HTR Brookfield Total Return Fund Inc. (The)

Item 1.  Reports to Stockholders.

Table of Contents

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 less than their original cost. Fund returns include changes in share price, reinvested distributions, and a 5.75% maximum applicable sales charge except where “without sales charge” is indicated. Current performance may be lower or higher than the performance quoted. Returns do not consider capital gains or income taxes on an individual’s investment. Returns for periods of less than one year are cumulative and not annualized. For performance data current to the most recent month-end, visit oppenheimerfunds.com or call 1.800.CALL OPP (225.5677).

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Fund Performance Discussion

The Fund’s Class A shares (without sales charge) produced a cumulative total return of 17.14% during the reporting period. On a relative basis, the Fund underperformed the Russell 2500 Index, which returned 18.53%. The Fund’s underperformance stemmed from weaker relative stock selection in the information technology and consumer discretionary sectors. The Fund outperformed the Index in the health care, financials, energy and consumer staples sectors due primarily to stronger stock selection.

MARKET OVERVIEW

Equities in the U.S. and developed markets throughout the world delivered strong performance in 2013. Accommodative monetary policies on the part of central banks in the U.S., Europe and Japan, combined with supportive equity valuations relative to bonds, were instrumental in this performance. Signs that the U.S. economy was on the mend, demonstrated by rising house prices, also helped sentiment toward stocks. While equities performed well for the year, numerous concerns remained. Namely, in late May, relatively hawkish remarks by Fed chairman Ben Bernanke were widely interpreted as a signal that U.S. monetary policymakers would begin to back away from their quantitative easing program sooner than expected, sparking heightened volatility in financial markets throughout the world. Additionally, fears began to creep into the market about a possible slowdown in the world’s emerging economies. However, market conditions generally stabilized over the summer of 2013. While the Fed unexpectedly refrained from reducing its monthly bond purchases in September, in December, the Central Bank announced that it would reduce its monthly

bond purchases by $10 billion, from $85 billion to $75 billion, starting in January 2014. The Fed also announced that it would continue to hold short-term interest rates at very low levels until unemployment in the United States subsided below 6.5%. This was lower than its earlier 7% target.

FUND REVIEW

Top contributors to performance this period included Nu Skin Enterprises, Inc., Fidelity National Financial, Inc., Robert Half International, Inc. and Actavis plc. Nu Skin, a direct seller of personal care products and nutritional supplements, reported quarterly results in excess of expectations due, in part, to recruitment gains that led to strong sales across core product lines. We lowered exposure towards the end of the year as strong price appreciation drove the stock close to our estimate of fair valuation. Shortly after the close of the year, we fully exited the position due to the announcement of an investigation into Nu Skin’s business practices in China that could negatively impact the firm’s growth trajectory and

 

 

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financial results. Fidelity National is a mortgage services provider and the market leading title insurer in the U.S. During the period, the company received final approval of its proposed acquisition of LPS – Lender Processing Services. The acquisition, which was completed shortly after the close of 2013, is projected to be highly accretive to Fidelity’s earnings. Consequently, analysts’ estimates have been revised upward – contributing to the stock’s robust rally. Robert Half, the largest provider of flexible staffing for accounting and finance professionals in the United States, had a strong period with company growth trends improving across the board, led by Protiviti, a subsidiary focused on risk and internal audit consulting. The firm’s investments in its technology staffing unit have also paid off. As the market leader in professional staffing with the highest margins in the industry, we believe Robert Half is well positioned to benefit from the continued improvement in the U.S. labor market. Actavis is a branded and generic drug company whose shares spiked when management announced it was combining operations with Warner Chilcott – a leading specialty pharmaceutical company based in Ireland. The merged entity is expected to benefit from revenue synergies, with complementary product lines, and cost rationalization – both of which we believe have the potential to contribute to rising profits. The merger would also allow the company to reincorporate in Ireland, which would result in a significantly lower tax rate that would provide the potential not only to boost profits, but also cash generation.

Detractors from performance included Digital Realty Trust, Inc., Teradata Corp. and Hatteras Financial Corp. Digital Realty Trust, a real estate investment trust (REIT) that owns and/or manages data centers on behalf of corporate and technology-related tenants throughout the U.S. and England, announced a quarterly result that missed expectations and management’s subsequent guidance below consensus estimates caused Digital’s stock price to retreat. The shortfall was largely attributed to delays in lease commencements. Partially offsetting the disappointing news was an unexpected share repurchase announcement. We have maintained our holdings in Digital as we believe demand may remain robust for data center management services and Digital should be well-positioned to compete for “Global 1000” contracts. Teradata, a provider of analytic data solutions through its database management service, warned third quarter results would miss analysts’ expectations and cut its full-year outlook, reporting that sales were weak outside the U.S. and Europe. Management noted that international macro challenges were delaying some opportunities. Hatteras Financial, a REIT focused on investing in mortgage-backed securities guaranteed by the U.S. Government and government sponsored agencies, reported disappointing earnings during the third quarter. The firm’s book value decreased as its investment portfolio fell in value to a greater extent than expected, driven by the increase in interest rates following the Fed’s remarks about the potential tapering of its quantitative easing program. We exited our positions in Teradata and Hatteras Financial.

 

 

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STRATEGY & OUTLOOK

Despite the high absolute dollar value of most market indices, stocks, generally, do not appear overvalued. While there may be pockets of overvaluation – specifically, high expectation stocks which have outperformed may be poised to take a breather – we believe there are still opportunities to identify attractively valued names. In particular, returns of higher-quality stocks (as measured by S&P Quality Ratings) have lagged since the market’s inflection in March 2009. Some of the factors that have aided higher returns of lower-quality stocks – namely, the Fed’s easy money policies – are nearing an end. This may favor higher quality stocks as investors once again focus on the importance of fundamentals. The “wild card” for 2014 remains just how far interest rates rise.

Expectations are for rates to increase, but if they rise faster or farther than expectations, stocks could be in for a volatile ride.

Given this backdrop, our approach remains consistent. We aim to construct an “all weather” portfolio by targeting companies we believe have: 1) sustainable competitive advantages; 2) skilled management with a proven track record of executing effectively; and 3) financial resources to generate improving profitability, gain market share, and/or return significant cash to shareholders. During times of volatility or slow economic growth, such companies frequently widen their lead over weaker competitors. We seek to invest in companies, characterized by these qualities, at compelling valuations and believe this disciplined approach is essential in generating superior long-term performance.

 

Raymond Anello, CFA and Lead Portfolio Manager, on behalf of the Portfolio Management team: Matthew P. Ziehl, CFA, Raman Vardharaj, CFA, Joy Budzinski, Kristin Ketner Pak, Magnus Krantz and Adam Weiner.

 

 

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Top Holdings and Allocations

 

TOP TEN COMMON STOCK HOLDINGS
Discover Financial Services			3.7	%
Robert Half International, Inc.			3.6
Waste Connections, Inc.			3.5
Digital Realty Trust, Inc.			2.9
Joy Global, Inc.			2.7
Actavis plc			2.7
Skyworks Solutions, Inc.			2.5
Universal Health Services, Inc., Cl. B			2.5
Flowers Foods, Inc.			2.3
Fidelity National Financial, Inc., Cl. A			2.3

Portfolio holdings and allocations are subject to change. Percentages are as of December 31, 2013, and are based on net assets. For more current Fund holdings, please visit oppenheimerfunds.com.

 

TOP TEN COMMON STOCK INDUSTRIES
Health Care Providers & Services			6.8	%
Real Estate Investment Trusts (REITs)			6.7
Specialty Retail			6.1
Insurance			5.9
Machinery			5.0
Semiconductors & Semiconductor Equipment			4.5
Pharmaceuticals			4.4
Professional Services			4.1
Consumer Finance			3.7
Commercial Banks			3.5

Portfolio holdings and allocations are subject to change. Percentages are as of December 31, 2013, and are based on net assets.

 

 

SECTOR ALLOCATION

 

Portfolio holdings and allocations are subject to change. Percentages are as of December 31, 2013, and are based on the total market value of common stocks.

*Shows performance since inception.

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 less than their original cost. Current performance may be lower or higher than the performance quoted. Returns do not consider capital gains or income taxes on an individual’s investment. For performance data current to the most recent month-end, visit oppenheimerfunds.com or call 1.800.CALL OPP (225.5677). 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 2% (5-year); and for Class C and N shares, the contingent deferred sales charge of 1% for the 1-year period. There is no sales charge for Class I and Class Y shares. Because Class B shares convert to Class A shares 72 months after purchase, the 10-year return for Class B shares uses Class A performance for the period after conversion. Returns for periods of less than one year are cumulative and not annualized.

The Fund’s performance is compared to the performance of the Russell 2500 Index, a broad-based index featuring 2,500 stocks of companies with small- and mid-cap market capitalizations. The Index is unmanaged and cannot be purchased directly by investors. Index performance includes reinvestment of income, but does not reflect transaction costs, fees, expenses or taxes. Index performance is shown for illustrative purposes only as a benchmark for the Fund’s performance, and does not predict or depict performance of the Fund. The Fund’s performance reflects the effects of the Fund’s business and operating expenses.

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. or its affiliates.

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Before investing in any of the Oppenheimer funds, investors should carefully consider a fund’s investment objectives, risks, charges and expenses. Fund prospectuses and summary prospectuses contain this and other information about the funds, and may be obtained by asking your financial advisor, visiting oppenheimerfunds.com, or calling 1.800.CALL OPP (225.5677). Read prospectuses and summary prospectuses carefully before investing.

Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested.

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Fund Expenses

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 (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 December 31, 2013.

Actual Expenses. The first section of the table provides information about actual account values and actual expenses. You may use the information in this section 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 first section 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 second section of the table provides 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 for each class before expenses, which is not the 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” section of the table is 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.

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 indirect expenses from affiliated funds, based on the 6-month period ended December 31, 2013 are as follows:

The expense ratios reflect voluntary waivers and/or reimbursements of expenses by the Fund’s Manager and Transfer Agent. Some of these undertakings may be modified or terminated at any time, as indicated in the Fund’s prospectus. 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.

Footnotes to Statement of Investments

1. Non-income producing security.

2. Is or was an affiliate, as defined in the Investment Company Act of 1940, at or during the period ended December 31, 2013, 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 adviser. Transactions during the period in which the issuer was an affiliate are as follows:

3. Rate shown is the 7-day yield as of December 31, 2013.

See accompanying Notes to Financial Statements.