Oppenheimer Principal Protected Trust III - Correspondence
OppenheimerFunds, Inc.
2 World Financial Center
225 Liberty Street, 11th Floor
New York, New York 10281-1008
August 2, 2004
VIA EDGAR
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Securities and Exchange Commission
Division of Investment Management
450 Fifth Street, NW
Washington, DC 20549
Attn: Mr. Vincent J. DiStefano
Re: Oppenheimer Principal Protected Trust III
Registration Statement on Form N-1A
File Numbers 333-114495; 811-21561
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Dear Mr. DiStefano:
The purpose of this letter is to respond to your comment letter dated
May 27, 2004 with respect to Oppenheimer Principal Protected Main Street Fund
III (the "Fund"), a series of Oppenheimer Principal Protected Trust III (the
"Trust"). Responses to your comments are as follows:
Registration Statement on Form N-1A
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The filing is incomplete and additional information must be filed in a
pre-effective amendment. The staff may comment on any additional information
filed by pre-effective amendment.
Whenever a comment is made in one location, it is considered applicable to
all similar disclosure appearing elsewhere in the registration statement.
The Fund will file a pre-effective amendment as soon as practicable
with all information needed for the filing to be complete. The Fund and its
Distributor, OppenheimerFunds Distributor, Inc., will request acceleration of
the effectiveness of the pre-effective amendment after it is filed.
Prospectus
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Overview
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Please advise us supplementally whether the Warranty Provider files periodic
reports with the Commission pursuant to the Securities Exchange Act of 1934.
If the Warranty Provider does not file such reports, please provide an
undertaking to attach the Warranty Provider's financial statements and
independent auditor's consent to the registration statement.
The Warranty Provider is not required to file and does not file
periodic reports with the Commission pursuant to the Securities Exchange Act
of 1934. Part C of the Fund's registration statement contains, and
amendments to the registration statement will contain, the following under
Item 30 - Undertakings:
The Registrant hereby undertakes to update its registration
statement on an annual basis under the Investment Company Act of
1940, as amended (the "1940 Act") to include updated audited
financial statements for Merrill Lynch Bank USA (or any
successors or substituted entities thereto), as applicable.
Merrill Lynch Bank USA has represented to Registrant that its
audited financial statements to be included in Registrant's
Registration Statement, as it may be amended from time to time,
have been and will be prepared in accordance with Regulation S-X
and U.S. GAAP, as if Merrill Lynch Bank USA was required to file
Form 10-K under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Further, the Registrant undertakes under
such circumstances to include as an exhibit to its registration
statement as it relates to the Fund, the consent of the
independent auditors of Merrill Lynch Bank USA (or such
successors or substituted entities), as applicable, regarding
such financial statements.
Please disclose that the Warranty Provider is not a bank regulated by the
Federal Reserve or Treasury. Please provide a summary description of the
Warranty Provider's size or ability to fulfill its obligations under the
Warranty.
The portion of the prospectus that describes the Warranty Provider will
be amended to include the following: "The Warranty Provider is regulated and
examined by the FDIC and the Utah Department of Financial Institutions. It
is not regulated by the Federal Reserve or the U.S. Department of Treasury.
As of March 26, 2004, MLBUSA's assets totaled approximately $67 billion."
The prospectus indicates that the Fund may continue into the Warranty Period
with less than $75 million in net assets. Will operating the Fund with less
than $75 million materially impact the Fund's proposed plan of operation,
investment objectives, policies, and strategies or otherwise present any
material risks? Will the expense ratio be impacted? Will the Warranty fee
be reduced if Fund assets are less than $75 million? Please advise the staff
or revise the prospectus accordingly.
The Fund's investment adviser, OppenheimerFunds, Inc. (the "Manager")
has determined that the Fund can be operated efficiently with at least $70
million in assets without materially impacting the Fund's proposed plan of
operation, investment objectives, policies and strategies or otherwise
present any material risks. Should the Trustees decide to continue the Fund
with less than $75 million, the Trustees will first determine that there will
be no material impact on the Fund's proposed plan of operation, investment
objectives, policies and strategies or otherwise present any material risks.
The minimum amount of $70 million was chosen as an appropriate point where
the Fund could be operated efficiently without a material impact on the
Fund's expense ratio. The Warranty Fee would not be reduced if the Fund
continues with less than $75 million in assets.
Clarify whether or not shareholders will also receive interest on amounts
returned by the Fund as a result of liquidation during the Offering Period.
In this regard, disclose what will be repaid to shareholders if the Fund is
liquidated after the Offering Period.
The prospectus states under the section entitled "Offering Period" that
if the Fund's Trustees decide to return shareholders' investments at the end
of the Offering Period, shares of the Fund will be exchanged for shares of
Oppenheimer Money Market Fund, Inc. and the Fund's Distributor will rebate or
waive any sales charges paid by shareholders in connection with their
purchase of Fund shares (other than as a result of an exchange into the Fund
from another Oppenheimer fund). Thus, shareholders would receive the benefit
of any income accrued and paid by the Fund during the Offering Period.
During the Offering Period, the Manager will voluntarily waive its management
fee and will assume any Fund expenses to the extent necessary to assure that
if the Fund is liquidated before the start of the Warranty Period,
shareholders will receive at least their initial investment. The Fund will
not pay any 12b-1 fees to the Distributor should the Fund be liquidated prior
to the Warranty Period and therefore any service fees paid by the Distributor
to broker-dealers at the time of sale will not be reimbursed by the Fund. If
the Trustees determine it is in the shareholders' best interest to liquidate
the Fund after the Offering Period but before the Maturity Date, shareholders
will receive the then-current net asset value. This is disclosed in the
prospectus under "The Warranty Agreement and The Financial Warranty."
Please ensure that the appropriate representatives of Oppenheimer Main Street
Fund ("Underlying Fund") also sign the Fund's registration statement. Also,
please include the Underlying Fund's financial statements in the registration
statement.
We will ensure that the appropriate representatives of Oppenheimer Main
Street Fund (the "Underlying Fund") sign the Fund's registration statement
and that it includes the Underlying Fund's financial statements.
Will the Fund invest in equity securities outside the Underlying Fund? If
so, please summarize the Fund's equity investment strategies and risks.
During the Warranty Period, the equity securities in which the Fund
will invest include shares of the Underlying Fund and futures contracts on
the Standard and Poor's 500 Composite Stock Price Index ("S&P futures"). The
sections in the Fund's prospectus entitled "The Fund's Investment Objective
and Principal Investment Strategies" and "About the Fund's Investments"
contain descriptions of the Fund's equity investments, objectives and risks.
The disclosure indicates the Fund will charge a sales load and will invest in
shares of the Underlying Fund, which also charges a sales load, as well as
equities other than the Underlying Fund, and debt. Please disclose
supplementally the exception(s) to Section 12(d)(1)(a) of the Investment
Company Act of 1940 (the "Act") upon which the Fund expects to rely in order
to invest in the Underlying Fund, equities outside the Underlying Fund, and
debt, respectively, as well as the basis for such reliance.
The sections of the prospectus entitled "The Fund's Investment
Objective and Principal Strategies" and "About the Fund's Investments" state
that during the Warranty Period, the Fund's equity holdings will consist
solely of Class Y shares of the Underlying Fund and S&P futures. Class Y
shares of the Underlying Fund have no sales load or 12b-1 fee. It does not
state that the Fund will invest in equity securities other than the
Underlying Fund or S&P futures, and the Fund will not do so. The Fund's
prospectus does disclose that the Underlying Fund invests in equity
securities, and the prospectus describes the investment strategies and risks
of the Underlying Fund's investments. The Fund will invest in shares of the
Underlying Fund in reliance on Section 12(d)(1)(G) of the Investment Company
Act. The Fund may invest in S&P futures, and the debt securities held by the
Fund may consist of securities other than government securities and
short-term paper as required by sub-paragraph II of Section 12(d)(1)(G), in
reliance on an exemptive order of the Commission dated July 21, 1998
(Investment Company Act Rel. No. 23324; SEC File No. 812-10936) issued to the
mutual funds advised by OppenheimerFunds, Inc.
If the Underlying Fund may invest a significant percentage of its assets in
foreign securities or derivatives, disclose the attendant risks in the
discussion of "Main Risks of Investing in the Fund."
The section of the prospectus entitled "About the Fund's Investments -
The Fund's Principal Investment Policies and Risks" states the following:
Risks of Foreign Investing. The Underlying Fund can buy securities of
companies or governments in any country, developed or underdeveloped.
While there is no limit on the amount of the Underlying Fund's assets
that may be invested in foreign securities, the Manager does not
currently plan to invest significant amounts of the Underlying Fund's
assets in foreign securities. While foreign securities offer special
investment opportunities, there are also special risks, such as the
effects of a change in value of a foreign currency against the U.S.
dollar, which will result in a change in the U.S. dollar value of
securities denominated in that foreign currency.
Specify the Underlying Fund's investment objective and principal strategies
and risks. Include a discussion of market capitalization strategy and
attendant risks, such as small-cap risk. Does the Underlying Fund have a
high portfolio turnover rate? If so, please so indicate in this section; and
disclose the risks of high portfolio turnover.
The sections of the prospectus entitled "The Fund's Investment
Objective and Principal Strategies" and "About the Fund's Investments"
describe the Underlying Fund's investment objective, principal strategies and
risks. The section entitled "Risks of Investing in Stocks" of the prospectus
describes the Underlying Fund's policy with respect to investing in small-
and medium-size companies and the attendant risks. The Underlying Fund's
portfolio turnover ratio has not exceeded 100% in any of its last five fiscal
years.
Provide a cross-reference to the location in the prospectus wherein the
material terms of the Financial Warranty Agreement (the "Agreement") are
discussed.
The section entitled "Main Risks of Investing in the Fund - Risks
Associated with The Financial Warranty" contains a cross-reference to the
location in the prospectus containing a description of the material terms of
the Financial Warranty Agreement.
Please summarize in the discussion of "Main Risks of Investing in the Fund"
the most likely events that would lead to termination of the Warranty
Agreement.
The section of the prospectus entitled "The Warranty Agreement and the
Financial Warranty" contains a detailed discussion of the circumstances in
which the Warranty Provider could terminate the Warranty Agreement. It sets
forth in bullet points the eleven occurrences that could lead to
termination. The Manager cannot predict which of the eleven circumstances
would be more likely to occur than others. The "Main Risks of Investing in
the Fund" section of the prospectus states that the Warranty Agreement may be
terminated in certain circumstances and specifically cross-references the
location that details the termination provisions.
The disclosure indicates that Fund shareholders would have no recourse
against the Warranty Provider in the event it defaults on its obligations to
the Fund. Please advise us supplementally whether shareholders would be able
to commence a derivative action in the event the Board does not sue the
Warranty Provider, and if not, why not.
Massachusetts state law would likely govern any determinations of
whether shareholders would be able to commence a derivative action if the
Warranty Provider defaults on its obligations to the Fund. The Manager
cannot project an opinion as to whether a Massachusetts court would allow a
derivative action in any given situation.
Fees and Expenses of the Fund
-----------------------------
Supplementally advise the staff whether any amounts payable by the Warranty
Provider under the Agreement could be used by Oppenheimer to subsequently
recover reimbursed expenses and/or fees waived.
The amounts payable by the Warranty Provider under the Agreement could
not be used by OppenheimerFunds, Inc. to subsequently recover reimbursed
expenses and/or fees waived. Assuming the Bank is required to make a payment
under the Warranty Agreement, the Bank will make such payment directly to the
Fund in the amount of any shortfall between the Fund's then-current net asset
value and the Warranty Amount. The only way the Manager will benefit from
that payment is if it still owns its seed money shares when that payment is
made.
Please disclose all fees of the Underlying Fund in narrative form.
The following statement will be added to "Fees and Expenses of the
Fund" section of the prospectus: "During its latest fiscal year, Class Y
shares of the Underlying Fund were charged a management fee of 0.46% and
other expenses equal to 0.41%, amounting to total annual operating expenses
of 0.87%."
Please ensure that the fee presentation contained in footnote 7 to the fee
table is less prominent that the fee table itself.
The fee presentation in the footnote will be less prominent than the
fee table itself in the prospectus.
Please advise us supplementally why the other expenses for classes C and N
are higher than those for classes A and B. Also advise why class A's
management fee is lower than those for classes B, C and N. Explain how the
difference in advisory fees is consistent with the requirements of Rule 18f-3
under the Investment Company Act of 1940.
The fees that were included in the prospectus were erroneous. We have
revised the fee table in the prospectus to correct those errors. The "Other
Expenses" for classes C and N are the same as those for classes A and B. The
management fee is also the same for all classes. The following is how the
revised fee table will appear:
Shareholder Fees (charges paid directly from your investment):
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Class A Class B Class C Class N
Shares Shares Shares Shares
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Maximum Sales Charge (Load) on
purchases (as % of offering price) 5.75% None None None
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Maximum Deferred Sales Charge (Load)
(as % of the lower of the original
offering None1 5%2 1%3 1%4
price or redemption proceeds)
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Annual Fund Operating Expenses (deducted from Fund assets):
(% of average daily net assets)4
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Class A Class B Class C Class N
Shares Shares6 Shares Shares
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Management Fees5 0.50% 0.50% 0.50% 0.50%
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Distribution and/or Service (12b-1) 0.25% 1.00% 1.00% 0.50%
Fees
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Other Expenses 0.75% 0.75% 0.75% 0.75%
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Total Annual Operating Expenses7 1.50% 2.25% 2.25% 1.75%
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Expenses may vary in future years. "Other Expenses" include transfer agent
fees, custodial fees, the Warranty Agreement fee of 0.60% of average daily
net assets of the Fund, and accounting and legal expenses that the Fund pays.
The Transfer Agent has voluntarily undertaken to the Fund to limit the
transfer agent fees to 0.35% of average daily net assets per fiscal year for
each class. That voluntary undertaking may be amended or terminated at any
time without notice to shareholders.
1. A contingent deferred sales charge may apply to redemptions of investments
of $1 million or more of Class A shares. See "How Can You Buy Class A Shares"
for details.
2. Applies to redemptions in first year after purchase. The contingent
deferred sales charge gradually declines from 5% to 1% in years one through
six and is eliminated after that.
3. Applies to shares redeemed within 12 months of purchase.
4. A contingent deferred sales charge applies to shares redeemed within 18
months of the retirement plan's first purchase of Class N shares.
5. The Manager has voluntarily undertaken to waive its management fee and
assume all expenses of the Fund, with the exception of the 12b-1 fee, during
the Offering Period. The Manager may amend or terminate that voluntary
undertaking at any time with notice to shareholders. "Management Fees" in the
table above reflect the maximum annual management fee rate under the
investment advisory agreement. During the Warranty Period, the management
fees shall be 0.40% of average annual net assets of the Fund in any month
following a month where the Fund's investment in equity securities is, on
average, less than 10% of net assets. If the Fund becomes completely and
irreversibly invested in the debt portfolio, the Management Fees will be
0.25% for the remainder of the Warranty Period.
6. Class B shares automatically convert to Class A shares 90 months after
purchase.
7. The Manager has contractually agreed to reduce its management fee for the
remainder of the Warranty Period in the event that the Fund becomes
completely and irreversibly invested in the debt portfolio to the extent
necessary so that total annual operating expenses of the Fund are limited to
1.30% for Class A shares, 2.05% for Class B shares, 2.05% for Class C shares
and 1.55% for Class N shares. Those expense limitations do not include
Extraordinary Expenses and other expenses not incurred in the ordinary course
of the Fund's business. However, if this reduction in the management fee is
not sufficient to reduce total annual operating expenses to these limits, the
Manager is not required to subsidize Fund expenses to assure that expenses do
not exceed those limits. If the Fund's annual operating expenses exceed those
limits while the Fund's assets are completely and irreversibly allocated to
the debt portfolio, the Warranty Amount will be reduced by the portion of the
Fund's annual operating expenses that exceed those limits. Additionally, if
the Fund becomes completely and irreversibly invested in the debt portfolio,
the Warranty Fee payable by the Fund to the Warranty Provider under the
Warranty Agreement will decrease to 0.35% per annum. In the event the Fund's
assets are completely and irreversibly allocated to the debt portfolio, the
Fund's Management Fees, Other Expenses and Total Annual Operating Expenses
(Distribution and/or Service (12b-1) Fees would remain the same as shown
above) would be estimated as follows:
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Class A Class B Class C Class N
Shares Shares Shares Shares
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Management Fees 0.25% 0.25% 0.25% 0.25%
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Distribution and/or Service 0.25% 1.00% 1.00% 0.50%
(12b-1) Fees
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Other Expenses 0.50% 0.50% 0.50% 0.50%
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Total Annual Operating 1.00% 1.75% 1.75% 1.75%
Expenses
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Can the Fund's Investment Objective and Policies Change
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Please state explicitly in this section whether the Fund's policy of investing
in the Underlying Fund, S&P 500 futures and U.S. Government debt securities
is fundamental; and, if not, that shareholders will be provided with sixty days
notice of any change in the policy.
The Fund's investment objective is a fundamental policy, as stated in the
Fund's Statement of Additional Information ("SAI") in the section entitled
"Investment Restrictions." Thus, its objective during the Warranty Period to
seek capital preservation in order to have a net asset value on the Maturity
Date at least equal to the Warranty Amount, and its secondary objective to seek
high total return, are fundamental and may only be changed by the vote of a
majority of the Fund's outstanding voting securities. We will add language to
the prospectus specifying that the Fund's investment objectives are fundamental
policies. The Fund's policies of investing in the Underlying Fund, S&P 500
futures and U.S. Government debt securities are not fundamental policies. As
described in the "Investment Restrictions" section of the Fund's SAI, the Fund's
Board of Trustees may change non-fundamental policies without shareholder
approval, however, the Fund will describe significant changes to investment
policies in supplements or updates to its prospectus or SAI, as appropriate. The
Fund would provide these supplements or updates to shareholders prior to the
change of significant non-fundamental policies. However, the Fund is not likely
to provide sixty days prior notice, particularly if such a delay would be
detrimental to the interests of shareholders.
How will the Fund notify existing shareholders of changes to non-fundamental
investment policies? Will the Fund send the new prospectus to existing
shareholders?
The manner and timing in which the Fund would notify existing
shareholders of a change to non-fundamental investment policies depends upon
the significance of the change. The Fund updates its prospectus on an annual
basis and sends updated prospectuses to all existing shareholders. For
non-material changes of lesser significance, the Fund would update its
prospectus if applicable and existing shareholders would receive the revised
prospectus as part of its annual mailing. The Fund may also enclose a
written supplement to its printed prospectus prior to the annual update to
disclose the change. This supplement (including electronic versions) would
be included with each prospectus delivered from the date of the supplement
until the prospectus' annual update, at which time the substantive content of
the supplement would be incorporated into the prospectus. With respect to
changes to significant non-fundamental investment policies, the Fund would
likely deliver a prospectus supplement or revised prospectus to existing
shareholders at the time or before the change occurs.
The Financial Warranty
----------------------
File a copy of the executed Agreement as an exhibit to the registration
statement.
The Fund will file a copy of the executed Warranty Agreement as an
exhibit to the Registration Statement by Pre-Effective Amendment.
Clarify that the material terms of the Agreement are described in the
prospectus. If necessary, expand the prospectus disclosure to provide any
additional information needed so as to conform to this requested
clarification. The description should include, but not be limited to, an
identification of the material "agreed-upon investment parameters . . .and
restrictions set forth in the Warranty Agreement."
The prospectus contains a full and complete description of the material
terms of the Warranty Agreement.
Please describe potential negative effects on shareholders' investments of
any material changes that may be made to the Agreement without shareholder
approval.
The prospectus states that material changes to the Warranty Agreement
may be made without shareholder approval, even to the extent such changes
could have a direct or indirect impact on a shareholder's investment in the
Fund. This statement was added at the request of the SEC examiner for the
first Oppenheimer principal protected fund declared effective by the
Commission. Neither the Manager nor the Warranty Provider contemplates
materially changing the Warranty Agreement.
The disclosure indicates that the Warranty Provider may reduce its
obligations under the Agreement in the event the Manager fails to make a
required payment. Is the Manager required, under these circumstances, to
make the Fund's shareholders whole? If not, please explain why not.
No, the Manager is not required to make shareholders whole in such
circumstances. That fact is disclosed as the last sentence under the "Main
Risks of Investing in the Fund - Risks Associated with the Financial
Warranty" section of the prospectus.
If, during the Warranty Period, the Fund fails to comply with a condition
under the Agreement, is the Warranty Provider required to promptly notify the
Fund of any deficiency and does the Fund have the opportunity to cure any
deficiency?
The Warranty Agreement requires the Warranty Provider to provide notice
to the Fund and/or the Manager of a deficiency of certain requirements, in
which case the Fund has a specified period of time to cure the deficiency.
The Warranty Agreement does not require the Warranty Provider to provide
notice of a deficiency of certain other requirements, and therefore the
existence of such deficiency provides the Warranty Provider with the right to
either terminate the Warranty Agreement or to require the Fund to invest
exclusively in debt securities, depending on the severity of the deficiency.
Will the Warranty Provider rely exclusively upon the Fund or its affiliates
for all of the information that the Warranty Provider will need to monitor
the Fund's compliance with the Agreement? If so, what are the attendant
risks to the Fund and its shareholders?
The Warranty Provider will primarily rely on the Manager as well as the
Fund's Custodial Bank for the information necessary to monitor the Fund's
compliance with the Warranty Agreement. The attendant risks to the Fund and
shareholders may occur if the Manager or the Custodian fail to provide the
information required by the Warranty Agreement, in which case the Warranty
Provider may require the Fund to invest exclusively in debt securities. That
risk is disclosed under "The Fund's Principal Investment Policies - Asset
Allocation" section of the prospectus.
What recourse would shareholders have in the event that the Fund either fails
or is otherwise unable to comply with the conditions under the Agreement?
Shareholders would have no recourse in the event that the Fund either
fails or is otherwise unable to comply with the conditions under the
Agreement. The prospectus clearly discloses that as a risk of investing in
the Fund. The prospectus states under the section entitled "How Risky is the
Fund Overall?" that: "It is possible that the Warranty Provider will not be
able to satisfy its obligations under the Warranty Agreement as of the
Maturity Date or that the Manager or the Fund will not be able to satisfy
their respective obligations under the Warranty Agreement. As a result, the
Fund may not be able to redeem your shares for the Warranty Amount on the
Maturity Date, and the value of your shares on the Maturity Date may be more
or less than your Warranty Amount."
Discuss whether a claim that the Fund or the Warranty Provider may have in
respect of the Underlying Fund could reduce or otherwise impact the Warranty
Provider's obligations under the Agreement.
The Manager is not aware of a situation where the Warranty Provider or
the Fund could have a claim against the Underlying Fund. Any such claim
would not have an effect on the Warranty Provider's obligations under the
Warranty Agreement.
The financial condition of the Warranty Provider is information that is
material to a decision whether to invest and to remain invested in the Fund.
What GAAP audited financial statements of the Warranty Provider, and
auditor's consent, will you include in the prospectus initially and on an
updated basis throughout the Warranty Period? In this regard, the statement
contained in the third paragraph indicating that the Warranty Provider has
not participated in the preparation of the prospectus or statement of
additional information should be modified.
The 2003 audited financial statements of each of the Warranty Provider
will be included as an exhibit to the Fund's Registration Statement.
Thereafter, the most recent audited financial statements of the Warranty
Provider will be included as an exhibit to the Fund's Registration
Statement. The prospectus does not contain a statement that the Warranty
Provider has not participated in the preparation of the prospectus or the
Statement of Additional Information
What are the risks to shareholders in the event that the Fund is liquidated
or terminated during the Warranty Period? To what extent would the Warranty
Provider still be obligated to pay the Waranteed Amount prior to the Maturity
Date? Would the Warranty Provider be liable for payment of the Waranteed
Amount prior to the Maturity Date?
The seventh paragraph under the section "The Warranty Agreement and The
Financial Warranty" states: "If the Board were to determine that liquidation
of the Fund during the Warranty Period is in the shareholders' best
interests, the Warranty Agreement would automatically terminate upon such
liquidation and the Warranty Provider would have no obligations to make a
payment to the Fund. In that event neither the Manager nor any other person
would be liable to make a payment to the Fund to provide shareholders with
their Warranty Amount."
The Warranty Provider should supplementally provide a statement that it knows
of no regulatory or legal restriction that would prevent it from entering
into the Agreement.
The Warranty Provider will represent in the Warranty Agreement, among
other things, that it knows of no statute, regulation, order, or any
regulatory or legal restriction that would prevent it from consummating the
transaction.
Supplementally discuss whether the Warranty Provider or any of its affiliates
entered or will enter into any type of hedging or reinsurance transaction
with Oppenheimer or any of Oppenheimer's affiliates to hedge the Warranty
Provider's exposure in connection with the Warranty Provider's entering into
the Agreement.
Neither the Warranty Provider nor any of its affiliates have entered
into or will enter into any type of hedging or reinsurance transaction with
the Manager or any of its affiliates to hedge the Warranty Provider's
exposure in connection with its entering into the Agreement.
Statement of Additional Information
-----------------------------------
Investment Restrictions
-----------------------
Clarify that the concentration policy also prohibits concentration in groups
of industries.
The last sentence of the section "Does the Fund Have Additional
Fundamental Policies?" of the SAI states "The Fund does not intend to
concentrate its investments in a group of industries."
Please disclose here the fundamental policies of the Underlying Fund.
The fundamental policies of the Underlying Fund are already disclosed
in Appendix C to the SAI, titled "Information About the Underlying Fund." We
will repeat this information in the "Investment Restrictions" section of the
SAI.
Please inform us supplementally of the percentage of the Underlying Fund's
assets the Fund will purchase.
The percentage of the Fund's assets that will be invested in the
Underlying Fund depends on a number of factors, including the prevailing
market interest rates and recent market volatility, among other things.
Therefore, that percentage cannot be predicted at this time. As we near the
end of the Offering Period of the Fund, we could estimate a percentage range
of the Fund's assets that the Manager believes will be invested in the
Underlying Fund.
How the Fund is Managed
-----------------------
Please furnish information for the Fund's trustees in tabular format. See
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Item 13 of Form N-1A.
The Trustee information will be revised and presented in tabular format in
accordance with Item 13 of Form N-1A.
The Warranty Provider
---------------------
Please incorporate by reference the Warranty Provider's 2003 audited
financial statements and two most recent quarterly unaudited financial
statements.
The third sentence in the section of the SAI entitled "Warranty
Provider" under "Additional Information About the Fund" states the following:
"You may request a copy of the Merrill Lynch Bank USA financial statements,
free of charge, by calling the Transfer Agent at the toll-free number listed
on the back cover of the Statement of Additional Information.
Please clarify that the 2003 audited financial statements of the Warranty
Provider referenced here are those included in its annual report on Form 10-K
for the fiscal year ended December 31, 2003, which has been filed with the
Commission. Also clarify that the referenced unaudited financial statements
are those included in the Warranty Provider's quarterly report on Form 10-Q
for the quarters ending on March 31 and June 30, 2003, respectively.
As noted above, the Warranty Provider is not required to file and does
not file periodic reports with the Commission pursuant to the Securities
Exchange Act of 1934. Part C of the Fund's registration statement contains,
and amendments to the registration statement will contain, the following
under Item 30 - Undertakings:
The Registrant hereby undertakes to update its registration
statement on an annual basis under the Investment Company Act of
1940, as amended (the "1940 Act") to include updated audited
financial statements for Merrill Lynch Bank USA (or any
successors or substituted entities thereto), as applicable.
Merrill Lynch Bank USA has represented to Registrant that its
audited financial statements to be included in Registrant's
Registration Statement, as it may be amended from time to time,
have been and will be prepared in accordance with Regulation S-X
and U.S. GAAP, as if Merrill Lynch Bank USA was required to file
Form 10-K under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Further, the Registrant undertakes under
such circumstances to include as an exhibit to its registration
statement as it relates to the Fund, the consent of the
independent auditors of Merrill Lynch Bank USA (or such
successors or substituted entities), as applicable, regarding
such financial statements.
Please include disclosure to the effect that all quarterly reports
subsequently filed by the Warranty Provider pursuant to Sections 13(a) or
15(d) of the Securities Exchange Act of 1934, prior to the Warranty
Provider's filing of its annual reports on Form 10-K for the fiscal year
ended December 31, 2004, shall be deemed incorporated herein by reference.
See the response to immediately preceding comment.
Exhibits
--------
Please attach as exhibits to the registration statement the Independent
Auditors' Consents for the Fund, the Underlying Fund and the Warranty
Provider.
The Fund will attach the Auditors' Consents for the Fund, the
Underlying Fund, and the Warranty Provider as exhibits to its next
pre-effective amendment to the registration statement.
Attached is a draft copy of the revised Prospectus and Statement
of Additional Information for your reference. Also attached is a redlined
copy of each to show the changes made from the initial version filed with the
Commission. Thank you for your attention to this matter. Please contact me
at (212) 323-0248 should you have any questions.
Very truly yours,
/s/ Peter E. Pisapia
----------------------------
Peter E. Pisapia
Assistant Vice President
and Assistant Counsel
212-323-0248
ppisapia@oppenheimerfunds.com
-----------------------------
PEP/lb