Capital Income Fund

497 1 capfundsai300.htm CAPITAL INCOME FUND SAI Capital Income Fund

Oppenheimer Capital Income Fund
6803 South Tucson Way, Englewood, Colorado 80112
1-800-525-7048

Statement of Additional Information dated December 18, 2000, revised July 31, 2001

This Statement of Additional Information is not a Prospectus. This document contains additional information about the Fund
and supplements information in the Prospectus dated December 18, 2000. It should be read together with the Prospectus, which may be
obtained by writing to the Fund's Transfer Agent, OppenheimerFunds Services, at P.O. Box 5270, Denver, Colorado 80217, or by calling
the Transfer Agent at the toll-free number shown above, or by downloading it from the OppenheimerFunds Internet web site at
www.oppenheimerfunds.com.

Contents
Page
About the Fund
Additional Information About the Fund's Investment Policies and Risks................................... 2
The Fund's Investment Policies..................................................................... 2
Other Investment Techniques and Strategies......................................................... 8
Investment Restrictions............................................................................ 22
How the Fund is Managed ................................................................................ 24
Organization and History........................................................................... 24
Trustees and Officers.............................................................................. 25
The Manager........................................................................................ 30
Brokerage Policies of the Fund.......................................................................... 32
Distribution and Service Plans.......................................................................... 34
Performance of the Fund................................................................................. 37

About Your Account
How To Buy Shares....................................................................................... 41
How To Sell Shares...................................................................................... 49
How To Exchange Shares.................................................................................. 54
Dividends, Capital Gains and Taxes...................................................................... 57
Additional Information About the Fund................................................................... 59

Financial Information About the Fund
Independent Auditors' Report............................................................................ 60
Financial Statements.................................................................................... 61

Appendix A: Ratings Definitions......................................................................... A-1
Appendix B: Industry Classifications.................................................................... B-1
Appendix C: Special Sales Charge Arrangements and Waivers............................................... C-1

ABOUT THE FUND

Additional Information About the Fund's Investment Policies and Risks

The investment objectives, the principal investment policies and the main risks of the Fund are described in the Prospectus. This
Statement of Additional Information contains supplemental information about those policies and risks and the types of securities that
the Fund's investment Manager, OppenheimerFunds, Inc., can select for the Fund. Additional information is also provided about the
strategies that the Fund can use to try to achieve its objective.

The Fund's Investment Policies. The composition of the Fund's portfolio and the techniques and strategies that the Fund's Manager may
use in selecting portfolio securities will vary over time. The Fund is not required to use any of the investment techniques and
strategies described below at all times in seeking its goals. It can use some of the special investment techniques and strategies at
some times or not at all.

|X| Investments in Equity Securities. In selecting equity investments for the Fund's portfolio, the portfolio manager
currently uses a value investing style. In using a value approach, the manager looks for stock and other securities that appear to be
temporarily undervalued, by various measures, such as price/earnings ratios. This approach is subject to change and may not
necessarily be used in all cases. Value investing seeks stocks having prices that are low in relation to their real worth or future
prospects, in the hope that the Fund will realize appreciation in the value of its holdings when other investors realize the
intrinsic value of the stock.

Using value investing requires research as to the issuer's underlying financial condition and prospects. Some of the
measures used to identify these securities include, among others:
o Price/Earnings ratio, which is the stock's price divided by its earnings per share. A stock having a price/earnings
ratio lower than its historical range, or lower than the market as a whole or that of similar companies may offer attractive
investment opportunities.
o Price/book value ratio, which is the stock price divided by the book value of the company per share. It measures the
company's stock price in relation to its asset value.
o Dividend Yield, which is measured by dividing the annual dividend by the stock price per share.
o Valuation of Assets, which compares the stock price to the value of the company's underlying assets, including their
projected value in the marketplace and liquidation value.

While the Fund currently focuses on securities of issuers having large capitalizations, it does not limit its investments in
equity securities to issuers having a market capitalization of a specified size or range, and therefore can invest in securities of
small-, mid- and large-capitalization issuers. At times, the Fund can focus its equity investments in securities of one or more
capitalization ranges, based upon the Manager's judgment of where the best market opportunities are to seek the Fund's objective.

At times, the market may favor or disfavor securities of issuers of a particular capitalization range, and securities of
small capitalization issuers may be subject to greater price volatility in general than securities of larger companies. Therefore, if
the Fund has substantial investments in smaller capitalization companies at times of market volatility, the Fund's share price may
fluctuate more than that of funds focusing on larger capitalization issuers.

|_| Rights and Warrants. Warrants are options to purchase stock at set prices. They are generally valid for a limited
period of time. Their prices do not necessarily move parallel to the prices of the underlying securities. Rights are similar to
warrants and generally have a short duration. They are distributed directly by the issuer to its shareholders.

As a non-fundamental policy, the Fund cannot invest more than 5% of its total assets in warrants or rights, and not more
than 2% of its total assets may be invested in warrants and rights that are not listed on The New York Stock Exchange or The American
Stock Exchange. That limitation does not apply to warrants and rights the Fund acquires attached to other securities or as part of
investments in units of securities that are issued with other securities. Rights and warrants have no voting rights, receive no
dividends and have no rights with respect to the assets of the issuer.

|_| Preferred Stock. Preferred stock, unlike common stock, has a stated dividend rate payable from the corporation's
earnings. Preferred stock dividends may be cumulative or non-cumulative, participating, or auction rate. "Cumulative" dividend
provisions require all or a portion of prior unpaid dividends to be paid before dividends can be paid to the issuer's common stock.
"Participating" preferred stock may be entitled to a dividend exceeding the stated dividend in certain cases.

If interest rates rise, the fixed dividend on preferred stocks may be less attractive, causing the price of preferred stocks
to decline. Preferred stock may have mandatory sinking fund provisions, as well as provisions allowing the stock to be called or
redeemed prior to its maturity, which can have a negative impact on the stock's price when interest rates decline. Preferred stock
generally has a preference over common stock on the distribution of a corporation's assets in the event of liquidation of the
corporation. The rights of preferred stock on distribution of a corporation's assets in the event of a liquidation are generally
subordinate to the rights associated with a corporation's debt securities.

|_| Convertible Securities. Convertible securities are debt securities that are convertible into an issuer's common
stock. Convertible securities rank senior to common stock in a corporation's capital structure and therefore are subject to less risk
than common stock in case of the issuer's bankruptcy or liquidation.

The value of a convertible security is a function of its "investment value" and its "conversion value." If the investment
value exceeds the conversion value, the security will behave more like a debt security, and the security's price will likely increase
when interest rates fall and decrease when interest rates rise. If the conversion value exceeds the investment value, the security
will behave more like an equity security. In that case, it will likely sell at a premium over its conversion value, and its price
will tend to fluctuate directly with the price of the underlying security.

While some convertible securities are a form of debt security, in many cases their conversion feature (allowing conversion
into equity securities) caused them to be regarded by the Manager more as "equity equivalents." As a result, the rating assigned to
the security has less impact on the Manager's investment decision than in the case of non-convertible debt fixed-income securities.

To determine whether convertible securities should be regarded as "equity equivalents," the Manager examines the following
factors:
o whether, at the option of the investor, the convertible security can be exchanged for a fixed number of shares of common
stock of the issuer,
o whether the issuer of the convertible securities has restated its earnings per share of common stock on a fully diluted
basis (considering the effect of conversion of the convertible securities), and
o the extent to which the convertible security may be a defensive "equity substitute," providing the ability to participate in
any appreciation in the price of the issuer's common stock.

|X| Investments in Bonds and Other Debt Securities. The Fund can invest in bonds, debentures and other debt securities to
seek current income as part of its investment objective.

The Fund's debt investments can include investment-grade and non-investment-grade bonds (commonly referred to as "junk
bonds"). Investment-grade bonds are bonds rated at least "Baa" by Moody's Investors Service, Inc., or at least "BBB" by Standard &
Poor's Corporation or Fitch, Inc., or that have comparable ratings by another nationally-recognized rating organization.

In making investments in debt securities, the Manager can rely to some extent on the ratings of ratings organizations or it
can use its own research to evaluate a security's credit-worthiness. If the securities the Fund buys are unrated, to be considered
part of the Fund's holdings of investment-grade securities, they must be judged by the Manager to be of comparable quality to bonds
rated as investment grade by a rating organization.

|_| Interest Rate Risk. Interest rate risk refers to the fluctuations in value of debt securities resulting from the
inverse relationship between price and yield. For example, an increase in general interest rates will tend to reduce the market value
of already-issued debt securities, and a decline in general interest rates will tend to increase their value. In addition, debt
securities with longer maturities, which tend to have higher yields, are subject to potentially greater fluctuations in value from
changes in interest rates than obligations with shorter maturities.

Fluctuations in the market value of debt securities after the Fund buys them will not affect the interest income payable on
those securities (unless the coupon rate is a floating rate pegged to an index or other measure) . However, those price fluctuations
will be reflected in the valuations of the securities, and therefore the Fund's net asset values will be affected by those
fluctuations.

|X| U.S. Government Securities. The Fund can buy securities issued or guaranteed by the U.S. government or its agencies and
instrumentalities. Securities issued by the U.S. Treasury are backed by the full faith and credit of the U.S. government and are
subject to very little credit risk. Obligations of U.S. government agencies or instrumentalities (including mortgage-backed
securities) may or may not be guaranteed or supported by the "full faith and credit" of the United States. Some are backed by the
right of the issuer to borrow from the U.S. Treasury; others, by discretionary authority of the U.S. government to purchase the
agencies' obligations; while others are supported only by the credit of the instrumentality. If a security is not backed by the full
faith and credit of the United States, the owner of the security must look principally to the agency issuing the obligation for
repayment and might not be able to assert a claim against the United States in the event that the agency or instrumentality does not
meet its commitment.

|_| U.S. Treasury Obligations. These include Treasury bills (having maturities of one year or less when issued),
Treasury notes (having maturities of from one to ten years), and Treasury bonds (having maturities of more than ten years). Treasury
securities are backed by the full faith and credit of the United States as to timely payments of interest and repayments of
principal. Other U.S. Treasury securities the Fund can buy include U. S. Treasury securities that have been "stripped" by a Federal
Reserve Bank, zero-coupon U.S. Treasury securities described below, and Treasury Inflation-Protection Securities ("TIPS").

|_| Treasury Inflation-Protection Securities. The Fund can buy these U.S. Treasury securities, called "TIPS," that are
designed to provide an investment vehicle that is not vulnerable to inflation. The interest rate paid by TIPS is fixed. The principal
value rises or falls semi-annually based on changes in the published Consumer Price Index. If inflation occurs, the principal and
interest payments on TIPS are adjusted to protect investors from inflationary loss. If deflation occurs, the principal and interest
payments will be adjusted downward, although the principal will not fall below its face amount at maturity.

|_| Obligations Issued or Guaranteed by U.S. Government Agencies or Instrumentalities. These include direct obligations
and mortgage related securities that have different levels of credit support from the government. Some are supported by the full
faith and credit of the U.S. government, such as Government National Mortgage Association pass-through mortgage certificates (called
"Ginnie Maes"). Some are supported by the right of the issuer to borrow from the U.S. Treasury under certain circumstances, such as
Federal National Mortgage Association bonds ("Fannie Maes"). Others are supported only by the credit of the entity that issued them,
such as Federal Home Loan Mortgage Corporation obligations ("Freddie Macs").

|_| Special Risks of Lower-Grade Securities. The Fund can invest up to 25% of its total assets in "lower grade" debt
securities. "Lower-grade" debt securities are those rated below "investment grade," which means they have a rating lower than "Baa"
by Moody's or lower than "BBB" by Standard & Poor's or Fitch, Inc., or similar ratings by other rating organizations. If they are
unrated, and are determined by the Manager to be of comparable quality to debt securities rated below investment grade, they are
included in the limitation on the percentage of the Fund's assets that can be invested in lower-grade securities. The Fund can invest
in securities rated as low as "C" or "D" or which may be in default at the time the Fund buys them. The Fund may invest no more than
10% of its total assets in lower-grade debt securities that are not convertible

Some of the special credit risks of lower-grade securities are discussed in the Prospectus. There is a greater risk that the
issuer may default on its obligation to pay interest or to repay principal than in the case of investment grade securities. The
issuer's low creditworthiness may increase the potential for its insolvency. An overall decline in values in the high yield bond
market is also more likely during a period of a general economic downturn. An economic downturn or an increase in interest rates
could severely disrupt the market for high yield bonds, adversely affecting the values of outstanding bonds as well as the ability of
issuers to pay interest or repay principal. In the case of foreign high yield bonds, these risks are in addition to the special risk
of foreign investing discussed in the Prospectus and in this Statement of Additional Information.

However, the Fund's limitations on buying these investments may reduce the effect of those risks to the Fund, as will the
Fund's policy of diversifying its investments. Additionally, to the extent they can be converted into stock, convertible securities
may be less subject to some of these risks than non-convertible high yield bonds, since stock may be more liquid and less affected by
some of these risk factors.

While securities rated "Baa" by Moody's or "BBB" by Standard & Poor's or Fitch, Inc. are investment grade and are not
regarded as junk bonds, those securities may be subject to special risks, and have some speculative characteristics. Definitions of
the debt security ratings categories of Moody's, S&P and Fitch, Inc. are included in Appendix A to this Statement of Additional
Information.

|_| Zero Coupon Securities. The Fund can buy zero-coupon and delayed interest securities, and "stripped" securities.
Stripped securities are debt securities whose interest coupons are separated from the security and sold separately. The Fund can buy
the following types of zero-coupon or stripped securities, among other: U.S. Treasury notes or bonds that have been stripped of
their interest coupons, U.S. Treasury bills issued without interest coupons, and certificates representing interests in stripped
securities.

Zero-coupon securities do not make periodic interest payments and are sold at a deep discount from their face value. The
buyer recognizes a rate of return determined by the gradual appreciation of the security, which is redeemed at face value on a
specified maturity date. This discount depends on the time remaining until maturity, as well as prevailing interest rates, the
liquidity of the security and the credit quality of the issuer. In the absence of threats to the issuer's credit quality, the
discount typically decreases as the maturity date approaches. Some zero-coupon securities are convertible, in that they are
zero-coupon securities until a predetermined date, at which time they convert to a security with a specified coupon rate.

Because zero-coupon securities pay no interest and compound semi-annually at the rate fixed at the time of their issuance,
their prices are generally more volatile than the prices of other debt securities. Their value may fall more dramatically than the
value of interest-bearing securities when interest rates rise. When prevailing interest rates fall, zero-coupon securities tend to
rise more rapidly in value because they have a fixed rate of return.

The Fund's investment in zero-coupon securities may cause the Fund to recognize income and make distributions to
shareholders before it receives any cash payments on the zero-coupon investment. To generate cash to satisfy those distribution
requirements, the Fund may have to sell portfolio securities that it otherwise might have continued to hold or to use cash flows from
other sources such as the sale of Fund shares.

|X| Real Estate Investment Trusts (REITs). The Fund can invest in real estate investment trusts, as well as real estate
development companies and operating companies. It can also buy shares of companies engaged in other real estate businesses. REITs are
trusts that sell shares to investors and use the proceeds to invest in real estate. A REIT may focus on a particular project, such as
a shopping center or apartment complex, or may buy many properties or properties located in a particular geographic region.

|X| Foreign Securities. The Fund can purchase equity and debt securities issued or guaranteed by foreign companies or
foreign governments or their agencies. "Foreign securities" include equity and debt securities of companies organized under the laws
of countries other than the United States and debt securities of foreign governments. They may be traded on foreign securities
exchanges or in the foreign over-the-counter markets. The debt obligations of a foreign government and its agencies and
instrumentalities may or may not be supported by the full faith and credit of the foreign government.

Securities of foreign issuers that are represented by American Depository Receipts or that are listed on a U.S. securities
exchange or traded in the U.S. over-the-counter markets are not considered "foreign securities" for the purpose of the Fund's
investment allocations. That is because they are not subject to many of the special considerations and risks, discussed below, that
apply to foreign securities traded and held abroad.

Investing in foreign securities offers potential benefits not available from investing solely in securities of domestic
issuers. They include the opportunity to invest in foreign issuers that appear to offer growth potential, or in foreign countries
with economic policies or business cycles different from those of the U.S., or to reduce fluctuations in portfolio value by taking
advantage of foreign stock markets that do not move in a manner parallel to U.S. markets. The Fund will hold foreign currency only in
connection with the purchase or sale of foreign securities.

|_| Risks of Foreign Investing. Investments in foreign securities may offer special opportunities for investing but also
present special additional risks and considerations not typically associated with investments in domestic securities. Some of these
additional risks are:
o reduction of income by foreign taxes;
o fluctuation in value of foreign investments due to changes in currency rates or currency control regulations (for example,
currency blockage);
o transaction charges for currency exchange;
o lack of public information about foreign issuers;
o lack of uniform accounting, auditing and financial reporting standards in foreign countries comparable to those applicable
to domestic issuers;
o less volume on foreign exchanges than on U.S. exchanges;
o greater volatility and less liquidity on foreign markets than in the U.S.;
o less governmental regulation of foreign issuers, stock exchanges and brokers than in the U.S.;
o greater difficulties in commencing lawsuits;
o higher brokerage commission rates than in the U.S.;
o increased risks of delays in settlement of portfolio transactions or loss of certificates for portfolio securities;
o possibilities in some countries of expropriation, confiscatory taxation, political, financial or social instability or
adverse diplomatic developments; and
o unfavorable differences between the U.S. economy and foreign economies.

In the past, U.S. government policies have discouraged certain investments abroad by U.S. investors, through taxation or
other restrictions, and it is possible that such restrictions could be re-imposed.

|_| Risks of Conversion to Euro. On January 1, 1999, eleven countries in the European Union adopted the euro as their
official currency. However, their current currencies (for example, the franc, the mark, and the lira) will also continue in use until
January 1, 2002. After that date, it is expected that only the euro will be used in those countries. A common currency is expected to
confer some benefits in those markets, by consolidating the government debt market for those countries and reducing some currency
risks and costs. But the conversion to the new currency will affect the Fund operationally and also has potential risks, some of
which are listed below. Among other things, the conversion will affect:
o issuers in which the Fund invests, because of changes in the competitive environment from a consolidated currency market and
greater operational costs from converting to the new currency. This might depress securities values.
o vendors the Fund depends on to carry out its business, such as its custodian bank (which holds the foreign securities the
Fund buys), the Manager (which must price the Fund's investments to deal with the conversion to the euro) and brokers,
foreign markets and securities depositories. If they are not prepared, there could be delays in settlements and
additional costs to the Fund.
o exchange contracts and derivatives that are outstanding during the transition to the euro. The lack of currency rate
calculations between the affected currencies and the need to update the Fund's contracts could pose extra costs to the
Fund.

The Manager has upgraded (at its expense) its computer and bookkeeping systems to deal with the conversion. The Fund's
custodian bank has advised the Manager of its plans to deal with the conversion, including how it will update its record keeping
systems and handle the redenomination of outstanding foreign debt. The Fund's portfolio managers will also monitor the effects of the
conversion on the issuers in which the Fund invests. The possible effect of these factors on the Fund's investments cannot be
determined with certainty at this time, but they may reduce the value of some of the Fund's holdings and increase its operational
costs.

|X| Portfolio Turnover. "Portfolio turnover" describes the rate at which the Fund traded its portfolio securities during its
last fiscal year. For example, if a fund sold all of its securities during the year, its portfolio turnover rate would have been
100%. The Fund's portfolio turnover rate will fluctuate from year to year. The Fund does not expect to have a portfolio turnover rate
of 100% or more. Increased portfolio turnover creates higher brokerage and transaction costs for the Fund, which may reduce its
overall performance. Additionally, the realization of capital gains from selling portfolio securities may result in distributions of
taxable long-term capital gains to shareholders, since the Fund will normally distribute all of its capital gains realized each year,
to avoid excise taxes under the Internal Revenue Code. The Financial Highlights table at the end of the Prospectus shows the Fund's
portfolio turnover rates during prior fiscal years.

Other Investment Techniques and Strategies. In seeking its objective, the Fund can from time to time employ the types of investment
strategies and investments described below. It is not required to use all of these strategies at all times and at times may not use
them.

|X| Investing in Small, Unseasoned Companies. The Fund can invest in securities of small, unseasoned companies. These are
companies that have been in operation for less than three years, including the operations of any predecessors. Securities of these
companies may be subject to volatility in their prices. They may have a limited trading market, which may adversely affect the Fund's
ability to dispose of them and can reduce the price the Fund might be able to obtain for them. Other investors that own a security
issued by a small, unseasoned issuer for which there is limited liquidity might trade the security when the Fund is attempting to
dispose of its holdings of that security. In that case the Fund might receive a lower price for its holdings than might otherwise be
obtained.

|X| "When-Issued" and "Delayed-Delivery" Transactions. The Fund can invest in securities on a "when-issued" basis and can
purchase or sell securities on a "delayed-delivery" basis. When-issued and delayed-delivery are terms that refer to securities whose
terms and indenture have been created, but the securities are not available for immediate delivery even though the market for them
exists.

When such transactions are negotiated, the price (which is generally expressed in yield terms) is fixed at the time the
commitment is made. Delivery and payment for the securities take place at a later date (generally within 45 days of the date the
offer is accepted). The securities are subject to change in value from market fluctuations during the period until settlement. The
value at delivery may be less than the purchase price. For example, changes in interest rates in a direction other than that expected
by the Manager before settlement will affect the value of such securities and may cause a loss to the Fund. During the period between
purchase and settlement, no payment is made by the Fund to the issuer, and no interest accrues to the Fund from the investment until
it receives the security at settlement.

The Fund can engage in when-issued transactions to secure what the Manager considers to be an advantageous price and yield
at the time the Fund enters into the obligation. When the Fund enters into a when-issued or delayed-delivery transaction, it relies
on the other party to complete the transaction. Its failure to do so may cause the Fund to lose the opportunity to obtain the
security at a price and yield the Manager considers to be advantageous.

When the Fund engages in when-issued and delayed-delivery transactions, it does so for the purpose of acquiring or selling
securities consistent with its investment objective and policies or for delivery pursuant to options contracts it has entered into,
and not for the purpose of investment leverage. Although the Fund will enter into delayed-delivery or when-issued purchase
transactions to acquire securities, it can dispose of a commitment prior to settlement. If the Fund chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or to dispose of its right to delivery or receive against a forward
commitment, it may incur a gain or loss.

At the time the Fund makes the commitment to purchase or sell a security on a when-issued or delayed-delivery basis, it
records the transaction on its books and reflects the value of the security purchased in determining the Fund's net asset value. In a
sale transaction, it records the proceeds to be received. The Fund will identify on its books liquid assets at least equal in value
to the value of the Fund's purchase commitments until the Fund pays for the investment.

When issued and delayed-delivery transactions can be used by the Fund as a defensive technique to hedge against anticipated
changes in interest rates and prices. For instance, in periods of rising interest rates and falling prices, the Fund might sell
securities in its portfolio on a forward commitment basis to attempt to limit its exposure to anticipated falling prices. In periods
of falling interest rates and rising prices, the Fund might sell portfolio securities and purchase the same or similar securities on
a when-issued or delayed-delivery basis to obtain the benefit of currently higher cash yields.

|X| Repurchase Agreements. The Fund can acquire securities subject to repurchase agreements. It might do so for liquidity
purposes to meet anticipated redemptions of Fund shares, or pending the investment of the proceeds from sales of Fund shares, or
pending the settlement of portfolio securities transactions.

In a repurchase transaction, the Fund buys a security from, and simultaneously resells it to, an approved vendor for
delivery on an agreed-upon future date. The resale price exceeds the purchase price by an amount that reflects an agreed-upon
interest rate effective for the period during which the repurchase agreement is in effect. Approved vendors include U.S. commercial
banks, U.S. branches of foreign banks, or broker-dealers that have been designated as primary dealers in government securities. They
must meet credit requirements set by the Fund's Board of Trustees from time to time.

The majority of these transactions run from day to day, and delivery pursuant to the resale typically occurs within one to
five days of the purchase. Repurchase agreements having a maturity beyond seven days are subject to the Fund's limits on holding
illiquid investments. The Fund will not enter into a repurchase agreement that causes more than 10% of its net assets to be subject
to repurchase agreements having a maturity beyond seven days. There is no limit on the amount of the Fund's net assets that may be
subject to repurchase agreements having maturities of seven days or less.

Repurchase agreements, considered "loans" under the Investment Company Act, are collateralized by the underlying security.
The Fund's repurchase agreements require that at all times while the repurchase agreement is in effect, the value of the collateral
must equal or exceed the repurchase price to fully collateralize the repayment obligation. However, if the vendor fails to pay the
resale price on the delivery date, the Fund may incur costs in disposing of the collateral and may experience losses if there is any
delay in its ability to do so. The Manager will monitor the vendor's creditworthiness to confirm that the vendor is financially sound
and will continuously monitor the collateral's value.

|X| Illiquid and Restricted Securities. Under the policies and procedures established by the Fund's Board of Trustees, the
Manager determines the liquidity of certain of the Fund's illiquid or restricted investments. To enable the Fund to sell its holdings
of a restricted security not registered under the Securities Act of 1933, the Fund may have to cause those securities to be
registered. The expenses of registering restricted securities may be negotiated by the Fund with the issuer at the time the Fund buys
the securities. When the Fund must arrange registration because the Fund wishes to sell the security, a considerable period may
elapse between the time the decision is made to sell the security and the time the security is registered so that the Fund could sell
it. The Fund would bear the risks of any downward price fluctuation during that period.

The Fund can acquire restricted securities through private placements. Those securities have contractual restrictions on
their public resale. Those restrictions might limit the Fund's ability to dispose of the securities and might lower the amount the
Fund could realize upon the sale.

The Fund has limitations that apply to purchases of restricted securities, as stated in the Prospectus. Those percentage
restrictions do not limit purchases of restricted securities that are eligible for sale to qualified institutional purchasers under
Rule 144A of the Securities Act of 1933, if those securities have been determined to be liquid by the Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such securities and the availability of reliable pricing
information, among other factors. If there is a lack of trading interest in a particular Rule 144A security, the Fund's holdings of
that security may be considered to be illiquid.

Illiquid securities include repurchase agreements maturing in more than seven days and participation interests that do not
have puts exercisable within seven days.

|X| Loans of Portfolio Securities. The Fund can lend its portfolio securities to certain types of eligible borrowers
approved by the Board of Trustees. It might do so to try to provide income or to raise cash for liquidity purposes. These loans are
limited to not more than 10% of the value of the Fund's total assets. There are some risks in connection with securities lending. The
Fund might experience a delay in receiving additional collateral to secure a loan, or a delay in recovery of the loaned securities.
The Fund presently does not intend to lend its securities in the coming year, but if it does, the value of the loaned securities is
not expected to exceed 5% of the value of the Fund's total assets.

The Fund must receive collateral for a loan. Under current applicable regulatory requirements (which are subject to change),
on each business day the loan collateral must be at least equal to the value of the loaned securities. It must consist of cash, bank
letters of credit, securities of the U.S. government or its agencies or instrumentalities, or other cash equivalents in which the
Fund is permitted to invest. To be acceptable as collateral, letters of credit must obligate a bank to pay amounts demanded by the
Fund if the demand meets the terms of the letter. The terms of the letter of credit and the issuing bank both must be satisfactory to
the Fund.

When it lends securities, the Fund receives amounts equal to the dividends or interest on loaned securities. It also
receives one or more of (a) negotiated loan fees, (b) interest on securities used as collateral, and (c) interest on any short-term
debt securities purchased with such loan collateral. Either type of interest may be shared with the borrower. The Fund may also pay
reasonable finder's, custodian and administrative fees in connection with these loans. The terms of the Fund's loans must meet
applicable tests under the Internal Revenue Code and must permit the Fund to reacquire loaned securities on five days' notice or in
time to vote on any important matter.

|X| Derivatives. The Fund can invest in a variety of derivative investments for income, for capital appreciation or for
hedging purposes. Some derivative investments the Fund can use are the hedging instruments described below in this Statement of
Additional Information.

The Fund can invest in "index-linked" notes. Principal and/or interest payments on these notes depend on the performance of
an underlying index. Currency-indexed securities are another derivative the Fund can use. Typically these are short-term or
intermediate-term debt securities. Their value at maturity or the rates at which they pay income are determined by the change in
value of the U.S. dollar against one or more foreign currencies or an index. In some cases, these securities may pay an amount at
maturity based on a multiple of the amount of the relative currency movements. This type of index security offers the potential for
increased income or principal payments but at a greater risk of loss than a typical debt security of the same maturity and credit
quality.

Other derivative investments the Fund can use include "debt exchangeable for common stock" of an issuer or "equity-linked
debt securities" of an issuer. At maturity, the debt security is exchanged for common stock of the issuer or it is payable in an
amount based on the price of the issuer's common stock at the time of maturity. Both alternatives present a risk that the amount
payable at maturity will be less than the principal amount of the debt because the price of the issuer's common stock might not be as
high as the Manager expected.

|X| Hedging. The Fund can use hedging to attempt to protect against declines in the market value of the Fund's portfolio, to
permit the Fund to retain unrealized gains in the value of portfolio securities which have appreciated, or to facilitate selling
securities for investment reasons. To do so, the Fund could:
o sell futures contracts,
o buy puts on futures or on securities, or
o write covered calls on securities or futures. Covered calls can also be used to increase the Fund's income, but the
Manager does not expect to engage extensively in that practice.

The Fund might use hedging to establish a position in the securities market as a
temporary substitute for purchasing particular securities. In that case, the Fund would normally seek to purchase the securities and
then terminate that hedging position. T he Fund might also use this type of hedge to attempt to protect against the possibility that
its portfolio securities would not be fully included in a rise in value of the market. To do so the Fund could:
o buy futures, or
o buy calls on such futures or on securities.

The Fund is not obligated to use hedging instruments, even though it is permitted to use them in the Manager's discretion,
as described below. The Fund's strategy of hedging with futures and options on futures will be incidental to the Fund's activities in
the underlying cash market. The particular hedging instruments the Fund can use are described below. The Fund can employ new hedging
instruments and strategies when they are developed, if those investment methods are consistent with the Fund's investment objective
and are permissible under applicable regulations governing the Fund.

|_| Futures. The Fund can buy and sell futures contracts that relate to (1) debt securities (these are referred to as
"interest rate futures"), (2) broadly-based stock indices (these are referred to as "stock index futures") or other indices (referred
to as "financial futures"), (3) foreign currencies (these are referred to as "forward contracts"), or (4) commodities (these are
referred to as "commodity futures").

|_| Stock Index Futures, Financial Futures and Interest Rate Futures. A broadly-based stock index is used as the basis
for trading stock index futures. They may in some cases be based on stocks of issuers in a particular industry or group of
industries. A stock index assigns relative values to the common stocks included in the index and its value fluctuates in response to
the changes in value of the underlying stocks. A stock index cannot be purchased or sold directly. Financial futures are similar
contracts based on the future value of the basket of securities that comprise the index. These contracts obligate the seller to
deliver, and the purchaser to take, cash to settle the futures transaction. There is no delivery made of the underlying securities to
settle the futures obligation. Either party may also settle the transaction by entering into an offsetting contract.

An interest rate future obligates the seller to deliver (and the purchaser to take) cash or a specified type of debt
security to settle the futures transaction. Either party could also enter into an offsetting contract to close out the position.

No money is paid or received by the Fund on the purchase or sale of a future. Upon entering into a futures transaction, the
Fund will be required to deposit an initial margin payment with the futures commission merchant (the "futures broker"). Initial
margin payments will be deposited with the Fund's custodian bank in an account registered in the futures broker's name. However, the
futures broker can gain access to that account only under specified conditions. As the future is marked to market (that is, its value
on the Fund's books is changed) to reflect changes in its market value, subsequent margin payments, called variation margin, will be
paid to or by the futures broker daily.

At any time prior to expiration of the future, the Fund can elect to close out its position by taking an opposite position,
at which time a final determination of variation margin is made and any additional cash must be paid by or released to the Fund. Any
loss or gain on the future is then realized by the Fund for tax purposes. All futures transactions are effected through a
clearinghouse associated with the exchange on which the contracts are traded.

|_| Commodity Futures. The Fund can invest a portion of its assets in commodity futures contracts. They may be based
upon commodities in five main commodity groups: energy, livestock, agriculture, industrial metals and precious metals, on individual
commodities within these groups, or on other commodities. For hedging purposes, the Fund can buy and sell commodity futures
contracts, options on commodity futures contracts, and options and futures on commodity indices.

Under a commodity futures contract, the buyer agrees to take delivery of a specified amount of a commodity at a future date
at a price agreed upon when the contract is made. In the United States, commodity contracts are traded on futures exchanges. The
exchanges offer a central marketplace for transactions, a clearing corporation to process trades, standardization of contract sizes
and expiration dates, and the liquidity of a secondary market. futures markets also regulate the terms and conditions of delivery and
the maximum permissible price movement of a contract during a trading session. The exchanges have rules on position limits. Those
rules limit the amount of futures contracts that any one party may hold in a particular commodity at one time. Those rules are
designed to prevent any one party from controlling a significant portion of the market.

Despite the daily price limits imposed by the futures exchanges, historically the short-term price volatility of commodity
futures contracts has been greater than that for stocks and bonds. To the extent that the Fund invests in these futures contracts,
its share price may be subject to greater volatility.

|_| Put and Call Options. The Fund can buy and sell certain kinds of put options ("puts") and call options ("calls").
The Fund can buy and sell exchange-traded and over-the-counter put and call options, including index options, securities options,
currency options, commodities options, and options on the other types of futures described above.

|_| Writing Covered Call Options. The Fund can write (that is, sell) covered calls. If the Fund sells a call option, it
must be covered. That means the Fund must own the security subject to the call while the call is outstanding, or, for certain types
of calls, the call may be covered by liquid assets identifying on the Fund's books to enable the Fund to satisfy its obligations if
the call is exercised. Up to 25% of the Fund's total assets can be subject to calls the Fund writes.

When the Fund writes a call on a security, it receives cash (a premium). The Fund agrees to sell the underlying security to
a purchaser of a corresponding call on the same security during the call period at a fixed exercise price regardless of market price
changes during the call period. The call period is usually not more than nine months. The exercise price may differ from the market
price of the underlying security. The Fund has the risk of loss that the price of the underlying security may decline during the call
period. That risk may be offset to some extent by the premium the Fund receives. If the value of the investment does not rise above
the call price, it is likely that the call will lapse without being exercised. In that case the Fund would keep the cash premium and
the investment.

When the Fund writes a call on an index, it receives cash (a premium). If the buyer of the call exercises it, the Fund will
pay an amount of cash equal to the difference between the closing price of the call and the exercise price, multiplied by a specified
multiple that determines the total value of the call for each point of difference. If the value of the underlying investment does not
rise above the call price, it is likely that the call will lapse without being exercised. In that case the Fund would keep the cash
premium.

The Fund's custodian bank, or a securities depository acting for the custodian bank, will act as the Fund's escrow agent,
through the facilities of the Options Clearing Corporation ("OCC"), as to the investments on which the Fund has written calls traded
on exchanges or as to other acceptable escrow securities. In that way, no margin will be required for such transactions. OCC will
release the securities on the expiration of the option or when the Fund enters into a closing transaction.

When the Fund writes an over-the-counter ("OTC") option, it will enter into an arrangement with a primary U.S. government
securities dealer which will establish a formula price at which the Fund will have the absolute right to repurchase that OTC option.
The formula price will generally be based on a multiple of the premium received for the option, plus the amount by which the option
is exercisable below the market price of the underlying security (that is, the option is "in the money"). When the Fund writes an OTC
option, it will treat as illiquid (for purposes of its restriction on holding illiquid securities) the mark-to-market value of any
OTC option it holds, unless the option is subject to a buy-back agreement by the executing broker.

To terminate its obligation on a call it has written, the Fund can purchase a corresponding call in a "closing purchase
transaction." The Fund will then realize a profit or loss, depending upon whether the net of the amount of the option transaction
costs and the premium received on the call the Fund wrote is more or less than the price of the call the Fund purchases to close out
the transaction. The Fund may realize a profit if the call expires unexercised, because the Fund will retain the underlying security
and the premium it received when it wrote the call. Any such profits are considered short-term capital gains for federal income tax
purposes, as are the premiums on lapsed calls. When distributed by the Fund they are taxable as ordinary income. If the Fund cannot
effect a closing purchase transaction due to the lack of a market, it will have to hold the callable securities until the call
expires or is exercised.

The Fund can also write calls on a futures contract without owning the futures contract or securities deliverable under the
contract. To do so, at the time the call is written, the Fund must cover the call by identifying an equivalent dollar amount of
liquid assets on the Fund's books. The Fund will identify additional liquid assets on its books if the value of the identified assets
drops below 100% of the current value of the future. Because of this segregation requirement, in no circumstances would the Fund's
receipt of an exercise notice as to that future require the Fund to deliver a futures contract. It would simply put the Fund in a
short futures position, which is permitted by the Fund's hedging policies.

|_| Writing Put Options. The Fund can sell put options. A put option on securities gives the purchaser the right to
sell, and the writer the obligation to buy, the underlying investment at the exercise price during the option period. The Fund will
not write puts if, as a result, more than 25% of the Fund's net assets would be required to be segregated to cover such put options.

If the Fund writes a put, the put must be covered by liquid assets identified on the Fund's books. The premium the Fund
receives from writing a put represents a profit, as long as the price of the underlying investment remains equal to or above the
exercise price of the put. However, the Fund also assumes the obligation during the option period to buy the underlying investment
from the buyer of the put at the exercise price, even if the value of the investment falls below the exercise price. If a put the
Fund has written expires unexercised, the Fund realizes a gain in the amount of the premium less the transaction costs incurred. If
the put is exercised, the Fund must fulfill its obligation to purchase the underlying investment at the exercise price. That price
will usually exceed the market value of the investment at that time. In that case, the Fund may incur a loss if it sells the
underlying investment. That loss will be equal to the sum of the sale price of the underlying investment and the premium received
minus the sum of the exercise price and any transaction costs the Fund incurred.

When writing a put option on a security, to secure its obligation to pay for the underlying security the Fund will deposit
in escrow liquid assets with a value equal to or greater than the exercise price of the underlying securities. The Fund therefore
forgoes the opportunity of investing the segregated assets or writing calls against those assets.

As long as the Fund's obligation as the put writer continues, it may be assigned an exercise notice by the broker-dealer
through which the put was sold. That notice will require the Fund to take delivery of the underlying security and pay the exercise
price. The Fund has no control over when it may be required to purchase the underlying security, since it may be assigned an exercise
notice at any time prior to the termination of its obligation as the writer of the put. That obligation terminates upon expiration of
the put. It may also terminate if, before it receives an exercise notice, the Fund effects a closing purchase transaction by
purchasing a put of the same series as it sold. Once the Fund has been assigned an exercise notice, it cannot effect a closing
purchase transaction.

The Fund can decide to effect a closing purchase transaction to realize a profit on an outstanding put option it has written
or to prevent the underlying security from being put. Effecting a closing purchase transaction will also permit the Fund to write
another put option on the security, or to sell the security and use the proceeds from the sale for other investments. The Fund will
realize a profit or loss from a closing purchase transaction depending on whether the cost of the transaction is less or more than
the premium received from writing the put option. Any profits from writing puts are considered short-term capital gains for federal
tax purposes, and when distributed by the Fund, are taxable as ordinary income.

|_| Purchasing Calls and Puts. The Fund can purchase calls to protect against the possibility that the Fund's portfolio
will not participate in an anticipated rise in the securities market. When the Fund buys a call (other than in a closing purchase
transaction), it pays a premium. The Fund then has the right to buy the underlying investment from a seller of a corresponding call
on the same investment during the call period at a fixed exercise price. The Fund benefits only if it sells the call at a profit or
if, during the call period, the market price of the underlying investment is above the sum of the call price plus the transaction
costs and the premium paid for the call and the Fund exercises the call. If the Fund does not exercise the call or sell it (whether
or not at a profit), the call will become worthless at its expiration date. In that case the Fund will have paid the premium but lost
the right to purchase the underlying investment.

The Fund can buy puts whether or not it holds the underlying investment in its portfolio. When the Fund purchases a put, it
pays a premium and, except as to puts on indices, has the right to sell the underlying investment to a seller of a put on a
corresponding investment during the put period at a fixed exercise price. Buying a put on securities or futures the Fund owns enables
the Fund to attempt to protect itself during the put period against a decline in the value of the underlying investment below the
exercise price by selling the underlying investment at the exercise price to a seller of a corresponding put. If the market price of
the underlying investment is equal to or above the exercise price and, as a result, the put is not exercised or resold, the put will
become worthless at its expiration date. In that case the Fund will have paid the premium but lost the right to sell the underlying
investment. However, the Fund can sell the put prior to its expiration. That sale may or may not be at a profit.

When the Fund purchases a call or put on an index or future, it pays a premium, but settlement is in cash rather than by
delivery of the underlying investment to the Fund. Gain or loss depends on changes in the index in question (and thus on price
movements in the securities market generally) rather than on price movements in individual securities or futures contracts.

The Fund can buy a call or put only if, after the purchase, the value of all call and put options held by the Fund will not
exceed 5% of the Fund's total assets.

|_| Buying and Selling Options on Foreign Currencies. The Fund can buy and sell calls and puts on foreign currencies.
They include puts and calls that trade on a securities or commodities exchange or in the over-the-counter markets or are quoted by
major recognized dealers in such options. The Fund could use these calls and puts to try to protect against declines in the dollar
value of foreign securities and increases in the dollar cost of foreign securities the Fund wants to acquire.

If the Manager anticipates a rise in the dollar value of a foreign currency in which securities to be acquired are
denominated, the increased cost of those securities may be partially offset by purchasing calls or writing puts on that foreign
currency. If the Manager anticipates a decline in the dollar value of a foreign currency, the decline in the dollar value of
portfolio securities denominated in that currency might be partially offset by writing calls or purchasing puts on that foreign
currency. However, the currency rates could fluctuate in a direction adverse to the Fund's position. The Fund will then have incurred
option premium payments and transaction costs without a corresponding benefit.

A call the Fund writes on a foreign currency is "covered" if the Fund owns the underlying foreign currency covered by the
call or has an absolute and immediate right to acquire that foreign currency without additional cash consideration (or it can do so
for additional cash consideration held in a segregated account by its custodian bank) upon conversion or exchange of other foreign
currency held in its portfolio.

The Fund could write a call on a foreign currency to provide a hedge against a decline in the U.S. dollar value of a
security which the Fund owns or has the right to acquire and which is denominated in the currency underlying the option. That decline
might be one that occurs due to an expected adverse change in the exchange rate. This is known as a "cross-hedging" strategy. In
those circumstances, the Fund covers the option by maintaining cash, U.S. government securities or other liquid, high grade debt
securities in an amount equal to the exercise price of the option, in a segregated account with the Fund's custodian bank.

|_| Risks of Hedging with Options and Futures. The use of hedging instruments requires special skills and knowledge of
investment techniques that are different than what is required for normal portfolio management. If the Manager uses a hedging
instrument at the wrong time or judges market conditions incorrectly, hedging strategies may reduce the Fund's return. The Fund could
also experience losses if the prices of its futures and options positions were not correlated with its other investments.

The Fund's option activities could affect its portfolio turnover rate and brokerage commissions. The exercise of calls
written by the Fund might cause the Fund to sell related portfolio securities, thus increasing its turnover rate. The exercise by the
Fund of puts on securities will cause the sale of underlying investments, increasing portfolio turnover. Although the decision
whether to exercise a put it holds is within the Fund's control, holding a put might cause the Fund to sell the related investments
for reasons that would not exist in the absence of the put.

The Fund could have to pay a brokerage commission each time it buys a call or put, sells a call or put, or buys or sells an
underlying investment in connection with the exercise of a call or put. Those commissions could be higher on a relative basis than
the commissions for direct purchases or sales of the underlying investments. Premiums paid for options are small in relation to the
market value of the underlying investments. Consequently, put and call options offer large amounts of leverage. The leverage offered
by trading in options could result in the Fund's net asset value being more sensitive to changes in the value of the underlying
investment.

If a covered call written by the Fund is exercised on an investment that has increased in value, the Fund will be required
to sell the investment at the call price. It will not be able to realize any profit if the investment has increased in value above
the call price.

An option position may be closed out only on a market that provides secondary trading for options of the same series, and
there is no assurance that a liquid secondary market will exist for any particular option. The Fund might experience losses if it
could not close out a position because of an illiquid market for the future or option.

There is a risk in using short hedging by selling futures or purchasing puts on broadly-based indices or futures to attempt
to protect against declines in the value of the Fund's portfolio securities. The risk is that the prices of the futures or the
applicable index will correlate imperfectly with the behavior of the cash prices of the Fund's securities. For example, it is
possible that while the Fund has used hedging instruments in a short hedge, the market might advance and the value of the securities
held in the Fund's portfolio might decline. If that occurred, the Fund would lose money on the hedging instruments and also
experience a decline in the value of its portfolio securities. However, while this could occur for a very brief period or to a very
small degree, over time the value of a diversified portfolio of securities will tend to move in the same direction as the indices
upon which the hedging instruments are based.

The risk of imperfect correlation increases as the composition of the Fund's portfolio diverges from the securities included
in the applicable index. To compensate for the imperfect correlation of movements in the price of the portfolio securities being
hedged and movements in the price of the hedging instruments, the Fund might use hedging instruments in a greater dollar amount than
the dollar amount of portfolio securities being hedged. It might do so if the historical volatility of the prices of the portfolio
securities being hedged is more than the historical volatility of the applicable index.

The ordinary spreads between prices in the cash and futures markets are subject to distortions, due to differences in the
nature of those markets. First, all participants in the futures market are subject to margin deposit and maintenance requirements.
Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions
which could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures market depends
on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to
make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of
speculators, the deposit requirements in the futures market are less onerous than margin requirements in the securities markets.
Therefore, increased participation by speculators in the futures market may cause temporary price distortions.

The Fund can use hedging instruments to establish a position in the securities markets as a temporary substitute for the
purchase of individual securities (long hedging) by buying futures and/or calls on such futures, broadly-based indices or on
securities. It is possible that when the Fund does so the market might decline. If the Fund then concludes not to invest in
securities because of concerns that the market may decline further or for other reasons, the Fund will realize a loss on the hedging
instruments that is not offset by a reduction in the price of the securities purchased.

|_| Forward Contracts. Forward contracts are foreign currency exchange contracts. They are used to buy or sell foreign
currency for future delivery at a fixed price. The Fund uses them to "lock in" the U.S. dollar price of a security denominated in a
foreign currency that the Fund has bought or sold, or to protect against possible losses from changes in the relative values of the
U.S. dollar and a foreign currency. The Fund limits its exposure in foreign currency exchange contracts in a particular foreign
currency to the amount of its assets denominated in that currency or a closely-correlated currency. The Fund can also use
"cross-hedging" where the Fund hedges against changes in currencies other than the currency in which a security it holds is
denominated.

Under a forward contract, one party agrees to purchase, and another party agrees to sell, a specific currency at a future
date. That date may be any fixed number of days from the date of the contract agreed upon by the parties. The transaction price is
set at the time the contract is entered into. These contracts are traded in the inter-bank market conducted directly among currency
traders (usually large commercial banks) and their customers.

The Fund can use forward contracts to protect against uncertainty in the level of future exchange rates. The use of forward
contracts does not eliminate the risk of fluctuations in the prices of the underlying securities the Fund owns or intends to acquire,
but it does fix a rate of exchange in advance. Although forward contracts may reduce the risk of loss from a decline in the value of
the hedged currency, at the same time they limit any potential gain if the value of the hedged currency increases.

When the Fund enters into a contract for the purchase or sale of a security denominated in a foreign currency, or when it
anticipates receiving dividend payments in a foreign currency, the Fund might desire to "lock-in" the U.S. dollar price of the
security or the U.S. dollar equivalent of the dividend payments. To do so, the Fund could enter into a forward contract for the
purchase or sale of the amount of foreign currency involved in the underlying transaction, in a fixed amount of U.S. dollars per unit
of the foreign currency. This is called a "transaction hedge." The transaction hedge will protect the Fund against a loss from an
adverse change in the currency exchange rates during the period between the date on which the security is purchased or sold or on
which the payment is declared, and the date on which the payments are made or received.

The Fund could also use forward contracts to lock in the U.S. dollar value of portfolio positions. This is called a
"position hedge." When the Fund believes that foreign currency might suffer a substantial decline against the U.S. dollar, it could
enter into a forward contract to sell an amount of that foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in that foreign currency. When the Fund believes that the U.S. dollar may suffer a substantial
decline against a foreign currency, it might enter into a forward contract to buy that foreign currency for a fixed dollar amount.
Alternatively, the Fund might enter into a forward contract to sell a different foreign currency for a fixed U.S. dollar amount if
the Fund believes that the U.S. dollar value of the foreign currency to be sold pursuant to its forward contract will fall whenever
there is a decline in the U.S. dollar value of the currency in which portfolio securities of the Fund are denominated. That is
referred to as a "cross hedge."

The Fund will cover its short positions in these cases by identifying to its custodian bank assets having a value equal to
the aggregate amount of the Fund's commitment under forward contracts. The Fund will not enter into forward contracts or maintain a
net exposure to such contracts if the consummation of the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets denominated in that currency or another currency that is
the subject of the hedge. However, to avoid excess transactions and transaction costs, the Fund can maintain a net exposure to
forward contracts in excess of the value of the Fund's portfolio securities or other assets denominated in foreign currencies if the
excess amount is "covered" by liquid securities denominated in any currency. The cover must be at least equal at all times to the
amount of that excess. As one alternative, the Fund can purchase a call option permitting the Fund to purchase the amount of foreign
currency being hedged by a forward sale contract at a price no higher than the forward contract price. As another alternative, the
Fund can purchase a put option permitting the Fund to sell the amount of foreign currency subject to a forward purchase contract at a
price as high or higher than the forward contact price.

The precise matching of the amounts under forward contracts and the value of the securities involved generally will not be
possible because the future value of securities denominated in foreign currencies will change as a consequence of market movements
between the date the forward contract is entered into and the date it is sold. In some cases the Manager might decide to sell the
security and deliver foreign currency to settle the original purchase obligation. If the market value of the security is less than
the amount of foreign currency the Fund is obligated to deliver, the Fund might have to purchase additional foreign currency on the
"spot" (that is, cash) market to settle the security trade. If the market value of the security instead exceeds the amount of foreign
currency the Fund is obligated to deliver to settle the trade, the Fund might have to sell on the spot market some of the foreign
currency received upon the sale of the security. There will be additional transaction costs on the spot market in those cases.

The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. Forward contracts involve the risk that anticipated currency movements will not be accurately
predicted, causing the Fund to sustain losses on these contracts and to pay additional transactions costs. The use of forward
contracts in this manner might reduce the Fund's performance if there are unanticipated changes in currency prices to a greater
degree than if the Fund had not entered into such contracts.

At or before the maturity of a Forward Contract requiring the Fund to sell a currency, the Fund might sell a portfolio
security and use the sale proceeds to make delivery of the currency. In the alternative the Fund might retain the security and offset
its contractual obligation to deliver the currency by purchasing a second contract. Under that contract the Fund will obtain, on the
same maturity date, the same amount of the currency that it is obligated to deliver. Similarly, the Fund might close out a forward
contract requiring it to purchase a specified currency by entering into a second contract entitling it to sell the same amount of the
same currency on the maturity date of the first contract. The Fund would realize a gain or loss as a result of entering into such an
offsetting forward contract under either circumstance. The gain or loss will depend on the extent to which the exchange rate or rates
between the currencies involved moved between the execution dates of the first contract and offsetting contract.

The costs to the Fund of engaging in forward contracts varies with factors such as the currencies involved, the length of
the contract period and the market conditions then prevailing. Because forward contracts are usually entered into on a principal
basis, no brokerage fees or commissions are involved. Because these contracts are not traded on an exchange, the Fund must evaluate
the credit and performance risk of the counterparty under each forward contract.

Although the Fund values its assets daily in terms of U.S. dollars, it does not intend to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. The Fund can convert foreign currency from time to time, and will incur costs in doing
so. Foreign exchange dealers do not charge a fee for conversion, but they do seek to realize a profit based on the difference between
the prices at which they buy and sell various currencies. Thus, a dealer might offer to sell a foreign currency to the Fund at one
rate, while offering a lesser rate of exchange if the Fund desires to resell that currency to the dealer.

|_| Interest Rate Swap Transactions. The Fund can enter into interest rate swap agreements. In an interest rate swap,
the Fund and another party exchange their right to receive or their obligation to pay interest on a security. For example, they might
swap the right to receive floating rate payments for fixed rate payments. The Fund can enter into swaps only on securities that it
owns. The Fund will not enter into swaps with respect to more than 25% of its total assets. Also, the Fund will identify liquid
assets on its books (such as cash or U.S. government securities) to cover any amounts it could owe under swaps that exceed the
amounts it is entitled to receive, and it will adjust that amount daily, as needed.

Swap agreements entail both interest rate risk and credit risk. There is a risk that, based on movements of interest rates
in the future, the payments made by the Fund under a swap agreement will be greater than the payments it received. Credit risk arises
from the possibility that the counterparty will default. If the counterparty defaults, the Fund's loss will consist of the net amount
of contractual interest payments that the Fund has not yet received. The Manager will monitor the creditworthiness of counterparties
to the Fund's interest rate swap transactions on an ongoing basis.

The Fund can enter into swap transactions with certain counterparties pursuant to master netting agreements. A master
netting agreement provides that all swaps done between the Fund and that counterparty shall be regarded as parts of an integral
agreement. If amounts are payable on a particular date in the same currency in respect of one or more swap transactions, the amount
payable on that date in that currency shall be the net amount. In addition, the master netting agreement may provide that if one
party defaults generally or on one swap, the counterparty can terminate all of the swaps with that party. Under these agreements, if
a default results in a loss to one party, the measure of that party's damages is calculated by reference to the average cost of a
replacement swap for each swap. It is measured by the mark-to-market value at the time of the termination of each swap. The gains and
losses on all swaps are then netted, and the result is the counterparty's gain or loss on termination. The termination of all swaps
and the netting of gains and losses on termination is generally referred to as "aggregation."

|_| Regulatory Aspects of Hedging Instruments. When using futures and options on futures, the Fund is required to
operate within certain guidelines and restrictions with respect to the use of futures as established by the Commodities Futures
Trading Commission (the "CFTC"). In particular, the Fund is exempted from registration with the CFTC as a "commodity pool operator"
if the Fund complies with the requirements of Rule 4.5 adopted by the CFTC. The Rule does not limit the percentage of the Fund's
assets that may be used for futures margin and related options premiums for a bona fide hedging position. However, under the Rule,
the Fund must limit its aggregate initial futures margin and related options premiums to not more than 5% of the Fund's net assets
for hedging strategies that are not considered bona fide hedging strategies under the Rule. Under the Rule, the Fund must also use
short futures and options on futures solely for bona fide hedging purposes within the meaning and intent of the applicable provisions
of the Commodity Exchange Act.

Transactions in options by the Fund are subject to limitations established by the option exchanges. The exchanges limit the
maximum number of options that may be written or held by a single investor or group of investors acting in concert. Those limits
apply regardless of whether the options were written or purchased on the same or different exchanges or are held in one or more
accounts or through one or more different exchanges or through one or more brokers. Thus, the number of options that the Fund may
write or hold may be affected by options written or held by other entities, including other investment companies having the same
advisor as the Fund (or an advisor that is an affiliate of the Fund's advisor). The exchanges also impose position limits on futures
transactions. An exchange may order the liquidation of positions found to be in violation of those limits and may impose certain
other sanctions.

Under the Investment Company Act, when the Fund purchases a future, it must maintain cash or readily marketable short-term
debt instruments in an amount equal to the market value of the securities underlying the future, less the margin deposit applicable
to it.

|_| Tax Aspects of Certain Hedging Instruments. Certain foreign currency exchange contracts in which the Fund may invest
are treated as "Section 1256 contracts" under the Internal Revenue Code. In general, gains or losses relating to Section 1256
contracts are characterized as 60% long-term and 40% short-term capital gains or losses under the Code. However, foreign currency
gains or losses arising from Section 1256 contracts that are forward contracts generally are treated as ordinary income or loss. In
addition, Section 1256 contracts held by the Fund at the end of each taxable year are "marked-to-market," and unrealized gains or
losses are treated as though they were realized. These contracts also may be marked-to-market for purposes of determining the excise
tax applicable to investment company distributions and for other purposes under rules prescribed pursuant to the Internal Revenue
Code. An election can be made by the Fund to exempt those transactions from this marked-to-market treatment.

Certain forward contracts the Fund enters into may result in "straddles" for federal income tax purposes. The straddle rules
may affect the character and timing of gains (or losses) recognized by the Fund on straddle positions. Generally, a loss sustained on
the disposition of a position making up a straddle is allowed only to the extent that the loss exceeds any unrecognized gain in the
offsetting positions making up the straddle. Disallowed loss is generally allowed at the point where there is no unrecognized gain in
the offsetting positions making up the straddle, or the offsetting position is disposed of.

Under the Internal Revenue Code, the following gains or losses are treated as ordinary income or loss:
(1) gains or losses attributable to fluctuations in exchange rates that occur between the time the Fund accrues interest or
other receivables or accrues expenses or other liabilities denominated in a foreign currency and the time the Fund
actually collects such receivables or pays such liabilities, and
(2) gains or losses attributable to fluctuations in the value of a foreign currency between the date of acquisition of a debt
security denominated in a foreign currency or foreign currency forward contracts and the date of disposition.

Currency gains and losses are offset against market gains and losses on each trade before determining a net "Section 988"
gain or loss under the Internal Revenue Code for that trade, which may increase or decrease the amount of the Fund's investment
income available for distribution to its shareholders.

|X| Temporary Defensive Investments. The Fund's temporary defensive investments can include debt securities such as: (i)
U.S. Treasury bills or other obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; (ii)
commercial paper rated A-3 or higher by Standard & Poor's or P-3 or higher by Moody's; (iii) certificates of deposit or bankers'
acceptances or other obligations of domestic banks with assets of $1 billion or more; and (iv) repurchase agreements.

Investment Restrictions

|X| What Are "Fundamental Policies?" Fundamental policies are those policies that the Fund has adopted to govern its
investments that can be changed only by the vote of a "majority" of the Fund's outstanding voting securities. Under the Investment
Company Act, a "majority" vote is defined as the vote of the holders of the lesser of:
o 67% or more of the shares present or represented by proxy at a shareholder meeting, if the holders of more than 50% of
the outstanding shares are present or represented by proxy, or
o more than 50% of the outstanding shares.

The Fund's investment objective is a fundamental policy. Other policies described in the Prospectus or this Statement of
Additional Information are "fundamental" only if they are identified as such. The Fund's Board of Trustees can change non-fundamental
policies without shareholder approval. However, significant changes to investment policies will be described in supplements or
updates to the Prospectus or this Statement of Additional Information, as appropriate. The Fund's most significant investment
policies are described in the Prospectus.

|X| Does the Fund Have Additional Fundamental Policies? The following investment restrictions are fundamental policies of
the Fund.

o The Fund cannot buy securities issued or guaranteed by any one issuer if more than 5% of its total assets would be
invested in securities of that issuer or if it would then own more than 10% of that issuer's voting securities. That restriction
applies to 75% of the Fund's total assets. The limit does not apply to securities issued by the U.S. government or any of its
agencies or instrumentalities or securities of other investment companies.

o The Fund cannot invest in physical commodities or physical commodity contracts. However, the Fund can buy and sell
hedging instruments that are permitted by any of its other investment policies. The Fund can also buy and sell options, futures and
other instruments backed by physical commodities or the investment return from which is linked to changes in the price of physical
commodities.

o The Fund cannot concentrate investments. That means it cannot invest 25% or more of its total assets in any industry.

o The Fund cannot borrow money in excess of 33-1/3% of the value of its total assets. The Fund may borrow only from banks
and/or affiliated investment companies. With respect to this fundamental policy, the Fund can borrow only if it maintains a 300%
ratio of assets to borrowing at all times in the manner set forth in the Investment Company Act of 1940.

o The Fund cannot make loans except (a) through lending of securities, (b) through the purchase of debt instruments or
similar evidence of indebtedness, (c) through an interfund lending program with other affiliated funds, and (d) through repurchase
agreements.

o The Fund cannot invest in real estate or in interests in real estate. However, the Fund can purchase securities of
issuers holding real estate or interests in real estate (including securities of real estate investment trusts).

o The Fund cannot underwrite securities of other companies. A permitted exception is in case it is deemed to be an
underwriter under the Securities Act of 1933 when reselling any securities held in its own portfolio.

o The Fund cannot issue "senior securities," but this does not prohibit certain investment activities for which assets of
the Fund are designated as segregated, or margin, collateral or escrow arrangements are established, to cover the related
obligations. Examples of those activities include borrowing money, reverse repurchase agreements, delayed-delivery and when-issued
arrangements for portfolio securities transactions, and contracts to buy or sell derivatives, hedging instruments, options or futures.

Unless the Prospectus or this Statement of Additional Information states that a percentage restriction applies on an ongoing
basis, it applies only at the time the Fund makes an investment with the exception of the borrowing policy. The Fund need not sell
securities to meet the percentage limits if the value of the investment increases in proportion to the size of the Fund.

For purposes of the Fund's policy not to concentrate its investments as described above, the Fund has adopted the industry
classifications set forth in Appendix B to this Statement of Additional Information. This is not a fundamental policy.

How the Fund is Managed

Organization and History. The Fund is an open-end, diversified management investment company with an unlimited number of authorized
shares of beneficial interest. The Fund was organized as a corporation in 1967 but was reorganized as a Massachusetts business trust
in July 1986.

The Fund is governed by a Board of Trustees, which is responsible for protecting the interests of shareholders under
Massachusetts law. The Trustees meet periodically throughout the year to oversee the Fund's activities, review its performance, and
review the actions of the Manager. Although the Fund will not normally hold annual meetings of its shareholders, it may hold
shareholder meetings from time to time on important matters, and shareholders have the right to call a meeting to remove a Trustee or
to take other action described in the Fund's Declaration of Trust.

|_| Classes of Shares. The Board of Trustees has the power, without shareholder approval, to divide unissued shares of
the Fund into two or more classes. The Board has done so, and the Fund currently has four classes of shares: Class A, Class B, Class
C and Class N. All classes invest in the same investment portfolio. Each class of shares:
o has its own dividends and distributions,
o pays certain expenses which may be different for the different classes,
o may have a different net asset value,
o may have separate voting rights on matters in which interests of one class are different from interests of another class,
and
o votes as a class on matters that affect that class alone.

Shares are freely transferable, and each share of each class has one vote at shareholder meetings, with fractional shares
voting proportionally on matters submitted to the vote of shareholders. Each share of the Fund represents an interest in the Fund
proportionately equal to the interest of each other share of the same class.

The Trustees are authorized to create new series and classes of shares. The Trustees may reclassify unissued shares of the
Fund into additional series or classes of shares. The Trustees also may divide or combine the shares of a class into a greater or
lesser number of shares without changing the proportionate beneficial interest of a shareholder in the Fund. Shares do not have
cumulative voting rights or preemptive or subscription rights. Shares may be voted in person or by proxy at shareholder meetings.

|_| Meetings of Shareholders. As a Massachusetts business trust, the Fund is not required to hold, and does not plan to
hold, regular annual meetings of shareholders. The Fund will hold meetings when required to do so by the Investment Company Act or
other applicable law. It will also do so when a shareholder meeting is called by the Trustees or upon proper request of the
shareholders.

Shareholders have the right, upon the declaration in writing or vote of two-thirds of the outstanding shares of the Fund, to
remove a Trustee. The Trustees will call a meeting of shareholders to vote on the removal of a Trustee upon the written request of
the record holders of 10% of its outstanding shares. If the Trustees receive a request from at least 10 shareholders stating that
they wish to communicate with other shareholders to request a meeting to remove a Trustee, the Trustees will then either make the
Fund's shareholder list available to the applicants or mail their communication to all other shareholders at the applicants' expense.
The shareholders making the request must have been shareholders for at least six months and must hold shares of the Fund valued at
$25,000 or more or constituting at least 1% of the Fund's outstanding shares, whichever is less. The Trustees may also take other
action as permitted by the Investment Company Act.

|_| Shareholder and Trustee Liability. The Fund's Declaration of Trust contains an express disclaimer of shareholder or
Trustee liability for the Fund's obligations. It also provides for indemnification and reimbursement of expenses out of the Fund's
property for any shareholder held personally liable for its obligations. The Declaration of Trust also states that upon request, the
Fund shall assume the defense of any claim made against a shareholder for any act or obligation of the Fund and shall satisfy any
judgment on that claim. Massachusetts law permits a shareholder of a business trust (such as the Fund) to be held personally liable
as a "partner" under certain circumstances. However, the risk that a Fund shareholder will incur financial loss from being held
liable as a "partner" of the Fund is limited to the relatively remote circumstances in which the Fund would be unable to meet its
obligations.

The Fund's contractual arrangements state that any person doing business with the Fund (and each shareholder of the Fund)
agrees under its Declaration of Trust to look solely to the assets of the Fund for satisfaction of any claim or demand that may arise
out of any dealings with the Fund. Additionally, the Trustees shall have no personal liability to any such person, to the extent
permitted by law.

Trustees and Officers of the Fund. The Fund's Trustees and officers and their principal occupations and business affiliations during
the past five years are listed below. Trustees denoted with an asterisk (*) below are deemed to be "interested persons" of the Fund
under the Investment Company Act. All of the Trustees are also trustees, directors or managing general partners of the following
Denver-based Oppenheimer funds1:

Oppenheimer Cash Reserves                                     Oppenheimer Select Managers
Oppenheimer Champion Income Fund                              Oppenheimer Senior Floating Rate Fund
Oppenheimer Capital Income Fund                               Oppenheimer Strategic Income Fund
Oppenheimer High Yield Fund                                   Oppenheimer Total Return Fund, Inc.
Oppenheimer International Bond Fund                           Oppenheimer Variable Account Funds
Oppenheimer Integrity Funds                                   Panorama Series Fund, Inc.
Oppenheimer Limited-Term Government Fund                      Centennial America Fund, L. P.
Oppenheimer Main Street Funds, Inc.                           Centennial California Tax Exempt Trust
Oppenheimer Main Street Opportunity Fund                      Centennial Government Trust
Oppenheimer Main Street Small Cap Fund.                       Centennial Money Market Trust
Oppenheimer Municipal Fund                                    Centennial New York Tax Exempt Trust
Oppenheimer Real Asset Fund                                   Centennial Tax Exempt Trust

         Ms. Macaskill and Messrs. Swain, Bishop,  Wixted,  Donohue,  Farrar and Zack, who are officers of the Fund,  respectively hold
the same offices with the other  Denver-based  Oppenheimer  funds.  As of December 1, 2000,  the Trustees and officers of the Fund as a
group owned less than 1% of the  outstanding  shares of the Fund. The foregoing  statement does not reflect shares held of record by an
employee  benefit plan for  employees of the Manager other than shares  beneficially  owned under that plan by the officers of the Fund
listed below. Ms. Macaskill and Mr. Donohue are trustees of that plan.

James C. Swain*, Chairman, Chief Executive Officer and Trustee, Age: 67.
6803 South Tucson Way, Englewood, Colorado 80112
Vice Chairman of the Manager (since September 1988);  formerly President and a director of Centennial Asset Management  Corporation,  a
wholly-owned  subsidiary of the Manager and Chairman of the Board of Shareholder  Services,  Inc., a transfer  agent  subsidiary of the
Manager.

Bridget A. Macaskill*, President and Trustee; Age: 52.
Two World Trade Center, New York, New York 10048-0203
Chairman  (since August 2000),  Chief  Executive  Officer (since  September  1995) and a director (since December 1994) of the Manager;
President  (since  September 1995) and a director (since October 1990) of Oppenheimer  Acquisition  Corp., the Manager's parent holding
company;  President, Chief Executive Officer and a director (since March 2000) of OFI Private Investments,  Inc., an investment adviser
subsidiary  of the Manager;  Chairman and a director of  Shareholder  Services,  Inc.  (since  August 1994) and  Shareholder  Financial
Services,  Inc. (since September  1995),  transfer agent  subsidiaries of the Manager;  President (since September 1995) and a director
(since  November  1989) of  Oppenheimer  Partnership  Holdings,  Inc., a holding  company  subsidiary  of the Manager;  President and a
director (since October 1997) of  OppenheimerFunds  International  Ltd., an offshore fund  management  subsidiary of the Manager and of
Oppenheimer  Millennium  Funds plc; a director of HarbourView  Asset Management  Corporation  (since July 1991) and of Oppenheimer Real
Asset  Management,  Inc.  (since  July  1996),  investment  adviser  subsidiaries  of the  Manager;  a director  (since  April 2000) of
OppenheimerFunds  Legacy Program, a charitable trust program  established by the Manager;  a director of Prudential  Corporation plc (a
U.K.  financial service company);  President and a trustee of other Oppenheimer  funds;  formerly President of the Manager (June 1991 -
August 2000).

William L. Armstrong, Trustee, Age: 63.
11 Carriage Lane, Littleton, Colorado 80121
Chairman of the following  private mortgage banking  companies:  Cherry Creek Mortgage Company (since 1991),  Centennial State Mortgage
Company (since 1994), The El Paso Mortgage  Company (since 1993),  Transland  Financial  Services,  Inc. (since 1997);  Chairman of the
following private  companies:  Frontier Real Estate,  Inc.  (residential  real estate  brokerage)  (since 1994),  Frontier Title (title
insurance  agency) (since 1995),  Great Frontier  Insurance  (insurance  agency) (since 1995) and Ambassador Media  Corporation  (since
1984);  Director of the  following  public  companies:  Storage  Technology  Corporation  (computer  equipment  company)  (since 1991),
Helmerich & Payne,  Inc. (oil and gas  drilling/production  company)  (since 1992),  UNUMProvident  (insurance  company)  (since 1991);
formerly Director of International  Family Entertainment  (television  channel) (1992 - 1997) and Natec Resources,  Inc. (air pollution
control equipment and services company) (1991-1995); formerly U.S. Senator (January 1979-January 1991).

Robert G. Avis*, Trustee, Age: 69.
10369 Clayton Road, St. Louis, Missouri 63131
Director and President of A.G. Edwards Capital, Inc. (General Partner of private equity funds),  formerly,  until March 2000, Chairman,
President and Chief Executive  Officer of A.G. Edwards Capital,  Inc.;  formerly,  until March 1999, Vice Chairman and Director of A.G.
Edwards,  Inc. and Vice Chairman of A.G. Edwards & Sons, Inc. (its brokerage company  subsidiary);  until March 1999,  Chairman of A.G.
Edwards Trust Company and A.G.E. Asset Management  (investment  advisor);  until March 2000, a Director of A.G. Edwards & Sons and A.G.
Edwards Trust Company.

George C. Bowen, Trustee, Age: 64.
9224 Bauer Ct., Lone Tree, Colorado 80124
Formerly  (until April 1999) Mr. Bowen held the following  positions:  Senior Vice President  (from September 1987) and Treasurer (from
March 1985) of the Manager;  Vice President (from June 1983) and Treasurer (since March 1985) of OppenheimerFunds,  Distributor,  Inc.,
a subsidiary of the Manager and the Fund's  Distributor;  Senior Vice President  (since  February  1992),  Treasurer  (since July 1991)
Assistant  Secretary and a director (since December 1991) of Centennial  Asset  Management  Corporation;  Vice President (since October
1989) and Treasurer (since April 1986) of HarbourView Asset Management Corporation;  President,  Treasurer and a director of Centennial
Capital  Corporation  (since June 1989);  Vice  President  and  Treasurer  (since  August  1978) and  Secretary  (since  April 1981) of
Shareholder  Services,  Inc.; Vice President,  Treasurer and Secretary of Shareholder  Financial Services,  Inc. (since November 1989);
Assistant Treasurer of Oppenheimer  Acquisition Corp. (since March 1998);  Treasurer of Oppenheimer  Partnership Holdings,  Inc. (since
November  1989);  Vice  President  and  Treasurer  of  Oppenheimer  Real  Asset  Management,  Inc.  (since  July  1996);  Treasurer  of
OppenheimerFunds International Ltd. and Oppenheimer Millennium Funds plc (since October 1997).

Edward L. Cameron, Trustee, Age: 62.
Spring Valley Road, Morristown, New Jersey 07960
Formerly (from  1974-1999) a partner with  PricewaterhouseCoopers  LLC (an accounting  firm) and Chairman,  Price Waterhouse LLP Global
Investment Management Industry Services Group (from 1994-1998).

Jon S. Fossel, Trustee, Age: 58.
P.O. Box 44, Mead Street, Waccabuc, New York 10597
Formerly  (until  October 1995)  Chairman and a director of the Manager;  President and a director of  Oppenheimer  Acquisition  Corp.,
Shareholder Services, Inc. and Shareholder Financial Services, Inc.

Sam Freedman, Trustee, Age: 60.
4975 Lakeshore Drive, Littleton, Colorado 80123
Formerly (until October 1994) Chairman and Chief Executive  Officer of  OppenheimerFunds  Services,  Chairman,  Chief Executive Officer
and a director of Shareholder Services,  Inc., Chairman,  Chief Executive Officer and director of Shareholder Financial Services, Inc.,
Vice President and director of Oppenheimer Acquisition Corp. and a director of OppenheimerFunds, Inc.

Raymond J. Kalinowski, Trustee, Age: 71.
44 Portland Drive, St. Louis, Missouri 63131
Formerly a director  of Wave  Technologies  International,  Inc. (a  computer  products  training  company),  self-employed  consultant
(securities matters).

C. Howard Kast, Trustee, Age: 78.
2552 East Alameda, Denver, Colorado 80209
Formerly Managing Partner of Deloitte, Haskins & Sells (an accounting firm).

Robert M. Kirchner, Trustee, Age: 79.
7500 E. Arapahoe Road, Englewood, Colorado 80112
President of The Kirchner Company (management consultants).

F. William Marshall, Jr., Trustee, Age: 58.
87 Ely Road, Longmeadow, MA 01106
Formerly (until 1999) Chairman of SIS & Family Bank,  F.S.B.  (formerly SIS Bank);  President,  Chief Executive Officer and Director of
SIS Bankcorp.,  Inc. and SIS Bank (formerly Springfield Institution for Savings) (1993-1999);  Executive Vice President (until 1999) of
Peoples Heritage  Financial  Group,  Inc.;  Chairman and Chief Executive  Office of Bank of Ireland First Holdings,  Inc. and First New
Hampshire  Banks  (1990-1993);  Trustee  (since 1996) of MassMutual  Institutional  Funds and of MML Series  Investment  Fund (open-end
investment companies).

Michael S. Levine, Vice President and Portfolio Manager, Age: 35
Two World Trade Center, New York, New York 10048-0203
Vice President (since June 1998) of the Manager;  an officer and portfolio manager of other Oppenheimer funds;  formerly Assistant Vice
President  and  Portfolio  Manager of the  Manager  (April  1996 - June  1998);  prior to joining  the  Manager in June 1994,  he was a
portfolio manager and research associate for Amas Securities, Inc. (February 1990 - February 1994).

Andrew J. Donohue, Vice President and Secretary; Age: 50.
Two World Trade Center, New York, New York 10048-0203
Executive  Vice President  (since January 1993),  General  Counsel (since October 1991) and a director  (since  September  1995) of the
Manager;  Executive Vice President and General Counsel (since  September 1993) and a director (since January 1992) of  OppenheimerFunds
Distributor,  Inc.;  Executive Vice President,  General Counsel and a director (since  September 1995) of HarbourView  Asset Management
Corporation,  Shareholder Services,  Inc.,  Shareholder  Financial Services,  Inc. and Oppenheimer  Partnership Holdings,  Inc., of OFI
Private  Investments,  Inc.  (since March 2000),  and of PIMCO Trust Company  (since May 2000);  President and a director of Centennial
Asset Management  Corporation  (since September 1995) and of Oppenheimer Real Asset Management,  Inc. (since July 1996); Vice President
and a director (since September 1997) of  OppenheimerFunds  International Ltd. and Oppenheimer  Millennium Funds plc; a director (since
April 2000) of  OppenheimerFunds  Legacy  Program;  General  Counsel  (since May 1996) and Secretary  (since April 1997) of Oppenheimer
Acquisition Corp.; an officer of other Oppenheimer funds.

Brian W. Wixted, Treasurer and Principal Financial and Accounting Officer, Age: 41.
6803 South Tucson Way, Englewood, Colorado 80112
Senior Vice President and Treasurer  (since March 1999) of the Manager;  Treasurer  (since March 1999) of HarbourView  Asset Management
Corporation,  Shareholder Services,  Inc.,  Oppenheimer Real Asset Management  Corporation,  Shareholder  Financial Services,  Inc. and
Oppenheimer  Partnership  Holdings,  Inc., of OFI Private  Investments,  Inc. (since March 2000) and of OppenheimerFunds  International
Ltd. and  Oppenheimer  Millennium  Funds plc (since May 2000);  Treasurer and Chief  Financial  Officer (since May 2000) of PIMCO Trust
Company;  Assistant Treasurer (since March 1999) of Oppenheimer  Acquisition Corp. and of Centennial Asset Management  Corporation;  an
officer of other  Oppenheimer  funds;  formerly  Principal and Chief  Operating  Officer,  Bankers Trust Company - Mutual Fund Services
Division  (March 1995 - March 1999);  Vice  President  and Chief  Financial  Officer of CS First  Boston  Investment  Management  Corp.
(September 1991 - March 1995).

Robert G. Zack, Assistant Secretary, Age: 52.
Two World Trade Center, New York, New York 10048-0203
Senior  Vice  President  (since May 1985) and  Associate  General  Counsel  (since May 1981) of the  Manager;  Assistant  Secretary  of
Shareholder  Services,  Inc.  (since  May  1985),  Shareholder  Financial  Services,  Inc.  (since  November  1989);   OppenheimerFunds
International Ltd. and Oppenheimer Millennium Funds plc (since October 1997); an officer of other Oppenheimer funds.

Robert J. Bishop, Assistant Treasurer, Age: 42.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the  Manager/Mutual  Fund Accounting (since May 1996); an officer of other Oppenheimer  funds;  formerly an Assistant
Vice President of the Manager/Mutual Fund Accounting (April 1994 - May 1996) and a Fund Controller of the Manager.

Scott T. Farrar, Assistant Treasurer, Age: 35.
6803 South Tucson Way, Englewood, Colorado 80112
Vice President of the Manager/Mutual Fund Accounting (since May 1996);  Assistant Treasurer of Oppenheimer  Millennium Funds plc (since
October 1997);  an officer of other  Oppenheimer  Funds;  formerly an Assistant Vice President of the  Manager/Mutual  Fund  Accounting
(April 1994 - May 1996), and a Fund Controller of the Manager.

         |X|  Remuneration  of  Trustees.  The  officers of the Fund and two  Trustees of the Fund (Ms.  Macaskill  and Mr.  Swain) are
affiliated  with the Manager and receive no salary or fee from the Fund. The remaining  Trustees of the Fund received the  compensation
shown below.  The compensation  from the Fund was paid during its fiscal year ended August 31, 2000. The  compensation  from all of the
Denver-based  Oppenheimer funds includes the compensation from the Fund and represents  compensation  received as a director,  trustee,
managing general partner or member of a committee of the Board during the calendar year 1999.

---------------------------------------------------- ---------------------------- ---------------------------------
                                                     Aggregate                    Total Compensation
                                                     Compensation                 from all Denver-Based
Trustee's Name and Position2                         from Fund                    Oppenheimer Funds1
---------------------------------------------------- ---------------------------- ---------------------------------
---------------------------------------------------- ---------------------------- ---------------------------------
William H. Armstrong                                 $2,918                       $14,542
Review Committee Member
---------------------------------------------------- ---------------------------- ---------------------------------
---------------------------------------------------- ---------------------------- ---------------------------------
Robert G. Avis                                       $6,032                       $67,998
---------------------------------------------------- ---------------------------- ---------------------------------
---------------------------------------------------- ---------------------------- ---------------------------------
George Bowen                                         $3,727                       $23,879
---------------------------------------------------- ---------------------------- ---------------------------------
---------------------------------------------------- ---------------------------- ---------------------------------
Edward Cameron
Audit Committee Meeting                              $1,326                       $2,430
---------------------------------------------------- ---------------------------- ---------------------------------
---------------------------------------------------- ---------------------------- ---------------------------------
Jon. S. Fossel3
Review Committee Member                              $6,294                       $66,586
---------------------------------------------------- ---------------------------- ---------------------------------
---------------------------------------------------- ---------------------------- ---------------------------------
Sam Freedman
Chairman, Review Committee                           $6,564                       $73,998
---------------------------------------------------- ---------------------------- ---------------------------------
---------------------------------------------------- ---------------------------- ---------------------------------
Raymond J. Kalinowski                                $6,370                       $73,248
---------------------------------------------------- ---------------------------- ---------------------------------
---------------------------------------------------- ---------------------------- ---------------------------------
C. Howard Kast
Chairman, Audit Committee and
Review Committee Member                              $7,145                       $78,873
---------------------------------------------------- ---------------------------- ---------------------------------
---------------------------------------------------- ---------------------------- ---------------------------------
Robert M. Kirchner3
Audit Committee Member                               $6,242                       $69,248
---------------------------------------------------- ---------------------------- ---------------------------------
---------------------------------------------------- ---------------------------- ---------------------------------
F. William Marshall, Jr.4                            None                         None
---------------------------------------------------- ---------------------------- ---------------------------------

1. For the 1999 calendar year.
2. Effective July 1, 2000, William A. Baker and Ned M. Steel resigned as Trustees of the Fund and subsequently became Trustee
Emeritus of the Fund. For the fiscal year ended August 31, 2000, Messrs. Baker and Steel each received $6,032 aggregate compensation
from the Fund and for the calendar year ended December 31, 1999, they each received $67,998 total compensation from all Denver-based
Oppenheimer funds.
3.Committee position held during a portion of the period shown.
4. Mr. Marshall was not a Trustee or Director of the Denver-based Oppenheimer funds during 1999.

|X| Deferred Compensation Plan. The Board of Trustees has adopted a Deferred Compensation Plan for disinterested Trustees
that enables them to elect to defer receipt of all or a portion of the annual fees they are entitled to receive from the Fund. Under
the plan, the compensation deferred by a Trustee or is periodically adjusted as though an equivalent amount had been invested in
shares of one or more Oppenheimer funds selected by the Trustee. The amount paid to the Trustee under the plan will be determined
based upon the performance of the selected funds.

Deferral of Trustee's fees under the plan will not materially affect the Fund's assets, liabilities and net income per
share. The plan will not obligate the Fund to retain the services of any Trustee or to pay any particular level of compensation to
any Trustee. Pursuant to an Order issued by the Securities and Exchange Commission, the Fund may invest in the funds selected by the
Trustee under the plan without shareholder approval for the limited purpose of determining the value of the Trustee's deferred fee
account.

|X| Major Shareholders. As of December 11, 2000 there were no persons who owned of record or were known by the Fund to own
beneficially 5% or more of any class of the Fund's outstanding shares.

The Manager. The Manager is wholly-owned by Oppenheimer Acquisition Corp., a holding company controlled by Massachusetts Mutual Life
Insurance Company.

|X| Code of Ethics. The Fund, the Manager and the Distributor have a Code of Ethics.
It is designed to detect and prevent improper personal trading by certain employees, including portfolio managers, that would compete
with or take advantage of the Fund's portfolio transactions. Covered persons include persons with knowledge of the investments and
investment intentions of the Fund and other funds advised by the Manager. The Code of Ethics does permit personnel subject to the
Code to invest in securities, including securities that may be purchased or held by the Fund, subject to a number of restrictions and
controls. Compliance with the Code of Ethics is carefully monitored and enforced by the Manager.

The Code of Ethics is an exhibit to the Fund's registration statement filed with the Securities and Exchange Commission and
can be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. You can obtain information about the hours of
operation of the Public Reference Room by calling the SEC at 1-202-942-8090. The Code of Ethics can also be viewed as part of the
Fund's registration statement on the SEC's EDGAR database at the SEC's Internet web site at http://www.sec.gov. Copies may be
obtained, after paying a duplicating fee, by electronic request at the following E-mail address: publicinfo@sec.gov., or by writing
to the SEC's Public Reference Section, Washington, D.C. 20549-0102.

|X| The Investment Advisory Agreement. The Manager provides investment advisory and management services to the Fund under an
investment advisory agreement between the Manager and the Fund. The Manager selects securities for the Fund's portfolio and handles
its day-to-day business. The portfolio managers of the Fund are employed by the Manager and is the person who is principally
responsible for the day-to-day management of the Fund's portfolio. Other members of the Manager's Equity Portfolio Department provide
the portfolio manager with counsel and support in managing the Fund's portfolio.

The agreement requires the Manager, at its expense, to provide the Fund with adequate office space, facilities and
equipment. It also requires the Manager to provide and supervise the activities of all administrative and clerical personnel required
to provide effective administration for the Fund. Those responsibilities include the compilation and maintenance of records with
respect to its operations, the preparation and filing of specified reports, and composition of proxy materials and registration
statements for continuous public sale of shares of the Fund.

The Fund pays expenses not expressly assumed by the Manager under the advisory agreement. The advisory agreement lists
examples of expenses paid by the Fund. The major categories relate to interest, taxes, brokerage commissions, fees to independent
trustees, legal and audit expenses, custodian bank and transfer agent expenses, share issuance costs, certain printing and
registration costs and non-recurring expenses, including litigation costs. The management fees paid by the Fund to the Manager are
calculated at the rates described in the Prospectus, which are applied to the assets of the Fund as a whole. The fees are allocated
to each class of shares based upon the relative proportion of the Fund's net assets represented by that class.

         ------------------------------------ --------------------------------------------------------
                     Fiscal Year                              Management Fees Paid to
                     Ended 8/31:                              OppenheimerFunds, Inc.
         ------------------------------------ --------------------------------------------------------
         ------------------------------------ --------------------------------------------------------
                        1998                                        $19,364,160
         ------------------------------------ --------------------------------------------------------
         ------------------------------------ --------------------------------------------------------
                        1999                                        $20,872,455
         ------------------------------------ --------------------------------------------------------
         ------------------------------------ --------------------------------------------------------
                        2000                                        $16,447,234
         ------------------------------------ --------------------------------------------------------

The investment advisory agreement states that in the absence of willful misfeasance, bad faith, gross negligence in the
performance of its duties or reckless disregard of its obligations and duties under the investment advisory agreement, the Manager is
not liable for any loss the Fund sustains for any investment, adoption of any investment policy, or the purchase, sale or retention
of any security.

The agreement permits the Manager to act as investment advisor for any other person, firm or corporation and to use the name
"Oppenheimer" in connection with other investment companies for which it may act as investment advisor or general distributor. If the
Manager shall no longer act as investment advisor to the Fund, the Manager may withdraw the right of the Fund to use the name
"Oppenheimer" as part of its name.

Brokerage Policies of the Fund

Brokerage Provisions of the Investment Advisory Agreement. One of the duties of the Manager under the investment advisory agreement
is to arrange the portfolio transactions for the Fund. The advisory agreement contains provisions relating to the employment of
broker-dealers to effect the Fund's portfolio transactions. The Manager is authorized by the advisory agreement to employ
broker-dealers, including "affiliated" brokers, as that term is defined in the Investment Company Act. The Manager may employ
broker-dealers that the Manager thinks, in its best judgment based on all relevant factors, will implement the policy of the Fund to
obtain, at reasonable expense, the "best execution" of the Fund's portfolio transactions. "Best execution" means prompt and reliable
execution at the most favorable price obtainable. The Manager need not seek competitive commission bidding. However, it is expected
to be aware of the current rates of eligible brokers and to minimize the commissions paid to the extent consistent with the interests
and policies of the Fund as established by its Board of Trustees.

Under the investment advisory agreement, the Manager may select brokers (other than affiliates) that provide brokerage
and/or research services for the Fund and/or the other accounts over which the Manager or its affiliates have investment discretion.
The commissions paid to such brokers may be higher than another qualified broker would charge, if the Manager makes a good faith
determination that the commission is fair and reasonable in relation to the services provided. Subject to those considerations, as a
factor in selecting brokers for the Fund's portfolio transactions, the Manager may also consider sales of shares of the Fund and
other investment companies for which the Manager or an affiliate serves as investment advisor.

Brokerage Practices Followed by the Manager. The Manager allocates brokerage for the Fund subject to the provisions of the investment
advisory agreement and the procedures and rules described above. Generally, the Manager's portfolio traders allocate brokerage based
upon recommendations from the Manager's portfolio managers. In certain instances, portfolio managers may directly place trades and
allocate brokerage. In either case, the Manager's executive officers supervise the allocation of brokerage.

Transactions in securities other than those for which an exchange is the primary market are generally done with principals
or market makers. In transactions on foreign exchanges, the Fund may be required to pay fixed brokerage commissions and therefore
would not have the benefit of negotiated commissions available in U.S. markets. Brokerage commissions are paid primarily for
transactions in listed securities or for certain fixed-income agency transactions in the secondary market. Otherwise brokerage
commissions are paid only if it appears likely that a better price or execution can be obtained by doing so. In an option
transaction, the Fund ordinarily uses the same broker for the purchase or sale of the option and any transaction in the securities to
which the option relates. Other funds advised by the Manager have investment policies similar to those of the Fund. Those other funds
may purchase or sell the same securities as the Fund at the same time as the Fund, which could affect the supply and price of the
securities. If two or more funds advised by the Manager purchase the same security on the same day from the same dealer, the
transactions under those combined orders are averaged as to price and allocated in accordance with the purchase or sale orders
actually placed for each account.

Most purchases of debt obligations are principal transactions at net prices. Instead of using a broker for those
transactions, the Fund normally deals directly with the selling or purchasing principal or market maker unless the Manager determines
that a better price or execution can be obtained by using the services of a broker. Purchases of portfolio securities from
underwriters include a commission or concession paid by the issuer to the underwriter. Purchases from dealers include a spread
between the bid and asked prices. The Fund seeks to obtain prompt execution of these orders at the most favorable net price.

The investment advisory agreement permits the Manager to allocate brokerage for research services. The research services
provided by a particular broker may be useful only to one or more of the advisory accounts of the Manager and its affiliates. The
investment research received for the commissions of those other accounts may be useful both to the Fund and one or more of the
Manager's other accounts. Investment research may be supplied to the Manager by a third party at the instance of a broker through
which trades are placed.

Investment research services include information and analysis on particular companies and industries as well as market or
economic trends and portfolio strategy, market quotations for portfolio evaluations, information systems, computer hardware and
similar products and services. If a research service also assists the Manager in a non-research capacity (such as bookkeeping or
other administrative functions), then only the percentage or component that provides assistance to the Manager in the investment
decision-making process may be paid in commission dollars.

The Board of Trustees permits the Manager to use stated commissions on secondary fixed-income agency trades to obtain
research if the broker represents to the Manager that: (i) the trade is not from or for the broker's own inventory, (ii) the trade
was executed by the broker on an agency basis at the stated commission, and (iii) the trade is not a riskless principal transaction.
The Board of Trustees permits the Manager to use concessions on fixed-price offerings to obtain research, in the same manner as is
permitted for agency transactions.

The research services provided by brokers broadens the scope and supplements the research activities of the Manager. That
research provides additional views and comparisons for consideration, and helps the Manager to obtain market information for the
valuation of securities that are either held in the Fund's portfolio or are being considered for purchase. The Manager provides
information to the Board about the commissions paid to brokers furnishing such services, together with the Manager's representation
that the amount of such commissions was reasonably related to the value or benefit of such services.

      ----------------------------------- ---------------------------------------------------------------------
                 Fiscal Year                                  Total Brokerage Commissions
                 Ended 8/31:                                       Paid by the Fund1
      ----------------------------------- ---------------------------------------------------------------------
      ----------------------------------- ---------------------------------------------------------------------
                     1998                                               $829,875
      ----------------------------------- ---------------------------------------------------------------------
      ----------------------------------- ---------------------------------------------------------------------
                     1999                                              $1,803,930
      ----------------------------------- ---------------------------------------------------------------------
      ----------------------------------- ---------------------------------------------------------------------
                     2000                                             $2,894,4612
      ----------------------------------- ---------------------------------------------------------------------

1. Amounts do not include spreads or concessions on principal transactions on a net trade basis.
2. In the fiscal year ended 8/31/00,  the amount of transactions  directed to brokers for research  services was $279,025,39
      and the amount of the commissions paid to broker-dealers for those services was $418,575.

Distribution and Service Plans

The  Distributor.  Under its General  Distributor's  Agreement with the Fund's parent  corporation,  the Distributor acts as the Fund's
principal  underwriter in the continuous  public  offering of shares of the Fund's classes of shares.  The Distributor is not obligated
to sell a specific number of shares.  Expenses  normally  attributable  to sales are borne by the  Distributor.  They exclude  payments
under the Fund's Distribution and Service Plans but include  advertising and the cost of printing and mailing  prospectuses (other than
prospectuses furnished to current shareholders).

         The  compensation  paid to (or retained by) the Distributor  from the sale of shares or on the redemption of shares during the
Fund's three most recent fiscal years is shown in the table below.

-------------- ------------------ -------------------- -------------------- ------------------- --------------------
Fiscal         Aggregate          Class A Front-       Concessions          Concessions         Concessions
               Front-End          End Sales            on Class A           on Class B          on Class C
Year           Sales Charges      Charges              Shares               Shares              Shares
Ended          on Class A         Retained by          Advanced by          Advanced by         Advanced by
8/31:          Shares             Distributor          Distributor1         Distributor1        Distributor1
-------------- ------------------ -------------------- -------------------- ------------------- --------------------
-------------- ------------------ -------------------- -------------------- ------------------- --------------------
1998           $8,057,145         $2,429,799           $468,532             $8,780,583          $551,784
-------------- ------------------ -------------------- -------------------- ------------------- --------------------
-------------- ------------------ -------------------- -------------------- ------------------- --------------------
1999           $5,280,270         $1,692,621           $533,123             $5,659,987          $484,484
-------------- ------------------ -------------------- -------------------- ------------------- --------------------
-------------- ------------------ -------------------- -------------------- ------------------- --------------------
2000           $2,190,051         $631,452             $300,262             $1,621,384          $96,086
-------------- ------------------ -------------------- -------------------- ------------------- --------------------
1. Includes amounts paid to a dealer affiliated with the Distributor's parent.

---------------- ------------------------------- -------------------------------- ----------------------------------
Fiscal           Class A                         Class B                          Class C
Year             Contingent Deferred             Contingent Deferred              Contingent Deferred Sales
Ended            Sales Charges Retained          Sales Charges Retained           Charges Retained by
8/31             by Distributor                  by Distributor                   Distributor
---------------- ------------------------------- -------------------------------- ----------------------------------
---------------- ------------------------------- -------------------------------- ----------------------------------
2000             $58,792                         $1,429,980                       $20,807
---------------- ------------------------------- -------------------------------- ----------------------------------

For additional information about distribution of the Fund's shares,
including fees and expenses, please refer to "Distribution and Service Plans,"
below.

Distribution and Service Plans. The Fund has adopted a Service Plan for Class A shares and Distribution and Service Plans for Class
B, Class C and Class N shares under Rule 12b-1 of the Investment Company Act. Under those plans the Fund makes payments to the
Distributor for all or a portion of its costs incurred in connection with the distribution and/or servicing of the shares of the
particular class.

Each plan has been approved by a vote of the Board of Trustees, including a majority of the Independent Trustees,2 cast in
person at a meeting called for the purpose of voting on that plan.

Under the plans, the Manager and the Distributor may make payments to affiliates and, in their sole discretion, from time to
time, may use their own resources (at no direct cost to the Fund) to make payments to brokers, dealers or other financial
institutions for distribution and administrative services they perform. The Manager may use its profits from the advisory fee it
receives from the Fund. In their sole discretion, the Distributor and the Manager may increase or decrease the amount of payments
they make from their own resources to plan recipients.

Unless a plan is terminated as described below, the plan continues in effect from year to year but only if the Fund's Board
of Trustees and its Independent Trustees specifically vote annually to approve its continuance. Approval must be by a vote cast in
person at a meeting called for the purpose of voting on continuing the plan. A plan may be terminated at any time by the vote of a
majority of the Independent Trustees or by the vote of the holders of a "majority" (as defined in the Investment Company Act) of the
outstanding shares of that class.

The Board of Trustees and the Independent Trustees must approve all material amendments to a plan. An amendment to increase
materially the amount of payments to be made under a plan must be approved by shareholders of the class affected by the amendment.
Because Class B shares of the Fund automatically convert into Class A shares after six years, the Fund must obtain the approval of
both Class A and Class B shareholders for a proposed material amendment to the Class A Plan that would materially increase payments
under the Plan. That approval must be by a "majority" (as defined in the Investment Company Act) of the shares of each class, voting
separately by class.

While the Plans are in effect, the Treasurer of the Fund shall provide separate written reports on the plans to the Board of
Trustees at least quarterly for its review. The Reports shall detail the amount of all payments made under a plan and the purpose for
which the payments were made. Those reports are subject to the review and approval of the Independent Trustees.

Each Plan states that while it is in effect, the selection and nomination of those Trustees of the Fund who are not
"interested persons" of the Fund is committed to the discretion of the Independent Trustees. This does not prevent the involvement of
others in the selection and nomination process as long as the final decision as to selection or nomination is approved by a majority
of the Independent Trustees.

Under the plans for a class, no payment will be made to any recipient in any quarter in which the aggregate net asset value of
all Fund shares of that class held by the recipient for itself and its customers does not exceed a minimum amount, if any, that may
be set from time to time by a majority of the Independent Trustees. The Board of Trustees has set no minimum amount of assets to
qualify for payments under the plans.

|_| Class A Service Plan Fees. Under the Class A service plan, the Distributor currently uses the fees it receives from
the Fund to pay brokers, dealers and other financial institutions (they are referred to as "recipients") for personal services and
account maintenance services they provide for their customers who hold Class A shares. The services include, among others, answering
customer inquiries about the Fund, assisting in establishing and maintaining accounts in the Fund, making the Fund's investment plans
available and providing other services at the request of the Fund or the Distributor.

The Class A service plan permits reimbursements to the Distributor at a rate of up to 0.25% of average annual net assets of
Class A shares. While the plan permits the Board to authorize payments to the Distributor to reimburse itself for services under the
plan, the Board has not yet done so. The Distributor makes payments to plan recipients quarterly at an annual rate not to exceed
0.25% of the average annual net assets consisting of Class A shares and held in the accounts of the recipients or their customers.

For the fiscal year ended August 31, 2000 payments under the Class A Plan totaled $5,799,373, all of which was paid by the
Distributor to recipients. That included $394,479 paid to an affiliate of the Distributor's parent company. Any unreimbursed expenses
the Distributor incurs with respect to Class A shares in any fiscal year cannot be recovered in subsequent years. The Distributor may
not use payments received under the Class A Plan to pay any of its interest expenses, carrying charges, or other financial costs, or
allocation of overhead.

|_| Class B, Class C and Class N Service and Distribution Plan Fees. Under each plan, service fees and distribution fees
are computed on the average of the net asset value of shares in the respective class, determined as of the close of each regular
business day during the period. The Class B, Class C and Class N plans provide for the Distributor to be compensated at a flat rate,
whether the Distributor's distribution expenses are more or less than the amounts paid by the Fund under the plan during the period
for which the fee is paid. The types of services that recipients provide are similar to the services provided under the Class A
service plan, described above.

The Class B, Class C and Class N plans permit the Distributor to retain both the asset-based sales charges and the service
fees or to pay recipients the service fee on a quarterly basis, without payment in advance. However, the Distributor currently
intends to pay the service fee to recipients in advance for the first year after the shares are purchased. After the first year
shares are outstanding, the Distributor makes service fee payments quarterly on those shares. The advance payment is based on the net
asset value of shares sold. Shares purchased by exchange do not qualify for the advance service fee payment. If Class B, Class C or
Class N shares are redeemed during the first year after their purchase, the recipient of the service fees on those shares will be
obligated to repay the Distributor a pro rata portion of the advance payment of the service fee made on those shares.

The Distributor retains the asset-based sales charge on Class B and Class N shares. The Distributor retains the asset-based
sales charge on Class C shares during the first year the shares are outstanding. It pays the asset-based sales charge as an ongoing
concession to the recipient on Class C shares outstanding for a year or more. If a dealer has a special agreement with the
Distributor, the Distributor will pay the Class B, Class C or Class N service fee and the Class B or Class C asset-based sales charge
to the dealer quarterly in lieu of paying the sales concessions and service fee in advance at the time of purchase.

The asset-based sales charges on Class B, Class C and Class N shares allow investors to buy shares without a front-end sales
charge while allowing the Distributor to compensate dealers that sell those shares. The Fund pays the asset-based sales charges to
the Distributor for its services rendered in distributing Class B, Class C and Class N shares. The payments are made to the
Distributor in recognition that the Distributor:
o pays sales concessions to authorized brokers and dealers at the time of sale and pays service fees as described above,
o may finance payment of sales concessions and/or the advance of the service fee payment to recipients under the plans, or may
provide such financing from its own resources or from the resources of an affiliate,
o employs personnel to support distribution of Class B, Class C and Class N shares, and
o bears the costs of sales literature, advertising and prospectuses (other than those furnished to current shareholders) and
state "blue sky" registration fees and certain other distribution expenses.

The Distributor's actual expenses in selling Class B, Class C and Class N shares may be more than the payments it receives from
the contingent deferred sales charges collected on redeemed shares and from the Fund under the plans. If the Class B, Class C or
Class N plan is terminated by the Fund, the Board of Trustees may allow the Fund to continue payments of the asset-based sales charge
to the Distributor for distributing shares before the plan was terminated.

All payments under the Class B, Class C and Class N plans are subject to the limitations imposed by the Conduct Rules of the
National Association of Securities Dealers, Inc. on payments of asset-based sales charges and service fees.

----------------------------------------------------------------------------------------------------------------------
Distribution Fees Paid to the Distributor for the Year Ended 8/31/00
----------------------------------------------------------------------------------------------------------------------
--------------------- ------------------- -------------------- ------------------------------ ------------------------
Class:                Total               Amount               Distributor's                  Distributor's
                                                               Aggregate                      Unreimbursed
                                                               Unreimbursed                   Expenses as
                      Payments            Retained by          Expenses                       % of Net Assets
                      Under Plan          Distributor          Under Plan                     of Class
--------------------- ------------------- -------------------- ------------------------------ ------------------------
--------------------- ------------------- -------------------- ------------------------------ ------------------------
Class B Plan          $5,476,726          $4,309,078           $12,531,453                    2.65%
--------------------- ------------------- -------------------- ------------------------------ ------------------------
--------------------- ------------------- -------------------- ------------------------------ ------------------------
Class C Plan          $851,214            $250,604             $1,555,535                     2.12%
--------------------- ------------------- -------------------- ------------------------------ ------------------------

Performance of the Fund

Explanation  of  Performance  Terminology.  The Fund uses a variety of terms to  illustrate  its  investment  performance.  Those terms
include  "cumulative  total return,"  "average annual total return," "average annual total return at net asset value" and "total return
at net asset  value." An  explanation  of how total  returns  are  calculated  is set forth  below.  The  charts  below show the Fund's
performance  as of the Fund's most  recent  fiscal  year end.  You can obtain  current  performance  information  by calling the Fund's
Transfer Agent at 1-800-525-7048 or by visiting the OppenheimerFunds Internet web site at http://www.oppenheimerfunds.com.

         The Fund's  illustrations  of its  performance  data in  advertisements  must comply with rules of the Securities and Exchange
Commission.  Those rules  describe  the types of  performance  data that may be used and how it is to be  calculated.  In general,  any
advertisement  by the Fund of its performance  data must include the average annual total returns for the advertised class of shares of
the Fund.  Those  returns  must be shown for the 1-, 5- and 10-year  periods (or the life of the class,  if less) ending as of the most
recently ended calendar quarter prior to the publication of the advertisement (or its submission for publication).

         Use of  standardized  performance  calculations  enables an investor to compare the Fund's  performance to the  performance of
other funds for the same periods.  However,  a number of factors should be considered before using the Fund's  performance  information
as a basis for comparison with other investments:
         o    Total returns  measure the  performance  of a hypothetical  account in the Fund over various  periods and do not show the
performance of each shareholder's  account.  Your account's performance will vary from the model performance data if your dividends are
received in cash,  or you buy or sell  shares  during the  period,  or you bought  your  shares at a different  time and price than the
shares used in the model.
         o    The Fund's performance returns do not reflect the effect of taxes on dividends and capital gains distributions.
         o    An investment in the Fund is not insured by the FDIC or any other government agency.
         o    The  principal  value of the Fund's shares and total returns are not  guaranteed  and normally will  fluctuate on a daily
basis.
         o    When an investor's shares are redeemed, they may be worth more or less than their original cost.

         Total  returns  for any given  past  period  represent  historical  performance  information  and are not,  and  should not be
considered, a prediction of future returns.

         The performance of each class of shares is shown  separately,  because the performance of each class of shares will usually be
different.  That is because of the different kinds of expenses each class bears.  The total returns of each class of shares of the Fund
are affected by market conditions,  the quality of the Fund's investments,  the maturity of debt investments,  the types of investments
the Fund holds, and its operating expenses that are allocated to the particular class.

         |X| Total Return  Information.  There are different types of "total returns" to measure the Fund's  performance.  Total return
is the change in value of a  hypothetical  investment  in the Fund over a given  period,  assuming that all dividends and capital gains
distributions  are  reinvested  in  additional  shares  and that the  investment  is  redeemed  at the end of the  period.  Because  of
differences  in expenses for each class of shares,  the total returns for each class are  separately  measured.  The  cumulative  total
return measures the change in value over the entire period (for example,  ten years).  An average annual total return shows the average
rate of return for each year in a period that would  produce the  cumulative  total  return over the entire  period.  However,  average
annual total returns do not show actual  year-by-year  performance.  The Fund uses  standardized  calculations for its total returns as
prescribed by the SEC. The methodology is discussed below.

         In calculating  total returns for Class A shares,  the current  maximum sales charge of 5.75% (as a percentage of the offering
price) is deducted from the initial  investment ("P") (unless the return is shown without sales charge, as described below).  For Class
B shares,  payment of the  applicable  contingent  deferred  sales  charge is applied,  depending on the period for which the return is
shown:  5.0% in the first year, 4.0% in the second year, 3.0% in the third and fourth years,  2.0% in the fifth year, 1.0% in the sixth
year and none thereafter.  For Class C shares,  the 1% contingent  deferred sales charge is deducted for returns for the 1-year period.
For Class N shares, the 1% contingent  deferred sales charge is deducted for returns for the 18 month period.  There is no sales charge
for Class Y shares.

              |_| Average Annual Total Return.  The "average annual total return" of each class is an average annual compounded rate of
return for each year in a specified  number of years.  It is the rate of return based on the change in value of a hypothetical  initial
investment of $1,000 ("P" in the formula below) held for a number of years ("n" in the formula) to achieve an Ending  Redeemable  Value
("ERV" in the formula) of that investment, according to the following formula:


                            ERV
                        ----------- -1= Average Annual Total Return
                             P


              |_| Cumulative Total Return.  The "cumulative  total return"  calculation  measures the change in value of a hypothetical
investment  of $1,000 over an entire period of years.  Its  calculation  uses some of the same factors as average  annual total return,
but it does not average the rate of return on an annual basis. Cumulative total return is determined as follows:

                            ERV - P
                        -------------- = Total Return
                                P


              |_| Total Returns at Net Asset Value.  From time to time the Fund may also quote a cumulative or an average  annual total
return "at net asset value" (without  deducting sales charges) for Class A, Class B or Class N shares.  Each is based on the difference
in net asset  value per  share at the  beginning  and the end of the  period  for a  hypothetical  investment  in that  class of shares
(without  considering  front-end or contingent  deferred sales charges) and takes into  consideration the reinvestment of dividends and
capital gains distributions.

--------------------------------------------------------------------------------------------------------------------
                              The Fund's Total Returns for the Periods Ended 8/31/00
--------------------------------------------------------------------------------------------------------------------
------------- ------------------------- ----------------------------------------------------------------------------
Class         Cumulative Total                                 Average Annual Total Returns
of            Returns (10 years or
Shares        Life of Class)
------------- ------------------------- ----------------------------------------------------------------------------
------------- ------------------------- ------------------------- ------------------------- ------------------------
                                                 1-Year                    5-Year                   10-Year
                                                                     (or life-of-class)       (or life-of-class)
------------- ------------------------- ------------------------- ------------------------- ------------------------
------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
              After        Without      After        Without      After        Without      After        Without
              Sales        Sales        Sales        Sales        Sales        Sales        Sales        Sales
              Charge       Charge       Charge       Charge       Charge       Charge       Charge       Charge
------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Class A       202.70%1     221.16%1     1.07%        7.24%        12.42%       13.76%       11.71%1      12.38%1
------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Class B       116.26%2     116.26%2     1.61%        6.34%        12.59%       12.83%       11.58%2      11.58%2
------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Class C       79.64%3      79.64%3      5.46%        6.40%        12.88%3      12.88%3      N/A          N/A
------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------

1. Inception of Class A: 12/1/70
2. Inception of Class B: 8/17/93. Because Class B shares convert to Class A shares 72 months after purchase, the "Life-of-Class"
return for Class B shares uses Class A performance for the period after conversion.
3. Inception of Class C: 11/1/95

Other Performance Comparisons. The Fund compares its performance annually to that of an appropriate broadly-based market index in its
Annual Report to shareholders. You can obtain that information by contacting the Transfer Agent at the addresses or telephone numbers
shown on the cover of this Statement of Additional Information. The Fund may also compare its performance to that of other
investments, including other mutual funds, or use rankings of its performance by independent ranking entities. Examples of these
performance comparisons are set forth below.

|_| Lipper Rankings. From time to time the Fund may publish the ranking of the performance of its classes of shares by
Lipper Analytical Services, Inc. Lipper is a widely-recognized independent mutual fund monitoring service. Lipper monitors the
performance of regulated investment companies, including the Fund, and ranks their performance for various periods in categories
based on investment styles. Lipper currently ranks the Fund's performance against all other equity income funds. The Lipper
performance rankings are based on total returns that include the reinvestment of capital gain distributions and income dividends but
do not take sales charges or taxes into consideration. Lipper also publishes "peer-group" indices of the performance of all mutual
funds in a category that it monitors and averages of the performance of the funds in particular categories.

|_| Morningstar Rankings. From time to time the Fund may publish the ranking and/or star rating of the performance of
its classes of shares by Morningstar, Inc., an independent mutual fund monitoring service. Morningstar rates and ranks mutual funds
in broad investment categories: domestic stock funds, international stock funds, taxable bond funds and municipal bond funds. The
Fund is included in the domestic stock category.

Morningstar proprietary star ratings reflect historical risk-adjusted total investment return. Investment return measures a
fund's (or class's) one-, three-, five- and ten-year average annual total returns (depending on the inception of the fund or class)
in excess of 90-day U.S. Treasury bill returns after considering the fund's sales charges and expenses. Risk measures a fund's (or
class's) performance below 90-day U.S. Treasury bill returns. Risk and investment return are combined to produce star ratings
reflecting performance relative to the other fund in the fund's category. Five stars is the "highest" rating (top 10% of funds in a
category), four stars is "above average" (next 22.5%), three stars is "average" (next 35%), two stars is "below average" (next 22.5%)
and one star is "lowest" (bottom 10%). The current star ranking is the fund's (or class's) overall rating, which is the fund's 3-year
rating or its combined 3- and 5-year rating (weighted 60%/40% respectively), or its combined 3-, 5-, and 10-year ranking (weighted
40%/30%/30%, respectively), depending on the inception date of the fund (or class). Ratings are subject to change monthly.

The Fund may also compare its total return ranking to that of other funds in its Morningstar category, in addition to its
star ratings. Those total return rankings are percentages from one percent to one hundred percent and are not risk adjusted. For
example if a fund is in the 94th percentile, that means that 94% of the funds in the same category performed better than it did.

|_| Performance Rankings and Comparisons by Other Entities and Publications. From time to time the Fund may include in its
advertisements and sales literature performance information about the Fund cited in newspapers and other periodicals such as The New
York Times, The Wall Street Journal, Barron's, or similar publications. That information may include performance quotations from
other sources, including Lipper and Morningstar. The performance of the Fund's classes of shares may be compared in publications to
the performance of various market indices or other investments, and averages, performance rankings or other benchmarks prepared by
recognized mutual fund statistical services.

Investors may also wish to compare the returns on the Fund's share classes to the return on fixed-income investments
available from banks and thrift institutions. Those include certificates of deposit, ordinary interest-paying checking and savings
accounts, and other forms of fixed or variable time deposits, and various other instruments such as Treasury bills. However, the
Fund's returns and share price are not guaranteed or insured by the FDIC or any other agency and will fluctuate daily, while bank
depository obligations may be insured by the FDIC and may provide fixed rates of return. Repayment of principal and payment of
interest on Treasury securities is backed by the full faith and credit of the U.S. government.

From time to time, the Fund may publish rankings or ratings of the Manager or Transfer Agent, and of the investor services
provided by them to shareholders of the Oppenheimer funds, other than performance rankings of the Oppenheimer funds themselves. Those
ratings or rankings of shareholder and investor services by third parties may include comparisons of their services to those provided
by other mutual fund families selected by the rating or ranking services. They may be based upon the opinions of the rating or
ranking service itself, using its research or judgment, or based upon surveys of investors, brokers, shareholders or others.

From time to time the Fund may include in its advertisements and sales literature the total return performance of a
hypothetical investment account that includes shares of the fund and other Oppenheimer funds. The combined account may be part of an
illustration of an asset allocation model or similar presentation. The account performance may combine total return performance of
the fund and the total return performance of other Oppenheimer funds included in the account. Additionally, from time to time, the
Fund's advertisements and sales literature may include, for illustrative or comparative purposes, statistical data or other
information about general or specific market and economic conditions. That may include, for example,
o information about the performance of certain securities or commodities markets or segments of those markets,
o information about the performance of the economies of particular countries or regions,
o the earnings of companies included in segments of particular industries, sectors, securities markets, countries or regions,
o the availability of different types of securities or offerings of securities,
o information relating to the gross national or gross domestic product of the United States or other countries or regions,
o comparisons of various market sectors or indices to demonstrate performance, risk, or other characteristics of the Fund.

ABOUT YOUR ACCOUNT

How to Buy Shares

Additional information is presented below about the methods that can be used to buy shares of the Fund. Appendix C contains more
information about the special sales charge arrangements offered by the Fund, and the circumstances in which sales charges may be
reduced or waived for certain classes of investors.

AccountLink. When shares are purchased through AccountLink, each purchase must be at least $25. Shares will be purchased on the
regular business day the Distributor is instructed to initiate the Automated Clearing House ("ACH") transfer to buy the shares.
Dividends will begin to accrue on shares purchased with the proceeds of ACH transfers on the business day the Fund receives Federal
Funds for the purchase through the ACH system before the close of The New York Stock Exchange. The Exchange normally closes at 4:00
P.M., but may close earlier on certain days. If Federal Funds are received on a business day after the close of the Exchange, the
shares will be purchased and dividends will begin to accrue on the next regular business day. The proceeds of ACH transfers are
normally received by the Fund 3 days after the transfers are initiated. The Distributor and the Fund are not responsible for any
delays in purchasing shares resulting from delays in ACH transmissions.

Reduced Sales Charges. As discussed in the Prospectus, a reduced sales charge rate may be obtained for Class A shares under Right of
Accumulation and Letters of Intent because of the economies of sales efforts and reduction in expenses realized by the Distributor,
dealers and brokers making such sales. No sales charge is imposed in certain other circumstances described in Appendix C to this
Statement of Additional Information because the Distributor or dealer or broker incurs little or no selling expenses.

|X| Right of Accumulation. To qualify for the lower sales charge rates that apply to larger purchases of Class A shares, you
and your spouse can add together:
o Class A, Class B and Class N shares you purchase for your individual accounts (including IRAs and 403(b) plans), or for your
joint accounts, or for trust or custodial accounts on behalf of your children who are minors, and
o Current purchases of Class A, Class B and Class N shares of the Fund and other Oppenheimer funds to reduce the sales charge
rate that applies to current purchases of Class A shares, and
o Class A, Class B and Class N shares of Oppenheimer funds you previously purchased subject to an initial or contingent
deferred sales charge to reduce the sales charge rate for current purchases of Class A shares, provided that you
still hold your investment in one of the Oppenheimer funds.

A fiduciary can count all shares purchased for a trust, estate or other fiduciary account (including one or more employee
benefit plans of the same employer) that has multiple accounts. The Distributor will add the value, at current offering price, of the
shares you previously purchased and currently own to the value of current purchases to determine the sales charge rate that applies.
The reduced sales charge will apply only to current purchases. You must request it when you buy shares.

|X| The Oppenheimer Funds. The Oppenheimer funds are those mutual funds for which the Distributor acts as the distributor or
the sub-distributor and currently include the following:

Oppenheimer Bond Fund                                       Oppenheimer Main Street Growth & Income Fund
Oppenheimer Capital Appreciation Fund                       Oppenheimer Main Street Opportunity Fund
Oppenheimer Capital Income Fund                             Oppenheimer Main Street Small Cap Fund
Oppenheimer Capital Preservation Fund                       Oppenheimer MidCap Fund
Oppenheimer California Municipal Fund                       Oppenheimer Multiple Strategies Fund
Oppenheimer Champion Income Fund                            Oppenheimer Municipal Bond Fund
Oppenheimer Convertible Securities Fund                     Oppenheimer New York Municipal Fund
Oppenheimer Developing Markets Fund                         Oppenheimer New Jersey Municipal Fund
Oppenheimer Disciplined Allocation Fund                     Oppenheimer Pennsylvania Municipal Fund
Oppenheimer Disciplined Value Fund                          Oppenheimer Quest Balanced Value Fund
Oppenheimer Discovery Fund                                  Oppenheimer Quest Capital Value Fund, Inc.
Oppenheimer Emerging Growth Fund                            Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Emerging Technologies Fund                      Oppenheimer Quest Opportunity Value Fund
Oppenheimer Enterprise Fund                                 Oppenheimer Quest Small Cap Value Fund
Oppenheimer Europe Fund                                     Oppenheimer Quest Value Fund, Inc.
Oppenheimer Florida Municipal Fund                          Oppenheimer Real Asset Fund
Oppenheimer Global Fund                                     Oppenheimer Select Managers
Oppenheimer Global Growth & Income Fund                     Oppenheimer Senior Floating Rate Fund
Oppenheimer Gold & Special Minerals Fund                    Oppenheimer Strategic Income Fund
Oppenheimer Growth Fund                                     Oppenheimer Total Return Fund, Inc.
Oppenheimer High Yield Fund                                 Oppenheimer Trinity Core Fund
Oppenheimer Intermediate Municipal Fund                     Oppenheimer Trinity Growth Fund
Oppenheimer International Bond Fund                         Oppenheimer Trinity Value Fund
Oppenheimer International Growth Fund                       Oppenheimer U.S. Government Trust
Oppenheimer International Small Company Fund                Limited-Term New York Municipal Fund
Oppenheimer Large Cap Growth Fund                           Rochester Fund Municipals
Oppenheimer Limited-Term Government Fund

And the following money market funds:

Centennial America Fund, L. P.                              Centennial New York Tax Exempt Trust
Centennial California Tax Exempt Trust                      Centennial Tax Exempt Trust
Centennial Government Trust                                 Oppenheimer Cash Reserves
Centennial Money Market Trust                               Oppenheimer Money Market Fund, Inc.

There is an initial sales charge on the purchase of Class A shares of each of the Oppenheimer funds except the money market
funds. Under certain circumstances described in this Statement of Additional Information, redemption proceeds of certain money market
fund shares may be subject to a contingent deferred sales charge.

Letters of Intent. Under a Letter of Intent, if you purchase Class A shares or Class A and Class B shares of the Fund and other
Oppenheimer funds during a 13-month period, you can reduce the sales charge rate that applies to your purchases of Class A shares.
The total amount of your intended purchases of both Class A and Class B shares will determine the reduced sales charge rate for the
Class A shares purchased during that period. You can include purchases made up to 90 days before the date of the Letter.

A Letter of Intent is an investor's statement in writing to the Distributor of the intention to purchase Class A shares or
Class A and Class B shares of the Fund (and other Oppenheimer funds) during a 13-month period (the "Letter of Intent period"). At the
investor's request, this may include purchases made up to 90 days prior to the date of the Letter. The Letter states the investor's
intention to make the aggregate amount of purchases of shares which, when added to the investor's holdings of shares of those funds,
will equal or exceed the amount specified in the Letter. Purchases made by reinvestment of dividends or distributions of capital
gains and purchases made at net asset value without sales charge do not count toward satisfying the amount of the Letter.

A Letter enables an investor to count the Class A and Class B shares purchased under the Letter to obtain the reduced sales
charge rate on purchases of Class A shares of the Fund (and other Oppenheimer funds) that applies under the Right of Accumulation to
current purchases of Class A shares. Each purchase of Class A shares under the Letter will be made at the public offering price
(including the sales charge) that applies to a single lump-sum purchase of shares in the amount intended to be purchased under the
Letter.

In submitting a Letter, the investor makes no commitment to purchase shares. However, if the investor's purchases of shares
within the Letter of Intent period, when added to the value (at offering price) of the investor's holdings of shares on the last day
of that period, do not equal or exceed the intended purchase amount, the investor agrees to pay the additional amount of sales charge
applicable to such purchases. That amount is described in "Terms of Escrow," below (those terms may be amended by the Distributor
from time to time). The investor agrees that shares equal in value to 5% of the intended purchase amount will be held in escrow by
the Transfer Agent subject to the Terms of Escrow. Also, the investor agrees to be bound by the terms of the Prospectus, this
Statement of Additional Information and the Application used for a Letter of Intent. If those terms are amended, as they may be from
time to time by the Fund, the investor agrees to be bound by the amended terms and that those amendments will apply automatically to
existing Letters of Intent.

If the total eligible purchases made during the Letter of Intent period do not equal or exceed the intended purchase amount,
the commissions previously paid to the dealer of record for the account and the amount of sales charge retained by the Distributor
will be adjusted to the rates applicable to actual total purchases. If total eligible purchases during the Letter of Intent period
exceed the intended purchase amount and exceed the amount needed to qualify for the next sales charge rate reduction set forth in the
Prospectus, the sales charges paid will be adjusted to the lower rate. That adjustment will be made only if and when the dealer
returns to the Distributor the excess of the amount of concessions allowed or paid to the dealer over the amount of concessions that
apply to the actual amount of purchases. The excess concessions returned to the Distributor will be used to purchase additional
shares for the investor's account at the net asset value per share in effect on the date of such purchase, promptly after the
Distributor's receipt thereof.

The Transfer Agent will not hold shares in escrow for purchases of shares of the Fund and other Oppenheimer funds by
OppenheimerFunds prototype 401(k) plans under a Letter of Intent. If the intended purchase amount under a Letter of Intent entered
into by an OppenheimerFunds prototype 401(k) plan is not purchased by the plan by the end of the Letter of Intent period, there will
be no adjustment of concessions paid to the broker-dealer or financial institution of record for accounts held in the name of that
plan.

In determining the total amount of purchases made under a Letter, shares redeemed by the investor prior to the termination
of the Letter of Intent period will be deducted. It is the responsibility of the dealer of record and/or the investor to advise the
Distributor about the Letter in placing any purchase orders for the investor during the Letter of Intent period. All of such
purchases must be made through the Distributor.

|_| Terms of Escrow That Apply to Letters of Intent.

1. Out of the initial purchase (or subsequent purchases if necessary) made pursuant to a Letter, shares of the Fund equal in
value up to 5% of the intended purchase amount specified in the Letter shall be held in escrow by the Transfer Agent. For example, if
the intended purchase amount is $50,000, the escrow shall be shares valued in the amount of $2,500 (computed at the offering price
adjusted for a $50,000 purchase). Any dividends and capital gains distributions on the escrowed shares will be credited to the
investor's account.

2. If the total minimum investment specified under the Letter is completed within the thirteen-month Letter of Intent
period, the escrowed shares will be promptly released to the investor.

3. If, at the end of the thirteen-month Letter of Intent period the total purchases pursuant to the Letter are less than the
intended purchase amount specified in the Letter, the investor must remit to the Distributor an amount equal to the difference
between the dollar amount of sales charges actually paid and the amount of sales charges which would have been paid if the total
amount purchased had been made at a single time. That sales charge adjustment will apply to any shares redeemed prior to the
completion of the Letter. If the difference in sales charges is not paid within twenty days after a request from the Distributor or
the dealer, the Distributor will, within sixty days of the expiration of the Letter, redeem the number of escrowed shares necessary
to realize such difference in sales charges. Full and fractional shares remaining after such redemption will be released from escrow.
If a request is received to redeem escrowed shares prior to the payment of such additional sales charge, the sales charge will be
withheld from the redemption proceeds.

4. By signing the Letter, the investor irrevocably constitutes and appoints the Transfer Agent as attorney-in-fact to
surrender for redemption any or all escrowed shares.

5. The shares eligible for purchase under the Letter (or the holding of which may be counted toward completion of a Letter)
include:
(a) Class A shares sold with a front-end sales charge or subject to a Class A contingent deferred sales charge,
(b) Class B shares of other Oppenheimer funds acquired subject to a contingent deferred sales charge, and
(c) Class A or Class B shares acquired by exchange of either (1) Class A shares of one of the other Oppenheimer funds that were
acquired subject to a Class A initial or contingent deferred sales charge or (2) Class B shares of one of the other
Oppenheimer funds that were acquired subject to a contingent deferred sales charge.

6. Shares held in escrow hereunder will automatically be exchanged for shares of another fund to which an exchange is
requested, as described in the section of the Prospectus entitled "How to Exchange Shares" and the escrow will be transferred to that
other fund.

Asset Builder Plans. To establish an Asset Builder Plan to buy shares directly from a bank account, you must enclose a check (the
minimum is $25) for the initial purchase with your application. Shares purchased by Asset Builder Plan payments from bank accounts
are subject to the redemption restrictions for recent purchases described in the Prospectus. Asset Builder Plans are available only
if your bank is an ACH member. Asset Builder Plans may not be used to buy shares for OppenheimerFunds employer-sponsored qualified
retirement accounts. Asset Builder Plans also enable shareholders of Oppenheimer Cash Reserves to use their fund account to make
monthly automatic purchases of shares of up to four other Oppenheimer funds.

If you make payments from your bank account to purchase shares of the Fund, your bank account will be debited automatically.
Normally the debit will be made two business days prior to the investment dates you selected on your Application. Neither the
Distributor, the Transfer Agent nor the Fund shall be responsible for any delays in purchasing shares that result from delays in ACH
transmissions.

Before you establish Asset Builder payments, you should obtain a prospectus of the selected fund(s) from your financial
advisor (or the Distributor) and request an application from the Distributor. Complete the application and return it. You may change
the amount of the Asset Builder payment or you can terminate these automatic investments at any time by writing to the Transfer
Agent. The Transfer Agent requires a reasonable period (approximately 10 days) after receipt of your instructions to implement them.
The Fund reserves the right to amend, suspend, or discontinue offering Asset Builder plans at any time without prior notice.

Retirement Plans. Certain types of Retirement Plans are entitled to purchase shares of the Fund without sales charge or at reduced
sales charge rates, as described in Appendix C to this Statement of Additional Information. Certain special sales charge arrangements
described in that Appendix apply to retirement plans whose records are maintained on a daily valuation basis by Merrill Lynch Pierce
Fenner & Smith, Inc. or an independent record keeper that has a contract or special arrangement with Merrill Lynch. If on the date
the plan sponsor signed the Merrill Lynch record keeping service agreement the Plan has less than $3 million in assets (other than
assets invested in money market funds) invested in applicable investments, then the retirement plan may purchase only Class B shares
of the Oppenheimer funds. Any retirement plans in that category that currently invest in Class B shares of the Fund will have their
Class B shares converted to Class A shares of the Fund when the Plan's applicable investments reach $5 million.

Cancellation of Purchase Orders. Cancellation of purchase orders for the Fund's shares (for example, when a purchase check is
returned to the Fund unpaid) causes a loss to be incurred when the net asset value of the Fund's shares on the cancellation date is
less than on the purchase date. That loss is equal to the amount of the decline in the net asset value per share multiplied by the
number of shares in the purchase order. The investor is responsible for that loss. If the investor fails to compensate the Fund for
the loss, the Distributor will do so. The Fund may reimburse the Distributor for that amount by redeeming shares from any account
registered in that investor's name, or the Fund or the Distributor may seek other redress.

Classes of Shares. Each class of shares of the Fund represents an interest in the same portfolio of investments of the Fund. However,
each class has different shareholder privileges and features. The net income attributable to Class B, Class C or Class N shares and
the dividends payable on Class B, Class C or Class N shares will be reduced by incremental expenses borne solely by that class. Those
expenses include the asset-based sales charges to which Class B, Class C and Class N shares are subject.

The availability of different classes of shares permits an investor to choose the method of purchasing shares that is more
appropriate for the investor. That may depend on the amount of the purchase, the length of time the investor expects to hold shares,
and other relevant circumstances. Class A shares normally are sold subject to an initial sales charge. While Class B and Class C
shares have no initial sales charge, the purpose of the deferred sales charge and asset-based sales charge on Class B, Class C and
Class N shares is the same as that of the initial sales charge on Class A shares - to compensate the Distributor and brokers, dealers
and financial institutions that sell shares of the Fund. A salesperson who is entitled to receive compensation from his or her firm
for selling Fund shares may receive different levels of compensation for selling one class of shares rather than another.

The Distributor will not accept any order in the amount of $500,000 or more for Class B shares or $1 million or more for
Class C shares on behalf of a single investor (not including dealer "street name" or omnibus accounts). That is because generally it
will be more advantageous for that investor to purchase Class A shares of the Fund.

|_| Class B Conversion. Under current interpretation of applicable federal tax law by the Internal Revenue Service, the
conversion of Class B shares to Class A shares after six years is not treated as a taxable event for the shareholder. For the
shareholder, if those laws, or the IRS interpretation of those laws, should change, the automatic conversion feature may be
suspended. In that event, no further conversion of Class B shares would occur while that suspension remained in effect. Although
Class B shares could then be exchanged for Class A shares on the basis of relative net asset value of the two classes, without the
imposition of a sales charge or fee, such exchange could constitute a taxable event for the shareholder, and absent such exchange,
Class B shares might continue to be subject to the asset-based sales charge for longer than six years.

|X| Availability of Class N Shares. In addition to the description of the types of retirement plans which may purchase
Class N shares contained in the prospectus, Class N shares also are offered to the following:

o to all rollover IRAs,
o to all direct rollovers from OppenheimerFunds-sponsored Pinnacle and Ascender retirement plans,
o to all trustee-to-trustee IRA transfers,
o to all 90-24 type 403(b) transfers,
o to Group Retirement Plans (as defined in Appendix C to this Statement of Additional Information) which have entered into a
special agreement with the Distributor for that purpose,
o to Retirement Plans qualified under Sections 401(a) or 401(k) of the Internal Revenue Code, the recordkeeper or the plan
sponsor for which has entered into a special agreement with the Distributor,
o to Retirement Plans of a plan sponsor where the aggregate assets of all such plans invested in the Oppenheimer funds is
$500,000 or more,
o to OppenheimerFunds-sponsored Ascender 401(k) plans that pay for the purchase with the redemption proceeds of Class A shares
of one or more Oppenheimer funds.

|_| Allocation of Expenses. The Fund pays expenses related to its daily operations, such as custodian bank fees,
Trustees' fees, transfer agency fees, legal fees and auditing costs. Those expenses are paid out of the Fund's assets and are not paid
directly by shareholders. However, those expenses reduce the net asset value of shares, and therefore are indirectly borne by
shareholders through their investment.

The methodology for calculating the net asset value, dividends and distributions of the Fund's share classes recognizes two
types of expenses. General expenses that do not pertain specifically to any one class are allocated pro rata to the shares of all
classes. The allocation is based on the percentage of the Fund's total assets that is represented by the assets of each class, and
then equally to each outstanding share within a given class. Such general expenses include management fees, legal, bookkeeping and
audit fees, printing and mailing costs of shareholder reports, Prospectuses, Statements of Additional Information and other materials
for current shareholders, fees to unaffiliated Trustees, custodian bank expenses, share issuance costs, organization and start-up
costs, interest, taxes and brokerage commissions, and non-recurring expenses, such as litigation costs.

Other expenses that are directly attributable to a particular class are allocated equally to each outstanding share within
that class. Examples of such expenses include distribution and service plan (12b-1) fees, transfer and shareholder servicing agent
fees and expenses, and shareholder meeting expenses (to the extent that such expenses pertain only to a specific class).

Determination of Net Asset Values Per Share. The net asset values per share of each class of shares of the Fund are determined as of
the close of business of The New York Stock Exchange on each day that the Exchange is open. The calculation is done by dividing the
value of the Fund's net assets attributable to a class by the number of shares of that class that are outstanding. The Exchange
normally closes at 4:00 P.M., New York time, but may close earlier on some other days (for example, in case of weather emergencies or
on days falling before a holiday). The Exchange's most recent annual announcement (which is subject to change) states that it will
close on New Year's Day, Presidents' Day, Martin Luther King, Jr. Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. It may also close on other days.

Dealers other than Exchange members may conduct trading in certain securities on days on which the Exchange is closed
(including weekends and U. S. holidays) or after 4:00 P.M. on a regular business day. The Fund's net asset values will not be
calculated on those days, and the value of some of the portfolio securities may change on those days, when shareholders may not
purchase or redeem shares. Additionally, trading on European and Asian stock exchanges and over-the-counter markets normally is
completed before the close of The New York Stock Exchange.

Changes in the values of securities traded on foreign exchanges or markets as a result of events that occur after the prices
of those securities are determined, but before the close of The New York Stock Exchange, will not be reflected in the Fund's
calculation of its net asset values that day unless the Manager determines that the event is likely to effect a material change in
the value of the security. The Manager may make that determination, under procedures established by the Board.

|X| Securities Valuation. The Fund's Board of Trustees has established procedures for the valuation of the Fund's
securities. In general those procedures are as follows:

o Equity securities traded on a U.S. securities exchange or on NASDAQ are valued as follows:
(1) if last sale information is regularly reported, they are valued at the last reported sale price on the principal exchange on
which they are traded or on NASDAQ, as applicable, on that day, or
(2) if last sale information is not available on a valuation date, they are valued at the last reported sale price preceding the
valuation date if it is within the spread of the closing "bid" and "asked" prices on the valuation date or, if not,
at the closing "bid" price on the valuation date.
o Equity securities traded on a foreign securities exchange generally are valued in one of the following ways:
(1) at the last sale price available to the pricing service approved by the Board of Trustees, or
(2) at the last sale price obtained by the Manager from the report of the principal exchange on which the security is traded at
its last trading session on or immediately before the valuation date, or
(3) at the mean between the "bid" and "asked" prices obtained from the principal exchange on which the security is traded or, on
the basis of reasonable inquiry, from two market makers in the security.
o Long-term debt securities having a remaining maturity in excess of 60 days are valued based on the mean between the
"bid" and "asked" prices determined by a portfolio pricing service approved by the Fund's Board of Trustees or obtained by the Manager
from two active market makers in the security on the basis of reasonable inquiry.
o The following securities are valued at the mean between the "bid" and "asked" prices determined by a pricing service
approved by the Fund's Board of Trustees or obtained by the Manager from two active market makers in the security on the basis of
reasonable inquiry:
(1) debt instruments that have a maturity of more than 397 days when issued,
(2) debt instruments that had a maturity of 397 days or less when issued and have a remaining maturity of more than 60 days, and
(3) non-money market debt instruments that had a maturity of 397 days or less when issued and which have a remaining maturity of
60 days or less.
o The following securities are valued at cost, adjusted for amortization of premiums and accretion of discounts:
(1) money market debt securities held by a non-money market fund that had a maturity of less than 397 days when issued that have
a remaining maturity of 60 days or less, and
(2) debt instruments held by a money market fund that have a remaining maturity of 397 days or less.
o Securities (including restricted securities) not having readily-available market quotations are valued at fair value
determined under the Board's procedures. If the Manager is unable to locate two market makers willing to give quotes, a security may
be priced at the mean between the "bid" and "asked" prices provided by a single active market maker (which in certain cases may be
the "bid" price if no "asked" price is available).

In the case of U.S. government securities, mortgage-backed securities, corporate bonds and foreign government securities,
when last sale information is not generally available, the Manager may use pricing services approved by the Board of Trustees. The
pricing service may use "matrix" comparisons to the prices for comparable instruments on the basis of quality, yield and maturity.
Other special factors may be involved (such as the tax-exempt status of the interest paid by municipal securities). The Manager will
monitor the accuracy of the pricing services. That monitoring may include comparing prices used for portfolio valuation to actual
sales prices of selected securities.

The closing prices in the London foreign exchange market on a particular business day that are provided to the Manager by a
bank, dealer or pricing service that the Manager has determined to be reliable are used to value foreign currency, including forward
contracts, and to convert to U.S. dollars securities that are denominated in foreign currency.

Puts, calls, and futures are valued at the last sale price on the principal exchange on which they are traded or on NASDAQ,
as applicable, as determined by a pricing service approved by the Board of Trustees or by the Manager. If there were no sales that
day, they shall be valued at the last sale price on the preceding trading day if it is within the spread of the closing "bid" and
"asked" prices on the principal exchange or on NASDAQ on the valuation date. If not, the value shall be the closing bid price on the
principal exchange or on NASDAQ on the valuation date. If the put, call or future is not traded on an exchange or on NASDAQ, it shall
be valued by the mean between "bid" and "asked" prices obtained by the Manager from two active market makers. In certain cases that
may be at the "bid" price if no "asked" price is available.

When the Fund writes an option, an amount equal to the premium received is included in the Fund's Statement of Assets and
Liabilities as an asset. An equivalent credit is included in the liability section. The credit is adjusted ("marked-to-market") to
reflect the current market value of the option. In determining the Fund's gain on investments, if a call or put written by the Fund
is exercised, the proceeds are increased by the premium received. If a call or put written by the Fund expires, the Fund has a gain
in the amount of the premium. If the Fund enters into a closing purchase transaction, it will have a gain or loss, depending on
whether the premium received was more or less than the cost of the closing transaction. If the Fund exercises a put it holds, the
amount the Fund receives on its sale of the underlying investment is reduced by the amount of premium paid by the Fund.

How to Sell Shares

Information on how to sell shares of the Fund is stated in the Prospectus. The information below provides additional information
about the procedures and conditions for redeeming shares.

Reinvestment Privilege. Within six months of a redemption, a shareholder may reinvest all or part of the redemption proceeds of:
o Class A shares purchased subject to an initial sales charge or Class A shares on which a contingent deferred sales
charge was paid, or
o Class B shares that were subject to the Class B contingent deferred sales charge when redeemed.

The reinvestment may be made without sales charge only in Class A shares of the Fund or any of the other Oppenheimer funds
into which shares of the Fund are exchangeable as described in "How to Exchange Shares" below. Reinvestment will be at the net asset
value next computed after the Transfer Agent receives the reinvestment order. The shareholder must ask the Transfer Agent for that
privilege at the time of reinvestment. This privilege does not apply to Class C shares. The Fund may amend, suspend or cease offering
this reinvestment privilege at any time as to shares redeemed after the date of such amendment, suspension or cessation.

Any capital gain that was realized when the shares were redeemed is taxable, and reinvestment will not alter any capital
gains tax payable on that gain. If there has been a capital loss on the redemption, some or all of the loss may not be tax
deductible, depending on the timing and amount of the reinvestment. Under the Internal Revenue Code, if the redemption proceeds of
Fund shares on which a sales charge was paid are reinvested in shares of the Fund or another of the Oppenheimer funds within 90 days
of payment of the sales charge, the shareholder's basis in the shares of the Fund that were redeemed may not include the amount of
the sales charge paid. That would reduce the loss or increase the gain recognized from the redemption. However, in that case the
sales charge would be added to the basis of the shares acquired by the reinvestment of the redemption proceeds.

Payments "In Kind". The Prospectus states that payment for shares tendered for redemption is ordinarily made in cash. However, the
Board of Trustees of the Fund may determine that it would be detrimental to the best interests of the remaining shareholders of the
Fund to make payment of a redemption order wholly or partly in cash. In that case, the Fund may pay the redemption proceeds in whole
or in part by a distribution "in kind" of liquid securities from the portfolio of the Fund, in lieu of cash.

The Fund has elected to be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the Fund is obligated
to redeem shares solely in cash up to the lesser of $250,000 or 1% of the net assets of the Fund during any 90-day period for any one
shareholder. If shares are redeemed in kind, the redeeming shareholder might incur brokerage or other costs in selling the securities
for cash. The Fund will value securities used to pay redemptions in kind using the same method the Fund uses to value its portfolio
securities described above under "Determination of Net Asset Values Per Share." That valuation will be made as of the time the
redemption price is determined.

Involuntary Redemptions. The Fund's Board of Trustees has the right to cause the involuntary redemption of the shares held in any
account if the aggregate net asset value of those shares is less than $200 or such lesser amount as the Board may fix. The Board will
not cause the involuntary redemption of shares in an account if the aggregate net asset value of such shares has fallen below the
stated minimum solely as a result of market fluctuations. If the Board exercises this right, it may also fix the requirements for any
notice to be given to the shareholders in question (not less than 30 days). The Board may alternatively set requirements for the
shareholder to increase the investment, or set other terms and conditions so that the shares would not be involuntarily redeemed.

Transfers of Shares. A transfer of shares to a different registration is not an event that triggers the payment of sales charges.
Therefore, shares are not subject to the payment of a contingent deferred sales charge of any class at the time of transfer to the
name of another person or entity. It does not matter whether the transfer occurs by absolute assignment, gift or bequest, as long as
it does not involve, directly or indirectly, a public sale of the shares. When shares subject to a contingent deferred sales charge
are transferred, the transferred shares will remain subject to the contingent deferred sales charge. It will be calculated as if the
transferee shareholder had acquired the transferred shares in the same manner and at the same time as the transferring shareholder.

If less than all shares held in an account are transferred, and some but not all shares in the account would be subject to a
contingent deferred sales charge if redeemed at the time of transfer, the priorities described in the Prospectus under "How to Buy
Shares" for the imposition of the Class B, Class C or Class N contingent deferred sales charge will be followed in determining the
order in which shares are transferred.

Sending Redemption Proceeds by Wire. The wire of redemption proceeds may be delayed if the Fund's custodian bank is not open for
business on a day when the Fund would normally authorize the wire to be made, which is usually the Fund's next regular business day
following the redemption. In those circumstances, the wire will not be transmitted until the next bank business day on which the Fund
is open for business. No dividends will be paid on the proceeds of redeemed shares awaiting transfer by wire.

Distributions From Retirement Plans. Requests for distributions from OppenheimerFunds-sponsored IRAs, 403(b)(7) custodial plans,
401(k) plans or pension or profit-sharing plans should be addressed to "Trustee, OppenheimerFunds Retirement Plans," c/o the Transfer
Agent at its address listed in "How To Sell Shares" in the Prospectus or on the back cover of this Statement of Additional
Information. The request must
(1) state the reason for the distribution;
(2) state the owner's awareness of tax penalties if the distribution is premature; and
(3) conform to the requirements of the plan and the Fund's other redemption requirements.

Participants (other than self-employed persons) in OppenheimerFunds-sponsored pension or profit-sharing plans with shares of
the Fund held in the name of the plan or its fiduciary may not directly request redemption of their accounts. The plan administrator
or fiduciary must sign the request.

Distributions from pension and profit sharing plans are subject to special requirements under the Internal Revenue Code and
certain documents (available from the Transfer Agent) must be completed and submitted to the Transfer Agent before the distribution
may be made. Distributions from retirement plans are subject to withholding requirements under the Internal Revenue Code, and IRS
Form W-4P (available from the Transfer Agent) must be submitted to the Transfer Agent with the distribution request, or the
distribution may be delayed. Unless the shareholder has provided the Transfer Agent with a certified tax identification number, the
Internal Revenue Code requires that tax be withheld from any distribution even if the shareholder elects not to have tax withheld.
The Fund, the Manager, the Distributor, and the Transfer Agent assume no responsibility to determine whether a distribution satisfies
the conditions of applicable tax laws and will not be responsible for any tax penalties assessed in connection with a distribution.

Special Arrangements for Repurchase of Shares from Dealers and Brokers. The Distributor is the Fund's agent to repurchase its shares
from authorized dealers or brokers on behalf of their customers. Shareholders should contact their broker or dealer to arrange this
type of redemption. The repurchase price per share will be the net asset value next computed after the Distributor receives an order
placed by the dealer or broker. However, if the Distributor receives a repurchase order from a dealer or broker after the close of
The New York Stock Exchange on a regular business day, it will be processed at that day's net asset value if the order was received
by the dealer or broker from its customers prior to the time the Exchange closes. Normally, the Exchange closes at 4:00 P.M., but may
do so earlier on some days. Additionally, the order must have been transmitted to and received by the Distributor prior to its close
of business that day (normally 5:00 P.M.).

Ordinarily, for accounts redeemed by a broker-dealer under this procedure, payment will be made within three business days
after the shares have been redeemed upon the Distributor's receipt of the required redemption documents in proper form. The
signature(s) of the registered owners on the redemption documents must be guaranteed as described in the Prospectus.

Automatic Withdrawal and Exchange Plans. Investors owning shares of the Fund valued at $5,000 or more can authorize the Transfer
Agent to redeem shares (having a value of at least $50) automatically on a monthly, quarterly, semi-annual or annual basis under an
Automatic Withdrawal Plan. Shares will be redeemed three business days prior to the date requested by the shareholder for receipt of
the payment. Automatic withdrawals of up to $1,500 per month may be requested by telephone if payments are to be made by check
payable to all shareholders of record. Payments must also be sent to the address of record for the account and the address must not
have been changed within the prior 30 days. Required minimum distributions from OppenheimerFunds-sponsored retirement plans may not
be arranged on this basis.

Payments are normally made by check, but shareholders having AccountLink privileges (see "How To Buy Shares") may arrange to
have Automatic Withdrawal Plan payments transferred to the bank account designated on the Account Application or by
signature-guaranteed instructions sent to the Transfer Agent. Shares are normally redeemed pursuant to an Automatic Withdrawal Plan
three business days before the payment transmittal date you select in the Account Application. If a contingent deferred sales charge
applies to the redemption, the amount of the check or payment will be reduced accordingly.

The Fund cannot guarantee receipt of a payment on the date requested. The Fund reserves the right to amend, suspend or
discontinue offering these plans at any time without prior notice. Because of the sales charge assessed on Class A share purchases,
shareholders should not make regular additional Class A share purchases while participating in an Automatic Withdrawal Plan. Class B
and Class C shareholders should not establish withdrawal plans, because of the imposition of the contingent deferred sales charge on
such withdrawals (except where the contingent deferred sales charge is waived as described in Appendix C to this Statement of
Additional Information.

By requesting an Automatic Withdrawal or Exchange Plan, the shareholder agrees to the terms and conditions that apply to
such plans, as stated below. These provisions may be amended from time to time by the Fund and/or the Distributor. When adopted, any
amendments will automatically apply to existing Plans.

|X| Automatic Exchange Plans. Shareholders can authorize the Transfer Agent to exchange a pre-determined amount of shares of
the Fund for shares (of the same class) of other Oppenheimer funds automatically on a monthly, quarterly, semi-annual or annual basis
under an Automatic Exchange Plan. The minimum amount that may be exchanged to each other fund account is $25. Instructions should be
provided on the OppenheimerFunds Application or signature-guaranteed instructions. Exchanges made under these plans are subject to
the restrictions that apply to exchanges as set forth in "How to Exchange Shares" in the Prospectus and below in this Statement of
Additional Information.

|X| Automatic Withdrawal Plans. Fund shares will be redeemed as necessary to meet withdrawal payments. Shares acquired
without a sales charge will be redeemed first. Shares acquired with reinvested dividends and capital gains distributions will be
redeemed next, followed by shares acquired with a sales charge, to the extent necessary to make withdrawal payments. Depending upon
the amount withdrawn, the investor's principal may be depleted. Payments made under these plans should not be considered as a yield
or income on your investment.

The Transfer Agent will administer the investor's Automatic Withdrawal Plan as agent for the shareholder(s) (the
"Planholder") who executed the Plan authorization and application submitted to the Transfer Agent. Neither the Fund nor the Transfer
Agent shall incur any liability to the Planholder for any action taken or not taken by the Transfer Agent in good faith to administer
the Plan. Share certificates will not be issued for shares of the Fund purchased for and held under the Plan, but the Transfer Agent
will credit all such shares to the account of the Planholder on the records of the Fund. Any share certificates held by a Planholder
may be surrendered unendorsed to the Transfer Agent with the Plan application so that the shares represented by the certificate may
be held under the Plan.

For accounts subject to Automatic Withdrawal Plans, distributions of capital gains must be reinvested in shares of the Fund,
which will be done at net asset value without a sales charge. Dividends on shares held in the account may be paid in cash or
reinvested.

Shares will be redeemed to make withdrawal payments at the net asset value per share determined on the redemption date.
Checks or AccountLink payments representing the proceeds of Plan withdrawals will normally be transmitted three business days prior
to the date selected for receipt of the payment, according to the choice specified in writing by the Planholder. Receipt of payment
on the date selected cannot be guaranteed.

The amount and the interval of disbursement payments and the address to which checks are to be mailed or AccountLink
payments are to be sent may be changed at any time by the Planholder by writing to the Transfer Agent. The Planholder should allow at
least two weeks' time after mailing such notification for the requested change to be put in effect. The Planholder may, at any time,
instruct the Transfer Agent by written notice to redeem all, or any part of, the shares held under the Plan. That notice must be in
proper form in accordance with the requirements of the then-current Prospectus of the Fund. In that case, the Transfer Agent will
redeem the number of shares requested at the net asset value per share in effect and will mail a check for the proceeds to the
Planholder.

The Planholder may terminate a Plan at any time by writing to the Transfer Agent. The Fund may also give directions to the
Transfer Agent to terminate a Plan. The Transfer Agent will also terminate a Plan upon its receipt of evidence satisfactory to it
that the Planholder has died or is legally incapacitated. Upon termination of a Plan by the Transfer Agent or the Fund, shares that
have not been redeemed will be held in uncertificated form in the name of the Planholder. The account will continue as a
dividend-reinvestment, uncertificated account unless and until proper instructions are received from the Planholder, his or her
executor or guardian, or another authorized person.

To use shares held under the Plan as collateral for a debt, the Planholder may request issuance of a portion of the shares
in certificated form. Upon written request from the Planholder, the Transfer Agent will determine the number of shares for which a
certificate may be issued without causing the withdrawal checks to stop. However, should such uncertificated shares become exhausted,
Plan withdrawals will terminate.

If the Transfer Agent ceases to act as transfer agent for the Fund, the Planholder will be deemed to have appointed any
successor transfer agent to act as agent in administering the Plan.

How to Exchange Shares

As stated in the Prospectus, shares of a particular class of Oppenheimer funds having more than one class of shares may be
exchanged only for shares of the same class of other Oppenheimer funds. Shares of Oppenheimer funds that have a single class without
a class designation are deemed "Class A" shares for this purpose. You can obtain a current list showing which funds offer which
classes by calling the Distributor at 1.800.525.7048.
o All of the Oppenheimer funds currently offer Class A, B and C shares except Oppenheimer Money Market Fund, Inc., Centennial
Money Market Trust, Centennial Tax Exempt Trust, Centennial Government Trust, Centennial New York Tax Exempt Trust, Centennial
California Tax Exempt Trust, and Centennial America Fund, L.P., which only offer Class A shares.
o Class B, Class C and Class N shares of Oppenheimer Cash Reserves are generally available only by exchange from the same
class of shares of other Oppenheimer funds or through OppenheimerFunds-sponsored 401(k) plans.
o Only certain Oppenheimer funds currently offer Class Y shares. Class Y shares of Oppenheimer Real Asset Fund may not be
exchanged for shares of any other fund.
o Only certain Oppenheimer funds currently offer Class N shares, which are only offered to retirement plans as described in
the Prospectus. Class N shares can be exchanged only for Class N shares of other Oppenheimer funds.
o Class M shares of Oppenheimer Convertible Securities Fund may be exchanged only for Class A shares of other Oppenheimer
funds. They may not be acquired by exchange of shares of any class of any other Oppenheimer funds except Class A shares of
Oppenheimer Money Market Fund or Oppenheimer Cash Reserves acquired by exchange of Class M shares.
o Class A shares of Senior Floating Rate Fund are not available by exchange of Class A shares of other Oppenheimer funds.
Class A shares of Senior Floating Rate Fund that are exchanged for shares of the other Oppenheimer funds may not be exchanged
back for Class A shares of Senior Floating Rate Fund.
o Class X shares of Limited Term New York Municipal Fund can be exchanged only for Class B shares of other Oppenheimer funds
and no exchanges may be made to Class X shares.
o Shares of Oppenheimer Capital Preservation Fund may not be exchanged for shares of Oppenheimer Money Market Fund, Inc.,
Oppenheimer Cash Reserves or Oppenheimer Limited-Term Government Fund. Only participants in certain retirement plans may
purchase shares of Oppenheimer Capital Preservation Fund, and only those participants may exchange shares of other Oppenheimer
funds for shares of Oppenheimer Capital Preservation Fund.
o Class A shares of Oppenheimer Senior Floating Rate Fund are not available by exchange of shares of Oppenheimer Money Market
Fund or Class A shares of Oppenheimer Cash Reserves. If any Class A shares of another Oppenheimer fund that are exchanged for
Class A shares of Oppenheimer Senior Floating Rate Fund are subject to the Class A contingent deferred sales charge of the other
Oppenheimer fund at the time of exchange, the holding period for that Class A contingent deferred sales charge will carry over to
the Class A shares of Oppenheimer Senior Floating Rate Fund acquired in the exchange. The Class A shares of Oppenheimer Senior
Floating Rate Fund acquired in that exchange will be subject to the Class A Early Withdrawal Charge of Oppenheimer Senior
Floating Rate Fund if they are repurchased before the expiration of the holding period.
o Class A, Class B, Class C and Class Y Shares of Oppenheimer Select Managers Mercury Advisors S&P Index Fund and Oppenheimer
Select Managers QM Active Balanced Fund are only available to retirement plans and are available only by exchange from the same
class of shares of other Oppenheimer funds held by retirement plans.

Class A shares of Oppenheimer funds may be exchanged at net asset value for shares of any money market fund offered by the
Distributor. Shares of any money market fund purchased without a sales charge may be exchanged for shares of Oppenheimer funds
offered with a sales charge upon payment of the sales charge. They may also be used to purchase shares of Oppenheimer funds subject
to an early withdrawal charge or contingent deferred sales charge.

Shares of Oppenheimer Money Market Fund, Inc. purchased with the redemption proceeds of shares of other mutual funds (other
than funds managed by the Manager or its subsidiaries) redeemed within the 30 days prior to that purchase may subsequently be
exchanged for shares of other Oppenheimer funds without being subject to an initial sales charge or contingent deferred sales charge.
To qualify for that privilege, the investor or the investor's dealer must notify the Distributor of eligibility for this privilege at
the time the shares of Oppenheimer Money Market Fund, Inc. are purchased. If requested, they must supply proof of entitlement to
this privilege.

Shares of the Fund acquired by reinvestment of dividends or distributions from any of the other Oppenheimer funds or from
any unit investment trust for which reinvestment arrangements have been made with the Distributor may be exchanged at net asset value
for shares of any of the Oppenheimer funds.

The Fund may amend, suspend or terminate the exchange privilege at any time. Although the Fund may impose these changes at
any time, it will provide you with notice of those changes whenever it is required to do so by applicable law. It may be required to
provide 60 days notice prior to materially amending or terminating the exchange privilege. That 60 day notice is not required in
extraordinary circumstances.

|_| How Exchanges Affect Contingent Deferred Sales Charges. No contingent deferred sales charge is imposed on exchanges of
shares of any class purchased subject to a contingent deferred sales charge. However, when Class A shares acquired by exchange of
Class A shares of other Oppenheimer funds purchased subject to a Class A contingent deferred sales charge are redeemed within 18
months of the end of the calendar month of the initial purchase of the exchanged Class A shares, the Class A contingent deferred
sales charge is imposed on the redeemed shares. The Class B contingent deferred sales charge is imposed on Class B shares acquired by
exchange if they are redeemed within 6 years of the initial purchase of the exchanged Class B shares. The Class C contingent deferred
sales charge is imposed on Class C shares acquired by exchange if they are redeemed within 12 months of the initial purchase of the
exchanged Class C shares. With respect to Class N shares, if you redeem your shares within 18 months of the retirement plan's first
purchase or the retirement plan eliminates the Fund as a plan investment option within 18 months of selecting the Fund, a 1%
contingent deferred sales charge will be imposed on the plan. With respect to Class N shares, a 1% contingent deferred sales charge
will be imposed if the retirement plan (not including IRAs and 403(b) plans) is terminated or Class N shares of all Oppenheimer funds
are terminated as an investment option of the plan and Class N shares are redeemed within 18 months after the plan's first purchase
of Class N shares of any Oppenheimer fund or with respect to an individual retirement plan or 403(b) plan, Class N shares are
redeemed within 18 months of the plan's first purchase of Class N shares of any Oppenheimer fund.

When Class B or Class C shares are redeemed to effect an exchange, the priorities described in "How To Buy Shares" in the
Prospectus for the imposition of the Class B or the Class C contingent deferred sales charge will be followed in determining the
order in which the shares are exchanged. Before exchanging shares, shareholders should take into account how the exchange may affect
any contingent deferred sales charge that might be imposed in the subsequent redemption of remaining shares. Shareholders owning
shares of more than one class must specify which class of shares they intend to exchange.

|_| Limits on Multiple Exchange Orders. The Fund reserves the right to reject telephone or written exchange requests
submitted in bulk by anyone on behalf of more than one account. The Fund may accept requests for exchanges of up to 50 accounts per
day from representatives of authorized dealers that qualify for this privilege.

|_| Telephone Exchange Requests. When exchanging shares by telephone, a shareholder must have an existing account in the
fund to which the exchange is to be made. Otherwise, the investor must obtain a Prospectus of that fund before the exchange request
may be submitted. If all telephone lines are busy (which might occur, for example, during periods of substantial market
fluctuations), shareholders might not be able to request exchanges by telephone and would have to submit written exchange requests.

|_| Processing Exchange Requests. Shares to be exchanged are redeemed on the regular business day the Transfer Agent
receives an exchange request in proper form (the "Redemption Date"). Normally, shares of the fund to be acquired are purchased on the
Redemption Date, but such purchases may be delayed by either fund up to five business days if it determines that it would be
disadvantaged by an immediate transfer of the redemption proceeds. The Fund reserves the right, in its discretion, to refuse any
exchange request that may disadvantage it. For example, if the receipt of multiple exchange requests from a dealer might require the
disposition of portfolio securities at a time or at a price that might be disadvantageous to the Fund, the Fund may refuse the
request. When you exchange some or all of your shares from one fund to another, any special account feature such as an Asset Builder
Plan or Automatic Withdrawal Plan, will be switched to the new fund account unless you tell the Transfer Agent not to do so. However,
special redemption and exchange features such as Automatic Exchange Plans and Automatic Withdrawal Plans cannot be switched to an
account in Oppenheimer Senior Floating Rate Fund.

In connection with any exchange request, the number of shares exchanged may be less than the number requested if the
exchange or the number requested would include shares subject to a restriction cited in the Prospectus or this Statement of
Additional Information, or would include shares covered by a share certificate that is not tendered with the request. In those cases,
only the shares available for exchange without restriction will be exchanged.

The different Oppenheimer funds available for exchange have different investment objectives, policies and risks. A
shareholder should assure that the fund selected is appropriate for his or her investment and should be aware of the tax consequences
of an exchange. For federal income tax purposes, an exchange transaction is treated as a redemption of shares of one fund and a
purchase of shares of another. "Reinvestment Privilege," above, discusses some of the tax consequences of reinvestment of redemption
proceeds in such cases. The Fund, the Distributor, and the Transfer Agent are unable to provide investment, tax or legal advice to a
shareholder in connection with an exchange request or any other investment transaction.

Dividends, Capital Gains and Taxes

Dividends and Distributions. The Fund has no fixed dividend rate and there can be no assurance as to the payment of any dividends or
the realization of any capital gains. The dividends and distributions paid by a class of shares will vary from time to time depending
on market conditions, the composition of the Fund's portfolio, and expenses borne by the Fund or borne separately by a class.
Dividends are calculated in the same manner, at the same time, and on the same day for each class of shares. However, dividends on
Class B, Class C and Class N shares are expected to be lower than dividends on Class A shares. That is because of the effect of the
asset-based sales charge on Class B, Class C and Class N shares. Those dividends will also differ in amount as a consequence of any
difference in the net asset values of the different classes of shares.

Dividends, distributions and proceeds of the redemption of Fund shares represented by checks returned to the Transfer Agent
by the Postal Service as undeliverable will be invested in shares of Oppenheimer Money Market Fund, Inc. Reinvestment will be made as
promptly as possible after the return of such checks to the Transfer Agent, to enable the investor to earn a return on otherwise idle
funds. Unclaimed accounts may be subject to state escheatment laws, and the Fund and the Transfer Agent will not be liable to
shareholders or their representatives for compliance with those laws in good faith.

Tax Status of the Fund's Dividends and Distributions. The federal tax treatment of the Fund's dividends and capital gains
distributions is briefly highlighted in the Prospectus.

Special provisions of the Internal Revenue Code govern the eligibility of the Fund's dividends for the dividends-received
deduction for corporate shareholders. Long-term capital gains distributions are not eligible for the deduction. The amount of
dividends paid by the Fund that may qualify for the deduction is limited to the aggregate amount of qualifying dividends that the
Fund derives from portfolio investments that the Fund has held for a minimum period, usually 46 days. A corporate shareholder will
not be eligible for the deduction on dividends paid on Fund shares held for 45 days or less. To the extent the Fund's dividends are
derived from gross income from option premiums, interest income or short-term gains from the sale of securities or dividends from
foreign corporations, those dividends will not qualify for the deduction.

Under the Internal Revenue Code, by December 31 each year, the Fund must distribute 98% of its taxable investment income
earned from January 1 through December 31 of that year and 98% of its capital gains realized in the period from November 1 of the
prior year through October 31 of the current year. If it does not, the Fund must pay an excise tax on the amounts not distributed. It
is presently anticipated that the Fund will meet those requirements. However, the Board of Trustees and the Manager might determine
in a particular year that it would be in the best interests of shareholders for the Fund not to make such distributions at the
required levels and to pay the excise tax on the undistributed amounts. That would reduce the amount of income or capital gains
available for distribution to shareholders.

The Fund intends to qualify as a "regulated investment company" under the Internal Revenue Code (although it reserves the
right not to qualify). That qualification enables the Fund to "pass through" its income and realized capital gains to shareholders
without having to pay tax on them. This avoids a double tax on that income and capital gains, since shareholders normally will be
taxed on the dividends and capital gains they receive from the Fund (unless the Fund's shares are held in a retirement account or the
shareholder is otherwise exempt from tax). If the Fund qualifies as a "regulated investment company" under the Internal Revenue Code,
it will not be liable for federal income taxes on amounts paid by it as dividends and distributions. The Fund qualified as a
regulated investment company in its last fiscal year. The Internal Revenue Code contains a number of complex tests relating to
qualification which the Fund might not meet in any particular year. If it did not so qualify, the Fund would be treated for tax
purposes as an ordinary corporation and receive no tax deduction for payments made to shareholders.

If prior distributions made by the Fund must be re-characterized as a non-taxable return of capital at the end of the fiscal
year as a result of the effect of the Fund's investment policies, they will be identified as such in notices sent to shareholders.

Dividend Reinvestment in Another Fund. Shareholders of the Fund may elect to reinvest all dividends and/or capital gains
distributions in shares of the same class of any of the other Oppenheimer funds listed above. Reinvestment will be made without sales
charge at the net asset value per share in effect at the close of business on the payable date of the dividend or distribution. To
elect this option, the shareholder must notify the Transfer Agent in writing and must have an existing account in the fund selected
for reinvestment. Otherwise the shareholder first must obtain a prospectus for that fund and an application from the Distributor to
establish an account. Dividends and/or distributions from shares of certain other Oppenheimer funds (other than Oppenheimer Cash
Reserves) may be invested in shares of this Fund on the same basis.

Additional Information About the Fund

The Distributor. The Fund's shares are sold through dealers, brokers and other financial institutions that have a sales agreement
with OppenheimerFunds Distributor, Inc., a subsidiary of the Manager that acts as the Fund's Distributor. The Distributor also
distributes shares of the other Oppenheimer funds and is sub-distributor for funds managed by a subsidiary of the Manager.

The Transfer Agent. OppenheimerFunds Services, the Fund's Transfer Agent, is a division of the Manager. It is responsible for
maintaining the Fund's shareholder registry and shareholder accounting records, and for paying dividends and distributions to
shareholders. It also handles shareholder servicing and administrative functions. It serves as the Transfer Agent for an annual per
account fee. It also acts as shareholder servicing agent for the other Oppenheimer funds. Shareholders should direct inquiries about
their accounts to the Transfer Agent at the address and toll-free numbers shown on the back cover.

The Custodian Bank. The Bank of New York is the custodian bank of the Fund's assets. The custodian bank's responsibilities include
safeguarding and controlling the Fund's portfolio securities and handling the delivery of such securities to and from the Fund. It
will be the practice of the Fund to deal with the custodian bank in a manner uninfluenced by any banking relationship the custodian
bank may have with the Manager and its affiliates. The Fund's cash balances with the custodian bank in excess of $100,000 are not
protected by federal deposit insurance. Those uninsured balances at times may be substantial.

Independent Auditors. Deloitte & Touche, LLP are the independent auditors of the Fund. They audit the Fund's financial statements and
perform other related audit services. They also act as auditors for the Manager and certain other funds advised by the Manager and
its affiliates.

INDEPENDENT AUDITORS' REPORT
================================================================================
THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
OPPENHEIMER CAPITAL INCOME FUND:

 We have audited the accompanying statement of assets and liabilities of
 Oppenheimer Capital Income Fund, including the statement of investments, as of
 August 31, 2000, 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 four years in
 the period then ended, the two-month period ended August 31, 1996, and the one
 year ended June 30, 1996. These financial statements and financial highlights
 are the responsibility of the Fund's management. Our responsibility is to
 express an opinion on these financial statements and financial highlights based
 on our audits.

    We conducted our audits in accordance with auditing standards generally
 accepted in the United States of America. Those standards require that we plan
 and perform the audit to obtain reasonable assurance about whether the
 financial statements and financial highlights are free of material
 misstatement. An audit includes examining, on a test basis, evidence supporting
 the amounts and disclosures in the financial statements. Our procedures
 included confirmation of securities owned as of August 31, 2000, by
 correspondence with the custodian and brokers; where replies were not received
 from brokers, we performed other auditing procedures. An audit also includes
 assessing the accounting principles used and significant estimates made by
 management, as well as evaluating the overall financial statement presentation.
 We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the financial statements and financial highlights referred
 to above present fairly, in all material respects, the financial position of
 Oppenheimer Capital Income Fund as of August 31, 2000, 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 four years in the period then ended, the two-month period ended August
 31, 1996, and the one year ended June 30, 1996, in conformity with accounting
 principles generally accepted in the United States of America.


 /s/ Deloitte & Touche LLP

 DELOITTE & TOUCHE LLP


 Denver, Colorado
 September 22, 2000

STATEMENT OF INVESTMENTS  August 31, 2000

                                                                                                         MARKET VALUE
                                                                                   SHARES                     SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------

COMMON STOCKS--67.1%
------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS--2.1%
------------------------------------------------------------------------------------------------------------------------
CHEMICALS--0.5%
Dexter Corp.                                                                       91,500                   $ 5,409,937
------------------------------------------------------------------------------------------------------------------------
Engelhard Corp.                                                                   485,000                     9,093,750
                                                                                                            ------------
                                                                                                             14,503,687

------------------------------------------------------------------------------------------------------------------------
PAPER--1.6%
International Paper Co.                                                           380,560                    12,130,350
------------------------------------------------------------------------------------------------------------------------
Smurfit-Stone Container Corp.(1)                                                  657,142                     8,624,989
------------------------------------------------------------------------------------------------------------------------
Sonoco Products Co.                                                               637,580                    12,313,264
------------------------------------------------------------------------------------------------------------------------
Westvaco Corp.                                                                    287,450                     7,868,944
------------------------------------------------------------------------------------------------------------------------
Weyerhaeuser Co.                                                                  122,600                     5,677,912
                                                                                                            ------------
                                                                                                             46,615,459

------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS--3.8%
------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT--0.2%
CommScope, Inc.(1)                                                               175,000                      4,364,062
------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL SERVICES--0.6%
Coflexip SA, Sponsored ADR                                                        57,500                      3,415,859
------------------------------------------------------------------------------------------------------------------------
Republic Services, Inc.(1)                                                       900,000                     13,162,500
                                                                                                            ------------
                                                                                                             16,578,359

------------------------------------------------------------------------------------------------------------------------
MANUFACTURING--3.0%
Cooper Industries, Inc.                                                          137,500                      4,855,469
------------------------------------------------------------------------------------------------------------------------
Honeywell International, Inc.                                                    324,200                     12,501,962
------------------------------------------------------------------------------------------------------------------------
Mettler-Toledo International, Inc.(1)                                            125,000                      5,914,062
------------------------------------------------------------------------------------------------------------------------
Packaging Corp. of America(1)                                                    425,000                      4,967,187
------------------------------------------------------------------------------------------------------------------------
Pall Corp.                                                                       692,700                     14,806,462
------------------------------------------------------------------------------------------------------------------------
Photronics, Inc.(1)                                                              100,000                      2,931,250
------------------------------------------------------------------------------------------------------------------------
Tyco International Ltd.                                                          575,000                     32,775,000
------------------------------------------------------------------------------------------------------------------------
Veeco Instruments, Inc.(1)                                                        92,500                      8,290,312
                                                                                                            ------------
                                                                                                             87,041,704

------------------------------------------------------------------------------------------------------------------------
COMMUNICATION SERVICES--1.6%
------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS: LONG DISTANCE--1.3%
AT&T Corp.                                                                       150,000                      4,725,000
------------------------------------------------------------------------------------------------------------------------
McLeodUSA, Inc., Cl. A(1)                                                          3,279                         51,849
------------------------------------------------------------------------------------------------------------------------
Qwest Communications International, Inc.(1)                                       80,000                      4,130,000
------------------------------------------------------------------------------------------------------------------------
Sprint Corp. (Fon Group)                                                         375,000                     12,562,500
------------------------------------------------------------------------------------------------------------------------
Verizon Communications                                                           347,000                     15,137,875
------------------------------------------------------------------------------------------------------------------------
WorldCom, Inc.(1)                                                                 67,500                      2,463,750
                                                                                                            ------------
                                                                                                             39,070,974
------------------------------------------------------------------------------------------------------------------------
TELEPHONE UTILITIES--0.3%
SBC Communications, Inc.                                                         245,000                     10,228,750


STATEMENT OF INVESTMENTS  Continued

                                                                                                            MARKET VALUE
                                                                                  SHARES                      SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------

CONSUMER CYCLICALS--3.1%
------------------------------------------------------------------------------------------------------------------------
AUTOS & HOUSING--0.7%
Dana Corp.                                                                       100,000                    $ 2,468,750
------------------------------------------------------------------------------------------------------------------------
Ford Motor Co.                                                                   437,043                     10,570,978
------------------------------------------------------------------------------------------------------------------------
Snap-On, Inc.                                                                    261,750                      8,065,172
                                                                                                            ------------
                                                                                                             21,104,900

------------------------------------------------------------------------------------------------------------------------
CONSUMER SERVICES--0.6%
Dun & Bradstreet Corp.                                                           188,200                      6,210,600
------------------------------------------------------------------------------------------------------------------------
H&R Block, Inc.                                                                  312,500                     11,210,937
                                                                                                            ------------
                                                                                                             17,421,537

------------------------------------------------------------------------------------------------------------------------
LEISURE & ENTERTAINMENT--0.3%
Harrah's Entertainment, Inc.(1)                                                  200,000                      5,675,000
------------------------------------------------------------------------------------------------------------------------
Host Marriott Corp.                                                              160,000                      1,710,000
                                                                                                            ------------
                                                                                                              7,385,000

------------------------------------------------------------------------------------------------------------------------
MEDIA--0.5%
Deluxe Corp.                                                                     300,000                      6,600,000
------------------------------------------------------------------------------------------------------------------------
Time Warner, Inc.                                                                110,000                      9,405,000
                                                                                                            ------------
                                                                                                             16,005,000

------------------------------------------------------------------------------------------------------------------------
RETAIL: GENERAL--0.3%
Family Dollar Stores, Inc.                                                       475,000                      8,550,000
------------------------------------------------------------------------------------------------------------------------
RETAIL: SPECIALTY--0.7%
Abercrombie & Fitch Co., Cl. A(1)                                                150,000                      3,478,125
------------------------------------------------------------------------------------------------------------------------
AutoNation, Inc.(1)                                                              425,000                      2,762,500
------------------------------------------------------------------------------------------------------------------------
Circuit City Stores-Circuit City Group                                            85,000                      2,204,687
------------------------------------------------------------------------------------------------------------------------
CSK Auto Corp.(1,2)                                                            1,500,000                      8,156,250
------------------------------------------------------------------------------------------------------------------------
Sherwin-Williams Co.                                                             175,000                      4,025,000
                                                                                                            ------------
                                                                                                             20,626,562

------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES--8.7%
------------------------------------------------------------------------------------------------------------------------
BROADCASTING--3.1%
Charter Communications, Inc., Cl. A (1)                                          450,000                      6,890,625
------------------------------------------------------------------------------------------------------------------------
Clear Channel Communications, Inc.(1)                                            888,900                     64,334,137
------------------------------------------------------------------------------------------------------------------------
Fox Entertainment Group, Inc., A Shares(1)                                       125,000                      3,617,187
------------------------------------------------------------------------------------------------------------------------
Infinity Broadcasting Corp., Cl. A(1)                                            280,000                     10,605,000
------------------------------------------------------------------------------------------------------------------------
RCN Corp.(1)                                                                     275,000                      6,668,750
                                                                                                            ------------
                                                                                                             92,115,699

------------------------------------------------------------------------------------------------------------------------
ENTERTAINMENT--0.2%
Viacom, Inc., Cl. B(1)                                                           105,000                      7,067,812
------------------------------------------------------------------------------------------------------------------------
FOOD--1.8%
Heinz (H.J.) Co.                                                                 175,000                      6,671,875
------------------------------------------------------------------------------------------------------------------------
Nabisco Group Holdings Corp.                                                   1,675,000                     47,004,687
                                                                                                            ------------
                                                                                                             53,676,562
                                                                                                            MARKET VALUE
                                                                                   SHARES                     SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------

FOOD & DRUG RETAILERS--0.7%
Albertson's, Inc.                                                                  75,000                   $ 1,612,500
------------------------------------------------------------------------------------------------------------------------
Kroger Co.(1)                                                                     235,000                     5,331,562
------------------------------------------------------------------------------------------------------------------------
SUPERVALU, Inc.                                                                   912,500                    13,630,469
                                                                                                            ------------
                                                                                                             20,574,531

------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD GOODS--0.9%
Fort James Corp.                                                                  600,000                    18,975,000
------------------------------------------------------------------------------------------------------------------------
Newell Rubbermaid, Inc.                                                           300,000                     7,781,250
                                                                                                            ------------
                                                                                                             26,756,250

------------------------------------------------------------------------------------------------------------------------
TOBACCO--2.0%
Philip Morris Cos., Inc.                                                       1,580,000                     46,807,500
------------------------------------------------------------------------------------------------------------------------
R.J. Reynolds Tobacco Holdings, Inc.                                             250,000                      8,968,750
------------------------------------------------------------------------------------------------------------------------
UST, Inc.                                                                        200,000                      4,325,000
                                                                                                            ------------
                                                                                                             60,101,250

------------------------------------------------------------------------------------------------------------------------
ENERGY--7.0%
------------------------------------------------------------------------------------------------------------------------
ENERGY SERVICES--1.8%
Coastal Corp.                                                                    100,000                      6,887,500
------------------------------------------------------------------------------------------------------------------------
Constellation Energy Group, Inc.                                                 487,500                     18,646,875
------------------------------------------------------------------------------------------------------------------------
ENSCO International, Inc.                                                         60,000                      2,392,500
------------------------------------------------------------------------------------------------------------------------
Global Marine, Inc.(1)                                                           187,500                      6,058,594
------------------------------------------------------------------------------------------------------------------------
Marine Drilling Cos., Inc.(1)                                                     65,000                      1,767,187
------------------------------------------------------------------------------------------------------------------------
Santa Fe International Corp.                                                     290,000                     11,400,625
------------------------------------------------------------------------------------------------------------------------
Tidewater, Inc.                                                                  125,000                      5,046,875
                                                                                                           -------------
                                                                                                             52,200,156

------------------------------------------------------------------------------------------------------------------------
OIL: DOMESTIC--4.8%
Chevron Corp.                                                                    100,000                      8,450,000
------------------------------------------------------------------------------------------------------------------------
Conoco, Inc., Cl. A                                                              350,000                      8,815,625
------------------------------------------------------------------------------------------------------------------------
Conoco, Inc., Cl. B                                                              575,000                     15,021,875
------------------------------------------------------------------------------------------------------------------------
EOG Resources, Inc.                                                              200,000                      7,650,000
------------------------------------------------------------------------------------------------------------------------
Kerr-McGee Corp.                                                                  75,000                      4,739,062
------------------------------------------------------------------------------------------------------------------------
Occidental Petroleum Corp.                                                       905,500                     19,581,438
------------------------------------------------------------------------------------------------------------------------
Tosco Corp.                                                                      245,000                      7,472,500
------------------------------------------------------------------------------------------------------------------------
Ultramar Diamond Shamrock Corp.                                                  281,000                      6,585,938
------------------------------------------------------------------------------------------------------------------------
Unocal Corp.                                                                     500,000                     16,687,500
------------------------------------------------------------------------------------------------------------------------
USX-Marathon Group                                                             1,079,800                     29,627,013
------------------------------------------------------------------------------------------------------------------------
Valero Energy Corp.                                                              521,400                     15,707,175
                                                                                                           -------------
                                                                                                            140,338,126

------------------------------------------------------------------------------------------------------------------------
OIL: INTERNATIONAL--0.4%
Royal Dutch Petroleum Co., NY Shares                                             200,000                     12,237,500


STATEMENT OF INVESTMENTS  Continued


                                                                                                            MARKET VALUE
                                                                                  SHARES                      SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------

FINANCIAL--28.6%
------------------------------------------------------------------------------------------------------------------------
BANKS--14.8%
AmSouth Bancorp                                                                  195,000                    $ 3,558,750
------------------------------------------------------------------------------------------------------------------------
Bank of America Corp.                                                          1,296,537                     69,445,763
------------------------------------------------------------------------------------------------------------------------
Bank of New York Co., Inc. (The)(3)                                              655,000                     34,346,563
------------------------------------------------------------------------------------------------------------------------
Bank One Corp.(3)                                                                895,000                     31,548,750
------------------------------------------------------------------------------------------------------------------------
Bank United Corp., Cl. A                                                          25,000                      1,125,000
------------------------------------------------------------------------------------------------------------------------
Charter One Financial, Inc.                                                    1,000,000                     23,750,000
------------------------------------------------------------------------------------------------------------------------
Chase Manhattan Corp.                                                          1,027,500                     57,411,563
------------------------------------------------------------------------------------------------------------------------
Commercial Federal Corp.                                                         357,500                      6,457,344
------------------------------------------------------------------------------------------------------------------------
Compass Bancshares, Inc.                                                         150,000                      2,737,500
------------------------------------------------------------------------------------------------------------------------
First Union Corp.                                                              1,720,000                     49,772,500
------------------------------------------------------------------------------------------------------------------------
FleetBoston Financial Corp.                                                    1,220,000                     52,078,750
------------------------------------------------------------------------------------------------------------------------
KeyCorp                                                                          260,000                      5,248,750
------------------------------------------------------------------------------------------------------------------------
Mellon Financial Corp.                                                           725,000                     32,806,250
------------------------------------------------------------------------------------------------------------------------
National City Corp.                                                              271,000                      5,674,063
------------------------------------------------------------------------------------------------------------------------
PNC Financial Services Group                                                     287,500                     16,944,531
------------------------------------------------------------------------------------------------------------------------
Summit Bancorp                                                                   685,500                     18,979,781
------------------------------------------------------------------------------------------------------------------------
SunTrust Banks, Inc.                                                             225,000                     11,109,375
------------------------------------------------------------------------------------------------------------------------
U.S. Bancorp                                                                     200,000                      4,350,000
------------------------------------------------------------------------------------------------------------------------
Union Planters Corp.                                                             329,324                      9,982,634
                                                                                                            ------------
                                                                                                            437,327,867
------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL--5.7%
Anthracite Capital, Inc.                                                         470,600                      3,529,500
------------------------------------------------------------------------------------------------------------------------
Associates First Capital Corp., Cl. A                                            210,000                      5,906,250
------------------------------------------------------------------------------------------------------------------------
C.I.T. Group, Inc., Cl. A                                                        317,500                      5,556,250
------------------------------------------------------------------------------------------------------------------------
Capital One Financial Corp.(3)                                                    82,500                      4,975,781
------------------------------------------------------------------------------------------------------------------------
Citigroup, Inc.(3)                                                             2,000,000                    116,750,000
------------------------------------------------------------------------------------------------------------------------
Household International, Inc.                                                    644,732                     30,947,136
                                                                                                            ------------
                                                                                                            167,664,917
------------------------------------------------------------------------------------------------------------------------
INSURANCE--3.9%
ACE Ltd.                                                                          65,000                      2,283,125
------------------------------------------------------------------------------------------------------------------------
Aetna, Inc.                                                                      293,700                     16,428,844
------------------------------------------------------------------------------------------------------------------------
Allstate Corp.                                                                   225,000                      6,539,063
------------------------------------------------------------------------------------------------------------------------
American General Corp.                                                           535,000                     38,954,688
------------------------------------------------------------------------------------------------------------------------
Enhance Financial Services Group, Inc.                                           703,425                     11,078,944
------------------------------------------------------------------------------------------------------------------------
Everest Re Group Ltd.                                                            375,000                     15,093,750
------------------------------------------------------------------------------------------------------------------------
St. Paul Cos., Inc.                                                              375,000                     17,859,375
------------------------------------------------------------------------------------------------------------------------
XL Capital Ltd., Cl. A                                                            92,500                      6,376,719
                                                                                                           -------------
                                                                                                            114,614,508
                                                                                                         MARKET VALUE
                                                                                  SHARES                      SEE NOTE 1
------------------------------------------------------------------------------------------------------------------------

REAL ESTATE INVESTMENT TRUSTS--2.8%
Archstone Communities Trust                                                      400,000                    $ 9,850,000
------------------------------------------------------------------------------------------------------------------------
Avalonbay Communities, Inc.                                                      300,000                     13,406,250
------------------------------------------------------------------------------------------------------------------------
Developers Diversified Realty Corp.                                              100,000                      1,450,000
------------------------------------------------------------------------------------------------------------------------
Equity Office Properties Trust                                                   962,945                     27,805,037
------------------------------------------------------------------------------------------------------------------------
Equity Residential Properties Trust                                              375,000                     18,000,000
------------------------------------------------------------------------------------------------------------------------
Reckson Associates Realty Corp.                                                  425,000                     10,332,813
                                                                                                           -------------
                                                                                                             80,844,100

------------------------------------------------------------------------------------------------------------------------
SAVINGS & LOANS--1.4%
Dime Bancorp, Inc.                                                               100,000                      1,837,500
------------------------------------------------------------------------------------------------------------------------
Greenpoint Financial Corp.                                                       460,000                     12,017,500
------------------------------------------------------------------------------------------------------------------------
Greenpoint Financial Corp.(4)                                                     50,000                      1,240,938
------------------------------------------------------------------------------------------------------------------------
Washington Mutual, Inc.                                                          785,000                     27,475,000
                                                                                                           -------------
                                                                                                             42,570,938

------------------------------------------------------------------------------------------------------------------------
HEALTHCARE--1.3%
------------------------------------------------------------------------------------------------------------------------
HEALTHCARE/DRUGS--1.3%
Abbott Laboratories                                                               50,000                      2,187,500
------------------------------------------------------------------------------------------------------------------------
American Home Products Corp.                                                     450,000                     24,384,375
------------------------------------------------------------------------------------------------------------------------
Bristol-Myers Squibb Co.                                                         137,500                      7,287,500
------------------------------------------------------------------------------------------------------------------------
Pharmacia Corp.                                                                   90,000                      5,270,625
                                                                                                           -------------
                                                                                                             39,130,000

------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY--4.1%
------------------------------------------------------------------------------------------------------------------------
COMPUTER HARDWARE--0.1%
Compaq Computer Corp.                                                             70,000                      2,384,375
------------------------------------------------------------------------------------------------------------------------
COMPUTER SERVICES--0.2%
First Data Corp.                                                                 100,000                      4,768,750
------------------------------------------------------------------------------------------------------------------------
COMPUTER SOFTWARE--0.9%
Computer Associates International, Inc.                                          100,000                      3,175,000
------------------------------------------------------------------------------------------------------------------------
Microsoft Corp.(1,3)                                                             270,900                     18,912,206
------------------------------------------------------------------------------------------------------------------------
Unigraphics Solutions, Inc.(1)                                                   215,000                      4,420,938
                                                                                                           -------------
                                                                                                             26,508,144

------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT--0.1%
Antec Corp.(1)                                                                   100,000                      3,606,250
------------------------------------------------------------------------------------------------------------------------
ELECTRONICS--2.1%
Amkor Technology, Inc.(1)                                                        200,000                      6,825,000
------------------------------------------------------------------------------------------------------------------------
Applied Materials, Inc.(1)                                                        64,900                      5,601,681
------------------------------------------------------------------------------------------------------------------------
DuPont Photomasks, Inc.(1)                                                        50,000                      3,793,750
------------------------------------------------------------------------------------------------------------------------
Motorola, Inc.(3)                                                                490,800                     17,699,475


STATEMENT OF INVESTMENTS  Continued


                                                                                                                    MARKET VALUE
                                                                                          SHARES                      SEE NOTE 1
--------------------------------------------------------------------------------------------------------------------------------

ELECTRONICS Continued
National Semiconductor Corp.(1)                                                           62,500                $    2,781,250
--------------------------------------------------------------------------------------------------------------------------------
Waters Corp.(1,3)                                                                        300,000                    23,868,750
                                                                                                                ----------------
                                                                                                                    60,569,906

--------------------------------------------------------------------------------------------------------------------------------
PHOTOGRAPHY--0.7%
Eastman Kodak Co.                                                                        350,000                    21,787,500
--------------------------------------------------------------------------------------------------------------------------------
UTILITIES--6.8%
--------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES--2.3%
Florida Progress Corp.                                                                   425,100                    22,052,063
--------------------------------------------------------------------------------------------------------------------------------
PPL Corp.                                                                                150,000                     5,025,000
--------------------------------------------------------------------------------------------------------------------------------
TXU Corp.                                                                                530,000                    18,516,875
--------------------------------------------------------------------------------------------------------------------------------
Unicom Corp.                                                                             475,000                    21,701,563
                                                                                                                ----------------
                                                                                                                    67,295,501

--------------------------------------------------------------------------------------------------------------------------------
GAS UTILITIES--4.5%
Dynegy, Inc.                                                                           1,250,000                    56,250,000
--------------------------------------------------------------------------------------------------------------------------------
Enron Corp.                                                                              625,000                    53,046,875
--------------------------------------------------------------------------------------------------------------------------------
Kinder Morgan, Inc.                                                                      387,500                    14,264,844
--------------------------------------------------------------------------------------------------------------------------------
Williams Cos., Inc. (The)                                                                170,000                     7,830,625
--------------------------------------------------------------------------------------------------------------------------------
                                                                                                                   131,392,344
                                                                                                                ----------------
Total Common Stocks (Cost $1,386,027,383)                                                                        1,975,028,980

--------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS--10.9%
ACE Ltd., 8.25% Cv. Preferred Redeemable Increased Dividend
Equity Securities, Non-Vtg.                                                              165,000                    12,251,250
--------------------------------------------------------------------------------------------------------------------------------
Adelphia Communications Corp., 5.50% Cv., Series D, Non-Vtg.                             100,000                    11,462,500
--------------------------------------------------------------------------------------------------------------------------------
Alliant Energy Resources, Inc., 7.25% Cv.(5)                                             200,000                    11,400,000
--------------------------------------------------------------------------------------------------------------------------------
Budget Group, Inc.:
6.25% Cum. Cv. Term Income Deferrable Equity Securities, Non-Vtg.(5)                      30,000                       626,250
6.25% Cv. Term Income Deferrable Equity Securities, Non-Vtg.                              95,000                     1,983,125
--------------------------------------------------------------------------------------------------------------------------------
California Federal Preferred Capital Corp., 9.125% Non-Cum.
Exchangeable, Series A, Non-Vtg.                                                          55,000                     1,251,250
--------------------------------------------------------------------------------------------------------------------------------
Carriage Services, Inc., 7% Cv. Term Income Deferrable Equity Securities(4)               25,000                       531,250
--------------------------------------------------------------------------------------------------------------------------------
CMS Energy Trust III, $26.25 Cv. Premium Equity Participating Security Units(1)          200,000                     5,012,500
--------------------------------------------------------------------------------------------------------------------------------
Coastal Corp., 6.625% Cv. Preferred Redeemable Increased Dividend
Equity Securities                                                                        710,300                    27,213,369
--------------------------------------------------------------------------------------------------------------------------------
DECS Trust IV, 7% Cv. Debt Exchangeable for Common Stock of
Maxtor Corp., Non-Vtg.                                                                   250,000                     2,000,000
--------------------------------------------------------------------------------------------------------------------------------
Dollar General Corp., 8.50% Cv. Structured Yield Product
Exchangeable for Stock                                                                   425,640                    15,163,425
--------------------------------------------------------------------------------------------------------------------------------
Emmis Communications Corp., 6.25% Cum. Cv., A Shares, Non-Vtg.                           150,000                     7,500,000
--------------------------------------------------------------------------------------------------------------------------------
Enron Corp., 7% Cv. Exchangeable                                                         125,000                     4,296,875
--------------------------------------------------------------------------------------------------------------------------------
Fresenius Medical Care Capital Trust III, 9% Trust Preferred Nts., 12/1/06(4)          5,985,000                     5,970,038


                                                                                                                    MARKET VALUE
                                                                                          SHARES                      SEE NOTE 1
--------------------------------------------------------------------------------------------------------------------------------

PREFERRED STOCKS Continued
--------------------------------------------------------------------------------------------------------------------------------
Georgia-Pacific Corp., 7.50% Cv. Premium Equity Participating
Security Units (each unit consists of a sr. deferrable nt., 8/16/04
and a purchase contract)(6)                                                              110,000                $     3,568,125
--------------------------------------------------------------------------------------------------------------------------------
Global Crossing Ltd., 6.75% Cv.                                                           22,500                      5,501,250
--------------------------------------------------------------------------------------------------------------------------------
Hanover Compressor Co., 7.25% Cv. Term Income Deferrable Equity Securities(5)             40,000                      3,820,000
--------------------------------------------------------------------------------------------------------------------------------
Hercules Trust II, Units (each unit consists of $1,000 principal
amount of 6.50% cv. sr. preferred stock and one warrant to purchase
23.1492 shares of common stock)(6)                                                         2,500                      1,379,700
--------------------------------------------------------------------------------------------------------------------------------
ICG Communications, Inc.:
6.75% Cum. Cv., Non-Vtg.(5)                                                               37,500                        698,437
6.75% Cum. Cv., Non-Vtg.                                                                  62,500                      1,164,062
--------------------------------------------------------------------------------------------------------------------------------
Intermedia Communications, Inc.:
7% Cum. Cv., Non-Vtg.(5)                                                                  40,000                      1,135,000
7% Cv.(5)                                                                                 32,500                        520,000
7% Cv. Jr., Series F, Non-Vtg.                                                            45,000                        720,000
7% Cv., Series E, Non-Vtg.                                                               127,500                      2,534,063
Depositary Shares Representing one one-hundredth 7% Cum. Cv. Jr.,
Series D, Non-Vtg.                                                                        35,000                        993,125
--------------------------------------------------------------------------------------------------------------------------------
Kaufman & Broad Home Corp., 8.25% Cv. Preferred Redeemable
Increased Dividend Equity Securities                                                   1,700,000                     13,175,000
--------------------------------------------------------------------------------------------------------------------------------
McLeodUSA, Inc., 6.75% Cv., Series A                                                       7,500                      3,485,625
--------------------------------------------------------------------------------------------------------------------------------
MediaOne Group, Inc., 7% Cv. Premium Income Exchangeable
Securities for Vodafone Airtouch plc common stock                                        137,500                      5,568,750
--------------------------------------------------------------------------------------------------------------------------------
MetLife Capital Trust I, 8% Cv.                                                          175,000                     13,912,500
--------------------------------------------------------------------------------------------------------------------------------
Monsanto Co., 6.50% Cv. Adjustable Conversion-rate Equity Security                       200,000                     10,037,500
--------------------------------------------------------------------------------------------------------------------------------
National Australia Bank Ltd., ExCaps (each ExCap consists of $25
principal amount of 7.875% Perpetual Capital Security and a purchase
contract entitling the holder to exchange ExCaps for ordinary shares)(6)                 500,000                     13,312,500
--------------------------------------------------------------------------------------------------------------------------------
Newell Financial Trust I, 5.25% Cv. Quarterly Income Preferred
Securities, Non-Vtg.                                                                     250,000                      9,625,000
--------------------------------------------------------------------------------------------------------------------------------
Nisource, Inc., 7.75% Premium Income Equity Securities, Non-Vtg.                         200,000                      9,325,000
--------------------------------------------------------------------------------------------------------------------------------
Owens Corning Capital LLC, 6.50% Cv. Monthly Income Preferred
Securities, Non-Vtg.(5)                                                                  175,000                      2,625,000
--------------------------------------------------------------------------------------------------------------------------------
PLC Capital Trust II, 6.50% Cum. Cv. Preferred Redeemable
Increased Dividend Equity Securities, Non-Vtg.                                            56,500                      2,768,500
--------------------------------------------------------------------------------------------------------------------------------
Qwest Trends Trust, 5.75% Cv.(5)                                                         125,000                     10,578,125
--------------------------------------------------------------------------------------------------------------------------------
Reliant Energy, Inc., 2% Zero-Premium Exchangeable Sub. Nts.                              98,000                      8,219,750
--------------------------------------------------------------------------------------------------------------------------------
Seagram Co. Ltd. (The), 7.50% Automatic Common
Exchangeable Securities                                                                  125,000                      6,875,000
--------------------------------------------------------------------------------------------------------------------------------
Sinclair Broadcast Group, Inc., 6% Cv., Series D                                          50,000                      1,687,500
--------------------------------------------------------------------------------------------------------------------------------
Six Flags, Inc., Cum. Cv. Premium Income Equity Securities                               499,000                     16,155,125
--------------------------------------------------------------------------------------------------------------------------------
Sovereign Capital Trust II, 7.50% Cv. Preferred Income Equity
Redeemable Stock, Units (each unit consists of one preferred plus one
warrant to purchase 5.3355 shares of Sovereign Bancorp common stock)(6)                  350,000                     18,615,625
--------------------------------------------------------------------------------------------------------------------------------
St. George Bank, ADR 9% Cv. Structured Yield Product
Exchangeable for Common Stock of St. George Bank (5)                                     114,000                      5,372,250


STATEMENT OF INVESTMENTS  Continued



                                                                                           SHARES                    MARKET VALUE
                                                                                                                       SEE NOTE 1
---------------------------------------------------------------------------------------------------------------------------------

 PREFERRED STOCKS Continued
 TXU Corp., 9.25% Cv. Preferred Redeemable Increased Dividend
 Equity Securities, Non-Vtg.                                                              150,000                $     6,384,375

---------------------------------------------------------------------------------------------------------------------------------
 Union Pacific Capital Trust, 6.25% Cum. Cv. Term Income
 Deferrable Equity Securities, Non-Vtg.                                                   131,400                      5,338,125
---------------------------------------------------------------------------------------------------------------------------------
 United Rental Trust I, 6.50% Cv. Quarterly Income Preferred Securities                   225,000                      7,031,250
---------------------------------------------------------------------------------------------------------------------------------
 Valero Energy Corp., 7.75% Cv. Premium Equity Participating Security                     285,800                      7,466,525
---------------------------------------------------------------------------------------------------------------------------------
 WBK Trust, 10% Cv. Structured Yield Product Exchangeable Stock                           450,000                     14,934,375
                                                                                                                 ----------------
 Total Preferred Stocks (Cost $336,350,314)                                                                          321,188,994

                                                                                            UNITS
---------------------------------------------------------------------------------------------------------------------------------
 RIGHTS, WARRANTS AND CERTIFICATES--0.0%

 Golden State Bancorp, Inc. Wts., Exp. 1/1/01 (Cost $1,316,782)                           390,650                        512,728

                                                                                        PRINCIPAL
                                                                                           AMOUNT
---------------------------------------------------------------------------------------------------------------------------------
 U.S. GOVERNMENT OBLIGATIONS--9.0%
 U.S. Treasury Bonds, STRIPS:
 4.06%, 8/15/22(7)                                                                   $170,000,000                     47,633,320
 6.58%, 2/15/15(7)                                                                    270,000,000                    115,695,000
 7.20%, 8/15/08(7)                                                                    133,000,000                     83,300,960
---------------------------------------------------------------------------------------------------------------------------------
 U.S. Treasury Nts., 6.625%, 5/31/02                                                   17,000,000                     17,116,875
                                                                                                                 ----------------
 Total U.S. Government Obligations (Cost $240,914,511)                                                               263,746,155
---------------------------------------------------------------------------------------------------------------------------------
 FOREIGN GOVERNMENT OBLIGATIONS--1.1%
 Fideicomiso Petacalco Trust Nts., 10.16%, 12/23/09(5)                                  8,550,000                      8,699,625
---------------------------------------------------------------------------------------------------------------------------------
 New South Wales State Bank Bonds, 9.25%, 2/18/03 [AUD]                                 1,900,000                      1,151,448
---------------------------------------------------------------------------------------------------------------------------------
 Queensland Treasury Corp. Global Exchangeable Gtd. Nts., 8%,
 8/14/01 [AUD]                                                                         33,650,000                     19,698,685
---------------------------------------------------------------------------------------------------------------------------------
 South Africa (Republic of) Bonds, Series 153, 13%, 8/31/10 [ZAR]                      14,800,000                      2,060,809
                                                                                                                 ----------------
 Total Foreign Government Obligations (Cost $37,851,248)                                                              31,610,567
---------------------------------------------------------------------------------------------------------------------------------
 LOAN PARTICIPATIONS--0.5%
 Shoshone Partners Loan Trust Sr. Nts., 8.461%, 4/28/02 (representing
 a basket of reference loans and a total return swap between Chase
 Manhattan Bank and the Trust)(4,8) (Cost $17,251,201)                                   16,800,000                     13,235,793
---------------------------------------------------------------------------------------------------------------------------------
 NON-CONVERTIBLE CORPORATE BONDS AND NOTES--6.2%
 AK Steel Corp., 9.125% Sr. Nts., 12/15/06                                              4,000,000                      4,030,000
---------------------------------------------------------------------------------------------------------------------------------
 Allied Waste North America, Inc., 7.875% Sr. Unsec. Nts., Series B, 1/1/09             4,995,000                      4,526,719
---------------------------------------------------------------------------------------------------------------------------------
 Amtran, Inc., 9.625% Nts., 12/15/05                                                    3,000,000                      2,745,000
---------------------------------------------------------------------------------------------------------------------------------
 Auburn Hills Trust, 12% Gtd. Exchangeable Certificates, 5/1/20(8)                      5,000,000                      7,196,210
---------------------------------------------------------------------------------------------------------------------------------
 Bank Plus Corp., 12% Sr. Nts., 7/18/07                                                 2,500,000                      2,087,500
---------------------------------------------------------------------------------------------------------------------------------
 Building Materials Corp. of America, 8% Sr. Unsec. Nts., 12/1/08                       5,000,000                      3,725,000
---------------------------------------------------------------------------------------------------------------------------------
 Canandaigua Brands, Inc., 8.625% Sr. Unsec. Nts., 8/1/06                               2,250,000                      2,272,500


                                                                                           PRINCIPAL                 MARKET VALUE
                                                                                              AMOUNT                   SEE NOTE 1
---------------------------------------------------------------------------------------------------------------------------------

 NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
 Charter Communications Holdings LLC/Charter Communications
 Holdings Capital Corp., 8.625% Sr. Unsec. Nts., 4/1/09                              $  3,000,000                $     2,752,500
---------------------------------------------------------------------------------------------------------------------------------
 Chesapeake Energy Corp., 9.125% Sr. Unsec. Nts., 4/15/06                               2,400,000                      2,358,000
---------------------------------------------------------------------------------------------------------------------------------
 Comcast Corp., 10.25% Sr. Sub. Debs., 10/15/01                                         6,000,000                      6,152,316
---------------------------------------------------------------------------------------------------------------------------------
 Cott Corp., 9.375% Sr. Nts., 7/1/05                                                    6,350,000                      6,207,125
---------------------------------------------------------------------------------------------------------------------------------
 CSC Holdings, Inc., 7.625% Sr. Unsec. Debs., 7/15/18                                   3,000,000                      2,742,786
---------------------------------------------------------------------------------------------------------------------------------
 EchoStar DBS Corp., 9.375% Sr. Unsec. Nts., 2/1/09                                     7,000,000                      6,973,750
---------------------------------------------------------------------------------------------------------------------------------
 Emmis Communications Corp., 8.125% Sr. Unsec. Sub. Nts.,
 Series B, 3/15/09                                                                      8,000,000                      7,580,000
---------------------------------------------------------------------------------------------------------------------------------
 Fairchild Corp., 10.75% Sr. Unsec. Sub. Nts., 4/15/09                                  1,750,000                      1,321,250
---------------------------------------------------------------------------------------------------------------------------------
 Fairchild Semiconductor International, Inc., 10.375% Sr. Unsec.
 Nts., 10/1/07                                                                          2,500,000                      2,587,500
---------------------------------------------------------------------------------------------------------------------------------
 Ferrellgas Partners LP, 9.375% Sr. Sec. Nts., Series B, 6/15/06(4)                     5,000,000                      4,925,000
---------------------------------------------------------------------------------------------------------------------------------
 Fleming Cos., Inc., 10.625% Sr. Nts., 12/15/01                                         3,000,000                      3,015,000
---------------------------------------------------------------------------------------------------------------------------------
 Gulf Canada Resources Ltd., 8.375% Sr. Nts., 11/15/05                                  2,500,000                      2,525,000
---------------------------------------------------------------------------------------------------------------------------------
 HMH Properties, Inc., 8.45% Sr. Nts., Series C, 12/1/08                               10,000,000                      9,737,500
---------------------------------------------------------------------------------------------------------------------------------
 Hollinger International Publishing, Inc.:
 8.625% Sr. Unsec. Nts., 3/15/05                                                        4,710,000                      4,757,100
 9.25% Sr. Unsec. Sub. Nts., 2/1/06                                                     4,200,000                      4,242,000
---------------------------------------------------------------------------------------------------------------------------------
 ICN Pharmaceutical, Inc., 9.75% Sr. Nts., 11/15/08(5)                                  2,000,000                      1,977,500
---------------------------------------------------------------------------------------------------------------------------------
 Imax Corp., 7.875% Sr. Nts., 12/1/05                                                   5,000,000                      4,812,500
---------------------------------------------------------------------------------------------------------------------------------
 Intermedia Communications, Inc., 8.60% Sr. Unsec. Nts., Series B,
 6/1/08                                                                                 3,000,000                      2,490,000
---------------------------------------------------------------------------------------------------------------------------------
 Intrawest Corp., 9.75% Sr. Nts., 8/15/08                                               2,000,000                      2,015,000
---------------------------------------------------------------------------------------------------------------------------------
 Kindercare Learning Centers, Inc., 9.50% Sr. Sub. Nts., 2/15/09                        6,000,000                      5,550,000
---------------------------------------------------------------------------------------------------------------------------------
 Level 3 Communications, Inc., 9.125% Sr. Unsec. Nts., 5/1/08                           2,500,000                      2,253,125
---------------------------------------------------------------------------------------------------------------------------------
 McLeodUSA, Inc., 8.125% Sr. Unsec. Nts., 2/15/09                                       4,500,000                      4,106,250
---------------------------------------------------------------------------------------------------------------------------------
 Metromedia Fiber Network, Inc.:
 10% Sr. Nts., 12/15/09 [EUR]                                                           2,000,000                      1,710,361
 10% Sr. Nts., 12/15/09                                                                 4,000,000                      3,970,000
---------------------------------------------------------------------------------------------------------------------------------
 Nextel Communications, Inc., 9.375% Sr. Unsec. Nts., 11/15/09                          6,000,000                      5,910,000
---------------------------------------------------------------------------------------------------------------------------------
 NEXTLINK Communications, Inc., 10.75% Sr. Unsec. Nts., 6/1/09                          1,000,000                        972,500
---------------------------------------------------------------------------------------------------------------------------------
 Nortek, Inc., 9.125% Sr. Nts., Series B, 9/1/07                                        7,500,000                      7,162,500
---------------------------------------------------------------------------------------------------------------------------------
 NTL Communications Corp., 11.50% Sr. Unsec. Nts., Series B, 10/1/08                    7,650,000                      7,841,250
---------------------------------------------------------------------------------------------------------------------------------
 P&L Coal Holdings Corp., 9.625% Sr. Sub. Nts., Series B, 5/15/08                       4,000,000                      3,880,000
---------------------------------------------------------------------------------------------------------------------------------
 PSINet, Inc., 10% Sr. Unsec. Nts., Series B, 2/15/05                                   1,700,000                      1,479,000
---------------------------------------------------------------------------------------------------------------------------------
 RBF Finance Co., 11% Sr. Sec. Nts., 3/15/06                                            4,000,000                      4,620,000
---------------------------------------------------------------------------------------------------------------------------------
 Riverwood International Corp.:
 10.625% Sr. Unsec. Nts., 8/1/07                                                        1,000,000                      1,022,500
 10.875% Sr. Sub. Nts., 4/1/08                                                          1,000,000                        950,000
---------------------------------------------------------------------------------------------------------------------------------
 Station Casinos, Inc., 10.125% Sr. Sub. Nts., 3/15/06                                  8,000,000                      8,040,000
---------------------------------------------------------------------------------------------------------------------------------
 Tenet Healthcare Corp.:
 7.625% Sr. Unsec. Nts., Series B, 6/1/08                                               2,150,000                      2,042,500
 8.625% Sr. Sub. Nts., 1/15/07                                                          2,000,000                      1,980,000


STATEMENT OF INVESTMENTS  Continued


                                                                                        PRINCIPAL                    MARKET VALUE
                                                                                           AMOUNT                      SEE NOTE 1
---------------------------------------------------------------------------------------------------------------------------------

 NON-CONVERTIBLE CORPORATE BONDS AND NOTES Continued
 Tenneco, Inc., 11.625% Sr. Unsec. Sub. Nts., Series B, 10/15/09                     $  3,000,000                $     2,595,000
---------------------------------------------------------------------------------------------------------------------------------
 Tribasa Toll Road Trust I, Asset-Backed Securities,
 Series 1993-A, 10.50%, 12/1/11(4)                                                      1,833,979                      1,104,973
---------------------------------------------------------------------------------------------------------------------------------
 VoiceStream Wireless Corp., 10.375% Sr. Unsec. Nts., 11/15/09                          8,596,720                      9,327,441
---------------------------------------------------------------------------------------------------------------------------------
 World Color Press, Inc., 7.75% Sr. Unsec. Sub. Nts., 2/15/09                           1,000,000                        934,271
                                                                                                                 ----------------
 Total Non-Convertible Corporate Bonds and Notes (Cost $186,852,531)                                                 183,206,427

---------------------------------------------------------------------------------------------------------------------------------
 CONVERTIBLE CORPORATE BONDS AND NOTES--3.9%
 American Tower Corp.:
 5% Cv. Nts., 2/15/10(5)                                                                6,000,000                      5,677,500
 5% Cv. Nts., 2/15/10                                                                   1,500,000                      1,419,375
---------------------------------------------------------------------------------------------------------------------------------
 Amkor Technology, Inc., 5% Cv. Nts., 3/15/07(5)                                       22,500,000                     19,940,625
---------------------------------------------------------------------------------------------------------------------------------
 Cypress Semiconductor Corp., 4% Cv. Unsec. Nts., 2/1/05                                4,000,000                      5,110,000
---------------------------------------------------------------------------------------------------------------------------------
 Inco Ltd.:
 5.75% Cv. Debs., 7/1/04                                                                9,700,000                      8,730,000
 7.75% Cv. Debs., 3/15/16                                                               6,500,000                      5,695,625
---------------------------------------------------------------------------------------------------------------------------------
 Loews Corp., 3.125% Cv. Sub. Nts., 9/15/07                                            10,000,000                      9,100,000
---------------------------------------------------------------------------------------------------------------------------------
 LSI Logic Corp., 4% Cv. Unsec. Sub. Nts., 2/15/05                                     12,500,000                     10,875,000
---------------------------------------------------------------------------------------------------------------------------------
 Mutual Risk Management Ltd., Zero Coupon Exchangeable Sub.
 Debs., 5.25%, 10/30/15(5,7)                                                           19,500,000                      9,871,875
---------------------------------------------------------------------------------------------------------------------------------
 Network Associates, Inc., Zero Coupon Cv. Unsec. Sub. Debs.,
 3.94%, 2/13/18(7)                                                                     25,000,000                      9,843,750
---------------------------------------------------------------------------------------------------------------------------------
 Nextel Communications, Inc., 5.25% Cv. Sr. Nts., 1/15/10(5)                            7,500,000                      7,509,375
---------------------------------------------------------------------------------------------------------------------------------
 Photronics, Inc., 6% Cv. Sub. Nts., 6/1/04                                            10,000,000                     11,575,000
---------------------------------------------------------------------------------------------------------------------------------
 Rite Aid Corp., 5.25% Cv. Sub. Nts., 9/15/02                                          12,500,000                      5,656,250
---------------------------------------------------------------------------------------------------------------------------------
 Valhi, Inc., Zero Coupon Cv. Sr. Sec. Liquid Yield Option Nts.,
 7.14%, 10/20/07(7)                                                                     3,500,000                      2,778,125
                                                                                                                 ----------------
 Total Convertible Corporate Bonds and Notes (Cost $112,809,971)                                                     113,782,500

---------------------------------------------------------------------------------------------------------------------------------
 STRUCTURED INSTRUMENTS--0.6%
 Bank of America NA, Lucent Technologies, Inc.
 Market Indexed Linked Nts., 6%, 2/9/02                                                 5,000,000                      3,991,000
---------------------------------------------------------------------------------------------------------------------------------
 Credit Suisse First Boston Corp. (New York Branch), Carnival Corp.
 Equity Linked Nts., 7%, 7/17/02(4)                                                     8,526,994                      8,228,549
---------------------------------------------------------------------------------------------------------------------------------
 Merrill Lynch & Co., Inc. Medium-Term Stock-Linked Nts., Series B, 7%, 7/8/02
 (Linked to the performance of the common stock of The Gap, Inc.)                       7,500,000                      5,475,000
                                                                                                                 ----------------
 Total Structured Instruments (Cost $20,999,794)                                                                      17,694,549

---------------------------------------------------------------------------------------------------------------------------------
 TOTAL INVESTMENTS, AT VALUE (COST $2,340,373,735)                                           99.3%                 2,920,006,693
---------------------------------------------------------------------------------------------------------------------------------
 OTHER ASSETS NET OF LIABILITIES                                                              0.7                     21,005,323
                                                                                          ---------------------------------------
 NET ASSETS                                                                                 100.0%               $ 2,941,012,016
                                                                                          =======================================

FOOTNOTES TO STATEMENT OF INVESTMENTS

Principal amount is reported in U.S. Dollars, except for those denoted in the
following currencies:

AUD    Australian Dollar
EUR    Euro
ZAR    South African Rand

1. Non-income-producing security.

2. Affiliated company. Represents ownership of at least 5% of the voting
securities of the issuer, and is or was an affiliate, as defined in the
Investment Company Act of 1940, at or during the period ended August 31, 2000.
The aggregate fair value of securities of affiliated companies held by the
Fund as of August 31, 2000, amounts to $8,156,250. Transactions during the
period in which the issuer was an affiliate are as follows:



                                                              SHARES                                           SHARES
                                                          AUGUST 31,       GROSS          GROSS            AUGUST 31,
                                                                1999   ADDITIONS     REDUCTIONS                  2000
---------------------------------------------------------------------------------------------------------------------

 CSK Auto Corp.                                              750,000     750,000             --             1,500,000


3. A sufficient amount of liquid assets has been designated to cover
outstanding written call and put options, as follows:



                                           CONTRACTS      EXPIRATION    EXERCISE        PREMIUM          MARKET VALUE
                                     SUBJECT TO CALL            DATE       PRICE       RECEIVED            SEE NOTE 1
---------------------------------------------------------------------------------------------------------------------

 Bank One Corp.                                  100        10/23/00         $38     $    6,675            $    8,750
 Bank One Corp.                                  500        11/20/00          35        103,184               121,875
 Bank One Corp.                                1,750        11/20/00          38        233,709               218,750
 Bank One Corp.                                1,150        11/20/00          40        101,909                64,688
 Bank of New York Co., Inc. (The)                775        10/23/00          55        141,110               145,313
 Bank of New York Co., Inc. (The)                150         1/22/01          50         90,797               105,000
 Bank of New York Co., Inc. (The)                150         1/22/01          55         61,423                61,875
 Bank of New York Co., Inc. (The)              1,225         1/22/01          60        238,351               222,031
 Capital One Financial Corp.                     250         9/18/00          60         97,997                75,000
 Capital One Financial Corp.                     350        10/23/00          65         97,074               102,813
 Citigroup, Inc.                                 150        10/23/00          64         22,050                17,456
 Motorola, Inc.                                  450        10/23/00          45         80,524                19,687
 Waters Corp.                                    700         9/18/00          65        633,304             1,303,750
 Waters Corp.                                  1,050        11/20/00          63      1,172,800             2,008,125
 Waters Corp.                                    850        11/20/00          60        968,634             1,944,375
 Waters Corp.                                    400        11/20/00          65        390,643               690,000
                                                                                      -------------------------------
                                                                                      4,440,184             7,109,488
                                                                                      -------------------------------

                                           CONTRACTS
                                      SUBJECT TO PUT
---------------------------------------------------------------------------------------------------------------------
 Microsoft Corp.                                 291        10/23/00          85        475,623               436,500
                                                                                     --------------------------------
                                                                                     $4,915,807            $7,545,988
                                                                                     ================================

4. Identifies issues considered to be illiquid or restricted--See Note 7 of
Notes to Financial Statements.

5. Represents securities sold under Rule 144A, which are exempt from
registration under the Securities Act of 1933, as amended. These securities
have been determined to be liquid under guidelines established by the Board of
Trustees. These securities amount to $90,451,562 or 3.08% of the Fund's net
assets as of August 31, 2000.

6. Units may be comprised of several components, such as debt and equity
and/or warrants to purchase equity at some point in the future. For units
which represent debt securities, principal amount disclosed represents total
underlying principal.

7. For zero coupon bonds, the interest rate shown is the effective yield on
the date of purchase.

8. Represents the current interest rate for a variable or increasing rate
security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

STATEMENT OF ASSETS AND LIABILITIES   August 31, 2000

=================================================================================================================================
 ASSETS

 Investments, at value--see accompanying statement:
 Unaffiliated companies (cost $2,307,685,551)                                                                    $ 2,911,850,443
 Affiliated companies (cost $32,688,184)                                                                               8,156,250
                                                                                                                 ----------------
                                                                                                                   2,920,006,693
---------------------------------------------------------------------------------------------------------------------------------
 Cash                                                                                                                  5,120,154
---------------------------------------------------------------------------------------------------------------------------------
 Cash used for collateral on Microsoft Corp. written puts                                                             17,262,770
---------------------------------------------------------------------------------------------------------------------------------
 Receivables and other assets:
 Interest and dividends                                                                                               12,850,906
 Shares of beneficial interest sold                                                                                      638,012
 Investments sold                                                                                                        559,568
 Other                                                                                                                   444,847
                                                                                                                 ----------------
 Total assets                                                                                                      2,956,882,950

=================================================================================================================================
 LIABILITIES
 Options written, at value (premiums received $4,915,807)--see accompanying statement                                  7,545,988
---------------------------------------------------------------------------------------------------------------------------------
 Payables and other liabilities:
 Shares of beneficial interest redeemed                                                                                4,455,117
 Distribution and service plan fees                                                                                    1,153,372
 Investments purchased                                                                                                 1,101,525
 Transfer and shareholder servicing agent fees                                                                           714,567
 Trustees' compensation                                                                                                   42,489
 Other                                                                                                                   857,876
                                                                                                                 ----------------
 Total liabilities                                                                                                    15,870,934
                                                                                                                 ----------------
 NET ASSETS                                                                                                      $ 2,941,012,016
                                                                                                                 ================

=================================================================================================================================
 COMPOSITION OF NET ASSETS
 Paid-in capital                                                                                                 $ 2,239,086,938
 Undistributed net investment income                                                                                  23,286,164
---------------------------------------------------------------------------------------------------------------------------------
 Accumulated net realized gain on investments and foreign currency transactions                                      101,639,755
---------------------------------------------------------------------------------------------------------------------------------
 Net unrealized appreciation on investments and translation of
 assets and liabilities denominated in foreign currencies                                                            576,999,159
                                                                                                                 ----------------
 NET ASSETS                                                                                                      $ 2,941,012,016
                                                                                                                 ================

=================================================================================================================================
 NET ASSET VALUE PER SHARE
 Class A Shares:
 Net asset value and redemption price per share (based on net assets of $2,395,444,343
 and 186,044,479 shares of beneficial interest outstanding)                                                               $12.88
 Maximum offering price per share (net asset value plus sales charge of 5.75% of offering price)                          $13.67
---------------------------------------------------------------------------------------------------------------------------------
 Class B Shares:
 Net asset value, redemption price (excludes applicable contingent deferred
 sales charge) and offering price per share (based on net assets of $472,221,589
 and 37,002,203 shares of beneficial interest outstanding)                                                                $12.76
---------------------------------------------------------------------------------------------------------------------------------
 Class C Shares:
 Net asset value, redemption price (excludes applicable contingent deferred
 sales charge) and offering price per share (based on net assets of $73,346,084
 and 5,749,222 shares of beneficial interest outstanding)                                                                 $12.76


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


STATEMENT OF OPERATIONS  For the Year Ended August 31, 2000



=================================================================================================================================
 INVESTMENT INCOME

 Dividends (net of foreign withholding taxes of $38,064)                                                         $    82,829,752
---------------------------------------------------------------------------------------------------------------------------------
 Interest                                                                                                             64,767,791
                                                                                                                 ----------------
 Total income                                                                                                        147,597,543
=================================================================================================================================
 EXPENSES
 Management fees                                                                                                      16,447,234
---------------------------------------------------------------------------------------------------------------------------------
 Distribution and service plan fees:
 Class A                                                                                                               5,799,373
 Class B                                                                                                               5,476,726
 Class C                                                                                                                 851,214
---------------------------------------------------------------------------------------------------------------------------------
 Transfer and shareholder servicing agent fees                                                                         3,647,076
---------------------------------------------------------------------------------------------------------------------------------
 Custodian fees and expenses                                                                                             197,040
---------------------------------------------------------------------------------------------------------------------------------
 Trustees' compensation                                                                                                   58,682
---------------------------------------------------------------------------------------------------------------------------------
 Other                                                                                                                 1,613,018
                                                                                                                 ----------------
 Total expenses                                                                                                       34,090,363
 Less expenses paid indirectly                                                                                           (21,672)
                                                                                                                 ----------------
 Net expenses                                                                                                         34,068,691

=================================================================================================================================
 NET INVESTMENT INCOME                                                                                               113,528,852

---------------------------------------------------------------------------------------------------------------------------------
 REALIZED AND UNREALIZED GAIN (LOSS)

 Net realized gain (loss) on:
 Investments (including premiums on options exercised)                                                               171,656,212
 Closing and expiration of option contracts written                                                                    3,196,541
 Foreign currency transactions                                                                                        (1,226,472)
                                                                                                                 ----------------
 Net realized gain                                                                                                   173,626,281

---------------------------------------------------------------------------------------------------------------------------------
 Net change in unrealized depreciation on:
 Investments                                                                                                        (129,441,814)
 Translation of assets and liabilities denominated in foreign currencies                                                (837,481)
                                                                                                                 ----------------
 Net change                                                                                                         (130,279,295)
                                                                                                                 ----------------
 Net realized and unrealized gain                                                                                     43,346,986

=================================================================================================================================
 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                                                             $  156,875,838
                                                                                                                 ================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


STATEMENT OF CHANGES IN NET ASSETS



YEAR ENDED AUGUST 31,                                                                        2000                        1999
=================================================================================================================================

 OPERATIONS
 Net investment income                                                              $ 113,528,852                $   134,128,244
---------------------------------------------------------------------------------------------------------------------------------
 Net realized gain                                                                    173,626,281                    338,994,470
---------------------------------------------------------------------------------------------------------------------------------
 Net change in unrealized depreciation                                               (130,279,295)                   (68,883,491)
                                                                                    ---------------------------------------------
 Net increase in net assets resulting from operations                                 156,875,838                    404,239,223

=================================================================================================================================
 DIVIDENDS AND/OR DISTRIBUTIONS TO SHAREHOLDERS
 Dividends from net investment income:
 Class A                                                                              (98,446,434)                  (106,190,111)
 Class B                                                                              (17,009,478)                   (19,189,145)
 Class C                                                                               (2,657,808)                    (3,049,848)
---------------------------------------------------------------------------------------------------------------------------------
 Distributions from net realized gain:
 Class A                                                                             (220,897,327)                  (245,592,889)
 Class B                                                                              (51,201,679)                   (57,343,807)
 Class C                                                                               (8,187,175)                    (8,928,939)
=================================================================================================================================
 BENEFICIAL INTEREST TRANSACTIONS
 Net increase (decrease) in net assets resulting from beneficial interest
 transactions:
 Class A                                                                             (348,332,169)                    60,856,819
 Class B                                                                             (198,760,762)                    96,317,221
 Class C                                                                              (37,298,949)                    26,567,442
=================================================================================================================================
 NET ASSETS
 Total increase (decrease)                                                           (825,915,943)                   147,685,966
---------------------------------------------------------------------------------------------------------------------------------
 Beginning of period                                                                3,766,927,959                  3,619,241,993
                                                                                   ----------------------------------------------
 End of period (including undistributed net investment
 income of $23,286,164 and $27,856,168, respectively)                              $2,941,012,016                $ 3,766,927,959
                                                                                   ==============================================


SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

FINANCIAL HIGHLIGHTS


                                                                                                   YEAR         YEAR
                                                                                                  ENDED        ENDED
                                                                                             AUGUST 31,     JUNE 30,
 CLASS A                                             2000      1999       1998       1997       1996(1)         1996
=========================================================================================================================

 PER SHARE OPERATING DATA
-------------------------------------------------------------------------------------------------------------------------
 Net asset value, beginning of period              $13.63    $13.75     $14.12     $11.36        $11.39       $10.25
-------------------------------------------------------------------------------------------------------------------------
 Income (loss) from investment operations:
 Net investment income                                .49       .51        .50        .47           .09          .50
 Net realized and unrealized gain (loss)              .32      1.03        .41       3.17          (.12)        1.36
                                          -------------------------------------------------------------------------------
 Total income (loss) from
 investment operations                                .81      1.54        .91       3.64          (.03)        1.86
-------------------------------------------------------------------------------------------------------------------------
 Dividends and/or distributions to shareholders:
 Dividends from net investment income                (.49)     (.49)      (.49)      (.48)           --         (.48)
 Distributions from net realized gain               (1.07)    (1.17)      (.79)      (.40)           --         (.24)
                                          -------------------------------------------------------------------------------
 Total dividends and/or distributions
 to shareholders                                    (1.56)    (1.66)     (1.28)      (.88)           --         (.72)
-------------------------------------------------------------------------------------------------------------------------
 Net asset value, end of period                    $12.88    $13.63     $13.75     $14.12        $11.36       $11.39
                                          ===============================================================================

=========================================================================================================================
 TOTAL RETURN, AT NET ASSET VALUE(2)                 7.24%    11.03%      6.17%     33.39%        (0.26)%      18.61%
=========================================================================================================================
 RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------------
 Net assets, end of period (in millions)           $2,395    $2,927     $2,889     $2,722        $2,110       $2,141
-------------------------------------------------------------------------------------------------------------------------
 Average net assets (in millions)                  $2,503    $3,156     $3,072     $2,446        $2,109       $2,054
-------------------------------------------------------------------------------------------------------------------------
 Ratios to average net assets:(3)
 Net investment income                               3.78%   3.51%        3.47%      3.97%        3.28%         4.51%
 Expenses                                            0.93%   0.89%        0.87%(4)   0.88%(4)     0.94%(4)      0.89%(4)
-------------------------------------------------------------------------------------------------------------------------
 Portfolio turnover rate                               37%     40%          18%       24%           14%           43%


1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.

2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year.

3. Annualized for periods of less than one full year.

4. Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


FINANCIAL HIGHLIGHTS  Continued



                                                                                                   YEAR         YEAR
                                                                                                  ENDED        ENDED
                                                                                             AUGUST 31,     JUNE 30,
 CLASS B                                             2000      1999       1998       1997       1996(1)         1996
=========================================================================================================================

 PER SHARE OPERATING DATA
 Net asset value, beginning of period             $13.51    $13.63     $14.01     $11.29         $11.33       $10.21
-------------------------------------------------------------------------------------------------------------------------
 Income (loss) from investment operations:
 Net investment income                               .38       .39        .39        .37            .07          .41
 Net realized and unrealized gain (loss)             .32      1.03        .40       3.13           (.11)        1.35
                                          -------------------------------------------------------------------------------
 Total income (loss) from
 investment operations                               .70      1.42        .79       3.50           (.04)        1.76
-------------------------------------------------------------------------------------------------------------------------
 Dividends and/or distributions to shareholders:
 Dividends from net investment income               (.38)     (.37)      (.38)      (.38)            --         (.40)
 Distributions from net realized gain              (1.07)    (1.17)      (.79)      (.40)            --         (.24)
                                          -------------------------------------------------------------------------------
 Total dividends and/or distributions
 to shareholders                                   (1.45)    (1.54)     (1.17)      (.78)            --         (.64)
-------------------------------------------------------------------------------------------------------------------------
 Net asset value, end of period                   $12.76    $13.51     $13.63     $14.01         $11.29       $11.33
                                          ===============================================================================

=========================================================================================================================
 TOTAL RETURN, AT NET ASSET VALUE(2)                6.34%    10.22%      5.32%     32.17%         (0.35)%      17.58%

=========================================================================================================================
 RATIOS/SUPPLEMENTAL DATA
 Net assets, end of period (in millions)            $472      $721       $635       $431           $260         $252
-------------------------------------------------------------------------------------------------------------------------
 Average net assets (in millions)                   $546      $749       $575       $344           $255         $208

 Ratios to average net assets:(3)
 Net investment income                              3.01%     2.71%      2.68%      3.16%          2.48%        3.68%
 Expenses                                           1.70%     1.69%      1.67%(4)   1.69%(4)       1.76%(4)     1.72%(4)
-------------------------------------------------------------------------------------------------------------------------
 Portfolio turnover rate                              37%       40%        18%        24%            14%          43%


1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.

2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year.

3. Annualized for periods of less than one full year.

4. Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.



                                                                                                 YEAR         YEAR
                                                                                                 ENDED        ENDED
                                                                                             AUGUST 31,     JUNE 30,
 CLASS C                                             2000      1999       1998       1997       1996(1)         1996(2)
=========================================================================================================================

 PER SHARE OPERATING DATA
 Net asset value, beginning of period              $13.50   $13.63      $14.02     $11.30        $11.35       $10.76

-------------------------------------------------------------------------------------------------------------------------
 Income (loss) from investment operations:
 Net investment income                                .38      .39         .39        .40           .07          .28
 Net realized and unrealized gain (loss)              .32     1.02         .40       3.12          (.12)         .88
                                          -------------------------------------------------------------------------------
 Total income (loss) from
 investment operations                                .70     1.41         .79       3.52          (.05)        1.16
-------------------------------------------------------------------------------------------------------------------------
 Dividends and/or distributions to shareholders:
 Dividends from net investment income                (.37)    (.38)       (.39)      (.40)           --         (.33)
 Distributions from net realized gain               (1.07)   (1.16)       (.79)      (.40)           --         (.24)
                                          -------------------------------------------------------------------------------
 Total dividends and/or distributions
 to shareholders                                    (1.44)   (1.54)      (1.18)      (.80)           --         (.57)

-------------------------------------------------------------------------------------------------------------------------
 Net asset value, end of period                    $12.76   $13.50      $13.63     $14.02        $11.30       $11.35
                                          ===============================================================================

=========================================================================================================================
 TOTAL RETURN, AT NET ASSET VALUE(3)                 6.40%   10.15%       5.30%     32.31%        (0.44)%      10.50%

=========================================================================================================================
 RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------------
 Net assets, end of period (in millions)              $73     $119         $95        $48            $7           $6
 Average net assets (in millions)                     $85     $120         $77        $25            $7           $3

 Ratios to average net assets:(4)
 Net investment income                               3.01%    2.70%       2.68%      3.15%         2.55%        3.53%
 Expenses                                            1.70%    1.69%       1.67%(5)   1.69%(5)      1.79%(5)     1.81%(5)

-------------------------------------------------------------------------------------------------------------------------
 Portfolio turnover rate                               37%      40%         18%        24%           14%          43%


1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.

2. For the period from November 1, 1995 (inception of offering) to June 30,
1996.

3. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year.

4. Annualized for periods of less than one full year.

5. Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.


NOTES TO FINANCIAL STATEMENTS
================================================================================

1. SIGNIFICANT ACCOUNTING POLICIES

Oppenheimer Capital Income Fund (the Fund) is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund's investment objective is to seek as much current income as is
compatible with prudent investment. The Fund's investment advisor is
OppenheimerFunds, Inc. (the Manager).

       The Fund offers Class A, Class B and Class C shares. Class A shares are
sold at their offering price, which is normally net asset value plus a
front-end sales charge. Class B and Class C shares are sold without a
front-end sales charge but may be subject to a contingent deferred sales
charge (CDSC). All classes of shares have identical rights to earnings, assets
and voting privileges, except that each class has its own expenses directly
attributable to that class and exclusive voting rights with respect to matters
affecting that class. Classes A, B and C have separate distribution and/or
service plans. Class B shares will automatically convert to Class A shares six
years after the date of purchase. The following is a summary of significant
accounting policies consistently followed by the Fund.

-------------------------------------------------------------------------------

SECURITIES VALUATION. Securities listed or traded on National Stock Exchanges
or other domestic or foreign exchanges are valued based on the last sale price
of the security traded on that exchange prior to the time when the Fund's
assets are valued. In the absence of a sale, the security is valued at the last
sale price on the prior trading day, if it is within the spread of the closing
bid and asked prices, and if not, at the closing bid price. Securities
(including restricted securities) for which quotations are not readily
available are valued primarily using dealer-supplied valuations, a portfolio
pricing service authorized by the Board of Trustees, or at their fair value.
Fair value is determined in good faith under consistently applied procedures
under the supervision of the Board of Trustees. Short-term "money market type"
debt securities with remaining maturities of sixty days or less are valued at
amortized cost (which approximates market value).

-------------------------------------------------------------------------------

STRUCTURED NOTES. The Fund invests in foreign currency-linked structured notes
whose market value and redemption price are linked to foreign currency exchange
rates. The structured notes are leveraged, which increases the notes'
volatility relative to the principal of the security. Fluctuations in value of
these securities are recorded as unrealized gains and losses in the
accompanying financial statements. As of August 31, 2000, the market value of
these securities comprised 0.6% of the Fund's net assets and resulted in
unrealized losses at August 31, 2000, of $3,305,245. The Fund also hedges a
portion of the foreign currency exposure generated by these securities, as
discussed in Note 5.

-------------------------------------------------------------------------------

FOREIGN CURRENCY TRANSLATION. The accounting records of the Fund are
maintained in U.S. dollars. Prices of securities denominated in foreign
currencies are translated into U.S. dollars at the closing rates of exchange.
Amounts related to the purchase and sale of foreign securities and investment
income are translated at the rates of exchange prevailing on the respective
dates of such transactions.

The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains
and losses in the Fund's Statement of Operations.

-------------------------------------------------------------------------------
REPURCHASE AGREEMENTS. The Fund requires the custodian to take possession, to
have legally segregated in the Federal Reserve Book Entry System or to have
segregated within the custodian's vault, all securities held as collateral for
repurchase agreements. The market value of the underlying securities is
required to be at least 102% of the resale price at the time of purchase. If
the seller of the agreement defaults and the value of the collateral declines,
or if the seller enters an insolvency proceeding, realization of the value of
the collateral by the Fund may be delayed or limited.

-------------------------------------------------------------------------------
ALLOCATION OF INCOME, EXPENSES, GAINS AND LOSSES. Income, expenses (other than
those attributable to a specific class), gains and losses are allocated daily
to each class of shares based upon the relative proportion of net assets
represented by such class. Operating expenses directly attributable to a
specific class are charged against the operations of that class.

-------------------------------------------------------------------------------
FEDERAL TAXES. The Fund intends to continue to comply with provisions of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income, including any net realized gain on
investments not offset by loss carryovers, to shareholders. Therefore, no
federal income or excise tax provision is required.

-------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Dividends and distributions to
shareholders, which are determined in accordance with income tax regulations,
are recorded on the ex-dividend date.

-------------------------------------------------------------------------------
CLASSIFICATION OF DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. Net investment
income (loss) and net realized gain (loss) may differ for financial statement
and tax purposes. The character of dividends and distributions made during the
fiscal year from net investment income or net realized gains may differ from
its ultimate characterization for federal income tax purposes. Also, due to
timing of dividends and distributions, the fiscal year in which amounts are
distributed may differ from the fiscal year in which the income or realized
gain was recorded by the Fund.

       The Fund adjusts the classification of distributions to shareholders to
reflect the differences between financial statement amounts and distributions
determined in accordance with income tax regulations. Accordingly, during the
year ended August 31, 2000, amounts have been reclassified to reflect an
increase in paid-in capital of $21,166,020, an increase in undistributed net
investment income of $14,864, and a decrease in accumulated net realized gain
on investments of $21,180,884. This reclassification includes $21,183,778
distributed in connection with Fund share redemptions which increased paid-in
capital and reduced accumulated net realized gain. Net assets of the Fund were
unaffected by the reclassifications.


NOTE TO FINANCIALS STATEMENTS Continued
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES   Continued

EXPENSE OFFSET ARRANGEMENTS. Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by the Fund.

------------------------------------------------------------------------------
OTHER. Investment transactions are accounted for as of trade date and dividend
income is recorded on the ex-dividend date. Certain dividends from foreign
securities will be recorded as soon as the Fund is informed of the dividend if
such information is obtained subsequent to the ex-dividend date. Realized
gains and losses on investments and unrealized appreciation and depreciation
are determined on an identified cost basis, which is the same basis used for
federal income tax purposes.

       The preparation of financial statements in conformity with 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 no par value shares of
 beneficial interest of each class. Transactions in shares of beneficial
 interest were as follows:

                           YEAR ENDED    AUGUST 31, 2000    YEAR ENDED AUGUST 31, 1999
                            SHARES          AMOUNT         SHARES         AMOUNT
---------------------------------------  ----------------------------------------------------------------------------------------

 CLASS A
 Sold                       19,575,634    $241,088,319     21,887,567   $314,043,113
 Dividends and/or
 distributions reinvested   25,370,714     299,536,203     23,478,035    330,924,974
 Redeemed                  (73,658,611)   (888,956,691)   (40,770,834)  (584,111,268)
                           ---------------------------------------------------------
 Net increase (decrease)   (28,712,263)  $(348,332,169)     4,594,768   $ 60,856,819
                           =========================================================
---------------------------------------------------------------------------------------------------------------------------------
 CLASS B
 Sold                        5,302,692     $64,844,082     13,221,669   $188,310,904
 Dividends and/or
 distributions reinvested    5,572,573      65,132,048      5,207,911     72,839,456
 Redeemed                  (27,234,627)   (328,736,892)   (11,626,909)  (164,833,139)
                           ---------------------------------------------------------
 Net increase (decrease)   (16,359,362)  $(198,760,762)     6,802,671    $96,317,221
                           =========================================================
 --------------------------------------------------------------------------------------------------------------------------------
 CLASS C
 Sold                        1,053,764   $  13,049,521      4,107,119  $  58,508,668
 Dividends and/or
 distributions reinvested      882,449      10,315,715        831,248     11,618,577
 Redeemed                   (5,023,386)    (60,664,185)    (3,071,848)   (43,559,803)
                           ---------------------------------------------------------
 Net increase (decrease)    (3,087,173)   $(37,298,949)     1,866,519    $26,567,442
                           =========================================================

================================================================================
 3. PURCHASES AND SALES OF SECURITIES

 The aggregate cost of purchases and proceeds from sales of securities, other
 than short-term obligations, for the year ended August 31, 2000, were
 $1,100,751,266 and $1,617,683,897, respectively.

 As of August 31, 2000, unrealized appreciation (depreciation) based on cost of
 securities for federal income tax purposes of $2,343,658,869 was:


         Gross unrealized appreciation  $  776,073,339
         Gross unrealized depreciation    (202,366,691)
                                        --------------
         Net unrealized appreciation    $  573,706,648
                                        ==============

================================================================================
 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES
 MANAGEMENT FEES. Management fees paid to the Manager were in accordance with
 the investment advisory agreement with the Fund which provides for a fee of
 0.75% of the first $100 million of average annual net assets, 0.70% of the next
 $100 million, 0.65% of the next $100 million, 0.60% of the next $100 million,
 0.55% of the next $100 million and 0.50% of average annual net assets in excess
 of $500 million. The Fund's management fee for the year ended August 31, 2000,
 was an annualized rate of 0.52%, before any waiver by the Manager if
 applicable.

--------------------------------------------------------------------------------
 TRANSFER AGENT FEES. OppenheimerFunds Services (OFS), a division of the
 Manager, acts as the transfer and shareholder servicing agent for the Fund on
 an "at-cost" basis. OFS also acts as the transfer and shareholder servicing
 agent for the other Oppenheimer funds.

--------------------------------------------------------------------------------
 DISTRIBUTION AND SERVICE PLAN FEES. Under its General Distributor's Agreement
 with the Manager, the Distributor acts as the Fund's principal underwriter in
 the continuous public offering of the different classes of shares of the Fund.

 The compensation paid to (or retained by) the Distributor from the sale of
 shares or on the redemption of shares is shown in the table below for the
 period indicated:

                       AGGREGATE        CLASS A   COMMISSIONS      COMMISSIONS        COMMISSIONS
                       FRONT-END      FRONT-END    ON CLASS A       ON CLASS B         ON CLASS C
                   SALES CHARGES  SALES CHARGES        SHARES           SHARES             SHARES
                      ON CLASS A    RETAINED BY   ADVANCED BY      ADVANCED BY        ADVANCED BY
 YEAR ENDED               SHARES    DISTRIBUTOR   DISTRIBUTOR(1)   DISTRIBUTOR(1)     DISTRIBUTOR(1)
---------------------------------------------------------------------------------------------------------------------------------

 August 31, 2000      $2,190,051       $631,452     $300,262       $1,621,384            $96,086


 1. The Distributor advances commission payments to dealers for certain sales of
 Class A shares and for sales of Class B and Class C shares from its own
 resources at the time of sale.



                                    CLASS A                     CLASS B                          CLASS C
                        CONTINGENT DEFERRED         CONTINGENT DEFERRED              CONTINGENT DEFERRED
                              SALES CHARGES               SALES CHARGES                     SALES CHARGES
YEAR ENDED          RETAINED BY DISTRIBUTOR     RETAINED BY DISTRIBUTOR            RETAINED BY DISTRIBUTOR
---------------------------------------------------------------------------------------------------------------------------------

 August 31, 2000               $58,792                   $1,429,980                         $20,807




NOTES TO FINANCIAL STATEMENTS Continued

================================================================================
 4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES   Continued

 The Fund has adopted a Service Plan for Class A shares and Distribution and
 Service Plans for Class B and Class C shares under Rule 12b-1 of the Investment
 Company Act. Under those plans, the Fund pays the Distributor for all or a
 portion of its costs incurred in connection with the distribution and/or
 servicing of the shares of the particular class.

--------------------------------------------------------------------------------
 CLASS A SERVICE PLAN FEES. Under the Class A service plan, the Distributor
 currently uses the fees it receives from the Fund to pay brokers, dealers and
 other financial institutions. The Class A service plan permits reimbursements
 to the Distributor at a rate of up to 0.25% of average annual net assets of
 Class A shares purchased. The Distributor makes payments to plan recipients
 quarterly at an annual rate not to exceed 0.25% of the average annual net
 assets consisting of Class A shares of the Fund. For the year ended August 31,
 2000, payments under the Class A plan totaled $5,799,373 prior to Manager
 waivers if applicable, all of which were paid by the Distributor to recipients,
 and included $394,479 paid to an affiliate of the Manager. Any unreimbursed
 expenses the Distributor incurs with respect to Class A shares in any fiscal
 year cannot be recovered in subsequent years.

--------------------------------------------------------------------------------
 CLASS B AND CLASS C DISTRIBUTION AND SERVICE PLAN FEES. Under each plan,
 service fees and distribution fees are computed on the average of the net asset
 value of shares in the respective class, determined as of the close of each
 regular business day during the period. The Class B and Class C plans provide
 for the Distributor to be compensated at a flat rate, whether the Distributor's
 distribution expenses are more or less than the amounts paid by the Fund under
 the plan during the period for which the fee is paid.

    The Distributor retains the asset-based sales charge on Class B shares. The
 Distributor retains the asset-based sales charge on Class C shares during the
 first year the shares are outstanding. The asset-based sales charges on Class B
 and Class C shares allow investors to buy shares without a front-end sales
 charge while allowing the Distributor to compensate dealers that sell those
 shares.

    The Distributor's actual expenses in selling Class B and Class C shares may
 be more than the payments it receives from the contingent deferred sales
 charges collected on redeemed shares and asset-based sales charges from the
 Fund under the plans. If any plan is terminated by the Fund, the Board of
 Trustees may allow the Fund to continue payments of the asset-based sales
 charge to the Distributor for distributing shares before the plan was
 terminated. The plans allow for the carry-forward of distribution expenses, to
 be recovered from asset-based sales charges in subsequent fiscal periods.

 Distribution fees paid to the Distributor for the year ended August 31, 2000,
 were as follows:



                                                      DISTRIBUTOR'S  DISTRIBUTOR'S
                                                          AGGREGATE   UNREIMBURSED
                                                       UNREIMBURSED  EXPENSES AS %
                        TOTAL PAYMENTS AMOUNT RETAINED     EXPENSES  OF NET ASSETS
                            UNDER PLAN BY DISTRIBUTOR    UNDER PLAN       OF CLASS
-------------------------------------------------------------------------------------

 Class B Plan               $5,476,726    $4,309,078    $12,531,453          2.65%
 Class C Plan                  851,214       250,604      1,555,535          2.12


================================================================================
 5. FOREIGN CURRENCY CONTRACTS

 A foreign currency contract is a commitment to purchase or sell a foreign
 currency at a future date, at a negotiated rate. The Fund may enter into
 foreign currency contracts for operational purposes and to seek to protect
 against adverse exchange rate fluctuations. Risks to the Fund include the
 potential inability of the counterparty to meet the terms of the contract.

 The net U.S. dollar value of foreign currency underlying all contractual
 commitments held by the Fund and the resulting unrealized appreciation or
 depreciation are determined using foreign currency exchange rates as provided
 by a reliable bank, dealer or pricing service. Unrealized appreciation and
 depreciation on foreign currency contracts are reported in the Statement of
 Assets and Liabilities.

    The Fund may realize a gain or loss upon the closing or settlement of the
 foreign currency transactions. Realized gains and losses are reported with all
 other foreign currency gains and losses in the Statement of Operations.

    Securities denominated in foreign currency to cover net exposure on
 outstanding foreign currency contracts are noted in the Statement of
 Investments, where applicable.

================================================================================
 6. OPTION ACTIVITY

 The Fund may buy and sell put and call options, or write put and covered call
 options on portfolio securities in order to produce incremental earnings or
 protect against changes in the value of portfolio securities.

    The Fund generally purchases put options or writes covered call options to
 hedge against adverse movements in the value of portfolio holdings. When an
 option is written, the Fund receives a premium and becomes obligated to sell or
 purchase the underlying security at a fixed price, upon exercise of the option.

    Options are valued daily based upon the last sale price on the principal
 exchange on which the option is traded and unrealized appreciation or
 depreciation is recorded. The Fund will realize a gain or loss upon the
 expiration or closing of the option transaction. When an option is exercised,
 the proceeds on sales for a written call option, the purchase cost for a
 written put option, or the cost of the security for a purchased put or call
 option is adjusted by the amount of premium received or paid.

    Securities designated to cover outstanding call options are noted in the
 Statement of Investments, where applicable. Shares subject to call, expiration
 date, exercise price, premium received and market value are detailed in a note
 to the Statement of Investments. Options written are reported as a liability in
 the Statement of Assets and Liabilities. Realized gains and losses are reported
 in the Statement of Operations.

NOTES TO FINANCIAL STATEMENTS Continued

================================================================================
 6. OPTION ACTIVITY   Continued

    The risk in writing a call option is that the Fund gives up the opportunity
 for profit if the market price of the security increases and the option is
 exercised. The risk in writing a put option is that the Fund may incur a loss
 if the market price of the security decreases and the option is exercised. The
 risk in buying an option is that the Fund pays a premium whether or not the
 option is exercised. The Fund also has the additional risk of not being able to
 enter into a closing transaction if a liquid secondary market does not exist.

 Written option activity for the year ended August 31, 2000, was as follows:

                                        CALL OPTIONS                   PUT OPTIONS
                          ---------------------------    ---------------------------
                             NUMBER OF     AMOUNT OF      NUMBER OF      AMOUNT OF
                               OPTIONS      PREMIUMS        OPTIONS       PREMIUMS
---------------------------------------------------------------------------------------------------------------------------------

 Options outstanding as of
 August 31, 1999                    --  $         --            250    $   286,740
 Options written                33,500    21,786,707         22,799     12,146,748
 Options closed or expired     (22,800)  (17,106,126)       (20,049)    (7,199,158)
 Options exercised                (700)     (240,397)        (2,709)    (4,758,707)
                               ---------------------------------------------------

 Options outstanding as of
 August 31, 2000                10,000   $ 4,440,184            291      $ 475,623
                               ===================================================


--------------------------------------------------------------------------------
 7. ILLIQUID OR RESTRICTED SECURITIES

 As of August 31, 2000, investments in securities included issues that are
 illiquid or restricted. Restricted securities are often purchased in private
 placement transactions, are not registered under the Securities Act of 1933,
 may have contractual restrictions on resale, and are valued under methods
 approved by the Board of Trustees as reflecting fair value. A security may also
 be considered illiquid if it lacks a readily available market or if its
 valuation has not changed for a certain period of time. The Fund intends to
 invest no more than 10% of its net assets (determined at the time of purchase
 and reviewed periodically) in illiquid or restricted securities. Certain
 restricted securities, eligible for resale to qualified institutional
 investors, are not subject to that limitation. The aggregate value of illiquid
 or restricted securities subject to this limitation as of August 31, 2000, was
 $35,236,541, which represents 1.20% of the Fund's net assets, of which
 $1,240,938 is considered restricted. Information concerning restricted
 securities is as follows:


                                                                                     VALUATION
                                                                                PER UNIT AS OF
 SECURITY                             ACQUISITION DATE       COST PER UNIT     AUGUST 31, 2000
---------------------------------------------------------------------------------------------------------------------------------
 STOCKS & WARRANTS
 Greenpoint Financial Corp.                    3/12/99              $30.00              $24.82

================================================================================
 8. BANK BORROWINGS

 The Fund may borrow from a bank for temporary or emergency purposes including,
 without limitation, funding of shareholder redemptions provided asset coverage
 for borrowings exceeds 300%. The Fund has entered into an agreement which
 enables it to participate with other Oppenheimer funds in an unsecured line of
 credit with a bank, which permits borrowings up to $400 million, collectively.
 Interest is charged to each fund, based on its borrowings, at a rate equal to
 the Federal Funds Rate plus 0.45%. Borrowings are payable 30 days after such
 loan is executed. The Fund also pays a commitment fee equal to its pro rata
 share of the average unutilized amount of the credit facility at a rate of
 0.08% per annum.

   The Fund had no borrowings outstanding during the year ended August 31,
 2000.

FINANCIAL HIGHLIGHTS

                                                                                                   YEAR         YEAR
                                                                                                  ENDED        ENDED
                                                                                             AUGUST 31,     JUNE 30,
 CLASS A                                             2000      1999       1998       1997       1996(1)         1996
=========================================================================================================================

 PER SHARE OPERATING DATA
-------------------------------------------------------------------------------------------------------------------------
 Net asset value, beginning of period              $13.63    $13.75     $14.12     $11.36        $11.39       $10.25
-------------------------------------------------------------------------------------------------------------------------
 Income (loss) from investment operations:
 Net investment income                                .49       .51        .50        .47           .09          .50
 Net realized and unrealized gain (loss)              .32      1.03        .41       3.17          (.12)        1.36
                                          -------------------------------------------------------------------------------
 Total income (loss) from
 investment operations                                .81      1.54        .91       3.64          (.03)        1.86
-------------------------------------------------------------------------------------------------------------------------
 Dividends and/or distributions to shareholders:
 Dividends from net investment income                (.49)     (.49)      (.49)      (.48)           --         (.48)
 Distributions from net realized gain               (1.07)    (1.17)      (.79)      (.40)           --         (.24)
                                          -------------------------------------------------------------------------------
 Total dividends and/or distributions
 to shareholders                                    (1.56)    (1.66)     (1.28)      (.88)           --         (.72)
-------------------------------------------------------------------------------------------------------------------------
 Net asset value, end of period                    $12.88    $13.63     $13.75     $14.12        $11.36       $11.39
                                          ===============================================================================

=========================================================================================================================
 TOTAL RETURN, AT NET ASSET VALUE(2)                 7.24%    11.03%      6.17%     33.39%        (0.26)%      18.61%
=========================================================================================================================
 RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------------
 Net assets, end of period (in millions)           $2,395    $2,927     $2,889     $2,722        $2,110       $2,141
-------------------------------------------------------------------------------------------------------------------------
 Average net assets (in millions)                  $2,503    $3,156     $3,072     $2,446        $2,109       $2,054
-------------------------------------------------------------------------------------------------------------------------
 Ratios to average net assets:(3)
 Net investment income                               3.78%   3.51%        3.47%      3.97%        3.28%         4.51%
 Expenses                                            0.93%   0.89%        0.87%(4)   0.88%(4)     0.94%(4)      0.89%(4)
-------------------------------------------------------------------------------------------------------------------------
 Portfolio turnover rate                               37%     40%          18%       24%           14%           43%


1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.

2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year.

3. Annualized for periods of less than one full year.

4. Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.


FINANCIAL HIGHLIGHTS  Continued
                                                                                                  YEAR         YEAR
                                                                                                  ENDED        ENDED
                                                                                             AUGUST 31,     JUNE 30,
 CLASS B                                             2000      1999       1998       1997       1996(1)         1996
=========================================================================================================================

 PER SHARE OPERATING DATA
 Net asset value, beginning of period             $13.51    $13.63     $14.01     $11.29         $11.33       $10.21
-------------------------------------------------------------------------------------------------------------------------
 Income (loss) from investment operations:
 Net investment income                               .38       .39        .39        .37            .07          .41
 Net realized and unrealized gain (loss)             .32      1.03        .40       3.13           (.11)        1.35
                                          -------------------------------------------------------------------------------
 Total income (loss) from
 investment operations                               .70      1.42        .79       3.50           (.04)        1.76
-------------------------------------------------------------------------------------------------------------------------
 Dividends and/or distributions to shareholders:
 Dividends from net investment income               (.38)     (.37)      (.38)      (.38)            --         (.40)
 Distributions from net realized gain              (1.07)    (1.17)      (.79)      (.40)            --         (.24)
                                          -------------------------------------------------------------------------------
 Total dividends and/or distributions
 to shareholders                                   (1.45)    (1.54)     (1.17)      (.78)            --         (.64)
-------------------------------------------------------------------------------------------------------------------------
 Net asset value, end of period                   $12.76    $13.51     $13.63     $14.01         $11.29       $11.33
                                          ===============================================================================

=========================================================================================================================
 TOTAL RETURN, AT NET ASSET VALUE(2)                6.34%    10.22%      5.32%     32.17%         (0.35)%      17.58%

=========================================================================================================================
 RATIOS/SUPPLEMENTAL DATA
 Net assets, end of period (in millions)            $472      $721       $635       $431           $260         $252
-------------------------------------------------------------------------------------------------------------------------
 Average net assets (in millions)                   $546      $749       $575       $344           $255         $208

 Ratios to average net assets:(3)
 Net investment income                              3.01%     2.71%      2.68%      3.16%          2.48%        3.68%
 Expenses                                           1.70%     1.69%      1.67%(4)   1.69%(4)       1.76%(4)     1.72%(4)
-------------------------------------------------------------------------------------------------------------------------
 Portfolio turnover rate                              37%       40%        18%        24%            14%          43%


1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.

2. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year.

3. Annualized for periods of less than one full year.

4. Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.
                                                                                                 YEAR         YEAR
                                                                                                 ENDED        ENDED
                                                                                             AUGUST 31,     JUNE 30,
 CLASS C                                             2000      1999       1998       1997       1996(1)         1996(2)
=========================================================================================================================

 PER SHARE OPERATING DATA
 Net asset value, beginning of period              $13.50   $13.63      $14.02     $11.30        $11.35       $10.76

-------------------------------------------------------------------------------------------------------------------------
 Income (loss) from investment operations:
 Net investment income                                .38      .39         .39        .40           .07          .28
 Net realized and unrealized gain (loss)              .32     1.02         .40       3.12          (.12)         .88
                                          -------------------------------------------------------------------------------
 Total income (loss) from
 investment operations                                .70     1.41         .79       3.52          (.05)        1.16
-------------------------------------------------------------------------------------------------------------------------
 Dividends and/or distributions to shareholders:
 Dividends from net investment income                (.37)    (.38)       (.39)      (.40)           --         (.33)
 Distributions from net realized gain               (1.07)   (1.16)       (.79)      (.40)           --         (.24)
                                          -------------------------------------------------------------------------------
 Total dividends and/or distributions
 to shareholders                                    (1.44)   (1.54)      (1.18)      (.80)           --         (.57)

-------------------------------------------------------------------------------------------------------------------------
 Net asset value, end of period                    $12.76   $13.50      $13.63     $14.02        $11.30       $11.35
                                          ===============================================================================

=========================================================================================================================
 TOTAL RETURN, AT NET ASSET VALUE(3)                 6.40%   10.15%       5.30%     32.31%        (0.44)%      10.50%

=========================================================================================================================
 RATIOS/SUPPLEMENTAL DATA
-------------------------------------------------------------------------------------------------------------------------
 Net assets, end of period (in millions)              $73     $119         $95        $48            $7           $6
 Average net assets (in millions)                     $85     $120         $77        $25            $7           $3

 Ratios to average net assets:(4)
 Net investment income                               3.01%    2.70%       2.68%      3.15%         2.55%        3.53%
 Expenses                                            1.70%    1.69%       1.67%(5)   1.69%(5)      1.79%(5)     1.81%(5)

-------------------------------------------------------------------------------------------------------------------------
 Portfolio turnover rate                               37%      40%         18%        24%           14%          43%

1. For the two months ended August 31, 1996. The Fund changed its fiscal year
end from June 30 to August 31.

2. For the period from November 1, 1995 (inception of offering) to June 30,
1996.

3. Assumes a $1,000 hypothetical initial investment on the business day before
the first day of the fiscal period (or inception of offering), with all
dividends and distributions reinvested in additional shares on the
reinvestment date, and redemption at the net asset value calculated on the
last business day of the fiscal period. Sales charges are not reflected in the
total returns. Total returns are not annualized for periods of less than one
full year.

4. Annualized for periods of less than one full year.

5. Expense ratio has not been grossed up to reflect the effect of expenses
paid indirectly.

Appendix A

RATINGS DEFINITIONS

Below are summaries of the rating definitions used by the nationally-recognized rating agencies listed below. Those ratings represent
the opinion of the agency as to the credit quality of issues that they rate. The summaries below are based upon publicly-available
information provided by the rating organizations.

Moody's Investors Service, Inc.
---------------------------------------------------------------------------------------------------------------------------------------

Long-Term (Taxable) Bond Ratings

Aaa: Bonds rated "Aaa" are judged to be the best quality. They carry the smallest degree of investment risk. Interest payments are
protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely
to change, the changes that can be expected are most unlikely to impair the fundamentally strong position of such issues.

Aa: Bonds rated "Aa" are judged to be of high quality by all standards. Together with the "Aaa" group, they comprise what are
generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as
with "Aaa" securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which
make the long-term risk appear somewhat larger than that of "Aaa" securities.

A: Bonds rated "A" possess many favorable investment attributes and are to be considered as upper-medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to
impairment some time in the future.

Baa: Bonds rated "Baa" are considered medium-grade obligations; that is, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and have
speculative characteristics as well.

Ba: Bonds rated "Ba" are judged to have speculative elements. Their future cannot be considered well-assured. Often the protection
of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.

B: Bonds rated "B" generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be small.

Caa: Bonds rated "Caa" are of poor standing. Such issues may be in default or there may be present elements of danger with respect to
principal or interest.

Ca: Bonds rated "Ca" represent obligations which are speculative in a high degree. Such issues are often in default or have other
marked shortcomings.

C: Bonds rated "C" are the lowest class of rated bonds and can be regarded as having extremely poor prospects of ever attaining any
real investment standing.

Con. (...): Bonds for which the security depends on the completion of some act or the fulfillment of some condition are rated
conditionally. These bonds are secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in
operating experience, (c) rentals that begin when facilities are completed, or (d) payments to which some other limiting condition
attaches. The parenthetical rating denotes probable credit stature upon completion of construction or elimination of the basis of the
condition.

Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from "Aa" through "Caa." The modifier "1"
indicates that the obligation ranks in the higher end of its generic rating category; the modifier "2" indicates a mid-range ranking;
and the modifier "3" indicates a ranking in the lower end of that generic rating category. Advanced refunded issues that are secured
by certain assets are identified with a # symbol.

Short-Term Ratings - Taxable Debt

These ratings apply to the ability of issuers to honor senior debt obligations having an original maturity not exceeding one year:

Prime-1: Issuer has a superior ability for repayment of senior short-term debt obligations.

Prime-2: Issuer has a strong ability for repayment of senior short-term debt obligations. Earnings trends and coverage ratios, while
sound, may be more subject to variation. Capitalization characteristics, while appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.

Prime-3: Issuer has an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and
market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt
protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained.

Not Prime: Issuer does not fall within any Prime rating category.

Standard & Poor's Rating Services
---------------------------------------------------------------------------------------------------------------------------------------

Long-Term Credit Ratings

AAA: Bonds rated "AAA" have the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment
on the obligation is extremely strong.

AA: Bonds rated "AA" differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.

A: Bonds rated "A" are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than
obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still
strong.

BBB: Bonds rated "BBB" exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

BB, B, CCC, CC, and C

Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded as having significant speculative characteristics. "BB" indicates the least
degree of speculation, and "C" the highest. While such obligations will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB: Bonds rated "BB" are less vulnerable to nonpayment than other speculative issues. However, these face major ongoing
uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.

B: Bonds rated "B" are more vulnerable to nonpayment than obligations rated "BB", but the obligor currently has the capacity to meet
its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the obligation.

CCC: Bonds rated "CCC" are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic
conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial or
economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.

CC: Bonds rated "CC" are currently highly vulnerable to nonpayment.

C: A subordinated debt or preferred stock obligation rated "C" is currently highly vulnerable to nonpayment. The "C" rating may be
used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this
obligation are being continued. A "C" also will be assigned to a preferred stock issue in arrears on dividends or sinking fund
payments, but that is currently paying.

D: Bonds rated "D" are in default. Payments on the obligation are not being made on the date due even if the applicable grace period
has not expired, unless Standard and Poor's believes that such payments will be made during such grace period. The "D" rating will
also be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.

The ratings from "AA" to "CCC" may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the
major rating categories. The "r" symbol is attached to the ratings of instruments with significant noncredit risks.

Short-Term Issue Credit Ratings

A-1: Obligation is rated in the highest category. The obligor's capacity to meet its financial commitment on the obligation is
strong. Within this category, a plus (+) sign designation indicates the obligor's capacity to meet its financial obligation is
extremely strong.

A-2: Obligation is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is
satisfactory.

A-3: Obligation exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

B: Obligation is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its
financial commitment on the obligation. However, it faces major ongoing uncertainties which could lead to the obligor's inadequate
capacity to meet its financial commitment on the obligation.

C: Obligation is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for
the obligor to meet its financial commitment on the obligation.

D: Obligation is in payment default. Payments on the obligation have not been made on the due date even if the applicable grace
period has not expired, unless Standard and Poor's believes that such payments will be made during such grace period. The "D" rating
will also be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are
jeopardized.

Fitch, Inc.
---------------------------------------------------------------------------------------------------------------------------------------

International Long-Term Credit Ratings

Investment Grade:
AAA: Highest Credit Quality. "AAA" ratings denote the lowest expectation of credit risk. They are assigned only in the case of
exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected
by foreseeable events.

AA: Very High Credit Quality. "AA" ratings denote a very low expectation of credit risk. They indicate a very strong capacity for
timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.

A: High Credit Quality. "A" ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments
is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than
is the case for higher ratings.

BBB: Good Credit Quality. "BBB" ratings indicate that there is currently a low expectation of credit risk. The capacity for timely
payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more
likely to impair this capacity. This is the lowest investment-grade category.

Speculative Grade:

BB: Speculative. "BB" ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse
economic change over time. However, business or financial alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade.

B: Highly Speculative. "B" ratings indicate that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met. However, capacity for continued payment is contingent upon a sustained, favorable
business and economic environment.

CCC, CC C: High Default Risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon
sustained, favorable business or economic developments. A "CC" rating indicates that default of some kind appears probable. "C"
ratings signal imminent default.

DDD, DD, and D: Default. The ratings of obligations in this category are based on their prospects for achieving partial or full
recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be
estimated with any precision, the following serve as general guidelines. "DDD" obligations have the highest potential for recovery,
around 90%-100% of outstanding amounts and accrued interest. "DD" indicates potential recoveries in the range of 50%-90%, and "D" the
lowest recovery potential, i.e., below 50%.

Entities rated in this category have defaulted on some or all of their obligations. Entities rated "DDD" have the highest prospect
for resumption of performance or continued operation with or without a formal reorganization process. Entities rated "DD" and "D" are
generally undergoing a formal reorganization or liquidation process; those rated "DD" are likely to satisfy a higher portion of their
outstanding obligations, while entities rated "D" have a poor prospect for repaying all obligations.
Plus (+) and minus (-) signs may be appended to a rating symbol to denote relative status within the major rating categories. Plus
and minus signs are not added to the "AAA" category or to categories below "CCC," nor to short-term ratings other than "F1" (see
below).

International Short-Term Credit Ratings

F1: Highest credit quality. Strongest capacity for timely payment of financial commitments. May have an added "+" to denote any
exceptionally strong credit feature.

F2: Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as
great as in the case of higher ratings.

F3: Fair credit quality. Capacity for timely payment of financial commitments is adequate. However, near-term adverse changes could
result in a reduction to non-investment grade.

B: Speculative. Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.

C: High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a
sustained, favorable business and economic environment.

D: Default. Denotes actual or imminent payment default.

                                   Appendix B

                            Industry Classifications

Aerospace/Defense                                           Food and Drug Retailers
Air Transportation                                          Gas Utilities
Asset-Backed                                                Health Care/Drugs
Auto Parts and Equipment                                    Health Care/Supplies & Services
Automotive                                                  Homebuilders/Real Estate
Bank Holding Companies                                      Hotel/Gaming
Banks                                                       Industrial Services
Beverages                                                   Information Technology
Broadcasting                                                Insurance
Broker-Dealers                                              Leasing & Factoring
Building Materials                                          Leisure
Cable Television                                            Manufacturing
Chemicals                                                   Metals/Mining
Commercial Finance                                          Nondurable Household Goods
Communication Equipment                                     Office Equipment
Computer Hardware                                           Oil - Domestic
Computer Software                                           Oil - International
Conglomerates                                               Paper
Consumer Finance                                            Photography
Consumer Services                                           Publishing
Containers                                                  Railroads & Truckers
Convenience Stores                                          Restaurants
Department Stores                                           Savings & Loans
Diversified Financial                                       Shipping
Diversified Media                                           Special Purpose Financial
Drug Wholesalers                                            Specialty Printing
Durable Household Goods                                     Specialty Retailing
Education                                                   Steel
Electric Utilities                                          Telecommunications - Long Distance
Electrical Equipment                                        Telephone - Utility
Electronics                                                 Textile, Apparel & Home Furnishings
Energy Services                                             Tobacco
Entertainment/Film                                          Trucks and Parts
Environmental                                               Wireless Services
Food

                                      C-11
                                   Appendix C

         OppenheimerFunds Special Sales Charge Arrangements and Waivers

In certain cases, the initial sales charge that applies to purchases of Class A shares1 of the  Oppenheimer  funds  or  the  contingent
deferred sales charge that may apply to Class A, Class B or Class C shares may be waived.2  That is because of the  economies  of sales
efforts realized by OppenheimerFunds  Distributor,  Inc.,  (referred to in this document as the "Distributor"),  or by dealers or other
financial institutions that offer those shares to certain classes of investors.

Not all waivers apply to all funds.  For example,  waivers  relating to Retirement  Plans do not apply to Oppenheimer  municipal funds,
because  shares of those funds are not  available  for  purchase  by or on behalf of  retirement  plans.  Other  waivers  apply only to
shareholders of certain funds.

For the  purposes of some of the  waivers  described  below and in the  Prospectus  and  Statement  of  Additional  Information  of the
applicable Oppenheimer funds, the term "Retirement Plan" refers to the following types of plans:
(1)      plans qualified under Sections 401(a) or 401(k) of the Internal Revenue Code,
(2)      non-qualified deferred compensation plans,
(3)      employee benefit plans3
(4)      Group Retirement Plans4
(5)      403(b)(7) custodial plan accounts
(6)      Individual Retirement Accounts ("IRAs"), including traditional IRAs, Roth IRAs, SEP-IRAs, SARSEPs or SIMPLE plans

The  interpretation of these provisions as to the applicability of a special  arrangement or waiver in a particular case is in the sole
discretion  of the  Distributor  or the  transfer  agent  (referred  to in this  document as the  "Transfer  Agent") of the  particular
Oppenheimer  fund.  These  waivers  and  special  arrangements  may be amended or  terminated  at any time by a  particular  fund,  the
Distributor, and/or OppenheimerFunds, Inc. (referred to in this document as the "Manager").

Waivers that apply at the time shares are redeemed must be requested by the shareholder and/or dealer in the redemption request.

I.       Applicability of Class A Contingent Deferred Sales Charges in Certain Cases

Purchases  of Class A Shares of  Oppenheimer  Funds  That Are Not  Subject to  Initial  Sales  Charge but May Be Subject to the Class A
Contingent Deferred Sales Charge (unless a waiver applies).

         There is no initial  sales charge on purchases of Class A shares of any of the  Oppenheimer  funds in the cases listed  below.
However,  these  purchases may be subject to the Class A contingent  deferred  sales charge if redeemed  within 18 months of the end of
the calendar month of their purchase,  as described in the Prospectus (unless a waiver described  elsewhere in this Appendix applies to
the  redemption).  Additionally,  on shares  purchased  under these waivers that are subject to the Class A contingent  deferred  sales
charge,  the  Distributor  will pay the  applicable  concession  described in the Prospectus  under "Class A Contingent  Deferred Sales
Charge."4 This waiver provision applies to:
-        Purchases of Class A shares aggregating $1 million or more.
-        Purchases of Class A shares by a  Retirement  Plan that was  permitted to purchase  such shares at net asset value but subject
         to a contingent deferred sales charge prior to March 1, 2001.
-        Purchases by an OppenheimerFunds-sponsored Rollover IRA, if the purchases are made:
(1)      through a broker,  dealer, bank or registered  investment adviser that has made special  arrangements with the Distributor for
              those purchases, or
(2)      by a direct rollover of a distribution  from a qualified  Retirement Plan if the  administrator  of that Plan has made special
              arrangements with the Distributor for those purchases.
     -   Purchases of Class A shares by Retirement Plans that have any of the following record-keeping arrangements:
(1)      The record keeping is performed by Merrill Lynch Pierce Fenner & Smith,  Inc.  ("Merrill  Lynch") on a daily  valuation  basis
              for the Retirement Plan. On the date the plan sponsor signs the record-keeping  service agreement with Merrill Lynch, the
              Plan must have $3 million or more of its assets  invested  in (a) mutual  funds,  other than those  advised or managed by
              Merrill Lynch Investment  Management,  L.P.  ("MLIM"),  that are made available under a Service Agreement between Merrill
              Lynch and the mutual fund's  principal  underwriter or  distributor,  and (b) funds advised or managed by MLIM (the funds
              described in (a) and (b) are referred to as "Applicable Investments").
(2)      The record  keeping for the  Retirement  Plan is performed on a daily  valuation  basis by a record keeper whose  services are
              provided under a contract or  arrangement  between the  Retirement  Plan and Merrill Lynch.  On the date the plan sponsor
              signs the record  keeping  service  agreement  with  Merrill  Lynch,  the Plan must have $3 million or more of its assets
              (excluding assets invested in money market funds) invested in Applicable Investments.
(3)      The record  keeping for a Retirement  Plan is handled  under a service  agreement  with Merrill Lynch and on the date the plan
              sponsor  signs that  agreement,  the Plan has 500 or more  eligible  employees  (as  determined  by the Merrill Lynch plan
              conversion manager).
      -  Purchases by a Retirement  Plan whose  record  keeper had a  cost-allocation  agreement  with the Transfer  Agent on or before
         March 1, 2001.

II.      Waivers of Class A Sales Charges of Oppenheimer Funds

A.  Waivers of Initial and Contingent Deferred Sales Charges for Certain Purchasers.

Class A shares  purchased by the following  investors are not subject to any Class A sales charges (and no concessions  are paid by the
Distributor on such purchases):
-        The Manager or its affiliates.
-        Present or former officers,  directors,  trustees and employees (and their "immediate  families") of the Fund, the Manager and
         its affiliates,  and retirement  plans  established by them for their employees.  The term "immediate  family" refers to one's
         spouse, children, grandchildren,  grandparents, parents, parents-in-law,  brothers and sisters, sons- and daughters-in-law,  a
         sibling's  spouse,  a  spouse's  siblings,   aunts,  uncles,  nieces  and  nephews;   relatives  by  virtue  of  a  remarriage
         (step-children, step-parents, etc.) are included.
-        Registered management  investment companies,  or separate accounts of insurance companies having an agreement with the Manager
         or the Distributor for that purpose.
-        Dealers or brokers that have a sales  agreement with the  Distributor,  if they purchase  shares for their own accounts or for
         retirement plans for their employees.
-        Employees and registered  representatives (and their spouses) of dealers or brokers described above or financial  institutions
         that have entered into sales  arrangements  with such dealers or brokers (and which are identified as such to the Distributor)
         or with the  Distributor.  The purchaser must certify to the  Distributor at the time of purchase that the purchase is for the
         purchaser's own account (or for the benefit of such employee's spouse or minor children).
-        Dealers,  brokers,  banks or registered investment advisors that have entered into an agreement with the Distributor providing
         specifically  for the use of shares of the Fund in particular  investment  products  made  available to their  clients.  Those
         clients may be charged a transaction fee by their dealer, broker, bank or advisor for the purchase or sale of Fund shares.
-        Investment  advisors and financial  planners who have entered into an agreement for this purpose with the  Distributor and who
         charge an  advisory,  consulting  or other fee for their  services  and buy shares for their own  accounts or the  accounts of
         their clients.
-        "Rabbi  trusts"  that buy  shares  for  their  own  accounts,  if the  purchases  are made  through a broker or agent or other
         financial intermediary that has made special arrangements with the Distributor for those purchases.
-        Clients of  investment  advisors or  financial  planners  (that have  entered  into an  agreement  for this  purpose  with the
         Distributor)  who buy shares for their own accounts may also purchase  shares  without sales charge but only if their accounts
         are linked to a master  account of their  investment  advisor or  financial  planner on the books and  records of the  broker,
         agent or financial  intermediary  with which the Distributor has made such special  arrangements . Each of these investors may
         be charged a fee by the broker, agent or financial intermediary for purchasing shares.
-        Directors,  trustees,  officers or full-time  employees of OpCap  Advisors or its  affiliates,  their  relatives or any trust,
         pension, profit sharing or other benefit plan which beneficially owns shares for those persons.
-        Accounts for which Oppenheimer  Capital (or its successor) is the investment  advisor (the Distributor must be advised of this
         arrangement)  and  persons who are  directors  or  trustees  of the  company or trust  which is the  beneficial  owner of such
         accounts.
-        A unit investment trust that has entered into an appropriate agreement with the Distributor.
-        Dealers,  brokers,  banks, or registered  investment advisers that have entered into an agreement with the Distributor to sell
         shares to  defined  contribution  employee  retirement  plans for which the  dealer,  broker or  investment  adviser  provides
         administration services.
-        Retirement  Plans and  deferred  compensation  plans and trusts  used to fund  those  plans  (including,  for  example,  plans
         qualified or created  under  sections  401(a),  401(k),  403(b) or 457 of the Internal  Revenue  Code),  in each case if those
         purchases  are made  through a broker,  agent or other  financial  intermediary  that has made special  arrangements  with the
         Distributor for those purchases.
-        A TRAC-2000  401(k) plan  (sponsored by the former Quest for Value Advisors) whose Class B or Class C shares of a Former Quest
         for Value Fund were  exchanged  for Class A shares of that Fund due to the  termination  of the Class B and Class C  TRAC-2000
         program on November 24, 1995.
-        A qualified  Retirement  Plan that had agreed with the former Quest for Value Advisors to purchase shares of any of the Former
         Quest for Value Funds at net asset value,  with such shares to be held through  DCXchange,  a sub-transfer  agency mutual fund
         clearinghouse, if that arrangement was consummated and share purchases commenced by December 31, 1996.

B.  Waivers of Initial and Contingent Deferred Sales Charges in Certain Transactions.

Class A shares issued or purchased in the following  transactions  are not subject to sales charges (and no concessions are paid by the
Distributor on such purchases):
     -   Shares issued in plans of  reorganization,  such as mergers,  asset  acquisitions and exchange offers,  to which the Fund is a
         party.
-        Shares purchased by the reinvestment of dividends or other  distributions  reinvested from the Fund or other Oppenheimer funds
         (other than Oppenheimer Cash Reserves) or unit investment trusts for which  reinvestment  arrangements have been made with the
         Distributor.
-        Shares  purchased  through a  broker-dealer  that has  entered  into a special  agreement  with the  Distributor  to allow the
         broker's  customers to purchase and pay for shares of Oppenheimer  funds using the proceeds of shares redeemed in the prior 30
         days from a mutual fund  (other  than a fund  managed by the  Manager or any of its  subsidiaries)  on which an initial  sales
         charge or contingent  deferred  sales charge was paid.  This waiver also applies to shares  purchased by exchange of shares of
         Oppenheimer  Money Market Fund,  Inc. that were purchased and paid for in this manner.  This waiver must be requested when the
         purchase order is placed for shares of the Fund, and the Distributor may require evidence of qualification for this waiver.
-        Shares purchased with the proceeds of maturing principal units of any Qualified Unit Investment Liquid Trust Series.
-        Shares  purchased by the  reinvestment  of loan  repayments by a participant in a Retirement  Plan for which the Manager or an
         affiliate acts as sponsor.

C.  Waivers of the Class A Contingent Deferred Sales Charge for Certain Redemptions.

The Class A contingent  deferred  sales  charge is also waived if shares that would  otherwise  be subject to the  contingent  deferred
sales charge are redeemed in the following cases:
      -           To make  Automatic  Withdrawal  Plan  payments  that are limited  annually  to no more than 12% of the account  value
      adjusted annually.
-        Involuntary  redemptions  of  shares by  operation  of law or  involuntary  redemptions  of small  accounts  (please  refer to
         "Shareholder Account Rules and Policies," in the applicable fund Prospectus).
-        For  distributions  from  Retirement  Plans,  deferred  compensation  plans or other  employee  benefit  plans  for any of the
         following purposes:
(1)      Following the death or disability (as defined in the Internal  Revenue Code) of the participant or  beneficiary.  The death or
                disability must occur after the participant's account was established.
(2)      To return excess contributions.
(3)      To return contributions made due to a mistake of fact.
(4)      Hardship withdrawals, as defined in the plan.5
(5)      Under a Qualified  Domestic  Relations Order, as defined in the Internal Revenue Code, or, in the case of an IRA, a divorce or
                separation agreement described in Section 71(b) of the Internal Revenue Code.
(6)      To meet the minimum distribution requirements of the Internal Revenue Code.
(7)      To make "substantially equal periodic payments" as described in Section 72(t) of the Internal Revenue Code.
(8)      For loans to participants or beneficiaries.
(9)      Separation from service.6
(10)     Participant-directed  redemptions  to  purchase  shares of a mutual  fund  (other  than a fund  managed  by the  Manager  or a
                subsidiary of the Manager) if the plan has made special arrangements with the Distributor.
(11)     Plan   termination   or   "in-service   distributions,"   if  the   redemption   proceeds  are  rolled  over  directly  to  an
                OppenheimerFunds-sponsored IRA.
     -   For  distributions  from 401(k)  plans  sponsored  by  broker-dealers  that have  entered  into a special  agreement  with the
         Distributor allowing this waiver.


III.   Waivers of Class B, Class C and Class N Sales Charges of Oppenheimer Funds

The Class B,  Class C and Class N  contingent  deferred  sales  charges  will not be applied to shares  purchased  in certain  types of
transactions or redeemed in certain circumstances described below.

A.  Waivers for Redemptions in Certain Cases.

The Class B, Class C and Class N contingent deferred sales charges will be waived for redemptions of shares in the following cases:
-        Shares redeemed involuntarily, as described in "Shareholder Account Rules and Policies," in the applicable Prospectus.
-        Redemptions  from accounts other than Retirement  Plans  following the death or disability of the last surviving  shareholder,
         including a trustee of a grantor  trust or  revocable  living  trust for which the trustee is also the sole  beneficiary.  The
         death or disability must have occurred after the account was  established,  and for disability you must provide  evidence of a
         determination of disability by the Social Security Administration.
-        Distributions  from accounts for which the  broker-dealer of record has entered into a special  agreement with the Distributor
         allowing this waiver.
-        Redemptions  of Class B shares held by Retirement  Plans whose records are  maintained on a daily  valuation  basis by Merrill
         Lynch or an independent record keeper under a contract with Merrill Lynch.
-        Redemptions of Class C shares of Oppenheimer  U.S.  Government Trust from accounts of clients of financial  institutions  that
         have entered into a special arrangement with the Distributor for this purpose.
-        Redemptions,  requested  in writing by a  Retirement  Plan  sponsor,  of Class C shares of an  Oppenheimer  fund in amounts of
         $500,000  or more and made  more  than 12 months  after  the  Retirement  Plan's  first  purchase  of Class C  shares,  if the
         redemption proceeds are invested in Class N shares of one or more Oppenheimer funds.
-        Distributions7 from Retirement Plans or other employee benefit plans for any of the following purposes:
(1)      Following the death or disability (as defined in the Internal  Revenue Code) of the participant or  beneficiary.  The death or
                disability must occur after the participant's account was established in an Oppenheimer fund.
(2)      To return excess contributions made to a participant's account.
(3)      To return contributions made due to a mistake of fact.
(4)      To make hardship withdrawals, as defined in the plan.8
(5)      To make  distributions  required under a Qualified Domestic Relations Order or, in the case of an IRA, a divorce or separation
                agreement described in Section 71(b) of the Internal Revenue Code.
(6)      To meet the minimum distribution requirements of the Internal Revenue Code.
(7)      To make "substantially equal periodic payments" as described in Section 72(t) of the Internal Revenue Code.
(8)      For loans to participants or beneficiaries.9
(9)      On account of the participant's separation from service.10
(10)     Participant-directed  redemptions  to  purchase  shares of a mutual  fund  (other  than a fund  managed  by the  Manager  or a
                subsidiary  of the  Manager)  offered  as an  investment  option  in a  Retirement  Plan if the  plan  has  made  special
                arrangements with the Distributor.
(11)     Distributions  made on account of a plan  termination or  "in-service"  distributions,  if the redemption  proceeds are rolled
                over directly to an OppenheimerFunds-sponsored IRA.
(12)     For distributions from a participant's  account under an Automatic  Withdrawal Plan after the participant  reaches age 59 1/2, as
                long as the aggregate value of the distributions does not exceed 10% of the account's value, adjusted annually.
         (13)   Redemptions of Class B shares under an Automatic  Withdrawal  Plan for an account other than a Retirement  Plan, if the
                aggregate value of the redeemed shares does not exceed 10% of the account's value, adjusted annually.
         (14)   For distributions from 401(k) plans sponsored by broker-dealers  that have entered into a special  arrangement with the
                Distributor allowing this waiver.
         -    Redemptions  of Class B shares  or Class C shares  under an  Automatic  Withdrawal  Plan  from an  account  other  than a
Retirement Plan if the aggregate value of the redeemed shares does not exceed 10% of the account's value annually.

B.  Waivers for Shares Sold or Issued in Certain Transactions.

The contingent deferred sales charge is also waived on Class B and Class C shares sold or issued in the following cases:
-        Shares sold to the Manager or its affiliates.
-        Shares sold to registered  management  investment  companies or separate  accounts of insurance  companies having an agreement
              with the Manager or the Distributor for that purpose.
-        Shares issued in plans of reorganization to which the Fund is a party.
-        Shares sold to present or former officers,  directors,  trustees or employees (and their "immediate families" as defined above
              in Section  I.A.) of the Fund,  the  Manager  and its  affiliates  and  retirement  plans  established  by them for their
              employees.

IV.      Special Sales Charge  Arrangements for  Shareholders of Certain  Oppenheimer  Funds Who Were  Shareholders of Former Quest for
         Value Funds

The  initial  and  contingent  deferred  sales  charge  rates and  waivers  for Class A,  Class B and Class C shares  described  in the
Prospectus or Statement of Additional  Information of the  Oppenheimer  funds are modified as described  below for certain  persons who
were  shareholders  of the former Quest for Value Funds.  To be eligible,  those  persons must have been  shareholders  on November 24,
1995, when OppenheimerFunds, Inc. became the investment advisor to those former Quest for Value Funds.  Those funds include:

Oppenheimer Quest Value Fund, Inc.                         Oppenheimer Small Cap Value Fund
Oppenheimer Quest Balanced Value Fund                      Oppenheimer Quest Global Value Fund, Inc.
Oppenheimer Quest Opportunity Value Fund

         These  arrangements  also apply to  shareholders  of the  following  funds when they merged  (were  reorganized)  into various
Oppenheimer funds on November 24, 1995:

  Quest for Value U.S. Government Income Fund               Quest for Value New York Tax-Exempt Fund
  Quest for Value Investment Quality Income Fund            Quest for Value National Tax-Exempt Fund
  Quest for Value Global Income Fund                        Quest for Value California Tax-Exempt Fund

         All of the funds listed above are referred to in this  Appendix as the "Former  Quest for Value Funds." The waivers of initial
and contingent deferred sales charges described in this Appendix apply to shares of an Oppenheimer fund that are either:
      -    acquired by such  shareholder  pursuant to an exchange of shares of an Oppenheimer fund that was one of the Former Quest for
           Value Funds, or
      -    purchased by such shareholder by exchange of shares of another  Oppenheimer  fund that were acquired  pursuant to the merger
           of any of the Former Quest for Value Funds into that other Oppenheimer fund on November 24, 1995.

A.  Reductions or Waivers of Class A Sales Charges.

         - -  Reduced Class A Initial Sales Charge Rates for Certain Former Quest for Value Funds Shareholders.

Purchases by Groups and  Associations.  The following  table sets forth the initial sales charge rates for Class A shares  purchased by
members  of  "Associations"  formed for any  purpose  other  than the  purchase  of  securities.  The rates in the table  apply if that
Association  purchased  shares of any of the Former  Quest for Value  Funds or  received a proposal  to  purchase  such shares from OCC
Distributors prior to November 24, 1995.

------------------------------ ---------------------------- ---------------------------- ----------------------------
Number of
-----------------------------  Initial Sales                Initial Sales Charge         Concession
Eligible Employees             Charge as a %                as a % of Net                as % of
or Members                     of Offering Price            Amount Invested              Offering Price
------------------------------ ---------------------------- ---------------------------- ----------------------------
------------------------------ ---------------------------- ---------------------------- ----------------------------
9 or Fewer                     2.50%                        2.56%                        2.00%
------------------------------ ---------------------------- ---------------------------- ----------------------------
------------------------------ ---------------------------- ---------------------------- ----------------------------
At  least  10  but  not  more  2.00%                        2.04%                        1.60%
than 49
------------------------------ ---------------------------- ---------------------------- ----------------------------

         For purchases by Associations  having 50 or more eligible employees or members,  there is no initial sales charge on purchases
of Class A shares,  but those shares are subject to the Class A contingent  deferred sales charge  described in the  applicable  fund's
Prospectus.

         Purchases made under this  arrangement  qualify for the lower of either the sales charge rate in the table based on the number
of members of an  Association,  or the sales  charge rate that applies  under the Right of  Accumulation  described  in the  applicable
fund's  Prospectus and Statement of Additional  Information.  Individuals  who qualify under this  arrangement for reduced sales charge
rates as members of  Associations  also may purchase  shares for their  individual or custodial  accounts at these reduced sales charge
rates, upon request to the Distributor.

         - -  Waiver of Class A Sales Charges for Certain  Shareholders.  Class A shares  purchased by the following  investors are not
subject to any Class A initial or contingent deferred sales charges:
              -   Shareholders who were  shareholders of the AMA Family of Funds on February 28, 1991 and who acquired shares of any of
                  the Former Quest for Value Funds by merger of a portfolio of the AMA Family of Funds.
              -   Shareholders  who  acquired  shares of any  Former  Quest for Value  Fund by merger of any of the  portfolios  of the
                  Unified Funds.

         - -  Waiver of Class A  Contingent  Deferred  Sales Charge in Certain  Transactions.  The Class A  contingent  deferred  sales
charge will not apply to redemptions of Class A shares purchased by the following  investors who were  shareholders of any Former Quest
for Value Fund:

         Investors  who purchased  Class A shares from a dealer that is or was not permitted to receive a sales load or redemption  fee
imposed on a shareholder  with whom that dealer has a fiduciary  relationship,  under the Employee  Retirement  Income  Security Act of
1974 and regulations adopted under that law.

B.  Class A, Class B and Class C Contingent Deferred Sales Charge Waivers.

         - -  Waivers for  Redemptions of Shares  Purchased  Prior to March 6, 1995. In the following  cases,  the contingent  deferred
sales charge will be waived for  redemptions  of Class A, Class B or Class C shares of an  Oppenheimer  fund. The shares must have been
acquired by the merger of a Former Quest for Value Fund into the fund or by exchange from an  Oppenheimer  fund that was a Former Quest
for Value Fund or into which such fund merged. Those shares must have been purchased prior to March 6, 1995 in connection with:
              -   withdrawals  under an  automatic  withdrawal  plan  holding  only  either  Class B or Class C  shares  if the  annual
                  withdrawal does not exceed 10% of the initial value of the account value, adjusted annually, and
              -   liquidation  of a  shareholder's  account if the aggregate net asset value of shares held in the account is less than
                  the required minimum value of such accounts.

         - -  Waivers for  Redemptions  of Shares  Purchased on or After March 6, 1995 but Prior to November 24, 1995. In the following
cases,  the  contingent  deferred  sales charge will be waived for  redemptions of Class A, Class B or Class C shares of an Oppenheimer
fund.  The  shares  must have been  acquired  by the  merger of a Former  Quest  for Value  Fund into the fund or by  exchange  from an
Oppenheimer  fund that was a Former Quest For Value Fund or into which such Former Quest for Value Fund merged.  Those shares must have
been purchased on or after March 6, 1995, but prior to November 24, 1995:
-        redemptions  following the death or disability of the  shareholder(s)  (as evidenced by a determination of total disability by
                  the U.S. Social Security Administration);
-        withdrawals  under an automatic  withdrawal plan (but only for Class B or Class C shares) where the annual  withdrawals do not
                  exceed 10% of the initial value of the account value; adjusted annually, and
                  -        liquidation  of a  shareholder's  account if the  aggregate net asset value of shares held in the account is
                  less than the required minimum account value.

         A  shareholder's  account will be credited with the amount of any  contingent  deferred sales charge paid on the redemption of
any Class A, Class B or Class C shares of the  Oppenheimer  fund  described  in this  section if the  proceeds are invested in the same
Class of shares in that fund or another Oppenheimer fund within 90 days after redemption.

V.   Special Sales Charge  Arrangements  for  Shareholders of Certain  Oppenheimer  Funds Who Were  Shareholders of Connecticut  Mutual
Investment Accounts, Inc.

The  initial and  contingent  deferred  sale  charge  rates and  waivers  for Class A and Class B shares  described  in the  respective
Prospectus (or this Appendix) of the following Oppenheimer funds (each is referred to as a "Fund" in this section):
     Oppenheimer U. S. Government Trust,
     Oppenheimer Bond Fund,
     Oppenheimer Value Fund and
     Oppenheimer Disciplined Allocation Fund
are modified as described below for those Fund  shareholders  who were  shareholders of the following funds (referred to as the "Former
Connecticut  Mutual Funds") on March 1, 1996,  when  OppenheimerFunds,  Inc.  became the investment  adviser to the Former  Connecticut
Mutual Funds:

Connecticut Mutual Liquid Account                             Connecticut Mutual Total Return Account
Connecticut Mutual Government Securities Account              CMIA LifeSpan Capital Appreciation Account
Connecticut Mutual Income Account                             CMIA LifeSpan Balanced Account
Connecticut Mutual Growth Account                             CMIA Diversified Income Account

A.  Prior Class A CDSC and Class A Sales Charge Waivers.

         -    Class A Contingent  Deferred Sales Charge.  Certain  shareholders of a Fund and the other Former Connecticut Mutual Funds
are entitled to continue to make  additional  purchases of Class A shares at net asset value  without a Class A initial  sales  charge,
but subject to the Class A  contingent  deferred  sales  charge that was in effect  prior to March 18, 1996 (the "prior Class A CDSC").
Under the prior Class A CDSC,  if any of those shares are redeemed  within one year of purchase,  they will be assessed a 1% contingent
deferred  sales charge on an amount equal to the current market value or the original  purchase price of the shares sold,  whichever is
smaller (in such redemptions, any shares not subject to the prior Class A CDSC will be redeemed first).

         Those shareholders who are eligible for the prior Class A CDSC are:
(1)      persons whose  purchases of Class A shares of a Fund and other Former  Connecticut  Mutual Funds were $500,000  prior to March
                18, 1996, as a result of direct purchases or purchases  pursuant to the Fund's policies on Combined Purchases or Rights
                of Accumulation, who still hold those shares in that Fund or other Former Connecticut Mutual Funds, and
(2)      persons  whose  intended  purchases  under a Statement  of Intention  entered  into prior to March 18,  1996,  with the former
                general  distributor  of the Former  Connecticut  Mutual  Funds to  purchase  shares  valued at $500,000 or more over a
                13-month  period  entitled  those  persons to purchase  shares at net asset value  without being subject to the Class A
                initial sales charge.

         Any of the Class A shares of a Fund and the other  Former  Connecticut  Mutual  Funds that were  purchased  at net asset value
prior to March 18, 1996, remain subject to the prior Class A CDSC, or if any additional  shares are purchased by those  shareholders at
net asset value pursuant to this arrangement they will be subject to the prior Class A CDSC.

         -    Class A Sales Charge Waivers.  Additional Class A shares of a Fund may be purchased  without a sales charge,  by a person
who was in one (or more) of the categories below and acquired Class A shares prior to March 18, 1996, and still holds Class A shares:
(1)      any purchaser,  provided the total initial  amount  invested in the Fund or any one or more of the Former  Connecticut  Mutual
                Funds totaled $500,000 or more, including  investments made pursuant to the Combined Purchases,  Statement of Intention
                and Rights of Accumulation  features available at the time of the initial purchase and such investment is still held in
                one or more of the Former Connecticut Mutual Funds or a Fund into which such Fund merged;
(2)      any  participant in a qualified  plan,  provided that the total initial amount  invested by the plan in the Fund or any one or
                more of the Former Connecticut Mutual Funds totaled $500,000 or more;
(3)      Directors of the Fund or any one or more of the Former Connecticut Mutual Funds and members of their immediate families;
(4)      employee benefit plans sponsored by Connecticut  Mutual Financial  Services,  L.L.C.  ("CMFS"),  the prior  distributor of the
                Former Connecticut Mutual Funds, and its affiliated companies;
(5)      one or more members of a group of at least 1,000  persons (and persons who are retirees  from such group)  engaged in a common
                business,  profession,  civic or charitable endeavor or other activity, and the spouses and minor dependent children of
                such persons, pursuant to a marketing program between CMFS and such group; and
(6)      an institution acting as a fiduciary on behalf of an individual or individuals,  if such institution was directly  compensated
                by the  individual(s)  for  recommending  the  purchase  of the  shares  of the  Fund or any one or more of the  Former
                Connecticut Mutual Funds, provided the institution had an agreement with CMFS.

         Purchases  of Class A shares made  pursuant to (1) and (2) above may be subject to the Class A CDSC of the Former  Connecticut
Mutual Funds described above.

         Additionally,  Class A shares of a Fund may be purchased  without a sales charge by any holder of a variable  annuity contract
issued in New York State by  Connecticut  Mutual Life  Insurance  Company  through the Panorama  Separate  Account  which is beyond the
applicable  surrender  charge  period and which was used to fund a  qualified  plan,  if that holder  exchanges  the  variable  annuity
contract proceeds to buy Class A shares of the Fund.

B.  Class A and Class B Contingent Deferred Sales Charge Waivers.

In addition to the waivers set forth in the  Prospectus  and in this  Appendix,  above,  the  contingent  deferred sales charge will be
waived for  redemptions  of Class A and Class B shares of a Fund and  exchanges  of Class A or Class B shares of a Fund into Class A or
Class B shares  of a Former  Connecticut  Mutual  Fund  provided  that the  Class A or  Class B shares  of the Fund to be  redeemed  or
exchanged  were (i)  acquired  prior to March 18, 1996 or (ii) were  acquired by exchange  from an  Oppenheimer  fund that was a Former
Connecticut  Mutual Fund.  Additionally,  the shares of such Former Connecticut Mutual Fund must have been purchased prior to March 18,
1996:
(1)      by the estate of a deceased shareholder;
(2)      upon the disability of a shareholder, as defined in Section 72(m)(7) of the Internal Revenue Code;
(3)      for retirement  distributions  (or loans) to participants  or  beneficiaries  from  retirement  plans qualified under Sections
                401(a) or  403(b)(7)of  the Code, or from IRAs,  deferred  compensation  plans created under Section 457 of the Code, or
                other employee benefit plans;
(4)      as tax-free returns of excess contributions to such retirement or employee benefit plans;
(5)      in whole or in part,  in  connection  with shares sold to any state,  county,  or city,  or any  instrumentality,  department,
                authority,  or  agency  thereof,  that is  prohibited  by  applicable  investment  laws from  paying a sales  charge or
                concession in connection with the purchase of shares of any registered investment management company;
(6)      in connection with the redemption of shares of the Fund due to a combination  with another  investment  company by virtue of a
                merger, acquisition or similar reorganization transaction;
(7)      in connection with the Fund's right to involuntarily redeem or liquidate the Fund;
(8)      in connection with automatic  redemptions of Class A shares and Class B shares in certain  retirement  plan accounts  pursuant
                to an Automatic Withdrawal Plan but limited to no more than 12% of the original value annually; or
(9)      as  involuntary  redemptions  of  shares  by  operation  of law,  or under  procedures  set forth in the  Fund's  Articles  of
                Incorporation, or as adopted by the Board of Directors of the Fund.

VI.      Special Reduced Sales Charge for Former Shareholders of Advance America Funds, Inc.

Shareholders of Oppenheimer Municipal Bond Fund,  Oppenheimer U.S. Government Trust,  Oppenheimer Strategic Income Fund and Oppenheimer
Capital  Income  Fund who  acquired  (and still  hold)  shares of those  funds as a result of the  reorganization  of series of Advance
America Funds,  Inc. into those  Oppenheimer funds on October 18, 1991, and who held shares of Advance America Funds, Inc. on March 30,
1990, may purchase Class A shares of those four Oppenheimer funds at a maximum sales charge rate of 4.50%.

VII.     Sales Charge Waivers on Purchases of Class M Shares of Oppenheimer Convertible Securities Fund

Oppenheimer  Convertible  Securities  Fund  (referred  to as the "Fund" in this  section)  may sell  Class M shares at net asset  value
without any initial  sales charge to the classes of investors  listed  below who,  prior to March 11, 1996,  owned shares of the Fund's
then-existing Class A and were permitted to purchase those shares at net asset value without sales charge:
-        the Manager and its affiliates,
-        present or former  officers,  directors,  trustees  and  employees  (and their  "immediate  families" as defined in the Fund's
         Statement of Additional  Information) of the Fund, the Manager and its affiliates,  and retirement  plans  established by them
         or the prior investment advisor of the Fund for their employees,
-        registered  management  investment companies or separate accounts of insurance companies that had an agreement with the Fund's
         prior investment advisor or distributor for that purpose,
-        dealers or brokers that have a sales  agreement with the  Distributor,  if they purchase  shares for their own accounts or for
         retirement plans for their employees,
-        employees and  registered  representatives  (and their  spouses) of dealers or brokers  described in the preceding  section or
         financial  institutions  that have entered into sales  arrangements  with those dealers or brokers (and whose identity is made
         known to the  Distributor)  or with the  Distributor,  but only if the purchaser  certifies to the  Distributor at the time of
         purchase that the purchaser meets these qualifications,
-        dealers,  brokers,  or registered  investment  advisors that had entered into an agreement  with the  Distributor or the prior
         distributor  of the Fund  specifically  providing  for the use of Class M shares of the Fund in specific  investment  products
         made available to their clients, and
-        dealers,  brokers or  registered  investment  advisors  that had  entered  into an  agreement  with the  Distributor  or prior
         distributor  of the Fund's  shares to sell  shares to defined  contribution  employee  retirement  plans for which the dealer,
         broker, or investment advisor provides administrative services.

Oppenheimer Capital Income Fund

Internet Web Site:
         www.oppenheimerfunds.com

Investment Adviser
         OppenheimerFunds, Inc.
         Two World Trade Center
         New York, New York 10048-0203

Distributor
         OppenheimerFunds Distributor, Inc.
         Two World Trade Center
         New York, New York 10048-0203

Transfer Agent
         OppenheimerFunds Services
         P.O. Box 5270
         Denver, Colorado 80217-5270
         1-800-525-7048

Custodian Bank
         The Bank of New York
         One Wall Street
         New York, New York 10015

Independent Auditors
         Deloitte & Touche LLP
         555 Seventeenth Street, Suite 3600
         Denver, Colorado 80202-3942

Legal Counsel
         Myer, Swanson, Adams & Wolf, P.C.
         1600 Broadway
         Denver, Colorado 80202


1234
PX300SAI.revisedJuly2001

1 Ms. Macaskill and Mr. Bowen are not Trustees or Directors of Oppenheimer Integrity Funds or Panorama Series Fund, Inc. Mr. Fossel
and Mr. Bowen are not Trustees of Centennial New York Tax Exempt Trust or Managing General Partners of Centennial America Fund, L.P.
Mr. Armstrong is not a Trustee of Oppenheimer Cash Reserves, Oppenheimer Main Street Funds, Inc., any of the Centennial Trusts or a
Managing General Partner of Centennial America Fund, L.P. Messrs. Cameron and Marshall are not Trustees or Directors of Oppenheimer
Cash Reserves, Oppenheimer Integrity Fund, Oppenheimer Limited-Term Government Fund, Oppenheimer Municipal Fund, Panorama Series
Fund, Inc., Centennial California Tax Exempt Trust, Centennial Government Trust, Centennial Money Market Trust, Centennial New York
Tax Exempt Trust, Centennial Tax Exempt Trust or Managing General Partners of Centennial America Fund, L.P.
2 In accordance with Rule 12b-1 of the Investment Company Act, the term "Independent Trustees" in this Statement of Additional
Information refers to those Trustees who are not "interested persons" of the Fund and who do not have any direct or indirect
financial interest in the operation of the distribution plan or any agreement under the plan.
1 Certain waivers also apply to Class M shares of Oppenheimer Convertible Securities Fund.
2 In the case of Oppenheimer Senior Floating Rate Fund, a continuously-offered closed-end fund, references to contingent deferred
sales charges mean the Fund's Early Withdrawal Charges and references to "redemptions" mean "repurchases" of shares.
3 An "employee benefit plan" means any plan or arrangement, whether or not it is "qualified" under the Internal Revenue Code, under
which Class N shares of an Oppenheimer fund or funds are purchased by a fiduciary or other administrator for the account of
participants who are employees of a single employer or of affiliated employers. These may include, for example, medical savings
accounts, payroll deduction plans or similar plans. The fund accounts must be registered in the name of the fiduciary or
administrator purchasing the shares for the benefit of participants in the plan.
4 The term "Group Retirement Plan" means any qualified or non-qualified retirement plan for employees of a corporation or sole
proprietorship, members and employees of a partnership or association or other organized group of persons (the members of which may
include other groups), if the group has made special arrangements with the Distributor and all members of the group participating in
(or who are eligible to participate in) the plan purchase shares of an Oppenheimer fund or funds through a single investment dealer,
broker or other financial institution designated by the group. Such plans include 457 plans, SEP-IRAs, SARSEPs, SIMPLE plans and
403(b) plans other than plans for public school employees. The term "Group Retirement Plan" also includes qualified retirement plans
and non-qualified deferred compensation plans and IRAs that purchase shares of an Oppenheimer fund or funds through a single
investment dealer, broker or other financial institution that has made special arrangements with the Distributor.
4 However, that concession will not be paid on purchases of shares in amounts of $1 million or more (including any right of
accumulation) by a Retirement Plan that pays for the purchase with the redemption proceeds of Class C shares of one or more
Oppenheimer funds held by the Plan for more than one year.
5 This provision does not apply to IRAs.
6 This provision does not apply to 403(b)(7) custodial plans if the participant is less than age 55, nor to IRAs.
7 The distribution must be requested prior to Plan termination or the elimination of the Oppenheimer funds as an investment option
under the Plan.
8 This provision does not apply to IRAs.
9 This provision does not apply to loans from 403(b)(7) custodial plans.
10 This provision does not apply to 403(b)(7) custodial plans if the participant is less than age 55, nor to IRAs.