UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21561
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Oppenheimer Principal Protected Trust III
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(Exact name of registrant as specified in charter)
6803 South Tucson Way, Centennial, Colorado 80112-3924
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(Address of principal executive offices) (Zip code)
Robert G. Zack, Esq.
OppenheimerFunds, Inc.
Two World Financial Center, New York, New York 10281-1008
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(Name and address of agent for service)
Registrant's telephone number, including area code: (303) 768-3200
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Date of fiscal year end: August 31
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Date of reporting period: 08/31/2007
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ITEM 1. REPORTS TO STOCKHOLDERS.
TOP HOLDINGS AND ALLOCATIONS
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OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III PORTFOLIO ALLOCATION
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
Equity 67.5%
Fixed Income 15.9
Cash Equivalents* 8.7
Money Market 7.9
The Fund seeks exposure to the equity markets by investing in the Oppenheimer
Main Street Fund. Information relating to the Oppenheimer Main Street Fund's
portfolio holdings appears below.
* The Fund's cash equivalent holdings at period end represent the cash used to
back S&P 500 Index futures. The Fund lends its portfolio securities from time to
time in order to earn additional income. The Fund's cash equivalent holdings at
period end represent the Fund's investment of collateral it has received for
securities currently on loan.
Portfolio holdings and allocations are subject to change. Percentages are as of
August 31, 2007, and are based on the total market value of investments.
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OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND) SECTOR ALLOCATION
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Information Technology 21.4%
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Financials 18.1
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Energy 14.6
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Health Care 14.0
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Industrials 9.1
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Consumer Staples 8.3
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Consumer Discretionary 7.4
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Telecommunication Services 3.5
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Materials 2.1
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Utilities 1.5
Portfolio holdings and allocations are subject to change. Percentages are as of
August 31, 2007, and are based on the total market value of common stocks.
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12 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
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OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
TOP TEN COMMON STOCK INDUSTRIES
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Oil, Gas & Consumable Fuels 13.1%
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Computers & Peripherals 6.4
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Pharmaceuticals 6.1
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Insurance 5.6
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Health Care Providers & Services 5.5
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Diversified Financial Services 5.1
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Aerospace & Defense 4.5
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Software 4.3
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Communications Equipment 4.2
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Media 3.6
Portfolio holdings and allocations are subject to change. Percentages are as of
August 31, 2007, and are based on net assets.
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
TOP TEN COMMON STOCK HOLDINGS
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Exxon Mobil Corp. 5.3%
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Microsoft Corp. 3.2
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Chevron Corp. 2.9
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Cisco Systems, Inc. 2.8
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International Business Machines Corp. 2.6
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Altria Group, Inc. 2.3
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Pfizer, Inc. 2.3
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General Electric Co. 2.2
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Johnson & Johnson 2.0
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Bank of America Corp. 2.0
Portfolio holdings and allocations are subject to change. Percentages are as of
August 31, 2007, and are based on net assets. For up-to-date Top 10 Fund
holdings, please visit www.oppenheimerfunds.com
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13 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
FUND PERFORMANCE DISCUSSION
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HOW HAS THE FUND PERFORMED? BELOW IS A DISCUSSION BY OPPENHEIMERFUNDS, INC., OF
THE FUND'S PERFORMANCE DURING ITS FISCAL YEAR ENDED AUGUST 31, 2007, FOLLOWED BY
A GRAPHICAL COMPARISON OF THE FUND'S PERFORMANCE TO THE S&P 500 INDEX.
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE. For the 12-month period ended
August 31, 2007, Oppenheimer Principal Protected Main Street Fund III's Class A
shares (without sales charge) had a total return of 11.09%, which was below the
S&P 500 Index's total return of 15.13%. This underperformance was due to the
strong overall stock market performance. During periods of rising stock markets,
principal protected funds tend to lag behind pure stock market indices, because
they typically have less than 100% of their net assets invested in the equity
markets. The Fund's main goal is not to chase absolute returns, but to preserve
investor's capital, while staying competitive with its peers.
The equity component of the Fund's portfolio is invested in Class Y shares
of Oppenheimer Main Street Fund and in S&P 500 Index Futures. The use of S&P 500
Index Futures as an alternative equity instrument allows the Fund to maintain
liquidity to meet shareholder redemptions, reduce trading costs, and take
advantage of possible imbalances in stock market fair value. The fixed income
component is invested primarily in Treasury STRIPS that mature on or around the
end of the seven-year Warranty Period.1 The asset allocation of the Oppenheimer
Principal Protected Main Street Fund III will shift over time based on market
factors such as interest rates, stock market performance and certain volatility
measures. Additionally, there is a pre-defined algorithm that dictates the
maximum percentage the Fund can invest in equity securities. This algorithm is
based in part on current stock weightings and changes in the market environment
(including interest rates, stock market performance and volatility).
OppenheimerFunds' risk management team monitors the Fund's asset
allocation and keeps the Fund's equity percentage dynamically set, depending on
market conditions. In an up stock market, the Fund buys shares of Oppenheimer
Main Street Fund to take advantage of stock market growth potential. While in a
down market, the Fund sells Oppenheimer Main Street Fund and buys Treasury
STRIPS to attempt to cushion the Fund's share price from potential declines in
stock prices. In the sideways market, the
OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III MAY NOT BE SUITABLE FOR
INVESTORS WHO NEED TO REDEEM SHARES PRIOR TO THE MATURITY DATE, OR WHO NEED TO
RECEIVE DIVIDENDS IN CASH.
1. The Fund invests a significant portion of assets in Treasury STRIPS, which
are sold at a discount and accrue interest to be paid at maturity. For taxable
income purposes the discount on these treasury strips is amortized into income
daily using a level yield method over the holding period of the security, thus
investors will have taxable income.
14 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
algorithm allows the Fund "to stay still" in order to avoid unnecessary trading
costs. The Fund began the Warranty Period with approximately 47% of the total
market value of its investments allocated to the fixed-income component, 42% to
the equity component and 11% to cash. 2 At the end of the reporting period,
67.5% of the Fund's total market value of investments was allocated to the
equity component, 15.9% to the fixed-income component, and 7.9% to cash and 8.7%
to cash equivalents. The Fund's cash equivalent holdings at period end represent
the cash used to back S&P 500 Index futures. The Fund lends its portfolio
securities from time to time in order to earn additional income. A portion of
the Fund's cash equivalent holdings at period end represent the investment of
collateral it has received for securities currently on loan.
For the 12-month period ended August 31, 2007, the Fund's equity component
(the Class Y shares of Oppenheimer Main Street Fund) produced total returns that
were higher than that of its benchmark, the S&P 500 Index.
Oppenheimer Main Street Fund's market-capitalization, sector-allocation
and security selection strategies all contributed positively to the Fund's
performance. Oppenheimer Main Street Fund's overweighted exposure to mega-cap
stocks and an underweighted position in mid-cap stocks paid off when very large
companies gained relative momentum and smaller ones faded over the final months
of the reporting period.
From a sector allocation perspective, Oppenheimer Main Street Fund's
overweighted positions in the information technology area and underweighted
exposure to the financials and consumer staples areas fared well. Security
selections within most sectors also boosted returns, with the best results being
achieved in the consumer staples, information technology and materials sectors.
In addition, Oppenheimer Main Street Fund had little exposure to financial
services companies that were hurt by the sub-prime mortgage meltdown. Laggards
during the reporting period included the consumer discretionary and health care
areas, where disappointing security selections were primarily responsible for
below-average results.
2. Allocating assets to debt securities reduces the Fund's ability to
participate fully in upward movements of the equity markets. This represents
some loss of opportunity, or opportunity cost, compared to a portfolio that is
substantially invested in equities. The Fund may allocate a substantial portion,
and under certain conditions, all of its assets, to U.S. Government securities
in order to attempt to keep the value of the Fund's assets at a level equal to
or above the value of the Warranty Amount. In the event of reallocation of 100%
of the Fund's assets to U.S. Government securities, the Fund might not be
permitted to allocate its assets to equity securities for the remainder of the
Warranty Period.
15 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
FUND PERFORMANCE DISCUSSION
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As of the reporting period's end, Oppenheimer Main Street Fund's weighted
market capitalization stood at its highest level relative to the S&P 500 Index
since November 2004. Oppenheimer Main Street Fund ended the period with
virtually no exposure to small-cap companies, and its exposure to mid-cap stocks
is substantially below that of the S&P 500 Index. Oppenheimer Main Street Fund
held approximately 160 stocks as of August 31, 2007, down substantially from one
year ago. This decrease reflects Oppenheimer Main Street Fund's greater
concentration among large- and mega-cap companies, including those with strong
quality characteristics. As always, the Main Street management team remains
committed to a quantitative discipline of investing that relies on active market
capitalization, allocation, stock selection models, portfolio construction
methods and low-cost implementation.
COMPARING THE FUND'S PERFORMANCE TO THE MARKET. The graphs that follow show the
performance of a hypothetical $10,000 investment in each class of shares of the
Fund held until August 31, 2007. Performance is measured from inception of the
classes on October 7, 2004. The Fund's performance reflects the deduction of the
maximum initial sales charge on Class A shares, the applicable contingent
deferred sales charge on Class B, Class C and Class N shares, and reinvestments
of all dividends and capital gains distributions. Past performance cannot
guarantee future results.
The Fund's performance is compared to the performance of the S&P 500
Index. The S&P 500 Index is an unmanaged index of equity securities. Index
performance reflects the reinvestment of income but does not consider the effect
of transaction costs, and none of the data in the graphs shows the effect of
taxes. The Fund's performance reflects the effects of the Fund's business and
operating expenses. While index comparisons may be useful to provide a benchmark
for the Fund's performance, it must be noted that the Fund's investments are not
limited to the investments in the index.
16 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
CLASS A SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Principal Protected Main Street Fund III (Class A)
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Principal Protected
Main Street Fund III (Class A) S&P 500 Index
10/07/2004 $ 9,425 $ 10,000
11/30/2004 $ 9,441 $ 10,563
02/28/2005 $ 9,402 $ 10,881
05/31/2005 $ 9,446 $ 10,819
08/31/2005 $ 9,591 $ 11,135
11/30/2005 $ 9,666 $ 11,455
02/28/2006 $ 9,850 $ 11,794
05/31/2006 $ 9,710 $ 11,753
08/31/2006 $ 9,924 $ 12,123
11/30/2006 $ 10,497 $ 13,084
02/28/2007 $ 10,536 $ 13,205
05/31/2007 $ 11,373 $ 14,430
08/31/2007 $ 11,025 $ 13,956
AVERAGE ANNUAL TOTAL RETURNS OF CLASS A SHARES WITH SALES CHARGE OF THE FUND AT
8/31/07
1-Year 4.70% Since Inception (10/7/04) 3.42%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR, IF REDEEMED PRIOR TO THE END OF THE WARRANTY
PERIOD (DECEMBER 16, 2011), LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE DATA CURRENT
TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM, OR CALL US
AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE, REINVESTED
DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES, THE CURRENT
MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE CONTINGENT
DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 3% (SINCE INCEPTION); AND FOR CLASS C
AND CLASS N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR
PERIOD. SEE PAGE 21 FOR FURTHER INFORMATION.
17 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
FUND PERFORMANCE DISCUSSION
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CLASS B SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Principal Protected Main Street Fund III (Class B)
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Principal Protected
Main Street Fund III (Class B) S&P 500 Index
10/07/2004 $ 10,000 $ 10,000
11/30/2004 $ 10,007 $ 10,563
02/28/2005 $ 9,949 $ 10,881
05/31/2005 $ 9,986 $ 10,819
08/31/2005 $ 10,103 $ 11,135
11/30/2005 $ 10,159 $ 11,455
02/28/2006 $ 10,334 $ 11,794
05/31/2006 $ 10,166 $ 11,753
08/31/2006 $ 10,368 $ 12,123
11/30/2006 $ 10,947 $ 13,084
02/28/2007 $ 10,960 $ 13,205
05/31/2007 $ 11,805 $ 14,430
08/31/2007 $ 11,118 $ 13,956
AVERAGE ANNUAL TOTAL RETURNS OF CLASS B SHARES WITH SALES CHARGE OF THE FUND AT
8/31/07
1-Year 5.13% Since Inception (10/7/04) 3.72%
18 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
CLASS C SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Principal Protected Main Street Fund III (Class C)
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Principal Protected
Main Street Fund III (Class C) S&P 500 Index
10/07/2004 $ 10,000 $ 10,000
11/30/2004 $ 10,007 $ 10,563
02/28/2005 $ 9,951 $ 10,881
05/31/2005 $ 9,991 $ 10,819
08/31/2005 $ 10,111 $ 11,135
11/30/2005 $ 10,171 $ 11,455
02/28/2006 $ 10,346 $ 11,794
05/31/2006 $ 10,177 $ 11,753
08/31/2006 $ 10,383 $ 12,123
11/30/2006 $ 10,962 $ 13,084
02/28/2007 $ 10,980 $ 13,205
05/31/2007 $ 11,830 $ 14,430
08/31/2007 $ 11,446 $ 13,956
AVERAGE ANNUAL TOTAL RETURNS OF CLASS C SHARES WITH SALES CHARGE OF THE FUND AT
8/31/07
1-Year 9.24% Since Inception (10/7/04) 4.77%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR, IF REDEEMED PRIOR TO THE END OF THE WARRANTY
PERIOD (DECEMBER 16, 2011), LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE DATA CURRENT
TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM, OR CALL US
AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE, REINVESTED
DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES, THE CURRENT
MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE CONTINGENT
DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 3% (SINCE INCEPTION); AND FOR CLASS C
AND CLASS N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR
PERIOD. SEE PAGE 21 FOR FURTHER INFORMATION.
19 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
FUND PERFORMANCE DISCUSSION
CLASS N SHARES
COMPARISON OF CHANGE IN VALUE OF $10,000 HYPOTHETICAL INVESTMENTS IN:
Oppenheimer Principal Protected Main Street Fund III (Class N)
S&P 500 Index
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Oppenheimer Principal Protected
Main Street Fund III (Class N) S&P 500 Index
10/07/2004 $ 10,000 $ 10,000
11/30/2004 $ 10,013 $ 10,563
02/28/2005 $ 9,970 $ 10,881
05/31/2005 $ 10,023 $ 10,819
08/31/2005 $ 10,157 $ 11,135
11/30/2005 $ 10,230 $ 11,455
02/28/2006 $ 10,420 $ 11,794
05/31/2006 $ 10,264 $ 11,753
08/31/2006 $ 10,481 $ 12,123
11/30/2006 $ 11,084 $ 13,084
02/28/2007 $ 11,116 $ 13,205
05/31/2007 $ 11,993 $ 14,430
08/31/2007 $ 11,621 $ 13,956
AVERAGE ANNUAL TOTAL RETURNS OF CLASS N SHARES WITH SALES CHARGE OF THE FUND AT
8/31/07
1-Year 9.88% Since Inception (10/7/04) 5.32%
THE PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE, WHICH DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT IN THE FUND WILL FLUCTUATE SO THAT AN INVESTOR'S SHARES, WHEN
REDEEMED, MAY BE WORTH MORE OR, IF REDEEMED PRIOR TO THE END OF THE WARRANTY
PERIOD (DECEMBER 16, 2011), LESS THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER THAN THE PERFORMANCE QUOTED. FOR PERFORMANCE DATA CURRENT
TO THE MOST RECENT MONTH END, VISIT US AT WWW.OPPENHEIMERFUNDS.COM, OR CALL US
AT 1.800.525.7048. FUND RETURNS INCLUDE CHANGES IN SHARE PRICE, REINVESTED
DISTRIBUTIONS, AND THE APPLICABLE SALES CHARGE: FOR CLASS A SHARES, THE CURRENT
MAXIMUM INITIAL SALES CHARGE OF 5.75%; FOR CLASS B SHARES, THE CONTINGENT
DEFERRED SALES CHARGE OF 5% (1-YEAR) AND 3% (SINCE INCEPTION); AND FOR CLASS C
AND CLASS N SHARES, THE CONTINGENT 1% DEFERRED SALES CHARGE FOR THE 1-YEAR
PERIOD. SEE PAGE 21 FOR FURTHER INFORMATION.
20 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
NOTES
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Total returns and the ending account values in the graphs include changes in
share price and reinvestment of dividends and capital gains distributions in a
hypothetical investment for the periods shown. The Fund's total returns shown do
not reflect the deduction of income taxes on an individual's investment. Taxes
may reduce your actual investment returns on income or gains paid by the Fund or
any gains you may realize if you sell your shares.
INVESTORS SHOULD CONSIDER THE FUND'S INVESTMENT OBJECTIVES, RISKS, AND OTHER
CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE FUND'S PROSPECTUS CONTAINS
THIS AND OTHER INFORMATION ABOUT THE FUND, AND MAY BE OBTAINED BY ASKING YOUR
FINANCIAL ADVISOR, CALLING US AT 1.800.525.7048 OR VISITING OUR WEBSITE AT
WWW.OPPENHEIMERFUNDS.COM. READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
The Fund's investment strategy and focus can change over time. The mention of
specific fund holdings does not constitute a recommendation by OppenheimerFunds,
Inc.
The Fund has entered into a warranty agreement (the "Warranty") with Merrill
Lynch Bank USA (the "Warranty Provider") which attempts to make sure that the
value of each shareholder's account on the maturity date (December 16, 2011)
will be at least equal to a shareholder's original investment (reduced by any
adjustments to the warranty amount permitted by the Warranty, and less any
redemptions of Fund shares or distributions taken in cash, sales charges, and
extraordinary Fund expenses). The Warranty is solely the obligation of the
Warranty Provider, not the shareholders. The Warranty is dependent on the
financial ability of the Warranty Provider to make payment to the Fund on the
Maturity Date. The Warranty Amount will be reduced by any redemptions of Fund
shares or distributions taken in cash, sales charges and extraordinary fund
expenses. Distributions from the Fund are taxable whether or not shareholders
reinvest them in additional shares of the Fund. The Warranty does not apply to
shares redeemed during the Warranty Period, and shareholders may lose money on
shares unless redeemed on the Maturity Date. Neither the Fund nor
OppenheimerFunds, Inc. is obligated to replace the Warranty Provider should it
be unable to make payments necessary to support the Warranty Amount. The
Warranty increases the Fund's expenses that shareholders pay and could lower
Fund performance. Shareholders must redeem their shares
21 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
NOTES
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in the Fund on, and only on, the Maturity Date (expected to be December 16,
2011) to receive the greater of the then-current net asset value of the Fund or
their Warranty Amount. Prior to the Maturity Date, the Fund will provide each
shareholder a notice to remind them that shares must be redeemed on the Maturity
Date to receive the full benefit of the Warranty. After the Maturity Date,
shares of the Fund will not be covered under the terms of the Warranty and will
be subject to market fluctuations and the shares will then be redeemable at the
Fund's then-current net asset value, which may be lower than the Warranty
Amount.
Shares may be exchanged or redeemed at any time. However, if you redeem or
exchange shares prior to the end of the seven-year Warranty Period, you will
receive the then-current NAV per share, which may be higher or lower than the
Warranty Amount. To receive at least the full Warranty Amount, you must maintain
your original investment in the Fund until the end of the seven-year term and
reinvest all dividends and distributions.
During the Warranty Period, there are substantial opportunity costs. Allocating
assets to U.S. Government securities (primarily Treasury STRIPS) reduces the
Fund's ability to participate fully in upward equity market movements.
Therefore, it represents some loss of opportunity, or opportunity cost, compared
to a portfolio that is fully invested in equities. In the event that the Fund's
stock allocation declines substantially, generally due to heavy stock market
declines, the Fund will permanently shift all investments to fixed income
securities and certain of the Fund's expenses will be reduced. In the event of
reallocation of 100% of the Fund's assets to U.S. Government securities, the
Fund will not be permitted to allocate its assets to equity securities for the
remainder of the Warranty Period, which will eliminate the Fund's ability to
participate in any upward equity market movement.
While these fixed income securities (primarily Treasury STRIPS) that the Fund
invests in do not pay income the traditional way, an income calculation is made
for tax purposes based on the purchase price and the time until the security
reaches par value. Like traditional interest payments, this amount is reported
as income for tax purposes. The zero coupon bonds the Fund
22 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
invests in do not pay interest income until maturity. However, the Fund is
required to accrue and declare a dividend on such phantom income. Thus, you will
have taxable income.
Distributions from the Fund are taxable whether or not you reinvest them in
additional shares of the Fund. The Fund is not obligated to replace the Warranty
Provider should it be unable to make the payments necessary to support the
Warranty Amount. The Financial Warranty increases the Fund's expenses that you
pay and therefore the Fund's expenses will generally be higher than a fund that
does not offer a Warranty.
All investments have risks to some degree. Stocks and S&P 500 Index Futures
fluctuate in price and their volatility at times may be great. If the issuer of
an S&P 500 Index Future does not pay the amount due, the Fund can lose money on
the investment. All investments have risks to some degree. Stocks fluctuate in
price and their volatility at times may be great. While principal and interest
payments on U.S. Treasury securities are guaranteed by the U.S. Government, the
price of such securities will fluctuate with changes in prevailing interest
rates. Zero-coupon U.S. Government securities are subject to greater
fluctuations in price from interest rate changes than typical debt securities
that pay interest on a regular basis. Investors should be aware that principal
protected funds generally carry higher fees and expenses than non-protected
funds.
The Fund offered its shares to the public from October 7, 2004 to December 10,
2004. From December 16, 2004, and until December 16, 2011, shares of the Fund
will only be issued upon reinvestment of dividends and distributions.
An explanation of the calculation of performance is in the Fund's Statement of
Additional Information.
23 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
FUND EXPENSES
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FUND EXPENSES. As a shareholder of the Fund, you incur two types of costs: (1)
transaction costs, which may include sales charges (loads) on purchase payments,
contingent deferred sales charges on redemptions; and redemption fees, if any;
and (2) ongoing costs, including management fees; distribution and service fees;
and other Fund expenses. These examples are intended to help you understand your
ongoing costs (in dollars) of investing in the Fund and to compare these costs
with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000.00 invested at the beginning
of the period and held for the entire 6-month period ended August 31, 2007.
ACTUAL EXPENSES. The "actual" lines of the table provide information about
actual account values and actual expenses. You may use the information on this
line for the class of shares you hold, together with the amount you invested, to
estimate the expense that you paid over the period. Simply divide your account
value by $1,000.00 (for example, an $8,600.00 account value divided by $1,000.00
= 8.60), then multiply the result by the number in the "actual" line under the
heading entitled "Expenses Paid During Period" to estimate the expenses you paid
on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES. The "hypothetical" lines of the
table provide information about hypothetical account values and hypothetical
expenses based on the Fund's actual expense ratio for each class of shares, and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. The hypothetical account values and expenses may not be
used to estimate the actual ending account balance or expenses you paid for the
period. You may use this information to compare the ongoing costs of investing
in the Fund and other funds. To do so, compare this 5% hypothetical example for
the class of shares you hold with the 5% hypothetical examples that appear in
the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as front-end
or contingent deferred sales charges (loads), or a $12.00 fee imposed annually
on accounts valued at less than $500.00 (subject to exceptions described in the
Statement of Additional Information). Therefore, the "hypothetical" lines of the
table are useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
24 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
- --------------------------------------------------------------------------------
BEGINNING ENDING EXPENSES
ACCOUNT ACCOUNT PAID DURING
VALUE VALUE 6 MONTHS ENDED
(3/1/07) (8/31/07) AUGUST 31, 2007
- --------------------------------------------------------------------------------
Class A Actual $ 1,000.00 $ 1,046.30 $ 6.26
- --------------------------------------------------------------------------------
Class A Hypothetical 1,000.00 1,019.11 6.18
- --------------------------------------------------------------------------------
Class B Actual 1,000.00 1,041.80 10.92
- --------------------------------------------------------------------------------
Class B Hypothetical 1,000.00 1,014.57 10.77
- --------------------------------------------------------------------------------
Class C Actual 1,000.00 1,042.40 10.14
- --------------------------------------------------------------------------------
Class C Hypothetical 1,000.00 1,015.32 10.01
- --------------------------------------------------------------------------------
Class N Actual 1,000.00 1,045.50 7.19
- --------------------------------------------------------------------------------
Class N Hypothetical 1,000.00 1,018.20 7.10
Hypothetical assumes 5% annual return before expenses.
Expenses are equal to the Fund's annualized expense ratio for that class,
multiplied by the average account value over the period, multiplied by 184/365
(to reflect the one-half year period). Those annualized expense ratios,
excluding all underlying fund expenses, based on the 6-month period ended August
31, 2007 are as follows:
CLASS EXPENSE RATIOS
- ------------------------------
Class A 1.21%
- ------------------------------
Class B 2.11
- ------------------------------
Class C 1.96
- ------------------------------
Class N 1.39
The expense ratios reflect reduction to custodian expenses and voluntary waivers
or reimbursements by the Fund's Manager that can be terminated at any time,
without advance notice. The "Financial Highlights" tables in the Fund's
financial statements, included in this report, also show the gross expense
ratios, without such waivers or reimbursements and reduction to custodian
expenses, if applicable.
- --------------------------------------------------------------------------------
25 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
STATEMENT OF INVESTMENTS August 31, 2007
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- ------------------------------------------------------------------------------------------------------------
INVESTMENTS IN AFFILIATED COMPANIES--82.2% 1
- ------------------------------------------------------------------------------------------------------------
MONEY MARKET FUND--8.7%
Oppenheimer Institutional Money Market Fund, Cl. E, 5.44% 2 5,355,428 $ 5,355,428
- ------------------------------------------------------------------------------------------------------------
U.S. EQUITY--73.5%
Oppenheimer Main Street Fund, Cl. Y 1,046,720 45,479,978
-------------
Total Investments in Affiliated Companies (Cost $43,006,133) 50,835,406
PRINCIPAL
AMOUNT
- ------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATIONS--17.3%
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Nts., STRIPS, 4.554%, 2/15/12 3,4 (Cost $10,556,497) $ 12,900,000 10,693,623
- ------------------------------------------------------------------------------------------------------------
Total Investments, at Value (excluding Investments Purchased with Cash
Collateral from Securities Loaned) (Cost $53,562,630) 61,529,029
- ------------------------------------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES LOANED--9.5% 5
- ------------------------------------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENT--9.5%
Undivided interest of 0.00009% in joint repurchase agreement (Principal Amount/
Value $3,000,000,000, with a maturity value of $3,001,766,667) with Citigroup
Global Markets, Inc., 5.30%, dated 8/31/07, to be repurchased at $2,702 on
9/4/07, collateralized by U.S. Agencies, 0%-7.25%, 9/7/07-1/15/38, with a value
of $3,060,000,800 2,700 2,700
- ------------------------------------------------------------------------------------------------------------
Undivided interest of 0.04% in joint repurchase agreement (Principal Amount/
Value $3,500,000,000, with a maturity value of $3,502,100,000) with Bank of
America NA, 5.40%, dated 8/31/07, to be repurchased at $1,473,884 on
9/4/07, collateralized by U.S. Agency Mortgages, 5%-5.50%, 3/1/34-6/1/35,
with a value of $3,570,000,000 1,473,000 1,473,000
- ------------------------------------------------------------------------------------------------------------
Undivided interest of 0.42% in joint repurchase agreement (Principal Amount/
Value $350,000,000, with a maturity value of $350,204,167) with Nomura
Securities, 5.25%, dated 8/31/07, to be repurchased at $1,473,859 on 9/4/07,
collateralized by Government National Mortgage Assn., 0%-5.991%,
4/16/16-7/16/37, with a value of $357,000,000 1,473,000 1,473,000
- ------------------------------------------------------------------------------------------------------------
Undivided interest of 0.59% in joint repurchase agreement (Principal Amount/
Value $250,000,000, with a maturity value of $250,150,000) with FIMAT USA,
Inc., 5.40%, dated 8/31/07, to be repurchased at $1,473,884 on 9/4/07,
collateralized by U.S. Agency Mortgages, 0%-8.875%, 1/31/08-7/20/37,
with a value of $255,000,732 1,473,000 1,473,000
- ------------------------------------------------------------------------------------------------------------
Undivided interest of 5.89% in joint repurchase agreement (Principal Amount/
Value $25,000,000, with a maturity value of $25,015,208) with DLJ/Pershing
Division, 5.475%, dated 8/31/07, to be repurchased at $1,473,896 on 9/4/07,
collateralized by U.S. Agency Mortgages, 0%-8%, 9/17/07-5/16/37,
with a value of $25,500,314 1,473,000 1,473,000
-------------
Total Investments Purchased with Cash Collateral from Securities
Loaned (Cost $5,894,700) 5,894,700
26 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
VALUE
SEE NOTE 1
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS, AT VALUE (COST $59,457,330) 109.0% $ 67,423,729
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES IN EXCESS OF OTHER ASSETS (9.0) (5,569,882)
-------------------------
NET ASSETS 100.0% $ 61,853,847
=========================
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Is or was an affiliate, as defined in the Investment Company Act of 1940, at
or during the period ended August 31, 2007, by virtue of the Fund owning at
least 5% of the voting securities of the issuer or as a result of the Fund and
the issuer having the same investment advisor. Transactions during the period in
which the issuer was an affiliate are as follows:
SHARES GROSS GROSS SHARES
AUGUST 31, 2006 ADDITIONS REDUCTIONS AUGUST 31, 2007
- --------------------------------------------------------------------------------------------------------------------
Oppenheimer Institutional
Money Market Fund, Cl. E -- 50,801,358 45,445,930 5,355,428
Oppenheimer Main Street Fund, Cl. Y 985,196 805,242 743,718 1,046,720
VALUE DIVIDEND
SEE NOTE 1 INCOME REALIZED LOSS
- --------------------------------------------------------------------------------------------------------------------
Oppenheimer Institutional Money Market Fund, Cl. E $ 5,355,428 $ 435,794 $ --
Oppenheimer Main Street Fund, Cl. Y 45,479,978 594,302 437,606
---------------------------------------------
$ 50,835,406 $1,030,096 $ 437,606
=============================================
2. Rate shown is the 7-day yield as of August 31, 2007.
3. Zero coupon bond reflects effective yield on the date of purchase.
4. Partial or fully-loaned security. See Note 6 of accompanying Notes.
5. The security/securities have been segregated to satisfy the forward
commitment to return the cash collateral received in securities lending
transactions upon the borrower's return of the securities loaned. See Note 6 of
accompanying Notes.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
27 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
STATEMENT OF ASSETS AND LIABILITIES August 31, 2007
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------------------
Investments, at value--see accompanying statement of investments:
Unaffiliated companies (cost $16,451,197) $ 16,588,323
Affiliated companies (cost $43,006,133) 50,835,406
---------------
67,423,729
- -----------------------------------------------------------------------------------------------------------------
Cash 24,532
- -----------------------------------------------------------------------------------------------------------------
Cash used for collateral on futures 392,000
- -----------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Futures margins 52,850
Interest 29,101
Other 3,404
---------------
Total assets 67,925,616
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned 5,894,700
- -----------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Warranty agreement fees 64,641
Shareholder communications 38,332
Distribution and service plan fees 26,287
Shares of beneficial interest redeemed 21,502
Transfer and shareholder servicing agent fees 4,850
Trustees' compensation 1,284
Other 20,173
---------------
Total liabilities 6,071,769
- -----------------------------------------------------------------------------------------------------------------
NET ASSETS $ 61,853,847
===============
- -----------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- -----------------------------------------------------------------------------------------------------------------
Par value of shares of beneficial interest $ 1,832
- -----------------------------------------------------------------------------------------------------------------
Additional paid-in capital 53,327,207
- -----------------------------------------------------------------------------------------------------------------
Accumulated net investment loss (1,847)
- -----------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments 799,081
- -----------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments 7,727,574
---------------
NET ASSETS $ 61,853,847
===============
28 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
- -----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- -----------------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets of $29,469,590
and 870,319 shares of beneficial interest outstanding) $ 33.86
Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price) $ 35.93
- -----------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $16,902,731 and 502,459 shares of
beneficial interest outstanding) $ 33.64
- -----------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $14,454,377 and 428,857 shares of
beneficial interest outstanding) $ 33.70
- -----------------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent deferred sales charge)
and offering price per share (based on net assets of $1,027,149 and 30,396 shares of
beneficial interest outstanding) $ 33.79
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
STATEMENT OF OPERATIONS For the Year Ended August 31, 2007
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- -----------------------------------------------------------------------------------------------------------------
Dividends from affiliated companies $ 1,030,096
- -----------------------------------------------------------------------------------------------------------------
Interest 518,803
- -----------------------------------------------------------------------------------------------------------------
Portfolio lending fees 5,043
- -----------------------------------------------------------------------------------------------------------------
Other income 12
---------------
Total investment income 1,553,954
- -----------------------------------------------------------------------------------------------------------------
EXPENSES
- -----------------------------------------------------------------------------------------------------------------
Management fees 331,878
- -----------------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 78,961
Class B 178,373
Class C 154,148
Class N 5,019
- -----------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 18,852
Class B 19,199
Class C 9,060
Class N 525
- -----------------------------------------------------------------------------------------------------------------
Shareholder communications:
Class A 27,703
Class B 28,593
Class C 13,693
Class N 714
- -----------------------------------------------------------------------------------------------------------------
Warranty agreement fees 398,304
- -----------------------------------------------------------------------------------------------------------------
Trustees' compensation 7,178
- -----------------------------------------------------------------------------------------------------------------
Administration service fees 1,500
- -----------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 373
- -----------------------------------------------------------------------------------------------------------------
Other 26,221
---------------
Total expenses 1,300,294
Less reduction to custodian expenses (8)
Less waivers and reimbursements of expenses (236,002)
---------------
Net expenses 1,064,284
- -----------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 489,670
30 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
- -----------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------
Net realized gain (loss) on:
Investments:
Unaffiliated companies $ 274,186
Affiliated companies (437,606)
Distributions received from affiliated companies 1,702,850
Closing and expiration of futures contracts 1,405,930
---------------
Net realized gain 2,945,360
- -----------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 3,867,215
Futures contracts (432,382)
---------------
Net change in unrealized appreciation 3,434,833
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 6,869,863
===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
31 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 2007 2006
- ------------------------------------------------------------------------------------------------------------
OPERATIONS
- ------------------------------------------------------------------------------------------------------------
Net investment income $ 489,670 $ 879,446
- ------------------------------------------------------------------------------------------------------------
Net realized gain (loss) 2,945,360 (1,277,126)
- ------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 3,434,833 2,735,426
------------------------------
Net increase in net assets resulting from operations 6,869,863 2,337,746
- ------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- ------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (534,201) (677,601)
Class B (150,553) (185,336)
Class C (128,262) (200,276)
Class N (15,712) (21,672)
------------------------------
(828,728) (1,084,885)
- ------------------------------------------------------------------------------------------------------------
BENEFICIAL INTEREST TRANSACTIONS
- ------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from beneficial interest transactions:
Class A (6,677,673) (8,348,380)
Class B (2,947,900) (2,923,013)
Class C (3,679,172) (5,026,483)
Class N (104,407) (422,464)
------------------------------
(13,409,152) (16,720,340)
- ------------------------------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------------------------------------------------------------------------
Total decrease (7,368,017) (15,467,479)
- ------------------------------------------------------------------------------------------------------------
Beginning of period 69,221,864 84,689,343
------------------------------
End of period (including accumulated net investment income (loss) of
$(1,847) and $185,934, respectively) $ 61,853,847 $ 69,221,864
==============================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
32 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED AUGUST 31, 2007 2006 2005 1
- ------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------
Net asset value, beginning of period $ 30.99 $ 30.48 $ 30.00
- ------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 2 .38 .47 .25
Net realized and unrealized gain 3.03 .58 .28
----------------------------------
Total from investment operations 3.41 1.05 .53
- ------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.54) (.54) (.05)
- ------------------------------------------------------------------------------------
Net asset value, end of period $ 33.86 $ 30.99 $ 30.48
==================================
- ------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 11.09% 3.48% 1.76%
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 29,470 $ 33,229 $ 40,981
- ------------------------------------------------------------------------------------
Average net assets (in thousands) $ 31,996 $ 37,258 $ 36,571
- ------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 1.15% 1.53% 0.93%
Total expenses 5 1.55% 1.49% 1.45%
Expenses after payments, waivers
and/or reimbursements and
reduction to custodian expenses 1.19% 1.22% 1.20%
- ------------------------------------------------------------------------------------
Portfolio turnover rate 130% 133% 37%
1. For the period from October 7, 2004 (commencement of operations) to August
31, 2005.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods less than one full
year. Returns do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares.
4. Annualized for periods less than one full year.
5. Total expenses paid including all underlying fund expenses were as follows:
Year Ended August 31, 2007 1.91%
Year Ended August 31, 2006 1.76%
Period Ended August 31, 2005 1.66%
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
33 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS B YEAR ENDED AUGUST 31, 2007 2006 2005 1
- ------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------
Net asset value, beginning of period $ 30.80 $ 30.29 $ 30.00
- ------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 2 .09 .21 .03
Net realized and unrealized gain 3.02 .58 .28
----------------------------------
Total from investment operations 3.11 .79 .31
- ------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.27) (.28) (.02)
- ------------------------------------------------------------------------------------
Net asset value, end of period $ 33.64 $ 30.80 $ 30.29
==================================
- ------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 10.13% 2.62% 1.03%
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 16,903 $ 18,246 $ 20,856
- ------------------------------------------------------------------------------------
Average net assets (in thousands) $ 17,872 $ 19,663 $ 18,576
- ------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 0.28% 0.70% 0.10%
Total expenses 5 2.42% 2.31% 2.27%
Expenses after payments, waivers
and/or reimbursements and reduction
to custodian expenses 2.06% 2.04% 2.02%
- ------------------------------------------------------------------------------------
Portfolio turnover rate 130% 133% 37%
1. For the period from October 7, 2004 (commencement of operations) to August
31, 2005.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods less than one full
year. Returns do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares.
4. Annualized for periods less than one full year.
5. Total expenses paid including all underlying fund expenses were as follows:
Year Ended August 31, 2007 2.78%
Year Ended August 31, 2006 2.58%
Period Ended August 31, 2005 2.48%
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
34 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
CLASS C YEAR ENDED AUGUST 31, 2007 2006 2005 1
- ------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------
Net asset value, beginning of period $ 30.82 $ 30.31 $ 30.00
- ------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 2 .13 .24 .05
Net realized and unrealized gain 3.02 .57 .28
----------------------------------
Total from investment operations 3.15 .81 .33
- ------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.27) (.30) (.02)
- ------------------------------------------------------------------------------------
Net asset value, end of period $ 33.70 $ 30.82 $ 30.31
==================================
- ------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 10.24% 2.69% 1.11%
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 14,454 $ 16,709 $ 21,414
- ------------------------------------------------------------------------------------
Average net assets (in thousands) $ 15,427 $ 19,229 $ 18,591
- ------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 0.41% 0.80% 0.17%
Total expenses 5 2.30% 2.24% 2.21%
Expenses after payments, waivers
and/or reimbursements and reduction
to custodian expenses 1.94% 1.97% 1.96%
- ------------------------------------------------------------------------------------
Portfolio turnover rate 130% 133% 37%
1. For the period from October 7, 2004 (commencement of operations) to August
31, 2005.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods less than one full
year. Returns do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares.
4. Annualized for periods less than one full year.
5. Total expenses paid including all underlying fund expenses were as follows:
Year Ended August 31, 2007 2.66%
Year Ended August 31, 2006 2.51%
Period Ended August 31, 2005 2.42%
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
35 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS N YEAR ENDED AUGUST 31, 2007 2006 2005 1
- ------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------
Net asset value, beginning of period $ 30.92 $ 30.43 $ 30.00
- ------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 2 .32 .42 .19
Net realized and unrealized gain 3.03 .54 .28
----------------------------------
Total from investment operations 3.35 .96 .47
- ------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.48) (.47) (.04)
- ------------------------------------------------------------------------------------
Net asset value, end of period $ 33.79 $ 30.92 $ 30.43
==================================
- ------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 3 10.88% 3.19% 1.57%
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 1,027 $ 1,038 $ 1,438
- ------------------------------------------------------------------------------------
Average net assets (in thousands) $ 1,057 $ 1,167 $ 1,269
- ------------------------------------------------------------------------------------
Ratios to average net assets: 4
Net investment income 0.97% 1.39% 0.69%
Total expenses 5 1.75% 1.74% 1.70%
Expenses after payments, waivers
and/or reimbursements and reduction
to custodian expenses 1.39% 1.47% 1.45%
- ------------------------------------------------------------------------------------
Portfolio turnover rate 130% 133% 37%
1. For the period from October 7, 2004 (commencement of operations) to August
31, 2005.
2. Per share amounts calculated based on the average shares outstanding during
the period.
3. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods less than one full
year. Returns do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares.
4. Annualized for periods less than one full year.
5. Total expenses paid including all underlying fund expenses were as follows:
Year Ended August 31, 2007 2.11%
Year Ended August 31, 2006 2.01%
Period Ended August 31, 2005 1.91%
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
36 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Principal Protected Main Street Fund III (the Fund), a series of
Oppenheimer Principal Protected Trust III, is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
During the Warranty Period, the Fund will seek capital preservation in order to
have a net asset value on the Maturity Date at least equal to the Warranty
Amount. The Fund seeks high total return as a secondary objective. The Fund's
investment advisor is OppenheimerFunds, Inc. (the Manager).
Shares of the Fund were offered during the Offering Period (October 7,
2004 to December 10, 2004). Shares are not offered during the Warranty Period
(December 16, 2004 to December 16, 2011) to the Maturity Date (December 16,
2011) except in connection with reinvestment of dividends and distributions.
During the Warranty Period, the Fund will allocate its assets between
Oppenheimer Main Street Fund (the Underlying Fund), futures contracts on the S&P
500 Index and certain U.S. government securities. The allocation of the Fund's
assets between the debt portfolio and the equity portfolio will vary over time
based upon the Warranty Formula. The formula is intended to allow the Fund to
have a net asset value on the Maturity Date at least equal to the Warranty
Amount.
During the Warranty Period, the Fund will invest a portion of its assets,
and in certain circumstances, the Fund may invest all of its assets, in U.S.
government securities having maturities approximately equal to the period
remaining in the Warranty Period.
The Fund offered Class A, Class B, Class C and Class N shares. Class A
shares were sold at their offering price, which is normally net asset value plus
a front-end sales charge. Class B and Class C shares were sold without a
front-end sales charge but may be subject to a contingent deferred sales charge
(CDSC). Class N shares were sold only through retirement plans. All classes of
shares have identical rights and voting privileges with respect to the Fund in
general and exclusive voting rights on matters that affect that class alone.
Earnings, net assets and net asset value per share may differ due to each class
having its own expenses, such as transfer and shareholder servicing agent fees
and shareholder communications, directly attributable to that class. Class A, B,
C and N have separate distribution and/or service plans. Class B shares will
automatically convert to Class A shares 90 months after the date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
- --------------------------------------------------------------------------------
WARRANTY AGREEMENT. The Fund has entered into a Financial Warranty Agreement
with Merrill Lynch Bank USA ("the Warranty Provider") to ensure that on the
Maturity Date each shareholder's account will be no less than the value of that
shareholder's account on the second business day after the end of the Offering
Period (the Warranty Amount). This value will include net income, if any, earned
by the Fund during the offering period and be reduced by adjustments permitted
under the Warranty Agreement, sales charges, applicable share of extraordinary
expenses and proportionately reduced for dividends and distributions paid in
cash and redemptions of Fund shares. To avoid a reduced Warranty Amount,
shareholders must reinvest all dividends and distributions received from the
Fund to purchase additional shares of the Fund and must not redeem any
37 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
shares of the Fund during the Warranty Period. If the value of the Fund's assets
on the Maturity Date is insufficient to result in the value of each
shareholder's account being at least equal to the shareholder's Warranty Amount,
the Warranty Provider will pay the Fund an amount equal to the excess of his or
her Warranty Amount over his or her account value.
The Financial Warranty is solely the obligation of the Warranty Provider.
It is possible that the financial position of the Warranty Provider may
deteriorate and it would be unable to satisfy its obligations under the
Financial Warranty. The Fund's assets and the obligations of the Warranty
Provider under the Warranty Agreement are not guaranteed by Merrill Lynch & Co.,
Inc. (the Warranty Provider's parent company), the United States Government, the
Manager, or any other entity or person.
The Warranty Agreement requires the Manager, on behalf of the Fund, to
comply with certain agreed upon investment parameters in an attempt to limit the
Fund's risk. If the Manager fails to comply with the agreed-upon investment
parameters or otherwise fails to comply with certain requirements set forth in
the Warranty Agreement, the Warranty Provider may terminate its Financial
Warranty in certain limited circumstances. The Warranty Provider may monitor the
Fund's compliance with the Warranty Agreement solely to protect the interests of
the Warranty Provider and not the Fund's shareholders. The fee paid to the
Warranty Provider is an annual fee of 0.60% of the average daily net assets of
the Fund. If the Fund is required to make a complete and irreversible allocation
of its assets to the debt portfolio, the Warranty Fee will thereafter be reduced
to 0.35% of the average daily net assets of the Fund.
- --------------------------------------------------------------------------------
SECURITIES VALUATION. Long term debt securities having a remaining maturity in
excess of sixty days will be valued at the mean between the "bid" and "asked"
prices. Long-term and short-term "non-money market" debt securities are valued
by a portfolio pricing service approved by 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).
The Fund may invest most of the equity portfolio in Class Y shares of
Oppenheimer Main Street Fund. The Fund may also invest in Class E shares of
Oppenheimer Institutional Money Market Fund. Oppenheimer Main Street Fund and
Oppenheimer Institutional Money Market Fund are referred to individually as an
"Underlying Fund" and collectively as "the Underlying Funds". The Fund
calculates the net asset value of each class of shares based upon the net asset
value of the applicable Underlying Fund as of the close of the New York Stock
Exchange (the "Exchange"), normally 4:00 P.M. Eastern time, on each day the
Exchange is open for business. Investments in open-end registered investment
companies (including underlying funds) are valued at that fund's net asset
value. The Fund may also invest a portion of the equity portfolio in futures
contracts. Futures contracts traded on a commodities or futures exchange will be
valued at the final settlement price or official closing price on
38 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
the principal exchange as reported by such principal exchange at its trading
session ending at, or most recently prior to, the time when the Fund's assets
are valued.
- --------------------------------------------------------------------------------
INVESTMENT IN OPPENHEIMER INSTITUTIONAL MONEY MARKET FUND. The Fund is permitted
to invest daily available cash balances in an affiliated money market fund. The
Fund may invest the available cash in Class E shares of Oppenheimer
Institutional Money Market Fund ("IMMF") which seeks current income and
stability of principal. IMMF is a registered open-end management investment
company, regulated as a money market fund under the Investment Company Act of
1940, as amended. The Manager is also the investment advisor of IMMF. The Fund's
investment in IMMF is included in the Statement of Investments, if applicable.
As a shareholder, the Fund is subject to its proportional share of IMMF's Class
E expenses, including its management fee. The Manager will waive fees and/or
reimburse Fund expenses in an amount equal to the indirect management fees
incurred through the Fund's investment in IMMF.
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.
- --------------------------------------------------------------------------------
INVESTMENTS WITH OFF BALANCE SHEET RISK. The Fund enters into financial
instrument transactions (such as futures) that may have off-balance sheet market
risk. Off-balance sheet market risk exists when the maximum potential loss on a
particular financial instrument is greater than the value of such financial
instrument, as reflected in the Fund's Statement of Assets and Liabilities.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis 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 comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders. Therefore, no federal income or excise tax provision is
required, however, during the year ended August 31, 2007, the Fund paid Federal
excise tax of $369.
39 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.
NET UNREALIZED
APPRECIATION
BASED ON COST OF
SECURITIES AND
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED OTHER INVESTMENTS
NET INVESTMENT LONG-TERM LOSS FOR FEDERAL INCOME
INCOME GAIN CARRYFORWARD 1,2 TAX PURPOSES
----------------------------------------------------------------------
$ -- $ 737,160 $ -- $ 7,789,495
1. During the fiscal year ended August 31, 2007, the Fund utilized $909,112 of
capital loss carryforward to offset capital gains realized in that fiscal year.
2. During the fiscal year ended August 31, 2006, the Fund did not utilize any
capital loss carryforward.
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 net realized gain was recorded by the Fund.
Accordingly, the following amounts have been reclassified for August 31, 2007.
Net assets of the Fund were unaffected by the reclassifications.
REDUCTION TO REDUCTION TO
ACCUMULATED ACCUMULATED NET
REDUCTION TO NET INVESTMENT REALIZED GAIN
PAID-IN CAPITAL LOSS ON INVESTMENTS 3
----------------------------------------------------------------------
$ 79,724 $ 151,277 $ 71,553
3. $71,553, all of which was long-term capital gain, was distributed in
connection with Fund share redemptions.
The tax character of distributions paid during the years ended August 31, 2007
and August 31, 2006 was as follows:
YEAR ENDED YEAR ENDED
AUGUST 31, 2007 AUGUST 31, 2006
----------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 828,728 $ 1,084,885
The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of August 31, 2007 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.
40 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
Federal tax cost of securities $ 59,634,234
Federal tax cost of other investments 5,168,450
---------------
Total federal tax cost $ 64,802,684
===============
Gross unrealized appreciation $ 7,931,708
Gross unrealized depreciation (142,213)
---------------
Net unrealized appreciation $ 7,789,495
===============
- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION. The Board of Trustees has adopted a compensation
deferral plan for independent trustees that enables trustees to elect to defer
receipt of all or a portion of the annual compensation they are entitled to
receive from the Fund. For purposes of determining the amount owed to the
Trustee under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Trustee. The Fund purchases shares of the funds selected for
deferral by the Trustee in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. 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. Amounts will be
deferred until distributed in accordance to the compensation deferral plan.
- --------------------------------------------------------------------------------
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. Income and capital gain distributions, if
any, are declared and paid annually.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
CUSTODIAN FEES. "Custodian fees and expenses" in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts, to the extent they are not
offset by positive cash balances maintained by the Fund, at a rate equal to the
Federal Funds Rate plus 0.50%. The "Reduction to custodian expenses" line item,
if applicable, represents earnings on cash balances maintained by the Fund
during the period. Such interest expense and other custodian fees may be paid
with these earnings.
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.
41 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
INDEMNIFICATIONS. The Fund's organizational documents provide current and former
trustees and officers with a limited indemnification against liabilities arising
in connection with the performance of their duties to the Fund. In the normal
course of business, the Fund may also enter into contracts that provide general
indemnifications. The Fund's maximum exposure under these arrangements is
unknown as this would be dependent on future claims that may be made against the
Fund. The risk of material loss from such claims is considered remote.
- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates.
- --------------------------------------------------------------------------------
2. SHARES OF BENEFICIAL INTEREST
The Fund has authorized an unlimited number of $0.001 par value shares of
beneficial interest of each class. Transactions in shares of beneficial interest
were as follows:
YEAR ENDED AUGUST 31, 2007 YEAR ENDED AUGUST 31, 2006
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------
CLASS A
Dividends and/or
distributions reinvested 15,480 $ 505,080 20,816 $ 632,174
Redeemed (217,553) (7,182,753) (292,745) (8,980,554)
-------------------------------------------------------
Net decrease (202,073) $ (6,677,673) (271,929) $ (8,348,380)
=======================================================
- ------------------------------------------------------------------------------------
CLASS B
Dividends and/or
distributions reinvested 4,403 $ 143,615 5,515 $ 167,390
Redeemed (94,367) (3,091,515) (101,532) (3,090,403)
-------------------------------------------------------
Net decrease (89,964) $ (2,947,900) (96,017) $ (2,923,013)
=======================================================
- ------------------------------------------------------------------------------------
CLASS C
Dividends and/or
distributions reinvested 3,775 $ 122,313 4,540 $ 137,803
Redeemed (117,147) (3,801,485) (168,794) (5,164,286)
-------------------------------------------------------
Net decrease (113,372) $ (3,679,172) (164,254) $ (5,026,483)
=======================================================
- ------------------------------------------------------------------------------------
CLASS N
Dividends and/or
distributions reinvested 471 $ 15,379 703 $ 21,342
Redeemed (3,635) (119,786) (14,380) (443,806)
-------------------------------------------------------
Net decrease (3,164) $ (104,407) (13,677) $ (422,464)
=======================================================
42 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations and investments in IMMF, for the year ended August
31, 2007, were as follows:
PURCHASES SALES
--------------------------------------------------------------
Investment securities $ 34,346,405 $ 31,234,471
U.S. government and government
agency obligations 38,719,786 47,016,615
- --------------------------------------------------------------------------------
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 at an
annual rate of 0.50% of the average annual net assets of the Fund. That fee will
apply during the Warranty Period and the Post-Warranty Period. The management
fee shall be reduced to 0.40% per annum of average annual net assets of the Fund
in any month during the Warranty Period following a month where the Fund's
investment in equity securities (including shares of the Underlying Fund) is, on
average, less than 10% of net assets. If during the Warranty Period 100% of the
Fund's assets are completely and irreversibly invested in the debt portfolio,
the management fee will be at an annual rate of 0.25% of the average annual net
assets of the Fund, and if that occurs the Manager will further reduce its
management fee to the extent necessary so that expenses after waivers and
reductions to the Fund (other than Extraordinary Expenses such as litigation
costs) do not exceed 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. However, if this reduction in
the management fee is not sufficient to reduce expenses after waivers and
reductions to these limits, the Manager is not required to subsidize Fund
expenses to assure that expenses do not exceed those limits. Furthermore, if
expenses exceed these expense limits, the Warranty Amount will be reduced by any
expenses that exceed those limits.
- --------------------------------------------------------------------------------
ADMINISTRATION SERVICE FEES. The Fund pays the Manager a fee of $1,500 per year
for preparing and filing the Fund's tax returns.
- --------------------------------------------------------------------------------
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 a per account fee. For the year ended August 31, 2007, the Fund paid $48,451
to OFS for services to the Fund.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLAN (12b-1) FEES. Under its General Distributor's
Agreement with the Fund, OppenheimerFunds Distributor, Inc. (the Distributor)
acts as the Fund's principal underwriter in the continuous public offering of
the Fund's classes of shares.
- --------------------------------------------------------------------------------
SERVICE PLAN FOR CLASS A SHARES. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred for
services provided to accounts that hold Class A shares. Reimbursement is made
periodically at an annual rate of up to 0.25% of the average annual net assets
of Class A shares of the Fund. The Distributor currently uses all of those fees
to pay dealers, brokers, banks and other financial institutions
43 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES Continued
periodically for providing personal services and maintenance of accounts of
their customers that hold Class A shares. Any unreimbursed expenses the
Distributor incurs with respect to Class A shares in any fiscal year cannot be
recovered in subsequent periods. Fees incurred by the Fund under the plan are
detailed in the Statement of Operations.
- --------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The Fund
has adopted Distribution and Service Plans for Class B, Class C and Class N
shares to compensate the Distributor for its services in connection with the
distribution of those shares and servicing accounts. Under the plans, the Fund
pays the Distributor an annual asset-based sales charge of 0.75% on Class B and
Class C shares and 0.25% on Class N shares. The Distributor also receives a
service fee of 0.25% per year under each plan. If either the Class B, Class C or
Class N plan is terminated by the Fund or by the shareholders of a class, the
Board of Trustees and its independent trustees must determine whether the
Distributor shall be entitled to payment from the Fund of all or a portion of
the service fee and/or asset-based sales charge in respect to shares sold prior
to the effective date of such termination. The Distributor determines its
uncompensated expenses under the plan at calendar quarter ends. The
Distributor's aggregate uncompensated expenses under the plan at June 30, 2007
for Class B, Class C and Class N shares were $420,439, $23,142 and $12,885,
respectively. Fees incurred by the Fund under the plans are detailed in the
Statement of Operations.
- --------------------------------------------------------------------------------
SALES CHARGES. Front-end sales charges and contingent deferred sales charges
(CDSC) do not represent expenses of the Fund. They are deducted from the
proceeds of sales of Fund shares prior to investment or from redemption proceeds
prior to remittance, as applicable. The sales charges retained by the
Distributor from the sale of shares and the CDSC retained by the Distributor on
the redemption of shares is shown in the following table for the period
indicated.
CLASS A CLASS B CLASS C CLASS N
CLASS A CONTINGENT CONTINGENT CONTINGENT CONTINGENT
FRONT-END DEFERRED DEFERRED DEFERRED DEFERRED
SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES
RETAINED BY RETAINED BY RETAINED BY RETAINED BY RETAINED BY
YEAR ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR
- ------------------------------------------------------------------------------------------------
August 31, 2007 $ -- $ -- $ 64,312 $ -- $ --
- --------------------------------------------------------------------------------
WAIVERS AND REIMBURSEMENTS OF EXPENSES. The Manager will reimburse the Fund for
expenses equal to the Underlying Fund expenses paid by the Fund as a shareholder
of the Underlying Fund. That expense reimbursement will fluctuate as the Fund's
allocation between the Underlying Fund and the debt portfolio changes. During
the year ended August 31, 2007, the Manager reimbursed the Fund $227,720 for
such Underlying Fund expenses.
OFS has voluntarily agreed to limit transfer and shareholder servicing
agent fees for all classes to 0.35% of average annual net assets per class. This
undertaking may be amended or withdrawn at any time.
44 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
The Manager will waive fees and/or reimburse Fund expenses in an amount
equal to the indirect management fees incurred through the Fund's investment in
IMMF. During the year ended August 31, 2007, the Manager waived $8,282 for IMMF
management fees.
- --------------------------------------------------------------------------------
5. FUTURES CONTRACTS
A futures contract is a commitment to buy or sell a specific amount of a
commodity or financial instrument at a negotiated price on a stipulated future
date. Futures contracts are traded on a commodity exchange. The Fund may invest
in futures contracts on the S&P 500 Index to maintain liquidity to meet
shareholder redemptions and minimize trading costs. The Fund seeks to maintain a
position in futures contracts on the S&P 500 Index sufficient to allow the Fund
to increase or decrease the percentage of the Fund's assets invested in the
equity portfolio as permitted by the Warranty Agreement with minimal impact on
the trading activities of the Underlying Fund.
Upon entering into a futures contract, the Fund is required to deposit
either cash or securities (initial margin) in an amount equal to a certain
percentage of the contract value. Subsequent payments (variation margin) are
made or received by the Fund each day. The variation margin payments are equal
to the daily changes in the contract value and are recorded as unrealized gains
and losses. The Fund recognizes a realized gain or loss when the contract is
closed or has expired.
Cash held by the broker to cover initial margin requirements on open
futures contracts is noted in the Statement of Assets and Liabilities.
Securities held in collateralized accounts to cover initial margin requirements
on open futures contracts are noted in the Statement of Investments. The
Statement of Assets and Liabilities reflects a receivable and/or payable for the
daily mark to market for variation margin. Realized gains and losses are
reported in the Statement of Operations at the closing and expiration of futures
contracts. The net change in unrealized appreciation and depreciation is
reported in the Statement of Operations.
Risks of entering into futures contracts (and related options) include the
possibility that there may be an illiquid market and that a change in the value
of the contract or option may not correlate with changes in the value of the
underlying securities.
As of August 31, 2007, the Fund had outstanding futures contracts as follows:
EXPIRATION NUMBER OF VALUATION AS OF UNREALIZED
CONTRACT DESCRIPTION DATE CONTRACTS AUGUST 31, 2007 DEPRECIATION
- --------------------------------------------------------------------------------------
CONTRACT TO PURCHASE
Standard & Poor's 500 Index 9/20/07 14 $ 5,168,450 $ 238,825
- --------------------------------------------------------------------------------
6. SECURITIES LENDING
The Fund lends portfolio securities from time to time in order to earn
additional income. In return, the Fund receives collateral in the form of
securities, letters of credit or cash, against the loaned securities and
maintains collateral in an amount not less than 100% of the market
45 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. SECURITIES LENDING Continued
value of the loaned securities during the period of the loan. The market value
of the loaned securities is determined at the close of business each day. If the
Fund is undercollateralized at the close of business due to an increase in
market value of securities on loan, additional collateral is requested from the
borrowing counterparty and is delivered to the Fund on the next business day.
Cash collateral may be invested in approved investments and the Fund bears the
risk of any loss in value of these investments. The Fund retains a portion of
the interest earned from the collateral. If the borrower defaults on its
obligation to return the securities loaned because of insolvency or other
reasons, the Fund could experience delays and cost in recovering the securities
loaned or in gaining access to the collateral. The Fund continues to receive the
economic benefit of interest or dividends paid on the securities loaned in the
form of a substitute payment received from the borrower. As of August 31, 2007,
the Fund had on loan securities valued at $5,800,200, which are included in the
Statement of Assets and Liabilities as "Investments, at value" and, when
applicable, as "Receivable for Investments sold." Collateral of $5,894,700 was
received for the loans, all of which was received in cash and subsequently
invested in approved investments.
- --------------------------------------------------------------------------------
7. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES.
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES. FIN 48 requires the evaluation of tax positions
taken in the course of preparing the Fund's tax returns to determine whether it
is "more-likely-than-not" that tax positions taken in the Fund's tax return will
be ultimately sustained. A tax liability and expense must be recorded in respect
of any tax position that, in Management's judgment, will not be fully realized.
FIN 48 is effective for fiscal years beginning after December 15, 2006. As of
August 31, 2007, the Manager has evaluated the implications of FIN 48 and does
not currently anticipate a material impact to the Fund's financial statements.
The Manager will continue to monitor the Fund's tax positions prospectively for
potential future impacts.
In September 2006, ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 157, FAIR VALUE MEASUREMENTS. This standard establishes a
single authoritative definition of fair value, sets out a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS
No. 157 applies to fair value measurements already required or permitted by
existing standards. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. As of August 31, 2007, the Manager does not believe the
adoption of SFAS No. 157 will materially impact the financial statement amounts;
however, additional disclosures may be required about the inputs used to develop
the measurements and the effect of certain of the measurements on changes in net
assets for the period.
46 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF OPPENHEIMER PRINCIPAL PROTECTED
MAIN STREET FUND III:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Principal Protected Main Street Fund III (the "Fund"), a series of
Oppenheimer Principal Protected Trust III, including the statement of
investments, as of August 31, 2007, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the two
years in the period then ended and for the period from October 7, 2004
(commencement of operations) to August 31, 2005. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of August 31, 2007, by correspondence with the custodian
and brokers. 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 the
Fund as of August 31, 2007, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the two years in the period
then ended and for the period from October 7, 2004 (commencement of operations)
to August 31, 2005, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
October 9, 2007
47 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
FEDERAL INCOME TAX INFORMATION Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
In early 2008, if applicable, shareholders of record will receive information
regarding all dividends and distributions paid to them by the Fund during
calendar year 2007. Regulations of the U.S. Treasury Department require the Fund
to report this information to the Internal Revenue Service.
Dividends, if any, paid by the Fund during the fiscal year ended August
31, 2007 which are not designated as capital gain distributions should be
multiplied by 100% to arrive at the amount eligible for the corporate
dividend-received deduction.
A portion, if any, of the dividends paid by the Fund during the fiscal
year ended August 31, 2007 which are not designated as capital gain
distributions are eligible for lower individual income tax rates to the extent
that the Fund has received qualified dividend income as stipulated by recent tax
legislation. $1,644,931 of the Fund's fiscal year taxable income may be eligible
for the lower individual income tax rates. In early 2008, shareholders of record
will receive information regarding the percentage of distributions that are
eligible for lower individual income tax rates.
Recent tax legislation allows a regulated investment company to designate
distributions not designated as capital gain distributions, as either interest
related dividends or short-term capital gain dividends, both of which are exempt
from the U.S. withholding tax applicable to non U.S. taxpayers. For the fiscal
year ended August 31, 2007, $163,303 or 19.71% of the ordinary distributions
paid by the Fund qualifies as an interest related dividend.
The foregoing information is presented to assist shareholders in reporting
distributions received from the Fund to the Internal Revenue Service. Because of
the complexity of the federal regulations which may affect your individual tax
return and the many variations in state and local tax regulations, we recommend
that you consult your tax advisor for specific guidance.
48 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
PORTFOLIO PROXY VOTING POLICIES AND PROCEDURES;
UPDATES TO STATEMENTS OF INVESTMENTS Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Fund has adopted Portfolio Proxy Voting Policies and Procedures under which
the Fund votes proxies relating to securities ("portfolio proxies") held by the
Fund. A description of the Fund's Portfolio Proxy Voting Policies and Procedures
is available (i) without charge, upon request, by calling the Fund toll-free at
1.800.525.7048, (ii) on the Fund's website at www.oppenheimerfunds.com, and
(iii) on the SEC's website at www.sec.gov. In addition, the Fund is required to
file Form N-PX, with its complete proxy voting record for the 12 months ended
June 30th, no later than August 31st of each year. The Fund's voting record is
available (i) without charge, upon request, by calling the Fund toll-free at
1.800.525.7048, and (ii) in the Form N-PX filing on the SEC's website at
www.sec.gov.
The Fund files its complete schedule of portfolio holdings with the SEC
for the first quarter and the third quarter of each fiscal year on Form N-Q. The
Fund's Form N-Q filings are available on the SEC's website at
http://www.sec.gov. Those forms may be reviewed and copied at the SEC's Public
Reference Room in Washington D.C. Information on the operation of the Public
Reference Room may be obtained by calling 1-800-SEC-0330.
49 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
BOARD APPROVAL OF THE FUND'S INVESTMENT ADVISORY AGREEMENT Unaudited
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Each year, the Board of Trustees (the "Board"), including a majority of the
independent Trustees, is required to determine whether to renew the Fund's
investment advisory agreement (the "Agreement"). The Investment Company Act of
1940, as amended, requires that the Board request and evaluate, and that the
Manager provide, such information as may be reasonably necessary to evaluate the
terms of the Agreement. The Board employs an independent consultant to prepare a
report that provides information, including comparative information, that the
Board requests for that purpose. In addition, the Board receives information
throughout the year regarding Fund services, fees, expenses and performance.
The Manager and the independent consultant provided information to the
Board on the following factors: (i) the nature, quality and extent of the
Manager's services, (ii) the investment performance of the Fund and the Manager,
(iii) the fees and expenses of the Fund, including comparative expense
information, (iv) the profitability of the Manager and its affiliates, including
an analysis of the cost of providing services, (v) whether economies of scale
are realized as the Fund grows and whether fee levels reflect these economies of
scale for Fund investors and (vi) other benefits to the Manager from its
relationship with the Fund. Outlined below is a summary of the principal
information considered by the Board as well as the Board's conclusions.
The Board was aware that there are alternatives to retaining the Manager.
NATURE, QUALITY AND EXTENT OF SERVICES. The Board considered information
about the nature and extent of the services provided to the Fund and information
regarding the Manager's key personnel who provide such services. The Manager's
duties include providing the Fund with the services of the portfolio managers
and the Manager's investment team, who provide research, analysis and other
advisory services in regard to the Fund's investments; securities trading
services; oversight of third party service providers; monitoring compliance with
applicable Fund policies and procedures and adherence to the Fund's investment
restrictions. The Manager is responsible for providing certain administrative
services to the Fund as well. Those services include providing and supervising
all administrative and clerical personnel who are necessary in order to provide
effective corporate administration for the Fund; compiling and maintaining
records with respect to the Fund's operations; preparing and filing reports
required by the Securities and Exchange Commission; preparing periodic reports
regarding the operations of the Fund for its shareholders; preparing proxy
materials for shareholder meetings; and preparing the registration statements
required by Federal and state securities laws for the sale of the Fund's shares.
The Manager also provides the Fund with office space, facilities and equipment.
50 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
The Board also considered the quality of the services provided and the
quality of the Manager's resources that are available to the Fund. The Board
took account of the fact that the Manager has had over forty years of experience
as an investment adviser and that its assets under management rank it among the
top mutual fund managers in the United States. The Board evaluated the Manager's
administrative, accounting, legal and compliance services, and information the
Board has received regarding the experience and professional qualifications of
the Manager's key personnel and the size and functions of its staff providing
investment management services to the Fund. In its evaluation of the quality of
the portfolio management services provided, the Board considered the experience
of Angelo Manioudakis, Rudi Schadt and the Manager's Value and Core Plus
investment teams and analysts. Mr. Manioudakis and Mr. Schadt have been
portfolio managers of the Fund since October 2004. The Board members also
considered the totality of their experiences with the Manager as directors or
trustees of the Fund and other funds advised by the Manager. In light of the
foregoing, the Board concluded that the Fund benefits from the services provided
under the Agreement as a result of the Manager's experience, reputation,
personnel, operations, and resources.
INVESTMENT PERFORMANCE OF THE MANAGER AND THE FUND. During the year, the
Manager provided information on the investment performance of the Fund and the
Manager at each Board meeting, including comparative performance information.
The Board also reviewed information, prepared by the Manager and by the
independent consultant, comparing the Fund's historical performance to relevant
market indices and to the performance of other retail front-end load and no-load
mixed-asset target allocation moderate funds (including both funds advised by
the Manager and funds advised by other investment advisers). The Board noted
that the Fund's one-year and since inception performance were below its peer
group median. The Board considered, the Manager's assertion that given the
Fund's unique, specialized structure and warranty features it is difficult to
find a truly comparable performance peer group for the Fund. The Board also
considered that the Fund had a low equity exposure during its initial offering
period and that its portfolio allocation had shifted to a larger equity
allocation which should improve performance.
COSTS OF SERVICES AND PROFITS REALIZED BY THE MANAGER. The Board
considered information regarding the Manager's costs in serving as the Fund's
investment adviser, including the costs associated with the personnel and
systems necessary to manage the Fund, and information regarding the Manager's
profitability from its relationship with the Fund. The Board reviewed the fees
paid to the Manager and the other expenses borne by the Fund. The
51 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
BOARD APPROVAL OF THE FUND'S INVESTMENT
ADVISORY AGREEMENT Unaudited / Continued
- --------------------------------------------------------------------------------
Board also considered the comparability of the fees charged and the services
provided to the Fund to the fees and services for other clients or accounts
advised by the Manager. The independent consultant provided comparative data in
regard to the fees and expenses of the Fund, other retail front-end load
mixed-asset target allocation moderate funds, mixed-asset target allocation
growth funds, and mixed-asset target allocation conservative funds and other
funds with comparable asset levels and distribution features. The Board noted
that the Fund's contractual and actual management fees are the lowest in its
peer group median.
ECONOMIES OF SCALE. The Board reviewed whether the Manager may realize
economies of scale in managing and supporting the Fund, whether those economies
of scale benefit the Fund's shareholders and the current level of Fund assets in
relation to the Fund's management fee.
OTHER BENEFITS TO THE MANAGER. In addition to considering the profits
realized by the Manager, the Board considered information that was provided
regarding the direct and indirect benefits the Manager receives as a result of
its relationship with the Fund, including compensation paid to the Manager's
affiliates. The Board also considered that the Manager must be able to pay and
retain experienced professional personnel at competitive rates to provide
quality services to the Fund and that maintaining the financial viability of the
Manager is important in order for the Manager to continue to provide significant
services to the Fund and its shareholders.
CONCLUSIONS. These factors were also considered by the independent
Trustees meeting separately from the full Board, assisted by experienced counsel
to the Fund and to the independent Trustees. Fund counsel and the independent
Trustees' counsel are both independent of the Manager within the meaning and
intent of the Securities and Exchange Commission Rules.
Based on its review of the information it received and its evaluations
described above, the Board, including a majority of the independent Trustees,
decided to continue the Agreement for another year. In arriving at this
decision, the Board considered all of the above information. The Board
considered the terms and conditions of the Agreement, including the management
fee, in light of all of the surrounding circumstances.
52 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
TRUSTEES AND OFFICERS Unaudited
- --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
NAME, POSITION(S) HELD WITH THE PRINCIPAL OCCUPATION(S) DURING THE PAST 5 YEARS; OTHER TRUSTEESHIPS/DIRECTORSHIPS HELD; NUMBER OF
FUND, LENGTH OF SERVICE, AGE PORTFOLIOS IN THE FUND COMPLEX CURRENTLY OVERSEEN
INDEPENDENT THE ADDRESS OF EACH TRUSTEE IN THE CHART BELOW IS 6803 S. TUCSON WAY, CENTENNIAL, COLORADO
TRUSTEES 80112-3924. EACH TRUSTEE SERVES FOR AN INDEFINITE TERM, OR UNTIL HIS OR HER RESIGNATION,
RETIREMENT, DEATH OR REMOVAL.
WILLIAM L. ARMSTRONG, President, Colorado Christian University (since 2006); Chairman, Cherry Creek Mortgage Company
Chairman of the Board of (since 1991), Chairman, Centennial State Mortgage Company (since 1994), Chairman, The El Paso
Trustees and Trustee Mortgage Company (since 1993); Chairman, Ambassador Media Corporation (since 1984); Chairman,
(since 2004) Broadway Ventures (since 1984); Director of Helmerich & Payne, Inc. (oil and gas
Age: 70 drilling/production company) (since 1992), Campus Crusade for Christ (non-profit) (since 1991);
Former Director, The Lynde and Harry Bradley Foundation, Inc. (non-profit organization)
(2002-2006); former Chairman of: Transland Financial Services, Inc. (private mortgage banking
company) (1997-2003), Great Frontier Insurance (1995-2000), Frontier Real Estate, Inc.
(residential real estate brokerage) (1994-2000) and Frontier Title (title insurance agency)
(1995-2000); former Director of the following: UNUMProvident (insurance company) (1991-2004),
Storage Technology Corporation (computer equipment company) (1991-2003) and International Family
Entertainment (television channel) (1992-1997); U.S. Senator (January 1979-January 1991).
Oversees 37 portfolios in the OppenheimerFunds complex.
GEORGE C. BOWEN, Assistant Secretary and Director of the Manager (December 1991-April 1999); President, Treasurer
Trustee (since 2004) and Director of Centennial Capital Corporation (June 1989-April 1999); Chief Executive Officer
Age: 71 and Director of MultiSource Services, Inc. (March 1996-April 1999); Mr. Bowen held several
positions with OppenheimerFunds, Inc. and with subsidiary or affiliated companies of
OppenheimerFunds, Inc. (September 1987-April 1999). Oversees 37 portfolios in the
OppenheimerFunds complex.
EDWARD L. CAMERON, Member of The Life Guard of Mount Vernon (George Washington historical site) (June 2000-May
Trustee (since 2004) 2006); Partner of PricewaterhouseCoopers LLP (accounting firm) (July 1974-June 1999); Chairman of
Age: 69 Price Waterhouse LLP Global Investment Management Industry Services Group (accounting firm) (July
1994-June 1998). Oversees 37 portfolios in the OppenheimerFunds complex.
JON S. FOSSEL, Director of UNUMProvident (insurance company) (since June 2002); Director of Northwestern Energy
Trustee (since 2004) Corp. (public utility corporation) (since November 2004); Director of P.R. Pharmaceuticals
Age: 65 (October 1999-October 2003); Director of Rocky Mountain Elk Foundation (non-profit organization)
(February 1998-February 2003 and since February 2005); Chairman and Director (until October 1996)
and President and Chief Executive Officer (until October 1995) of the Manager; President, Chief
Executive Officer and Director of the following: Oppenheimer Acquisition Corp. ("OAC") (parent
holding company of the Manager), Shareholders Services, Inc. and Shareholder Financial Services,
Inc. (until October 1995). Oversees 37 portfolios in the OppenheimerFunds complex.
SAM FREEDMAN, Director of Colorado UpLIFT (charitable organization) (since September 1984). Mr. Freedman held
Trustee (since 2004) several positions with the Manager and with subsidiary or affiliated companies of the Manager
Age: 67 (until October 1994). Oversees 37 portfolios in the OppenheimerFunds complex.
BEVERLY L. HAMILTON, Trustee of Monterey Institute for International Studies (educational organization) (since
Trustee (since 2004) February 2000); Board Member of Middlebury College (educational organization) (since December
Age: 61 2005); Director of The California Endowment (philanthropic organization) (since April 2002);
Director (February 2002-2005) and Chairman of
53 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
TRUSTEES AND OFFICERS Unaudited / Continued
- --------------------------------------------------------------------------------
BEVERLY L. HAMILTON, Trustees (since 2006) of the Community Hospital of Monterey Peninsula; Director (October
Continued 1991-2005) and Vice Chairman (since 2006) of American Funds' Emerging Markets Growth Fund, Inc.
(mutual fund); President of ARCO Investment Management Company (February 1991-April 2000); Member
of the investment committees of The Rockefeller Foundation (since 2001) and The University of
Michigan (since 2000); Advisor at Credit Suisse First Boston's Sprout venture capital unit
(venture capital fund) (1994-January 2005); Trustee of MassMutual Institutional Funds (investment
company) (1996-June 2004); Trustee of MML Series Investment Fund (investment company) (April
1989-June 2004); Member of the investment committee of Hartford Hospital (2000-2003); and Advisor
to Unilever (Holland) pension fund (2000-2003). Oversees 37 portfolios in the OppenheimerFunds
complex.
ROBERT J. MALONE, Director of Jones Knowledge, Inc. (since 2006); Director of Jones International University
Trustee (since 2004) (educational organization) (since August 2005); Chairman, Chief Executive Officer and Director of
Age: 63 Steele Street State Bank (commercial banking) (since August 2003); Director of Colorado UpLift
(charitable organization) (since 1986); Trustee of the Gallagher Family Foundation (non-profit
organization) (since 2000); Former Chairman of U.S. Bank-Colorado (subsidiary of U.S. Bancorp and
formerly Colorado National Bank) (July 1996-April 1999); Director of Commercial Assets, Inc.
(real estate investment trust) (1993-2000); Director of Jones Knowledge, Inc. (2001-July 2004);
and Director of U.S. Exploration, Inc. (oil and gas exploration) (1997-February 2004). Oversees
37 portfolios in the OppenheimerFunds complex.
F. WILLIAM MARSHALL, JR., Trustee of MassMutual Select Funds (formerly MassMutual Institutional Funds) (investment company)
Trustee (since 2004) (since 1996) and MML Series Investment Fund (investment company) (since 1996); Trustee of
Age: 65 Worcester Polytech Institute (since 1985); Chairman (since 1994) of the Investment Committee of
the Worcester Polytech Institute (private university); President and Treasurer of the SIS Funds
(private charitable fund) (since January 1999); Chairman of SIS & Family Bank, F.S.B. (formerly
SIS Bank) (commercial bank) (January 1999-July 1999); and Executive Vice President of Peoples
Heritage Financial Group, Inc. (commercial bank) (January 1999-July 1999). Oversees 39 portfolios
in the OppenheimerFunds complex.
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEE THE ADDRESS OF MR. MURPHY IS TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET, 11TH FLOOR, NEW
AND OFFICER YORK, NEW YORK 10281-1008. MR. MURPHY SERVES AS A TRUSTEE FOR AN INDEFINITE TERM, OR UNTIL HIS
RESIGNATION, RETIREMENT, DEATH OR REMOVAL AND AS AN OFFICER FOR AN INDEFINITE TERM, OR UNTIL HIS
RESIGNATION, RETIREMENT, DEATH OR REMOVAL. MR. MURPHY IS AN INTERESTED TRUSTEE DUE TO HIS
POSITIONS WITH OPPENHEIMERFUNDS, INC. AND ITS AFFILIATES.
JOHN V. MURPHY, Chairman, Chief Executive Officer and Director of the Manager (since June 2001); President of the
Trustee, President and Manager (September 2000-March 2007); President and director or trustee of other Oppenheimer
Principal Executive Officer funds; President and Director of Oppenheimer Acquisition Corp. ("OAC") (the Manager's parent
(since 2004) holding company) and of Oppenheimer Partnership Holdings, Inc. (holding company subsidiary of the
Age: 58 Manager) (since July 2001); Director of OppenheimerFunds Distributor, Inc. (subsidiary of the
Manager) (since November 2001); Chairman and Director of Shareholder Services, Inc. and of
Shareholder Financial Services, Inc. (transfer agent subsidiaries of the Manager) (since July
2001); President and Director of OppenheimerFunds Legacy Program (charitable trust program
established by the Manager) (since July 2001); Director of the following investment advisory
subsidiaries of the Manager: OFI Institutional Asset Management, Inc., Centennial Asset
Management Corporation, Trinity Investment Management Corporation and Tremont Capital
Management, Inc. (since November 2001), HarbourView Asset Management Corporation and OFI Private
54 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
JOHN V. MURPHY, Investments, Inc. (since July 2001); President (since November 1, 2001) and Director (since July
Continued 2001) of Oppenheimer Real Asset Management, Inc.; Executive Vice President of Massachusetts
Mutual Life Insurance Company (OAC's parent company) (since February 1997); Director of DLB
Acquisition Corporation (holding company parent of Babson Capital Management LLC) (since June
1995); Member of the Investment Company Institute's Board of Governors (since October 3, 2003);
Chief Operating Officer of the Manager (September 2000-June 2001). Oversees 102 portfolios in the
OppenheimerFunds complex.
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS OF THE ADDRESSES OF THE OFFICERS IN THE CHART BELOW ARE AS FOLLOWS: FOR MESSRS. MANIOUDAKIS, SCHADT,
THE FUND ZACK, GILLESPIE AND MS. BLOOMBERG, TWO WORLD FINANCIAL CENTER, 225 LIBERTY STREET, NEW YORK, NEW
YORK 10281-1008, FOR MESSRS. VANDEHEY, WIXTED, PETERSEN, SZILAGYI AND MS. IVES, 6803 S. TUCSON
WAY, CENTENNIAL, COLORADO 80112-3924. EACH OFFICER SERVES FOR AN INDEFINITE TERM OR UNTIL HIS OR
HER RESIGNATION, RETIREMENT, DEATH OR REMOVAL.
ANGELO G. MANIOUDAKIS, Senior Vice President of the Manager (since April 2002), of HarbourView Asset Management
Vice President and Portfolio Corporation (since April, 2002 and of OFI Institutional Asset Management, Inc. (since June 2002);
Manager (since 2004) Executive Director and portfolio manager for Miller, Anderson & Sherrerd, a division of Morgan
Age: 40 Stanley Investment Management (August 1993-April 2002). An officer of 15 portfolios in the
OppenheimerFunds complex.
RUDI W. SCHADT, Vice President, Director of Research in Product Design and Risk Management of the Manager. Prior
Vice President and Portfolio to joining the Manager in February 2002 he was a Director and Senior Quantitative Analyst
Manager (since 2004) (2000-2001) at UBS Asset Management prior to which he was an Associate Director of Research
Age: 49 (since June 1999) and Senior Researcher and Portfolio Manager (from June 1997) at State Street
Global Advisors. An officer of 7 portfolios in the OppenheimerFunds complex.
MARK S. VANDEHEY, Senior Vice President and Chief Compliance Officer of the Manager (since March 2004); Chief
Vice President and Chief Compliance Officer of the Manager, OppenheimerFunds Distributor, Inc., Centennial Asset
Compliance Officer Management and Shareholder Services, Inc. (since March 2004); Vice President of OppenheimerFunds
(since 2004) Distributor, Inc., Centennial Asset Management Corporation and Shareholder Services, Inc. (since
Age: 57 June 1983). Former Vice President and Director of Internal Audit of the Manager (1997-February
2004). An officer of 102 portfolios in the OppenheimerFunds complex.
BRIAN W. WIXTED, Senior Vice President and Treasurer of the Manager (since March 1999); Treasurer of the
Treasurer and Principal following: HarbourView Asset Management Corporation, Shareholder Financial Services, Inc.,
Financial & Accounting Shareholder Services, Inc., Oppenheimer Real Asset Management, Inc. and Oppenheimer Partnership
Officer (since 2004) Holdings, Inc. (since March 1999), OFI Private Investments, Inc. (since March 2000),
Age: 48 OppenheimerFunds International Ltd. (since May 2000), OppenheimerFunds plc (since May 2000), OFI
Institutional Asset Management, Inc. (since November 2000), and OppenheimerFunds Legacy Program
(charitable trust program established by the Manager) (since June 2003); Treasurer and Chief
Financial Officer of OFI Trust Company (trust company subsidiary of the Manager) (since May
2000); Assistant Treasurer of the following: OAC (since March 1999), Centennial Asset Management
Corporation (March 1999-October 2003) and OppenheimerFunds Legacy Program (April 2000-June 2003);
Principal and Chief Operating Officer of Bankers Trust Company-Mutual Fund Services Division
(March 1995-March 1999). An officer of 102 portfolios in the OppenheimerFunds complex.
55 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
TRUSTEES AND OFFICERS Unaudited / Continued
- --------------------------------------------------------------------------------
BRIAN S. PETERSEN, Vice President of the Manager (since February 2007); Assistant Vice President of the Manager
Assistant Treasurer (August 2002-February 2007); Manager/Financial Product Accounting of the Manager (November
(since 2004) 1998-July 2002). An officer of 102 portfolios in the OppenheimerFunds complex.
Age: 37
BRIAN C. SZILAGYI, Assistant Vice President of the Manager (since July 2004); Director of Financial Reporting and
Assistant Treasurer Compliance of First Data Corporation (April 2003-July 2004); Manager of Compliance of Berger
(since 2005) Financial Group LLC (May 2001-March 2003); Director of Mutual Fund Operations at American Data
Age: 37 Services, Inc. (September 2000-May 2001). An officer of 102 portfolios in the OppenheimerFunds
complex.
ROBERT G. ZACK, Executive Vice President (since January 2004) and General Counsel (since March 2002) of the
Vice President and Secretary Manager; General Counsel and Director of the Distributor (since December 2001); General Counsel
(since 2004) of Centennial Asset Management Corporation (since December 2001); Senior Vice President and
Age: 59 General Counsel of HarbourView Asset Management Corporation (since December 2001); Secretary and
General Counsel of OAC (since November 2001); Assistant Secretary (since September 1997) and
Director (since November 2001) of OppenheimerFunds International Ltd. and OppenheimerFunds plc;
Vice President and Director of Oppenheimer Partnership Holdings, Inc. (since December 2002);
Director of Oppenheimer Real Asset Management, Inc. (since November 2001); Senior Vice President,
General Counsel and Director of Shareholder Financial Services, Inc. and Shareholder Services,
Inc. (since December 2001); Senior Vice President, General Counsel and Director of OFI Private
Investments, Inc. and OFI Trust Company (since November 2001); Vice President of OppenheimerFunds
Legacy Program (since June 2003); Senior Vice President and General Counsel of OFI Institutional
Asset Management, Inc. (since November 2001); Director of OppenheimerFunds (Asia) Limited (since
December 2003); Senior Vice President (May 1985-December 2003), Acting General Counsel (November
2001-February 2002) and Associate General Counsel (May 1981-October 2001) of the Manager;
Assistant Secretary of the following: Share-holder Services, Inc. (May 1985-November 2001),
Shareholder Financial Services, Inc. (November 1989-November 2001), and OppenheimerFunds
International Ltd. (September 1997-November 2001). An officer of 102 portfolios in the
OppenheimerFunds complex.
LISA I. BLOOMBERG, Vice President and Associate Counsel of the Manager (since May 2004); First Vice President (April
Assistant Secretary 2001-April 2004), Associate General Counsel (December 2000-April 2004), Corporate Vice President
(since 2004) (May 1999-April 2001) and Assistant General Counsel (May 1999-December 2000) of UBS Financial
Age: 39 Services Inc. (formerly, PaineWebber Incorporated). An officer of 102 portfolios in the
OppenheimerFunds complex.
PHILLIP S. GILLESPIE, Senior Vice President and Deputy General Counsel of the Manager (since September 2004); First
Assistant Secretary Vice President (2001-September 2004); Director (2000-September 2004) and Vice President
(since 2004) (1998-2000) of Merrill Lynch Investment Management. An officer of 102 portfolios in the
Age: 43 OppenheimerFunds complex.
KATHLEEN T. IVES, Vice President (since June 1998) and Senior Counsel and Assistant Secretary (since October 2003)
Assistant Secretary of the Manager; Vice President (since 1999) and Assistant Secretary (since October 2003) of the
(since 2004) Distributor; Assistant Secretary of Centennial Asset Management Corporation (since October 2003);
Age: 42 Vice President and Assistant Secretary of Shareholder Services, Inc. (since 1999); Assistant
Secretary of OppenheimerFunds Legacy Program and Shareholder Financial Services, Inc. (since
December 2001); Assistant Counsel of the Manager (August 1994-October 2003). An officer of 102
portfolios in the OppenheimerFunds complex.
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION CONTAINS ADDITIONAL INFORMATION
ABOUT THE FUND'S TRUSTEES AND OFFICERS AND IS AVAILABLE WITHOUT CHARGE UPON
REQUEST, BY CALLING 1.800.525.7048.
56 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
FINANCIAL STATEMENTS FOR OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
59 Statement of Investments
64 Statement of Assets and Liabilities
66 Statement of Operations
68 Statements of Changes in Net Assets
69 Financial Highlights
74 Notes to Financial Statements
84 Report of Independent Registered Public Accounting Firm
58 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
STATEMENT OF INVESTMENTS August 31, 2007
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
COMMON STOCKS--99.7%
- --------------------------------------------------------------------------------
CONSUMER DISCRETIONARY--7.3%
- --------------------------------------------------------------------------------
AUTOMOBILES--0.0%
General Motors Corp. 41,100 $ 1,263,414
- --------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE--1.4%
Chipotle Mexican Grill,
Inc., Cl. B 1 43,733 4,106,091
- --------------------------------------------------------------------------------
Marriott International,
Inc., Cl. A 709,700 31,524,874
- --------------------------------------------------------------------------------
McDonald's Corp. 1,222,600 60,213,050
- --------------------------------------------------------------------------------
Starwood Hotels &
Resorts Worldwide, Inc. 310,500 18,977,760
- --------------------------------------------------------------------------------
Yum! Brands, Inc. 1,392,600 45,565,872
----------------
160,387,647
- --------------------------------------------------------------------------------
MEDIA--3.6%
CBS Corp., Cl. B 1,743,700 54,943,987
- --------------------------------------------------------------------------------
Clear Channel
Communications, Inc. 1,724,500 64,254,870
- --------------------------------------------------------------------------------
EchoStar Communications
Corp., Cl. A 1 801,000 33,898,320
- --------------------------------------------------------------------------------
Gannett Co., Inc. 948,400 44,574,800
- --------------------------------------------------------------------------------
Omnicom Group, Inc. 701,400 35,722,302
- --------------------------------------------------------------------------------
Viacom, Inc., Cl. B 1 1,413,938 55,793,993
- --------------------------------------------------------------------------------
Walt Disney Co. (The) 3,713,300 124,766,880
----------------
413,955,152
- --------------------------------------------------------------------------------
MULTILINE RETAIL--1.1%
J.C. Penney Co., Inc.
(Holding Co.) 493,200 33,912,432
- --------------------------------------------------------------------------------
Macy's, Inc. 1,284,400 40,741,168
- --------------------------------------------------------------------------------
Sears Holdings Corp. 1 267,800 38,445,368
- --------------------------------------------------------------------------------
Target Corp. 187,500 12,361,875
----------------
125,460,843
- --------------------------------------------------------------------------------
SPECIALTY RETAIL--0.8%
Home Depot, Inc. 1,547,500 59,284,725
- --------------------------------------------------------------------------------
TJX Cos., Inc. (The) 1,348,900 41,127,961
----------------
100,412,686
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS--0.4%
Nike, Inc., Cl. B 793,200 $ 44,688,888
- --------------------------------------------------------------------------------
CONSUMER STAPLES--8.2%
- --------------------------------------------------------------------------------
BEVERAGES--2.0%
Coca-Cola Co. (The) 2,245,800 120,779,124
- --------------------------------------------------------------------------------
PepsiCo, Inc. 1,682,990 114,493,810
----------------
235,272,934
- --------------------------------------------------------------------------------
FOOD & STAPLES RETAILING--1.1%
Costco Wholesale
Corp. 806,524 49,802,857
- --------------------------------------------------------------------------------
Kroger Co. (The) 1,255,810 33,379,430
- --------------------------------------------------------------------------------
Safeway, Inc. 1,257,800 39,909,994
----------------
123,092,281
- --------------------------------------------------------------------------------
FOOD PRODUCTS--1.8%
ConAgra Foods, Inc. 1,454,700 37,400,337
- --------------------------------------------------------------------------------
General Mills, Inc. 776,000 43,362,880
- --------------------------------------------------------------------------------
Heinz (H.J.) Co. 895,400 40,373,586
- --------------------------------------------------------------------------------
Kellogg Co. 684,700 37,610,571
- --------------------------------------------------------------------------------
Sara Lee Corp. 2,767,600 45,997,512
----------------
204,744,886
- --------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS--1.0%
Colgate-Palmolive Co. 118,500 7,858,920
- --------------------------------------------------------------------------------
Procter & Gamble Co.
(The) 1,699,085 110,967,241
----------------
118,826,161
- --------------------------------------------------------------------------------
TOBACCO--2.3%
Altria Group, Inc. 3,847,700 267,068,857
- --------------------------------------------------------------------------------
ENERGY--14.6%
- --------------------------------------------------------------------------------
ENERGY EQUIPMENT & SERVICES--1.5%
Schlumberger Ltd. 1,804,900 174,172,850
- --------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS--13.1%
Anadarko Petroleum
Corp. 1,288,500 63,110,730
- --------------------------------------------------------------------------------
Apache Corp. 723,400 55,976,692
- --------------------------------------------------------------------------------
Chevron Corp. 3,746,860 328,824,434
- --------------------------------------------------------------------------------
ConocoPhillips 2,203,796 180,468,854
- --------------------------------------------------------------------------------
Exxon Mobil Corp. 7,165,896 614,332,264
- --------------------------------------------------------------------------------
Hess Corp. 337,700 20,724,649
59 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS Continued
Kinder Morgan
Management LLC 1 1 $ 29
- --------------------------------------------------------------------------------
Marathon Oil Corp. 1,464,200 78,905,738
- --------------------------------------------------------------------------------
Occidental Petroleum
Corp. 1,581,200 89,638,228
- --------------------------------------------------------------------------------
Valero Energy Corp. 1,075,800 73,703,058
----------------
1,505,684,676
- --------------------------------------------------------------------------------
FINANCIALS--18.1%
- --------------------------------------------------------------------------------
CAPITAL MARKETS--3.1%
Ameriprise Financial, Inc. 933,100 56,928,431
- --------------------------------------------------------------------------------
Bank of New York Mellon
Corp. 1,613,984 65,253,373
- --------------------------------------------------------------------------------
Bear Stearns Cos., Inc.
(The) 2 329,700 35,825,202
- --------------------------------------------------------------------------------
Goldman Sachs Group,
Inc. (The) 396,500 69,787,965
- --------------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 813,600 59,962,320
- --------------------------------------------------------------------------------
Morgan Stanley 1,082,238 67,499,184
----------------
355,256,475
- --------------------------------------------------------------------------------
COMMERCIAL BANKS--2.9%
Fifth Third Bancorp 1,066,200 38,052,678
- --------------------------------------------------------------------------------
KeyCorp 626,200 20,852,460
- --------------------------------------------------------------------------------
U.S. Bancorp 1,582,470 51,192,905
- --------------------------------------------------------------------------------
Wachovia Corp. 1,851,010 90,662,470
- --------------------------------------------------------------------------------
Wells Fargo & Co. 3,783,220 138,238,859
- --------------------------------------------------------------------------------
338,999,372
- --------------------------------------------------------------------------------
CONSUMER FINANCE--0.1%
Discover Financial
Services 1 566,469 13,108,093
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES--5.1%
Bank of America Corp. 4,486,039 227,352,457
- --------------------------------------------------------------------------------
Citigroup, Inc. 4,490,446 210,512,108
- --------------------------------------------------------------------------------
JPMorgan Chase & Co. 3,393,196 151,065,086
----------------
588,929,651
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
INSURANCE--5.6%
ACE Ltd. 531,600 $ 30,705,216
- --------------------------------------------------------------------------------
Allstate Corp. 1,360,800 74,503,800
- --------------------------------------------------------------------------------
American International
Group, Inc. 2,233,305 147,398,130
- --------------------------------------------------------------------------------
Aon Corp. 437,000 18,930,840
- --------------------------------------------------------------------------------
Chubb Corp. 1,237,600 63,278,488
- --------------------------------------------------------------------------------
CNA Financial Corp. 2 391,000 16,406,360
- --------------------------------------------------------------------------------
Genworth Financial,
Inc., Cl. A 1,914,900 55,493,802
- --------------------------------------------------------------------------------
Lincoln National Corp. 470,900 28,668,392
- --------------------------------------------------------------------------------
MetLife, Inc. 474,200 30,372,510
- --------------------------------------------------------------------------------
Principal Financial
Group, Inc. (The) 843,200 46,789,168
- --------------------------------------------------------------------------------
Travelers Cos., Inc.
(The) 1,450,400 73,303,216
- --------------------------------------------------------------------------------
XL Capital Ltd., Cl. A 711,200 54,193,440
----------------
640,043,362
- --------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS--0.1%
General Growth
Properties, Inc. 156,000 7,754,760
- --------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE--1.2%
Fannie Mae 1,203,600 78,968,196
- --------------------------------------------------------------------------------
Washington Mutual,
Inc. 2 1,505,900 55,296,648
----------------
134,264,844
- --------------------------------------------------------------------------------
HEALTH CARE--14.0%
- --------------------------------------------------------------------------------
BIOTECHNOLOGY--1.0%
Amgen, Inc. 1 1,006,900 50,455,759
- --------------------------------------------------------------------------------
Biogen Idec, Inc. 1 766,600 48,924,412
- --------------------------------------------------------------------------------
Genentech, Inc. 1 230,900 17,273,629
----------------
116,653,800
- --------------------------------------------------------------------------------
HEALTH CARE EQUIPMENT & SUPPLIES--1.4%
Baxter International, Inc. 929,800 50,915,848
- --------------------------------------------------------------------------------
Covidien Ltd. 1 532,325 21,202,505
- --------------------------------------------------------------------------------
Medtronic, Inc. 1,003,300 53,014,372
- --------------------------------------------------------------------------------
Zimmer Holdings, Inc. 1 405,600 31,770,648
----------------
156,903,373
60 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES--5.5%
Aetna, Inc. 1,445,600 $ 73,595,496
- --------------------------------------------------------------------------------
Cardinal Health, Inc. 194,900 13,327,262
- --------------------------------------------------------------------------------
CIGNA Corp. 932,400 48,186,432
- --------------------------------------------------------------------------------
Express Scripts, Inc. 1 694,800 38,040,300
- --------------------------------------------------------------------------------
McKesson Corp. 837,300 47,901,933
- --------------------------------------------------------------------------------
Medco Health Solutions,
Inc. 1 786,500 67,206,425
- --------------------------------------------------------------------------------
UnitedHealth Group,
Inc. 3,653,294 182,701,233
- --------------------------------------------------------------------------------
WellPoint, Inc. 1 1,959,872 157,946,084
----------------
628,905,165
- --------------------------------------------------------------------------------
PHARMACEUTICALS--6.1%
Bristol-Myers Squibb Co. 2,396,800 69,866,720
- --------------------------------------------------------------------------------
Eli Lilly & Co. 1,009,300 57,883,355
- --------------------------------------------------------------------------------
Forest Laboratories,
Inc. 1 992,700 37,355,301
- --------------------------------------------------------------------------------
Johnson & Johnson 3,716,144 229,620,538
- --------------------------------------------------------------------------------
Pfizer, Inc. 10,655,445 264,681,254
- --------------------------------------------------------------------------------
Wyeth 1,077,300 49,878,990
----------------
709,286,158
- --------------------------------------------------------------------------------
INDUSTRIALS--9.1%
- --------------------------------------------------------------------------------
AEROSPACE & DEFENSE--4.5%
Boeing Co. 691,600 66,877,720
- --------------------------------------------------------------------------------
General Dynamics Corp. 430,000 33,780,800
- --------------------------------------------------------------------------------
Honeywell International,
Inc. 1,439,500 80,827,925
- --------------------------------------------------------------------------------
L-3 Communications
Holdings, Inc. 172,600 17,002,826
- --------------------------------------------------------------------------------
Lockheed Martin
Corp. 800,500 79,361,570
- --------------------------------------------------------------------------------
Northrop Grumman
Corp. 906,600 71,476,344
- --------------------------------------------------------------------------------
Precision Castparts
Corp. 198,500 25,866,535
- --------------------------------------------------------------------------------
Raytheon Co. 1,050,900 64,462,206
- --------------------------------------------------------------------------------
United Technologies
Corp. 1,022,400 76,301,712
----------------
515,957,638
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
AIR FREIGHT & LOGISTICS--0.4%
United Parcel Service,
Inc., Cl. B 661,400 $ 50,173,804
- --------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES--3.1%
3M Co. 631,700 57,478,383
- --------------------------------------------------------------------------------
General Electric Co. 6,471,100 251,531,657
- --------------------------------------------------------------------------------
Tyco International Ltd. 1,025,525 45,287,184
----------------
354,297,224
- --------------------------------------------------------------------------------
MACHINERY--1.0%
Caterpillar, Inc. 537,500 40,726,375
- --------------------------------------------------------------------------------
Cummins, Inc. 97,200 11,510,424
- --------------------------------------------------------------------------------
Eaton Corp. 610,800 57,549,576
- --------------------------------------------------------------------------------
ITT Corp. 88,800 6,037,512
----------------
115,823,887
- --------------------------------------------------------------------------------
ROAD & RAIL--0.1%
Laidlaw International,
Inc. 59,900 2,076,134
- --------------------------------------------------------------------------------
Union Pacific Corp. 102,700 11,458,239
----------------
13,534,373
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY--21.3%
- --------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--4.2%
Cisco Systems, Inc. 1 10,058,100 321,054,552
- --------------------------------------------------------------------------------
Juniper Networks, Inc. 1 1,991,074 65,546,156
- --------------------------------------------------------------------------------
Motorola, Inc. 2,193,000 37,171,350
- --------------------------------------------------------------------------------
QUALCOMM, Inc. 1,426,775 56,914,055
----------------
480,686,113
- --------------------------------------------------------------------------------
COMPUTERS & PERIPHERALS--6.4%
Apple, Inc. 1 907,200 125,629,056
- --------------------------------------------------------------------------------
Dell, Inc. 1 2,121,500 59,932,375
- --------------------------------------------------------------------------------
EMC Corp. 1 3,538,100 69,559,046
- --------------------------------------------------------------------------------
Hewlett-Packard Co. 3,585,000 176,919,750
- --------------------------------------------------------------------------------
International Business
Machines Corp. 2,605,400 304,024,126
----------------
736,064,353
61 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
STATEMENT OF INVESTMENTS Continued
- --------------------------------------------------------------------------------
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.6%
Agilent Technologies,
Inc. 1 1,518,000 $ 55,255,200
- --------------------------------------------------------------------------------
Tyco Electronics Ltd. 1 532,325 18,562,173
----------------
73,817,373
- --------------------------------------------------------------------------------
INTERNET SOFTWARE & SERVICES--1.0%
Google, Inc., Cl. A 1 211,900 109,181,475
- --------------------------------------------------------------------------------
IT SERVICES--2.6%
Accenture Ltd., Cl. A 1,578,500 65,049,985
- --------------------------------------------------------------------------------
Automatic Data
Processing, Inc. 1,355,600 62,005,144
- --------------------------------------------------------------------------------
Electronic Data Systems
Corp. 2,283,700 52,273,893
- --------------------------------------------------------------------------------
First Data Corp. 2,505,800 83,242,676
- --------------------------------------------------------------------------------
MasterCard, Inc., Cl. A 2 226,900 31,083,031
----------------
293,654,729
- --------------------------------------------------------------------------------
OFFICE ELECTRONICS--0.4%
- --------------------------------------------------------------------------------
Xerox Corp. 1 2,814,900 48,219,237
- --------------------------------------------------------------------------------
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.8%
Analog Devices, Inc. 952,900 35,142,952
- --------------------------------------------------------------------------------
Applied Materials, Inc. 2,470,300 52,765,608
- --------------------------------------------------------------------------------
Intel Corp. 2,818,000 72,563,500
- --------------------------------------------------------------------------------
Texas Instruments, Inc. 1,463,700 50,117,088
----------------
210,589,148
- --------------------------------------------------------------------------------
SOFTWARE--4.3%
Adobe Systems, Inc. 1 1,071,200 45,793,800
- --------------------------------------------------------------------------------
Microsoft Corp. 12,929,754 371,471,832
- --------------------------------------------------------------------------------
Oracle Corp. 1 3,962,100 80,351,388
----------------
497,617,020
- --------------------------------------------------------------------------------
MATERIALS--2.1%
- --------------------------------------------------------------------------------
CHEMICALS--0.8%
Air Products &
Chemicals, Inc. 94,100 8,469,941
- --------------------------------------------------------------------------------
Dow Chemical Co.
(The) 1,468,600 62,606,418
- --------------------------------------------------------------------------------
PPG Industries, Inc. 189,000 13,863,150
----------------
84,939,509
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
METALS & MINING--0.9%
Nucor Corp. 689,400 $ 36,469,260
- --------------------------------------------------------------------------------
Southern Copper
Corp. 2 317,700 33,437,925
- --------------------------------------------------------------------------------
United States Steel
Corp. 380,600 35,959,088
----------------
105,866,273
- --------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS--0.4%
International Paper Co. 1,305,900 45,850,149
- --------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES--3.5%
- --------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES--2.4%
AT&T, Inc. 2,221,691 88,578,820
- --------------------------------------------------------------------------------
Qwest Communications
International, Inc. 1 6,505,900 58,227,805
- --------------------------------------------------------------------------------
Verizon Communications,
Inc. 3,003,600 125,790,768
----------------
272,597,393
- --------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES--1.1%
Alltel Corp. 659,300 45,003,818
- --------------------------------------------------------------------------------
Sprint Nextel Corp. 4,654,331 88,059,943
----------------
133,063,761
- --------------------------------------------------------------------------------
UTILITIES--1.5%
- --------------------------------------------------------------------------------
ELECTRIC UTILITIES--0.8%
American Electric Power
Co., Inc. 521,300 23,187,424
- --------------------------------------------------------------------------------
Edison International,
Inc. 826,700 43,575,357
- --------------------------------------------------------------------------------
Progress Energy, Inc. 497,400 22,820,712
- --------------------------------------------------------------------------------
Progress Energy, Inc.,
Contingent Value
Obligation 1,3 680,100 224,433
----------------
89,807,926
- --------------------------------------------------------------------------------
MULTI-UTILITIES & UNREGULATED POWER--0.7%
PG&E Corp. 896,900 39,912,050
- --------------------------------------------------------------------------------
Sempra Energy 711,200 39,137,334
----------------
79,049,384
----------------
Total Common Stocks
(Cost $9,155,401,834) 11,475,927,097
62 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
VALUE
SHARES SEE NOTE 1
- --------------------------------------------------------------------------------
PREFERRED STOCKS--0.0%
- --------------------------------------------------------------------------------
Wachovia Corp.,
Dividend Equalization
Preferred Shares 1,3
(Cost $0) 100,000 $ 110
UNITS
- --------------------------------------------------------------------------------
RIGHTS, WARRANTS AND CERTIFICATES--0.0%
- --------------------------------------------------------------------------------
Dime Bancorp, Inc.
Wts., Exp. 1/2/10 1 485,800 111,783
- --------------------------------------------------------------------------------
Lucent Technologies,
Inc. Wts., Exp. 12/10/07 1 68,554 2,057
----------------
Total Rights, Warrants and Certificates
(Cost $0) 113,840
- --------------------------------------------------------------------------------
Total Investments, at Value
(excluding Investments Purchased
with Cash Collateral from
Securities Loaned)
(Cost $9,155,401,834) 11,476,041,047
PRINCIPAL VALUE
AMOUNT SEE NOTE 1
- --------------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED--1.0% 4
- --------------------------------------------------------------------------------
JOINT REPURCHASE AGREEMENTS--1.0%
Undivided interest of 3.22% in joint repurchase
agreement (Principal Amount/Value $3,500,000,000,
with a maturity value of $3,502,100,000) with
Bank of America NA, 5.40%, dated 08/31/07,
to be repurchased at $112,622,164 on
9/4/07, collateralized by U.S. Agency
Mortgages, 5%-5.50%, 3/1/34-6/1/35,
with a value of
$3,570,000,000
(Cost $112,554,631) $112,554,631 $ 112,554,631
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS,
AT VALUE
(COST $9,267,956,465) 100.7% 11,588,595,678
- --------------------------------------------------------------------------------
LIABILITIES IN EXCESS
OF OTHER ASSETS (0.7) (76,104,210)
-------------------------------
NET ASSETS 100.0% $11,512,491,468
===============================
FOOTNOTES TO STATEMENT OF INVESTMENTS
1. Non-income producing security.
2. Partial or fully-loaned security. See Note 7 of accompanying Notes.
3. Illiquid security. The aggregate value of illiquid securities as of August
31, 2007 was $224,543, which represents less than 0.005% of the Fund's net
assets. See Note 6 of accompanying Notes.
4. The security/securities have been segregated to satisfy the forward
commitment to return the cash collateral received in securities lending
transactions upon the borrower's return of the securities loaned. See Note 7 of
accompanying Notes.
The following issuer was an affiliate, as defined in the Investment Company Act
of 1940, at or during the period ended August 31, 2007 by virtue of the Fund
owning at least 5% of the voting securities of the issuer or as a result of the
Fund and the issuer having the same investment advisor. There were no affiliate
securities held by the Fund as of August 31, 2007. Transactions during the
period in which the issuer was an affiliate are as follows:
SHARES GROSS GROSS SHARES
AUGUST 31, 2006 ADDITIONS REDUCTIONS AUGUST 31, 2007
- ---------------------------------------------------------------------------------------------
Oppenheimer Institutional
Money Market Fund, Cl. E -- 1,458,649,664 1,458,649,664 --
DIVIDEND
INCOME
- ---------------------------------------------------------------------------------------------
Oppenheimer Institutional
Money Market Fund, Cl. E $ 2,556,711
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
63 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
STATEMENT OF ASSETS AND LIABILITIES August 31, 2007
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
- ----------------------------------------------------------------------------------------------------------------------
Investments, at value (cost $9,267,956,465)--see accompanying statement of investments $ 11,588,595,678
- ----------------------------------------------------------------------------------------------------------------------
Cash 5,238,484
- ----------------------------------------------------------------------------------------------------------------------
Receivables and other assets:
Investments sold 45,763,029
Interest and dividends 22,628,877
Other 210,421
-----------------
Total assets 11,662,436,489
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------
Return of collateral for securities loaned 112,554,631
- ----------------------------------------------------------------------------------------------------------------------
Payables and other liabilities:
Shares of capital stock redeemed 29,884,291
Distribution and service plan fees 4,452,403
Transfer and shareholder servicing agent fees 1,595,717
Shareholder communications 1,225,438
Directors' compensation 121,603
Other 110,938
-----------------
Total liabilities 149,945,021
- ----------------------------------------------------------------------------------------------------------------------
NET ASSETS $ 11,512,491,468
=================
- ----------------------------------------------------------------------------------------------------------------------
COMPOSITION OF NET ASSETS
- ----------------------------------------------------------------------------------------------------------------------
Par value of shares of capital stock $ 2,682,317
- ----------------------------------------------------------------------------------------------------------------------
Additional paid-in capital 8,163,207,286
- ----------------------------------------------------------------------------------------------------------------------
Accumulated net investment income 75,037,327
- ----------------------------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and foreign currency transactions 950,925,325
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign currencies 2,320,639,213
-----------------
NET ASSETS $ 11,512,491,468
=================
64 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
- ----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE
- ----------------------------------------------------------------------------------------------------------------------
Class A Shares:
Net asset value and redemption price per share (based on net assets
of $8,015,873,016 and 185,490,141 shares of capital stock outstanding) $ 43.21
Maximum offering price per share (net asset value plus sales charge
of 5.75% of offering price) $ 45.85
- ----------------------------------------------------------------------------------------------------------------------
Class B Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net assets
of $1,206,239,895 and 28,836,079 shares of capital stock outstanding) $ 41.83
- ----------------------------------------------------------------------------------------------------------------------
Class C Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net assets
of $1,126,093,710 and 26,999,468 shares of capital stock outstanding) $ 41.71
- ----------------------------------------------------------------------------------------------------------------------
Class N Shares:
Net asset value, redemption price (excludes applicable contingent
deferred sales charge) and offering price per share (based on net assets
of $238,067,937 and 5,590,356 shares of capital stock outstanding) $ 42.59
- ----------------------------------------------------------------------------------------------------------------------
Class Y Shares:
Net asset value, redemption price and offering price per share
(based on net assets of $926,216,910 and 21,315,699 shares of
capital stock outstanding) $ 43.45
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
65 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
STATEMENT OF OPERATIONS For the Year Ended August 31, 2007
- --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
- ----------------------------------------------------------------------------------------------------------------------
Dividends:
Unaffiliated companies $ 218,283,935
Affiliated companies 2,556,711
- ----------------------------------------------------------------------------------------------------------------------
Portfolio lending fees 1,143,784
- ----------------------------------------------------------------------------------------------------------------------
Interest 840,586
- ----------------------------------------------------------------------------------------------------------------------
Other income 345,032
-----------------
Total investment income 223,170,048
- ----------------------------------------------------------------------------------------------------------------------
EXPENSES
- ----------------------------------------------------------------------------------------------------------------------
Management fees 53,736,971
- ----------------------------------------------------------------------------------------------------------------------
Distribution and service plan fees:
Class A 19,968,890
Class B 13,493,205
Class C 11,512,666
Class N 1,157,219
- ----------------------------------------------------------------------------------------------------------------------
Transfer and shareholder servicing agent fees:
Class A 14,000,234
Class B 2,195,896
Class C 1,911,325
Class N 475,488
Class Y 157,294
- ----------------------------------------------------------------------------------------------------------------------
Shareholder communications:
Class A 1,259,482
Class B 450,953
Class C 145,867
Class N 13,721
- ----------------------------------------------------------------------------------------------------------------------
Directors' compensation 206,587
- ----------------------------------------------------------------------------------------------------------------------
Custodian fees and expenses 66,600
- ----------------------------------------------------------------------------------------------------------------------
Administration service fees 1,500
- ----------------------------------------------------------------------------------------------------------------------
Other 357,259
-----------------
Total expenses 121,111,157
Less reduction to custodian expenses (2,567)
Less waivers and reimbursements of expenses (48,738)
-----------------
Net expenses 121,059,852
- ----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME 102,110,196
66 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
- ----------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on:
Investments from unaffiliated companies $ 1,445,800,255
Foreign currency transactions 1,219,887
Net increase from payment by affiliate 47,596
-----------------
Net realized gain 1,447,067,738
- ----------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation (depreciation) on:
Investments 153,298,145
Translation of assets and liabilities denominated in foreign currencies (1,310,611)
-----------------
Net change in unrealized appreciation 151,987,534
- ----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,701,165,468
=================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
67 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 2007 2006
- -----------------------------------------------------------------------------------------------------------------------------
OPERATIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income $ 102,110,196 $ 86,868,345
- -----------------------------------------------------------------------------------------------------------------------------
Net realized gain 1,447,067,738 886,986,823
- -----------------------------------------------------------------------------------------------------------------------------
Net change in unrealized appreciation 151,987,534 18,438,234
------------------------------------
Net increase in net assets resulting from operations 1,701,165,468 992,293,402
- -----------------------------------------------------------------------------------------------------------------------------
DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
- -----------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income:
Class A (73,117,391) (78,299,257)
Class B (984,972) (1,493,470)
Class C (2,391,155) (3,049,966)
Class N (1,498,558) (1,478,142)
Class Y (10,050,408) (7,871,769)
------------------------------------
(88,042,484) (92,192,604)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain:
Class A (307,631,500) --
Class B (56,774,032) --
Class C (45,635,308) --
Class N (8,621,612) --
Class Y (28,797,341) --
------------------------------------
(447,459,793) --
- -----------------------------------------------------------------------------------------------------------------------------
CAPITAL STOCK TRANSACTIONS
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from capital stock transactions:
Class A (477,905,838) (740,971,280)
Class B (385,057,480) (656,284,844)
Class C (95,608,923) (189,937,693)
Class N 8,020,928 14,934,343
Class Y 179,390,811 143,274,771
------------------------------------
(771,160,502) (1,428,984,703)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) 394,502,689 (528,883,905)
- -----------------------------------------------------------------------------------------------------------------------------
Beginning of period 11,117,988,779 11,646,872,684
------------------------------------
End of period (including accumulated net investment income of
$75,037,327 and $60,937,269, respectively) $ 11,512,491,468 $ 11,117,988,779
====================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
68 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
CLASS A YEAR ENDED AUGUST 31, 2007 2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 39.12 $ 36.18 $ 32.78 $ 29.62 $ 27.90
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .42 1 .35 1 .47 1 .26 .22
Net realized and unrealized gain 5.64 2.96 3.34 3.10 1.69
-------------------------------------------------------------------------------
Total from investment operations 6.06 3.31 3.81 3.36 1.91
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.38) (.37) (.41) (.20) (.19)
Distributions from net realized gain (1.59) -- -- -- --
-------------------------------------------------------------------------------
Total dividends and/or
distributions to shareholders (1.97) (.37) (.41) (.20) (.19)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 43.21 $ 39.12 $ 36.18 $ 32.78 $ 29.62
===============================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 15.90% 9.19% 11.68% 11.37% 6.93%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $8,015,873 $7,680,186 $7,810,714 $7,384,256 $7,033,312
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $8,183,830 $7,845,096 $7,759,230 $7,521,103 $6,310,359
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 1.00% 0.93% 1.36% 0.75% 0.87%
Total expenses 0.89% 4,5,6 0.92% 5 0.92% 5 0.93% 5,7 0.97% 5
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 104% 84% 79% 76% 94%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods less than one full
year. Returns do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares.
3. Annualized for periods less than one full year.
4. Total expenses including indirect expenses from affiliated fund were as
follows:
Year Ended August 31, 2007 0.89%
5. Reduction to custodian expenses less than 0.005%.
6. Voluntary waiver or reimbursement of indirect management fees less than
0.005%.
7. Voluntary waiver of transfer agent fees less than 0.005%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
69 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS B YEAR ENDED AUGUST 31, 2007 2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 37.87 $ 34.99 $ 31.67 $ 28.68 $ 27.04
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .10 1 .05 1 .20 1 (.21) (.13)
Net realized and unrealized gain 5.48 2.86 3.21 3.20 1.77
-------------------------------------------------------------------------------
Total from investment operations 5.58 2.91 3.41 2.99 1.64
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.03) (.03) (.09) -- --
Distributions from net realized gain (1.59) -- -- -- --
-------------------------------------------------------------------------------
Total dividends and/or
distributions to shareholders (1.62) (.03) (.09) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 41.83 $ 37.87 $ 34.99 $ 31.67 $ 28.68
===============================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 15.06% 8.32% 10.79% 10.43% 6.06%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,206,240 $1,453,679 $1,968,829 $2,558,206 $2,941,765
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,354,135 $1,685,648 $2,295,269 $2,884,434 $2,964,666
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income (loss) 0.24% 0.13% 0.59% (0.10)% 0.04%
Total expenses 1.65% 4,5,6 1.71% 4 1.72% 4 1.78% 4,7 1.81% 4
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 104% 84% 79% 76% 94%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods less than one full
year. Returns do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares.
3. Annualized for periods less than one full year.
4. Reduction to custodian expenses less than 0.005%.
5. Total expenses including indirect expenses from affiliated fund were as
follows:
Year Ended August 31, 2007 1.65%
6. Voluntary waiver or reimbursement of indirect management fees less than
0.005%.
7. Voluntary waiver of transfer agent fees less than 0.005%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
70 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
CLASS C YEAR ENDED AUGUST 31, 2007 2006 2005 2004 2003
- ---------------------------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 37.81 $ 34.98 $ 31.71 $ 28.69 $ 27.03
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) .11 1 .07 1 .21 1 (.03) --
Net realized and unrealized gain 5.46 2.85 3.22 3.05 1.66
-------------------------------------------------------------------------------
Total from investment operations 5.57 2.92 3.43 3.02 1.66
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.08) (.09) (.16) -- --
Distributions from net realized gain (1.59) -- -- -- --
-------------------------------------------------------------------------------
Total dividends and/or
distributions to shareholders (1.67) (.09) (.16) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 41.71 $ 37.81 $ 34.98 $ 31.71 $ 28.69
===============================================================================
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 15.09% 8.36% 10.83% 10.53% 6.14%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,126,093 $1,107,962 $1,206,335 $1,241,930 $1,188,826
- ---------------------------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $1,155,527 $1,163,337 $1,250,845 $1,278,659 $1,111,131
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income (loss) 0.26% 0.18% 0.62% (0.01)% 0.09%
Total expenses 1.64% 4,5,6 1.67% 4 1.67% 4 1.70% 4,7 1.74% 4
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 104% 84% 79% 76% 94%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods less than one full
year. Returns do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares.
3. Annualized for periods less than one full year.
4. Reduction to custodian expenses less than 0.005%.
5. Total expenses including indirect expenses from affiliated fund were as
follows:
Year Ended August 31, 2007 1.64%
6. Voluntary waiver or reimbursement of indirect management fees less than
0.005%.
7. Voluntary waiver of transfer agent fees less than 0.005%.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
71 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
FINANCIAL HIGHLIGHTS Continued
- --------------------------------------------------------------------------------
CLASS N YEAR ENDED AUGUST 31, 2007 2006 2005 2004 2003
- -----------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 38.59 $ 35.71 $ 32.39 $ 29.33 $ 27.72
- -----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .30 1 .24 1 .35 1 .15 .20
Net realized and unrealized gain 5.57 2.92 3.30 3.05 1.65
---------------------------------------------------------
Total from investment operations 5.87 3.16 3.65 3.20 1.85
- -----------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.28) (.28) (.33) (.14) (.24)
Distributions from net realized gain (1.59) -- -- -- --
---------------------------------------------------------
Total dividends and/or
distributions to shareholders (1.87) (.28) (.33) (.14) (.24)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 42.59 $ 38.59 $ 35.71 $ 32.39 $ 29.33
=========================================================
- -----------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 15.59% 8.87% 11.30% 10.93% 6.78%
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $238,068 $207,339 $177,463 $150,955 $79,188
- -----------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $232,421 $194,639 $168,866 $122,478 $60,950
- -----------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 0.73% 0.63% 1.02% 0.38% 0.65%
Total expenses 1.17% 4 1.22% 1.26% 1.31% 1.23%
Expenses after payments,
waivers and/or reimbursements
and reduction to custodian expenses 1.17% 1.22% 1.26% 1.31% 1.18%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover rate 104% 84% 79% 76% 94%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods less than one full
year. Returns do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares.
3. Annualized for periods less than one full year.
4. Total expenses including indirect expenses from affiliated fund were as
follows:
Year Ended August 31, 2007 1.17%
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
72 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
CLASS Y YEAR ENDED AUGUST 31, 2007 2006 2005 2004 2003
- ------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING DATA
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 39.33 $ 36.38 $ 32.93 $ 29.75 $ 28.02
- ------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .60 1 .52 1 .64 1 .34 .11
Net realized and unrealized gain 5.67 2.96 3.34 3.13 1.86
----------------------------------------------------------
Total from investment operations 6.27 3.48 3.98 3.47 1.97
- ------------------------------------------------------------------------------------------------------------
Dividends and/or distributions to shareholders:
Dividends from net investment income (.56) (.53) (.53) (.29) (.24)
Distributions from net realized gain (1.59) -- -- -- --
----------------------------------------------------------
Total dividends and/or
distributions to shareholders (2.15) (.53) (.53) (.29) (.24)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 43.45 $ 39.33 $ 36.38 $ 32.93 $ 29.75
==========================================================
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN, AT NET ASSET VALUE 2 16.40% 9.63% 12.15% 11.69% 7.11%
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $926,217 $668,823 $483,532 $570,991 $441,460
- ------------------------------------------------------------------------------------------------------------
Average net assets (in thousands) $844,472 $594,018 $496,349 $558,130 $242,029
- ------------------------------------------------------------------------------------------------------------
Ratios to average net assets: 3
Net investment income 1.42% 1.38% 1.82% 1.07% 1.01%
Total expenses 0.48% 4 0.49% 0.53% 0.60% 0.87%
Expenses after payments,
waivers and/or reimbursements
and reduction to custodian expenses 0.48% 0.49% 0.53% 0.60% 0.83%
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 104% 84% 79% 76% 94%
1. Per share amounts calculated based on the average shares outstanding during
the period.
2. Assumes an investment on the business day before the first day of the fiscal
period, with all dividends and distributions reinvested in additional shares on
the reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods less than one full
year. Returns do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or the redemption of fund shares.
3. Annualized for periods less than one full year.
4. Total expenses including indirect expenses from affiliated fund were as
follows:
Year Ended August 31, 2007 0.48%
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
73 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Oppenheimer Main Street Fund (the Fund) is a separate series of Oppenheimer Main
Street Funds, Inc., an open-end management investment company registered under
the Investment Company Act of 1940, as amended. The Fund's investment objective
is to seek a high total return. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager).
The Fund offers Class A, Class B, Class C, Class N and Class Y shares.
Class A shares are sold at their offering price, which is normally net asset
value plus a front-end sales charge. Class B, Class C and Class N shares are
sold without a front-end sales charge but may be subject to a contingent
deferred sales charge (CDSC). Class N shares are sold only through retirement
plans. Retirement plans that offer Class N shares may impose charges on those
accounts. Class Y shares are sold to certain institutional investors without
either a front-end sales charge or a CDSC, however, the institutional investor
may impose charges on those accounts. All classes of shares have identical
rights and voting privileges with respect to the Fund in general and exclusive
voting rights on matters that affect that class alone. Earnings, net assets and
net asset value per share may differ due to each class having its own expenses,
such as transfer and shareholder servicing agent fees and shareholder
communications, directly attributable to that class. Class A, B, C and N have
separate distribution and/or service plans. No such plan has been adopted for
Class Y shares. Class B shares will automatically convert to Class A shares six
years after the date of purchase.
The following is a summary of significant accounting policies consistently
followed by the Fund.
- --------------------------------------------------------------------------------
SECURITIES VALUATION. The Fund calculates the net asset value of its shares as
of the close of the New York Stock Exchange (the "Exchange"), normally 4:00 P.M.
Eastern time, on each day the Exchange is open for business. Securities may be
valued primarily using dealer-supplied valuations or a portfolio pricing service
authorized by the Board of Directors. Securities listed or traded on National
Stock Exchanges or other domestic 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. Securities traded on NASDAQ(R) are valued based on the
closing price provided by NASDAQ 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 traded on
foreign exchanges are valued based on the last sale price on the principal
exchange on which the security is traded, as identified by the portfolio pricing
service, prior to the time when the Fund's assets are valued. In the absence of
a sale, the security is valued at the official closing price on the principal
exchange. Corporate, government and municipal debt instruments having a
remaining maturity in excess of sixty days and all mortgage-backed securities
will be valued at the mean between the "bid" and "asked" prices. Futures
contracts traded on a commodities or futures exchange will be valued at the
final settlement price or official closing price on the principal exchange as
reported by such principal exchange at its trading session ending at, or most
recently prior to, the time when the Fund's assets are
74 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
valued. Options are valued daily based upon the last sale price on the principal
exchange on which the option is traded. Securities (including restricted
securities) for which market quotations are not readily available are valued at
their fair value. Foreign and domestic securities whose values have been
materially affected by what the Manager identifies as a significant event
occurring before the Fund's assets are valued but after the close of their
respective exchanges will be fair valued. Fair value is determined in good faith
using consistently applied procedures under the supervision of the Board of
Directors. Investments in open-end registered investment companies (including
affiliated funds) are valued at that fund's net asset value. 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 Fund's accounting records are maintained in
U.S. dollars. The values of securities denominated in foreign currencies and
amounts related to the purchase and sale of foreign securities and foreign
investment income are translated into U.S. dollars as of the close of the New
York Stock Exchange (the "Exchange"), normally 4:00 P.M. Eastern time, on each
day the Exchange is open for business. Foreign exchange rates may be valued
primarily using dealer supplied valuations or a portfolio pricing service
authorized by the Board of Directors.
Reported net realized foreign exchange gains or losses arise from sales of
portfolio securities, sales and maturities of short-term securities, sales of
foreign currencies, currency gains or losses realized between the trade and
settlement dates on securities transactions, and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
values of assets and liabilities, including investments in securities at fiscal
period end, resulting from changes in exchange rates.
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.
- --------------------------------------------------------------------------------
INVESTMENT IN OPPENHEIMER INSTITUTIONAL MONEY MARKET FUND. The Fund is permitted
to invest daily available cash balances in an affiliated money market fund. The
Fund may invest the available cash in Class E shares of Oppenheimer
Institutional Money Market Fund ("IMMF") which seeks current income and
stability of principal. IMMF is a registered open-end management investment
company, regulated as a money market fund under the Investment Company Act of
1940, as amended. The Manager is also the investment advisor of IMMF. The Fund's
investment in IMMF is included in the Statement of Investments, if applicable.
As a shareholder, the Fund is subject to its proportional share of IMMF's Class
E expenses, including its management fee. The Manager will waive fees and/or
reimburse Fund expenses in an amount equal to the indirect management fees
incurred through the Fund's investment in IMMF.
75 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
JOINT REPURCHASE AGREEMENTS. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the Fund, along with other affiliated funds
advised by the Manager, may transfer uninvested cash balances into joint trading
accounts on a daily basis. These balances are invested in one or more repurchase
agreements. Securities pledged as collateral for repurchase agreements are held
by a custodian bank until the agreements mature. Each agreement requires that
the market value of the collateral be sufficient to cover payments of interest
and principal. In the event of default by the other party to the agreement,
retention of the collateral may be subject to legal proceedings.
- --------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated on a
daily basis 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 comply with provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income, including any net
realized gain on investments not offset by capital loss carryforwards, if any,
to shareholders, therefore, no federal income or excise tax provision is
required.
The tax components of capital shown in the table below represent distribution
requirements the Fund must satisfy under the income tax regulations, losses the
Fund may be able to offset against income and gains realized in future years and
unrealized appreciation or depreciation of securities and other investments for
federal income tax purposes.
NET UNREALIZED
APPRECIATION
BASED ON COST OF
SECURITIES AND
UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED OTHER INVESTMENTS
NET INVESTMENT LONG-TERM LOSS FOR FEDERAL INCOME
INCOME GAIN CARRYFORWARD 1,2,3 TAX PURPOSES
------------------------------------------------------------------------
$ 422,026,088 $ 679,149,786 $ 23,186 $ 2,245,585,717
1. The Fund had $23,186 of post-October foreign currency losses which were
deferred.
2. During the fiscal year ended August 31, 2007, the Fund utilized $489,935 of
capital loss carryforward to offset capital gains realized in that fiscal
year. a
a. Includes $489,935 of capital loss carryforwards acquired in the
September 4, 2003 merger of Oppenheimer Trinity Core Fund.
3. During the fiscal year ended August 31, 2006, the Fund utilized $669,602,504
of capital loss carryforward to offset capital gains realized in that fiscal
year. a
a. Includes $489,935 of capital loss carryforwards acquired in the
September 4, 2003 merger of Oppenheimer Trinity Core Fund.
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
76 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
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 net realized
gain was recorded by the Fund. Accordingly, the following amounts have been
reclassified for August 31, 2007. Net assets of the Fund were unaffected by the
reclassifications.
INCREASE TO REDUCTION TO
ACCUMULATED ACCUMULATED NET
INCREASE TO NET INVESTMENT REALIZED GAIN
PAID-IN CAPITAL INCOME ON INVESTMENTS 4
------------------------------------------------------------
$135,926,902 $ 32,346 $ 135,959,248
4. $135,436,967, including $91,036,771 of long-term capital gain, was
distributed in connection with Fund share redemptions.
The tax character of distributions paid during the years ended August 31, 2007
and August 31, 2006 was as follows:
YEAR ENDED YEAR ENDED
AUGUST 31, 2007 AUGUST 31, 2006
------------------------------------------------------------
Distributions paid from:
Ordinary income $ 88,042,359 $ 92,192,604
Long-term capital gain 447,459,918 --
---------------------------------
Total $ 535,502,277 $ 92,192,604
=================================
The aggregate cost of securities and other investments and the composition of
unrealized appreciation and depreciation of securities and other investments for
federal income tax purposes as of August 31, 2007 are noted below. The primary
difference between book and tax appreciation or depreciation of securities and
other investments, if applicable, is attributable to the tax deferral of losses
or tax realization of financial statement unrealized gain or loss.
Federal tax cost of securities $ 9,343,009,961
================
Gross unrealized appreciation $ 2,404,926,593
Gross unrealized depreciation (159,340,876)
----------------
Net unrealized appreciation $ 2,245,585,717
================
- --------------------------------------------------------------------------------
DIRECTORS' COMPENSATION. The Board of Directors has adopted a compensation
deferral plan for independent directors that enables directors to elect to defer
receipt of all or a portion of the annual compensation they are entitled to
receive from the Fund. For purposes of determining the amount owed to the
Director under the plan, deferred amounts are treated as though equal dollar
amounts had been invested in shares of the Fund or in other Oppenheimer funds
selected by the Director. The Fund purchases shares of the funds selected for
deferral by the Director in amounts equal to his or her deemed investment,
resulting in a Fund asset equal to the deferred compensation liability. Such
assets are included as a component of "Other" within the asset section of the
Statement of Assets and Liabilities. Deferral of directors' fees under the plan
will not affect the net assets of the Fund, and will not materially affect the
Fund's assets, liabilities or net investment income
77 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES Continued
per share. Amounts will be deferred until distributed in accordance to the
compensation deferral plan.
- --------------------------------------------------------------------------------
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. Income and capital gain distributions, if
any, are declared and paid annually.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
CUSTODIAN FEES. "Custodian fees and expenses" in the Statement of Operations may
include interest expense incurred by the Fund on any cash overdrafts of its
custodian account during the period. Such cash overdrafts may result from the
effects of failed trades in portfolio securities and from cash outflows
resulting from unanticipated shareholder redemption activity. The Fund pays
interest to its custodian on such cash overdrafts, to the extent they are not
offset by positive cash balances maintained by the Fund, at a rate equal to the
Federal Funds Rate plus 0.50%. The "Reduction to custodian expenses" line item,
if applicable, represents earnings on cash balances maintained by the Fund
during the period. Such interest expense and other custodian fees may be paid
with these earnings.
- --------------------------------------------------------------------------------
SECURITY TRANSACTIONS. Security transactions are recorded on the trade date.
Realized gains and losses on securities sold are determined on the basis of
identified cost.
- --------------------------------------------------------------------------------
INDEMNIFICATIONS. The Fund's organizational documents provide current and former
directors and officers with a limited indemnification against liabilities
arising in connection with the performance of their duties to the Fund. In the
normal course of business, the Fund may also enter into contracts that provide
general indemnifications. The Fund's maximum exposure under these arrangements
is unknown as this would be dependent on future claims that may be made against
the Fund. The risk of material loss from such claims is considered remote.
- --------------------------------------------------------------------------------
OTHER. The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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.
78 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
- --------------------------------------------------------------------------------
2. SHARES OF CAPITAL STOCK
The Fund has authorized 840 million shares of $.01 par value capital stock of
each class. Transactions in shares of capital stock were as follows:
YEAR ENDED AUGUST 31, 2007 YEAR ENDED AUGUST 31, 2006
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------
CLASS A
Sold 20,628,969 $ 853,510,126 26,624,100 $ 1,007,441,844
Dividends and/or
distributions reinvested 8,913,226 355,994,212 1,913,771 71,938,634
Redeemed (40,383,161) (1,687,410,176) (48,081,986) (1,820,351,758)
------------------------------------------------------------------
Net decrease (10,840,966) $ (477,905,838) (19,544,115) $ (740,971,280)
==================================================================
- ---------------------------------------------------------------------------------------------
CLASS B
Sold 3,060,604 $ 123,359,939 4,058,713 $ 149,179,170
Dividends and/or
distributions reinvested 1,421,750 55,277,609 38,325 1,403,097
Redeemed (14,028,498) (563,695,028) (21,981,611) (806,867,111)
------------------------------------------------------------------
Net decrease (9,546,144) $ (385,057,480) (17,884,573) $ (656,284,844)
==================================================================
- ---------------------------------------------------------------------------------------------
CLASS C
Sold 2,308,996 $ 92,663,359 2,576,737 $ 94,490,367
Dividends and/or
distributions reinvested 1,087,129 42,137,114 72,361 2,644,058
Redeemed (5,696,274) (230,409,396) (7,833,508) (287,072,118)
------------------------------------------------------------------
Net decrease (2,300,149) $ (95,608,923) (5,184,410) $ (189,937,693)
==================================================================
- ---------------------------------------------------------------------------------------------
CLASS N
Sold 1,607,897 $ 65,689,791 2,043,767 $ 76,211,483
Dividends and/or
distributions reinvested 249,507 9,840,578 38,592 1,434,091
Redeemed (1,640,570) (67,509,441) (1,677,909) (62,711,231)
------------------------------------------------------------------
Net increase 216,834 $ 8,020,928 404,450 $ 14,934,343
==================================================================
- ---------------------------------------------------------------------------------------------
CLASS Y
Sold 9,204,931 $ 387,484,627 8,687,755 $ 331,059,516
Dividends and/or
distributions reinvested 944,172 37,804,657 202,236 7,618,220
Redeemed (5,837,620) (245,898,473) (5,178,566) (195,402,965)
------------------------------------------------------------------
Net increase 4,311,483 $ 179,390,811 3,711,425 $ 143,274,771
==================================================================
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
The aggregate cost of purchases and proceeds from sales of securities, other
than short-term obligations and investments in IMMF, for the year ended August
31, 2007, were as follows:
PURCHASES SALES
-------------------------------------------------------------
Investment securities $ 12,116,364,462 $ 13,258,544,640
79 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
NOTES TO FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 at an
annual rate of average net assets as shown in the following table:
FEE SCHEDULE
---------------------------------
Up to $200 million 0.65%
Next $150 million 0.60
Next $150 million 0.55
Over $500 million 0.45
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ADMINISTRATION SERVICE FEES. The Fund pays the Manager a fee of $1,500 per year
for preparing and filing the Fund's tax returns.
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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 a per account fee. For the year ended August 31, 2007, the Fund paid
$18,921,456 to OFS for services to the Fund.
Additionally, Class Y shares are subject to minimum fees of $10,000 per
annum for assets of $10 million or more. The Class Y shares are subject to the
minimum fees in the event that the per account fee does not equal or exceed the
applicable minimum fees. OFS may voluntarily waive the minimum fees.
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DISTRIBUTION AND SERVICE PLAN (12b-1) FEES. Under its General Distributor's
Agreement with the Fund, OppenheimerFunds Distributor, Inc. (the Distributor)
acts as the Fund's principal underwriter in the continuous public offering of
the Fund's classes of shares.
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SERVICE PLAN FOR CLASS A SHARES. The Fund has adopted a Service Plan for Class A
shares. It reimburses the Distributor for a portion of its costs incurred for
services provided to accounts that hold Class A shares. Reimbursement is made
periodically at an annual rate of up to 0.25% of the average annual net assets
of Class A shares of the Fund. The Distributor currently uses all of those fees
to pay dealers, brokers, banks and other financial institutions periodically for
providing personal services and maintenance of accounts of their customers that
hold Class A shares. Any unreimbursed expenses the Distributor incurs with
respect to Class A shares in any fiscal year cannot be recovered in subsequent
periods. Fees incurred by the Fund under the plan are detailed in the Statement
of Operations.
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DISTRIBUTION AND SERVICE PLANS FOR CLASS B, CLASS C AND CLASS N SHARES. The Fund
has adopted Distribution and Service Plans for Class B, Class C and Class N
shares to compensate the Distributor for its services in connection with the
distribution of those shares and servicing accounts. Under the plans, the Fund
pays the Distributor an annual asset-based sales charge of 0.75% on Class B and
Class C shares and 0.25% on Class N shares. The Distributor also receives a
service fee of 0.25% per year under each plan. If either the Class B, Class C or
Class N plan is terminated by the Fund or by the shareholders of a class, the
Board of Directors and its independent directors must determine whether the
Distributor shall be entitled to payment from the Fund of all or a portion of
the service
80 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
fee and/or asset-based sales charge in respect to shares sold prior to the
effective date of such termination. The Distributor determines its uncompensated
expenses under the plan at calendar quarter ends. The Distributor's aggregate
uncompensated expenses under the plan at June 30, 2007 for Class B, Class C and
Class N shares were $19,978,111, $36,529,939 and $3,602,930, respectively. Fees
incurred by the Fund under the plans are detailed in the Statement of
Operations.
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SALES CHARGES. Front-end sales charges and contingent deferred sales charges
(CDSC) do not represent expenses of the Fund. They are deducted from the
proceeds of sales of Fund shares prior to investment or from redemption proceeds
prior to remittance, as applicable. The sales charges retained by the
Distributor from the sale of shares and the CDSC retained by the Distributor on
the redemption of shares is shown in the following table for the period
indicated.
CLASS A CLASS B CLASS C CLASS N
CLASS A CONTINGENT CONTINGENT CONTINGENT CONTINGENT
FRONT-END DEFERRED DEFERRED DEFERRED DEFERRED
SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES SALES CHARGES
RETAINED BY RETAINED BY RETAINED BY RETAINED BY RETAINED BY
YEAR ENDED DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR
- ------------------------------------------------------------------------------------------------
August 31, 2007 $ 1,963,596 $ 34,701 $ 2,263,730 $ 42,588 $ 15,932
- --------------------------------------------------------------------------------
PAYMENTS, WAIVERS AND REIMBURSEMENTS OF EXPENSES. OFS has voluntarily agreed to
limit transfer and shareholder servicing agent fees for all classes to 0.35% of
average annual net assets per class. This undertaking may be amended or
withdrawn at any time.
The Manager will waive fees and/or reimburse Fund expenses in an amount
equal to the indirect management fees incurred through the Fund's investment in
IMMF. During the year ended August 31, 2007, the Manager waived $48,738 for IMMF
management fees.
The Distributor paid the Fund $47,596 in restitution as part of a
settlement with respect to an investigation of certain agreements between the
Distributor and various financial intermediaries that had selling agreements
with the Distributor. The payment increased the Fund's total returns by less
than 0.01%.
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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 to settle specific purchases or sales of securities
denominated in a foreign currency and for protection from adverse exchange rate
fluctuation. 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 prevailing foreign currency exchange rates.
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.
81 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
NOTES TO FINANCIAL STATEMENTS Continued
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- --------------------------------------------------------------------------------
5. FOREIGN CURRENCY CONTRACTS Continued
The Fund may realize a gain or loss upon the closing or settlement of the
foreign transaction. Contracts closed or settled with the same broker are
recorded as net realized gains or losses. Such realized gains and losses are
reported with all other foreign currency gains and losses in the Statement of
Operations.
As of August 31, 2007, the Fund had no outstanding foreign currency
contracts.
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6. ILLIQUID SECURITIES
As of August 31, 2007, investments in securities included issues that are
illiquid. A security may be considered illiquid if it lacks a readily available
market or if its valuation has not changed for a certain period of time. The
Fund will not invest more than 10% of its net assets (determined at the time of
purchase and reviewed periodically) in illiquid securities. Securities that are
illiquid are marked with the applicable footnote on the Statement of
Investments.
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7. SECURITIES LENDING
The Fund lends portfolio securities from time to time in order to earn
additional income. In return, the Fund receives collateral in the form of
securities, letters of credit or cash, against the loaned securities and
maintains collateral in an amount not less than 100% of the market value of the
loaned securities during the period of the loan. The market value of the loaned
securities is determined at the close of business each day. If the Fund is
undercollateralized at the close of business due to an increase in market value
of securities on loan, additional collateral is requested from the borrowing
counterparty and is delivered to the Fund on the next business day. Cash
collateral may be invested in approved investments and the Fund bears the risk
of any loss in value of these investments. The Fund retains a portion of the
interest earned from the collateral. If the borrower defaults on its obligation
to return the securities loaned because of insolvency or other reasons, the Fund
could experience delays and cost in recovering the securities loaned or in
gaining access to the collateral. The Fund continues to receive the economic
benefit of interest or dividends paid on the securities loaned in the form of a
substitute payment received from the borrower. As of August 31, 2007, the Fund
had on loan securities valued at $104,898,203, which are included in the
Statement of Assets and Liabilities as "Investments, at value" and, when
applicable, as "Receivable for Investments sold." Collateral of $112,554,631 was
received for the loans, all of which was received in cash and subsequently
invested in approved investments.
82 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
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8. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES.
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
ACCOUNTING FOR INCOME TAXES. FIN 48 requires the evaluation of tax positions
taken in the course of preparing the Fund's tax returns to determine whether it
is "more-likely-than-not" that tax positions taken in the Fund's tax return will
be ultimately sustained. A tax liability and expense must be recorded in respect
of any tax position that, in Management's judgment, will not be fully realized.
FIN 48 is effective for fiscal years beginning after December 15, 2006. As of
August 31, 2007, the Manager has evaluated the implications of FIN 48 and does
not currently anticipate a material impact to the Fund's financial statements.
The Manager will continue to monitor the Fund's tax positions prospectively for
potential future impacts.
In September 2006, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 157, FAIR VALUE MEASUREMENTS. This standard establishes a
single authoritative definition of fair value, sets out a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS
No. 157 applies to fair value measurements already required or permitted by
existing standards. SFAS No. 157 is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. As of August 31, 2007, the Manager does not believe the
adoption of SFAS No. 157 will materially impact the financial statement amounts;
however, additional disclosures may be required about the inputs used to develop
the measurements and the effect of certain of the measurements on changes in net
assets for the period.
83 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
OPPENHEIMER MAIN STREET FUND (UNDERLYING FUND)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF OPPENHEIMER MAIN STREET FUND:
We have audited the accompanying statement of assets and liabilities of
Oppenheimer Main Street Fund (the "Fund") a series of Oppenheimer Main Street
Fund, Inc., including the statement of investments, as of August 31, 2007, and
the related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the five years in the period then ended.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). 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.
The Fund is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of August 31, 2007, by correspondence with the custodian
and brokers. 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 the
Fund as of August 31, 2007, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Denver, Colorado
October 9, 2007
84 | OPPENHEIMER PRINCIPAL PROTECTED MAIN STREET FUND III
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal accounting
officer or controller or persons performing similar functions.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the registrant has determined that Edward L. Cameron,
the Chairman of the Board's Audit Committee, and George C. Bowen, a member of
the Board's Audit Committee, are audit committee financial experts and that
Messrs. Cameron and Bowen are "independent" for purposes of this Item 3.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The principal accountant for the audit of the registrant's annual financial
statements billed $16,500 in fiscal 2007 and $12,000 in fiscal 2006.
(b) Audit-Related Fees
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees during the last two fiscal years.
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees during the last two fiscal years to the
registrant's investment adviser or any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant.
(c) Tax Fees
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees to the registrant during the last two fiscal
years.
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees to the registrant during the last two fiscal
years to the registrant's investment adviser or any entity controlling,
controlled by, or under common control with the adviser that provides ongoing
services to the registrant.
(d) All Other Fees
The principal accountant for the audit of the registrant's annual financial
statements billed no such fees in fiscal 2007 and $1,092 in fiscal 2006.
The principal accountant for the audit of the registrant's annual financial
statements billed $32,732 in fiscal 2007 and $2,625 in fiscal 2006 to the
registrant's investment adviser or any entity controlling, controlled by, or
under common control with the adviser that provides ongoing services to the
registrant.
Such fees include the cost of evaluating the amendment regarding the trustee's
retirement plan, compliance review of CCO project and professional services for
22c-2 program.
(e) (1) During its regularly scheduled periodic meetings, the registrant's
audit committee will pre-approve all audit, audit-related, tax and
other services to be provided by the principal accountants of the
registrant.
The audit committee has delegated pre-approval authority to its
Chairman for any subsequent new engagements that arise between
regularly scheduled meeting dates provided that any fees such
pre-approved are presented to the audit committee at its next regularly
scheduled meeting.
Under applicable laws, pre-approval of non-audit services maybe waived
provided that: 1) the aggregate amount of all such services provided
constitutes no more than five percent of the total amount of fees paid
by the registrant to it principal accountant during the fiscal year in
which services are provided 2) such services were not recognized by the
registrant at the time of engagement as non-audit services and 3) such
services are promptly brought to the attention of the audit committee
of the registrant and approved prior to the completion of the audit.
(2) 100%
(f) Not applicable as less than 50%.
(g) The principal accountant for the audit of the registrant's annual
financial statements billed $32,732 in fiscal 2007 and $3,717 in fiscal
2006 to the registrant and the registrant's investment adviser or any
entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the registrant related to
non-audit fees. Those billings did not include any prohibited non-audit
services as defined by the Securities Exchange Act of 1934.
(h) No such services were rendered.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
THE FUND'S GOVERNANCE COMMITTEE PROVISIONS WITH RESPECT TO NOMINATIONS OF
DIRECTORS/TRUSTEES TO THE RESPECTIVE BOARDS
1. The Fund's Governance Committee (the "Committee") will evaluate potential
Board candidates to assess their qualifications. The Committee shall have
the authority, upon approval of the Board, to retain an executive search
firm to assist in this effort. The Committee may consider recommendations
by business and personal contacts of current Board members and by executive
search firms which the Committee may engage from time to time and may also
consider shareholder recommendations. The Committee may consider the advice
and recommendation of the Funds' investment manager and its affiliates in
making the selection.
2. The Committee shall screen candidates for Board membership. The Committee
has not established specific qualifications that it believes must be met by
a trustee nominee. In evaluating trustee nominees, the Committee considers,
among other things, an individual's background, skills, and experience;
whether the individual is an "interested person" as defined in the
Investment Company Act of 1940; and whether the individual would be deemed
an "audit committee financial expert" within the meaning of applicable SEC
rules. The Committee also considers whether the individual's background,
skills, and experience will complement the background, skills, and
experience of other nominees and will contribute to the Board. There are no
differences in the manner in which the Committee evaluates nominees for
trustees based on whether the nominee is recommended by a shareholder.
3. The Committee may consider nominations from shareholders for the Board at
such times as the Committee meets to consider new nominees for the Board.
The Committee shall have the sole discretion to determine the candidates to
present to the Board and, in such cases where required, to shareholders.
Recommendations for trustee nominees should, at a minimum, be accompanied
by the following:
o the name, address, and business, educational, and/or other pertinent
background of the person being recommended;
o a statement concerning whether the person is an "interested person" as
defined in the Investment Company Act of 1940;
o any other information that the Funds would be required to include in a
proxy statement concerning the person if he or she was nominated; and
o the name and address of the person submitting the recommendation and,
if that person is a shareholder, the period for which that person held
Fund shares.
The recommendation also can include any additional information which the
person submitting it believes would assist the Committee in evaluating the
recommendation.
4. Shareholders should note that a person who owns securities issued by
Massachusetts Mutual Life Insurance Company (the parent company of the
Funds' investment adviser) would be deemed an "interested person" under the
Investment Company Act of 1940. In addition, certain other relationships
with Massachusetts Mutual Life Insurance Company or its subsidiaries, with
registered broker-dealers, or with the Funds' outside legal counsel may
cause a person to be deemed an "interested person."
5. Before the Committee decides to nominate an individual as a trustee,
Committee members and other directors customarily interview the individual
in person. In addition, the individual customarily is asked to complete a
detailed questionnaire which is designed to elicit information which must
be disclosed under SEC and stock exchange rules and to determine whether
the individual is subject to any statutory disqualification from serving as
a trustee of a registered investment company.
ITEM 11. CONTROLS AND PROCEDURES.
Based on their evaluation of the registrant's disclosure controls and procedures
(as defined in rule 30a-3(c) under the Investment Company Act of 1940 (17 CFR
270.30a-3(c)) as of 08/31/2007, the registrant's principal executive officer and
principal financial officer found the registrant's disclosure controls and
procedures to provide reasonable assurances that information required to be
disclosed by the registrant in the reports that it files under the Securities
Exchange Act of 1934 (a) is accumulated and communicated to registrant's
management, including its principal executive officer and principal financial
officer, to allow timely decisions regarding required disclosure, and (b) is
recorded, processed, summarized and reported, within the time periods specified
in the rules and forms adopted by the U.S. Securities and Exchange Commission.
There have been no changes in the registrant's internal controls over financial
reporting that occurred during the registrant's second fiscal quarter of the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, the registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a) (1) Exhibit attached hereto.
(2) Exhibits attached hereto.
(3) Not applicable.
(b) Exhibit attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Oppenheimer Principal Protected Trust III
By: /s/ John V. Murphy
---------------------------
John V. Murphy
Principal Executive Officer
Date: 10/09/2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ John V. Murphy
---------------------------
John V. Murphy
Principal Executive Officer
Date: 10/09/2007
By: /s/ Brian W. Wixted
---------------------------
Brian W. Wixted
Principal Financial Officer
Date: 10/09/2007