,000 or more, including investments made pursuant to the
Combined Purchases, Statement of Intention and Rights of Accumulation features available at the time
of the initial purchase and such investment is still held in one or more of the Former Connecticut
Mutual Funds or a Fund into which such Fund merged;
(2) any participant in a qualified plan, provided that the total initial amount invested by the plan in the
Fund or any one or more of the Former Connecticut Mutual Funds totaled $500,000 or more;
(3) Directors of the Fund or any one or more of the Former Connecticut Mutual Funds and members of their
immediate families;
(4) employee benefit plans sponsored by Connecticut Mutual Financial Services, L.L.C. ("CMFS"), the prior
distributor of the Former Connecticut Mutual Funds, and its affiliated companies; one or more
members of a group of at least 1,000 persons (and persons who are retirees from such group) engaged
in a common business, profession, civic or charitable endeavor or other activity, and the spouses
and minor dependent children of such persons, pursuant to a marketing program between CMFS and such
group; and
(5) an institution acting as a fiduciary on behalf of an individual or individuals, if such institution was
directly compensated by the individual(s) for recommending the purchase of the shares of the Fund or
any one or more of the Former Connecticut Mutual Funds, provided the institution had an agreement
with CMFS.
Purchases of Class A shares made pursuant to (1) and (2) above may be subject to the Class A CDSC of the
Former Connecticut Mutual Funds described above.
Additionally, Class A shares of a Fund may be purchased without a sales charge by any holder of a variable
annuity contract issued in New York State by Connecticut Mutual Life Insurance Company through the Panorama Separate
Account which is beyond the applicable surrender charge period and which was used to fund a qualified plan, if that
holder exchanges the variable annuity contract proceeds to buy Class A shares of the Fund.
B. Class A and Class B Contingent Deferred Sales Charge Waivers.
In addition to the waivers set forth in the Prospectus and in this Appendix, above, the contingent deferred sales
charge will be waived for redemptions of Class A and Class B shares of a Fund and exchanges of Class A or Class B
shares of a Fund into Class A or Class B shares of a Former Connecticut Mutual Fund provided that the Class A or
Class B shares of the Fund to be redeemed or exchanged were (i) acquired prior to March 18, 1996 or (ii) were
acquired by exchange from an Xxxxxxxxxxx fund that was a Former Connecticut Mutual Fund. Additionally, the shares of
such Former Connecticut Mutual Fund must have been purchased prior to March 18, 1996:
(1) by the estate of a deceased shareholder;
(2) upon the disability of a shareholder, as defined in Section 72(m)(7) of the Internal Revenue Code;
(3) for retirement distributions (or loans) to participants or beneficiaries from retirement plans qualified
under Sections 401(a) or 403(b)(7)of the Code, or from IRAs, deferred compensation plans created
under Section 457 of the Code, or other employee benefit plans;
(4) as tax-free returns of excess contributions to such retirement or employee benefit plans;
(5) in whole or in part, in connection with shares sold to any state, county, or city, or any instrumentality,
department, authority, or agency thereof, that is prohibited by applicable investment laws from
paying a sales charge or concession in connection with the purchase of shares of any registered
investment management company;
(6) in connection with the redemption of shares of the Fund due to a combination with another investment
company by virtue of a merger, acquisition or similar reorganization transaction;
(7) in connection with the Fund's right to involuntarily redeem or liquidate the Fund;
(8) in connection with automatic redemptions of Class A shares and Class B shares in certain retirement plan
accounts pursuant to an Automatic Withdrawal Plan but limited to no more than 12% of the original
value annually; or
(9) as involuntary redemptions of shares by operation of law, or under procedures set forth in the Fund's
Articles of Incorporation, or as adopted by the Board of Directors of the Fund.
VI. Special Reduced Sales Charge for Former Shareholders of Advance America Funds, Inc.
Shareholders of Xxxxxxxxxxx Municipal Bond Fund, Xxxxxxxxxxx U.S. Government Trust, Xxxxxxxxxxx Strategic Income
Fund and Xxxxxxxxxxx Capital Income Fund who acquired (and still hold) shares of those funds as a result of the
reorganization of series of Advance America Funds, Inc. into those Xxxxxxxxxxx funds on October 18, 1991, and who
held shares of Advance America Funds, Inc. on March 30, 1990, may purchase Class A shares of those four Xxxxxxxxxxx
funds at a maximum sales charge rate of 4.50%.
VII. Sales Charge Waivers on Purchases of Class M Shares of Xxxxxxxxxxx Convertible Securities
Fund
Xxxxxxxxxxx Convertible Securities Fund (referred to as the "Fund" in this section) may sell Class M shares at net
asset value without any initial sales charge to the classes of investors listed below who, prior to March 11, 1996,
owned shares of the Fund's then-existing Class A and were permitted to purchase those shares at net asset value
without sales charge:
- the Manager and its affiliates,
- present or former officers, directors, trustees and employees (and their "immediate families" as defined in
the Fund's Statement of Additional Information) of the Fund, the Manager and its affiliates, and retirement
plans established by them or the prior investment advisor of the Fund for their employees,
- registered management investment companies or separate accounts of insurance companies that had an
agreement with the Fund's prior investment advisor or distributor for that purpose,
- dealers or brokers that have a sales agreement with the Distributor, if they purchase shares for their own
accounts or for retirement plans for their employees,
- employees and registered representatives (and their spouses) of dealers or brokers described in the
preceding section or financial institutions that have entered into sales arrangements with those dealers or
brokers (and whose identity is made known to the Distributor) or with the Distributor, but only if the
purchaser certifies to the Distributor at the time of purchase that the purchaser meets these
qualifications,
- dealers, brokers, or registered investment advisors that had entered into an agreement with the Distributor
or the prior distributor of the Fund specifically providing for the use of Class M shares of the Fund in
specific investment products made available to their clients, and
- dealers, brokers or registered investment advisors that had entered into an agreement with the Distributor
or prior distributor of the Fund's shares to sell shares to defined contribution employee retirement plans
for which the dealer, broker, or investment advisor provides administrative services.
Xxxxxxxxxxx Small Cap Value Fund
Internet Web Site:
XXX.XXXXXXXXXXXXXXXX.XXX
------------------------
Investment Advisor
OppenheimerFunds, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Distributor
OppenheimerFunds Distributor, Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Transfer Agent
OppenheimerFunds Services
X.X. Xxx 0000
Xxxxxx, Xxxxxxxx 00000
0.000.000.0000
Custodian Bank
Citibank, N.A.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Independent Accountants
KPMG LLP
000 Xxxxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Legal Counsel
Xxxxx Xxxxx, Xxxx & Maw
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
251SAI.0202
